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We all want to make smart real estate investments, and a good deal of that involves knowing where the hot markets are and how to take advantage of them at just the right moment. While some might think that this necessitates a reliable psychic and a ton of cash upfront, the truth is that there are ways to figure out where the hot markets are and will be, which makes it much easier to make a good investment.
One way to spot investment properties that will pay off in the future? Looking at Canada’s population demographics, and seeing where there’s growth. Population growth, no matter what kind (births, emigration and more) are a sure sign of a growing market. Here’s how to use population demographics to your advantage, and make great investments in growing markets.
What is a hot market?
“Hot” markets for real estate sellers are ones where more people are buying than selling. You might hear it described as a “seller’s market,” whereas when there are too many options available, prices go down and it’s described as a “buyer’s market.” Naturally, as a real estate investor, you want to pick places that will be hot for as long as it takes to sell your property. If you’re flipping a house, for example, you need to factor in how much time it will take to refinish the home and sell it. The same goes for future developments and commercial properties. Taking these factors into account will help you avoid getting stuck with an unsellable property.
Growth indicates current—and future—hot markets
The more people in a given area, the more housing they’ll need—it’s as simple as that. That means it’s wise when you’re looking to invest in real estate, to look to see where people are moving. That’s usually pretty easy when it comes to big cities. You can look at new developments, growing suburbs and where people are currently buying to see what could be a great investment right now.
When you’re looking to invest in a certain area, consult the numbers. For example, what does the housing (or another type of property, depending on your investment strategy) inventory look like right now? How does it compare to last year at the same time? What does the median property pricing look like as compared to six months or a year ago? Are there more closed sales than usual? This means that the area you’re watching is either about to or is exploding in popularity.
Hot housing markets can last for months—or decades, depending on external factors. If you invest in a hot market only to find that the bubble crashes before you can sell, don’t despair. The market may bounce back within a few years.
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Moderate growth can indicate a burgeoning hot market
If prices in current hot markets aren’t affordable for you, or you’re looking to make a much bigger profit, it’s time to start looking in markets that are showing moderate growth. Bear in mind that unless you are psychic, there are no guarantees—but population demographics can indicate where you might see a good payoff.
Moderate population growth often indicates a growing market, which means that houses are less expensive now, but property rates may rise. To get a complete picture of whether the market will continue to grow, look at the economy in the surrounding areas. How is the job growth rate? What does unemployment look like? You should also consider the median home price, the average rental cost (as well as rent for similar properties) and what the investment cap rates are. Consider the data for years to best judge whether there’s a history and continued growth potential.
Another tactic to consider is buying in a traditionally-hot market like Toronto or Vancouver after a downturn. Larger cities and their up-and-coming suburbs are often safe bets for property growth, even if you have to wait several years to see returns on your investment. These markets also tend to have a decent amount of demand, even in a slow market, increasing the likelihood that you’ll be able to rent it out in the meantime.
Population growth in general
In addition to identifying specific markets, you can use population growth as a tool to learn more about who is moving to Canada, which is useful for determining which properties will become valuable down the road. This can include age and cultural background—for example, there has recently been a trend toward multigenerational housing, a setup often favoured by indigenous and Asian cultures. Reading articles about the general population, as well as specific markets, will reveal useful insights.
Other ways of identifying great markets
New residential construction
Finding a source that indicates where the newest residential construction is happening can help you spot up-and-coming markets. Check to see how many permits were issued per year, and how many homes were completed in the same period. A growing amount of construction indicates a growing need for housing.
Watch the foreclosure statistics
Reading about foreclosure rates across Canada is a way to figure out which markets aren’t doing as well. If there are outliers, such as a city where the foreclosure rate is relatively low, that could be an area to investigate.
Look to see who’s moving in
This time, we’re not talking about potential neighbours. Watch to see which commercial and industrial clients are building headquarters in the area, which indicates job growth and a more robust local economy.
In competitive housing markets, getting creative with your research is the best way to identify trends and determine whether your intended investment property is destined to be hot—or not.