Brokers, are your clients overleveraging themselves?

Brokers, are your clients overleveraging themselves?

Brokers, are your clients overleveraging themselves?

Investors are being fooled by big promises of price appreciation and not looking at where the buying value and cash-flow is. And it’s not going to end well, says one experienced landlord.

Buy-and-hold as an investment strategy is a stupid idea, and especially in Canada’s “over-valued” real estate market.

That is the controversial view of Winnipeg-based investor Stefan Aarnio as he advises landlords to start safe-guarding against a big interest rate hike and change in market conditions.

“Everything has been sunshine and lollipops for too long. There are too many developments and too many people coming in and paying stupid money for properties that are over-valued,” he said. “People are not looking for value properties, they are buying in markets in the hope that it will appreciate over time.”

Adding that he is viewed as the “doom and gloom” guy of the industry, Aarnio believes we have a two to three-year window before the interest rate will increase but he fears that even a small change in the financial system could cause havoc for many investors. 

“There are two feelings here, greed and fear,” he said. “There are many investors simply putting down five per cent and hoping they can operate these assets for 20 to 30 years. And a lot of people don’t have the cash-flow or income to help them if something goes wrong.”

He believes the market is not as hot as it used to be, pointing to the fact that of the 52 offers he has made in recent months, over 50 per cent of those properties were at a reduced price.

"This shows how the market is changing and why investors now need to look at more value-based houses in growing areas."

8 Comments
  • GoodDay 2014-08-06 12:39:56 PM
    He believes the market is not as hot as it used to be, pointing to the fact that of the 52 offers he has made in recent months, over 50 per cent of those properties were at a reduced price.

    *******************************

    Don't fool around by the listing price, listing price only reflects the price that the Seller wants to have, normally it is higher than market.

    Reduce the price to make a deal doesn't mean that the market is not as hot as it used to be.

    Keep selling over asking won't last for long.
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  • Ron Butler 2014-08-06 1:01:12 PM
    There was a great quote from a real estate hedge fund manager last week: "in the GTA, Lower Mainland and greater Calgary the trends for future price increases for the next one or two years are very strong but from a VALUE perspective there is no value what so ever"
    Post a reply
  • Good Day 2014-08-06 1:14:26 PM
    Thought out my life (it is quite long), I never heard people said the price of the property is very good and they should jump into the market.

    It is because the listed price always reflects the market situation.

    Many economists got the same point of view for the past decade, all the time they said the property value is way to high, people cannot afford ......bla bla bla bla bla....bla bla bla bla bla.......many many reasons and figures to support their conclusion....

    the market keeps going up up up up and up.
    Post a reply