When is the best time to start a rent 2 own?
A lot of people are telling me they’re hesitant to get into real estate right now.
“The prices are just too high.”
“The interest rates are too high right now; I’m waiting for them to drop.”
Others are saying: “Rents have sky-rocketed; I’ve got to stop throwing away my money every month (and get into home ownership.)”
So, is it a good time to get into a rent 2 own? When is the best time?
First, let’s clear up a few things.
- This is the new reality:
- Rental rates will not be coming back down. They’re going up because of rising interest rates and the shortage of housing. Approximately 47% of rental stock in Canada is owned by ‘Mom and Pop’, not big corporations. They didn’t invest in real estate to lose money. When their largest cost—mortgage payment–goes up, they need to raise rents to cover that.
Fortunately, for renters, government regulations limit the annual increase.
- Housing prices will not be coming back down, at least not substantially. That’s what the market is telling us. They took a little downward blip when interest rates started growing 16 months ago, but the housing market has recovered. Small rate increases now will not affect that.
There is no housing “bubble” that will one day burst. The main reason for rising prices is the shortage of housing; and that shortage won’t be solved any time soon, especially not with our target of increased immigration.
- Interest rates won’t be coming back down a whole lot. We are back to where interest rates have traditionally been; the very low rates of the past decade were the aberration. Rates will likely moderate some, but kiss the favourable rates through Covid good-bye, for good.
- It is always good to own property. One should strive to own “dirt.” Any kind is good, but the best is the dirt you live on. There is a fixed quantity of land on this planet and, at least until Earth’s population starts declining, the demand for that land will continue to grow.
In places like Canada, which are highly attractive destinations for people from around the world, and with our planned population growth, our country is one of the best on Earth in which to invest in land.
It has been empirically demonstrated that, over time, those who own land (typically their own homes) grow their wealth much faster than those who don’t. As one person said to me recently, “Whatever it takes, you’ve gotta’ own a piece of God’s green earth.”
So when is the best time to get into a rent 2 own program?
Ideally, when interest rates are high and prices are low.
High interest rates are a good time to start a rent 2 own because one can anticipate them being lower at the end of the rent 2 own period, making it easier for the tenant-buyer to close on the deal.
Low prices are a good time because the close-out price of the deal is fixed at the beginning, based on modest expectations. If prices rise during the term of the rent 2 own, the tenant-buyer gets the property at the end with a chunk of equity already built in.
Likely, the two scenarios will never exactly coincide. Fourteen months ago, when interest rates had just started to rise and housing prices had taken their downward blip, might have been the ideal time.
Most people missed it.
Now is still a pretty good time. While the downward blip has bottomed out and is reversing, prices have not yet escalated substantially.
And interest rates are probably at, or near, their peak. At the end of a three-year rent-2-own term, when you are closing on the deal, they will almost certainly be lower.
One can never predict the future with much certainty, but the old adage still seems appropriate: “Those who wait for things to get better, normally lose.”
At least, that’s how I see it . . .
