ARE GEN ZS THE NEW REAL ESTATE INVESTORS?

YOUNG PEOPLE ARE PRIORITIZING INVESTING IN RENTAL PROPERTY OVER OWNING PRINCIPAL RESIDENCE, WRITES LINDSAY SMITH

A recent Canadian survey produced some very interesting talking points. Fifty-one per cent of current real estate investors and 31 per cent of non-investors are considering purchasing an investment property before 2028. I found, after doing some research, that about 30 per cent of Canadians live in a rented property and with rents increasing — along with property prices jumping up — it is understandable that people are looking to invest in real estate, rather than other investments.

Canadians invest for many reasons — to build equity for retirement, to build equity for their children's university and to create cash flow allowing themselves to invest further, or to offset their current cost of living.

However, this survey discovered that some people in high numbers entering the investment market are ones we have not seen before. One of the new groups are young people prioritizing investing in rental property over owning principal residence. Eighteen to 34-year-olds are adding to their financial futures by investing in real estate. In fact, 44 per cent of this age group own two or more rental properties, surpassing their older counterparts.

I purchased my first rental property when I was 24 and like many of the younger folk today, I rented that property. At the same time, I was living in a small, one-bedroom, rental apartment. My goal was to invest for the long term and to set up some generational wealth. This approach is one that is being followed by most Canadians who invest in real estate. There is no question, some investors are interested in "flipping" properties for quick returns, however I feel most are looking for longterm.

In retrospect, if an investor bought a detached home in Oshawa 10 years ago, they would have paid on average of $317,000 and today that property would be worth around $925,000. Over the 10-year period, the owner would have paid $65,000 off the mortgage bringing the total return on investment to $675,000. These are approximates and not true to the dollar, but they indicate how, by holding real estate longterm, the returns can be excellent.

Over the next decade, my intuition and experience leads me to believe that the returns on investing in real estate will be similar to the past decade. We are in a housing crisis, have immigration targets that are bringing about 1,000,000 people into our province, including migration, and we have a serious lack of rental properties to meet the demands of tenants. People new to investing are viewing rental properties with lower prices than a year ago, higher mortgage carrying costs and rents that have increased to offset the increased payments. Rental rates have increased by more than 20 per cent over the past two years, with the average rent for a two-bedroom unit in Oshawa currently at $2,110.

Housing starts are slow to bring new product to market and many are commanding high prices, leading investors to purchase resale properties for rentals. One of the most popular investments are bungalows with legal basement apartments. It is not uncommon for a three-bedroom home with a one-bedroom basement apartment to rent for a total of $3,500/ month.

Young people have figured out that real estate is their best way to create wealth.