A Winning Mindset for Buyers in Toronto’s Changing Market

Remember, fortune always favours the bold.

No market, including (yes, it’s true) the Toronto Real Estate Market, can go up indefinitely forever on a straight line trajectory.

In fact, no market is an island in itself.

The underlying fundamentals of the Toronto Real Estate Market have never been more robust, and we at Fox Marin have never been more bullish on the long-term prospects of Toronto Real Estate. However, the current geopolitical uncertainty and macroeconomic headwind create a challenge even for the once invincible Toronto Real Estate Marketplace. The headwinds of inflation, rising interest rates, and the war in Ukraine will eventually end as all wars do. A year from now, we will look back at this period as one of the best times to have invested or moved up the property ladder in Toronto.

Warren Buffet once stated, “Be ready when people are fearful and fearful when people are greedy,” and nothing could be more applicable to the current state of the Toronto Real Estate Market.

All great investors think long-term, and it is a well-known fact that the most fantastic opportunities for long-term growth always emerge during economic downturns. Investing in a downturn can have a tremendous upside. However, it is not for the faint of heart, and your margin for error can dramatically widen. If you are thoughtful, strategic, and have assembled a great team of experts on your side, you will have the opportunity to come out of this slowdown far more robust than you were going into it.

Here are some things to consider when choosing to take advantage of the current climate and make a genius move in a weakening market, especially when everyone else around you is hunkering down, waiting for this storm to pass by.

Remember, fortune always favours the bold.

1/ The Tides are Turning; You Need to Sell Before You Buy

Suppose you are a first-time buyer or investor or are in a fortunate position to be able to acquire a property without needing to sell. In that case, you are in a great place to capitalize when an opportunity presents itself. However, if you need to sell, you might have to risk listing your property at a less than desirable price or perhaps risk it not even selling, something that would never have even been a consideration several months ago.

Traditionally, Toronto has always had very tight inventory conditions, so the typical strategy has been to buy first and then sell. This strategy is no longer a sure-fire plan, and as such, we are now advising all our clients who need to sell to list their property first. In fact, we want them to sell and firm up before purchasing. That way, one is not caught in the position of selling in a downward market under duress. A situation no one ever wants to find themselves in.

2/ You Can Never Perfectly Time the Market

Experts, economists and investors alike rarely, if ever, successfully predict when a market will peak or bottom out. Markets are incredibly complex and rely on many outside factors, including psychological and emotional influences that are almost impossible to perfectly time. Famed legendary investor Peter Lynch once stated, “Thousands of experts study overbought indicators, head-and-shoulder patterns, the Fed’s policy on money supply…and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.”

The International Monetary Fund did a study analyzing 153 recessions in 63 countries over 20 years. The results being only 5 of 153 made the correct prediction.

The current economic climate is no exception.

You will never know that a market has bottomed out until it’s already on its way back up. Investing in Toronto Real Estate has been and will continue to be very lucrative. However, it requires patience, a steady hand and a long-term vision of the city and the market. Instead of trying to time the market (which is a fool’s gambit), you should look for specific (the more detailed, the better) opportunities that can only arise during an economic slowdown.

3/ Just Because Something is Cheap Doesn’t Mean it’s Good

When looking for an excellent opportunity in this market, you should be focused on value rather than strictly focused on price.

When someone acquires a property, they regret purchasing it because they are looking for a deal to get a discount.

Price should be considered relative to the property’s inherent characteristics and future potential rather than focusing strictly on price, a common mistake made by novice buyers and investors.

Warren Buffet summed this up nicely: “Price is what you pay; value is what you get.” When looking for value in Toronto Real Estate in a slower market, the first focus should be on the type of asset class, location, condition and future potential rather than price alone. If you are out looking to “get a deal for the sake of a deal,” you may end up acquiring a property (all be it at a great price) that no one would want to buy, even in a robust seller’s market.

4/ Don’t Get Too Caught Up in the Numbers

While it is essential to understand and project your return on investment, exit strategies, renovation cost, cash on cash return, etc. – there is a cap when due diligence becomes analysis paralysis. As mentioned above, even expert economists and investors can’t predict economic cycles as a million variables can affect a market daily.

The good thing about Toronto Real Estate is that it’s not volatile and has an excellent history based on solid fundamentals, leading to further long-term appreciation once the economy begins to turn around.

Knowing that the average recession lasts 18 months, we are not talking (hopefully) about a prolonged period. While rising interest rates can impact housing prices, Real Estate will consistently outperform most other assets in inflationary periods. Primarily when investing in desirable locations in a sought-after city like Toronto.

The difference between an investor and a speculator is how you react when your preferred asset class decreases in price. And so, a true investor or someone looking to better their family’s circumstances should look at the upcoming few months with optimism – a period of opportunity.

5/ Teamwork Makes the Dreamwork

Real Estate investor Robert Kiyosaki who authored the Rich Dad, Poor Dad series, which has sold over 44 million copies and is the Number One personal finance book of all time, stated, “Business and investing are team sports. If people want to become sophisticated investors, they must invest as a team. If you want to be successful, who do you need on your team?” And, “Why don’t you have them yet?” Great question!

If you want to make a calculated, strategic move in what may be the most incredible time to acquire and/or invest in the Toronto Real Estate Market in the last two decades…we are here to help and support you.

Contact Us (We’re Nice).

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Ralph Fox is the Broker of Record and Managing Partner at Fox Marin Associates. Ralph is a Torontonian native who recognized from an early age that the most successful people in life apply long-term thinking to their investments, relationships, and life goals. It’s this philosophy, along with his lifelong entrepreneurial drive and exceptional business instincts, that help to establish Ralph as a top agent in the real estate market in downtown Toronto.