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Canada Has Been Setting Real Estate Records: Should You Invest North of the Border?

Nov 24, 2020 by Aly J. Yale
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If you think real estate in the U.S. is hot, you should see Canada. North of the border, housing is breaking record after record -- particularly for this time of year. In fact, according to the latest data from the Canadian Real Estate Association (CREA), last month was the biggest October on national record. Home sales jumped 32% over the year, and prices rose considerably, too. The national average clocked in at $607,250 (about $464,000 in U.S. dollars) -- over 15% higher than October 2019's average. In some places, prices increased by 25% or more.

Here's how Shaun Cathcart, senior economist at CREA, summed it up: "As we've moved through the last few months of headline-grabbing data, we've seen sales activity for the year-to-date not just catch up with last year -- which was surprising enough -- but at this point, activity in 2020 has a real shot at setting an annual record."

What do these record-setting trends spell for investors, though? And should you think about buying an investment property up north? The answer isn't cut and dry.

Inventory is tight there

Much like here in the U.S., for-sale inventory is extremely tight in Canada. In fact, according to CREA, there was a mere 2.5-month supply of homes last month -- the lowest point for inventory ever recorded. In 18 markets across Ontario, inventory actually clocked in at under one month. (For reference, the U.S. currently has a 3.6-month supply -- not great, but definitely better than under a month!)

The inventory shortage poses a problem for potential investors. First, it means a harder time finding properties. It also spells more bidding wars and increasing price appreciation -- both of which cut into investors' margins.

Rents aren't strong

If you're a rental property investor, it might not be time to look northward. According to data from rental platform PadMapper, rents are trending downward in Canada. In the country's 24 biggest cities, 20 saw median rents drop in October, while another four held steady. Rents in Vancouver are actually at their lowest point in over three years.

With that said, there were five markets where rents rose for the month, including Burnaby, British Columbia; Oshawa, Ontario; and most notably, Halifax, Nova Scotia, where rents increased 4.1%. It just goes to show: If you do opt to invest in rental properties north of the border, get in touch with a local broker and make sure you choose your market carefully. It could mean a big difference in profits.

There are travel restrictions

Getting to Canada is another issue. Currently, the country is only allowing very limited travel -- and only from Canadian citizens, permanent residents, and protected persons or immediate or extended family members of these groups. (There are some exemptions to these rules, but the average American likely won't qualify for most.)

And even if you do? You'd have to quarantine for 14 days after entering the country, so doing some quick home tours or meeting with your broker? That'd take quite the lengthy trip -- eating into your work and personal time at home, and costing you more in travel and lodging while you're abroad.

Though buying an investment property from afar -- not to mention sight unseen -- is certainly an option, doing so in a foreign country and during a pandemic can be pretty complicated. Unless you're really comfortable with the process or have a great partner up north, it might be better to wait it out awhile.

The bottom line

Canada's real estate market is red-hot right now, but there are some unique challenges that come with investing there at present. If you're considering buying an investment property up north in the coming months, make sure you partner with an experienced real estate broker or attorney there. They can provide on-the-ground insights that can help you make the best decision for your portfolio -- both today and in the long run.

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