More than 1 in 4 Canadians plan to purchase an investment property in the next five years: Royal LePage Report

51% of current investors and 23% of non-investors are considering buying an investment property before 2028 

Survey highlights: 

• Approximately 4.4 million Canadians currently own an investment property
• 26% of all Canadians say they are likely to buy an investment property within the next five years
• One-third of Canadian real estate investors (32%) own two or more properties
• Younger investors, those aged 18 to 34, are more likely to own more than one investment property compared to their older counterparts (aged 35+)
• 15% of Canadian residential investors do not own their primary residence; the majority of whom are aged 18-34
• Nearly one third of investors in Canada (31%) have considered selling one or more of their investment properties due to higher lending rates
• 20% of investors in the Greater Montreal Area say they are likely to sell one or more of their investment properties within the next two years; this percentage rises to 24% and 28% in the greater regions of Toronto and Vancouver

TORONTO, May 25, 2023 – According to a recent Royal LePage survey^[1] conducted by Leger, 11 per cent of Canadians – that’s approximately 4.4 million people^[2] – currently invest in residential real estate. Sixty-four per cent of residential real estate investors own one property, and 32 per cent own two or more.

Despite higher borrowing costs in today’s post-pandemic real estate environment, the aspiration to own property for the purpose of investment remains strong. Twenty-three per cent of Canadians who do not own a residential investment property say that they are likely to purchase one in the next five years, and more than half (51%) of current investors say that they are likely to purchase an additional residential investment property within the same time period. Overall, more than a quarter of all Canadians (26%), current investors or otherwise, plan to buy an investment property before 2028.

Young Canadians ‘more inclined than ever’ to invest

Although many young Canadians are struggling to get a foot on the property ladder, the youngest group of real estate investors, those aged 18 to 34, are the most likely to have more than one residential property compared to their older counterparts. Forty-four per cent of the youngest investor cohort own two or more investment properties, significantly higher than those aged 35 to 54 (29%), and those 55 or older (25%). Of particular note, 67 per cent of younger investors (18-34) own their primary residence, compared to 88 per cent and 95 per cent of investors aged 35-54 and 55 or older, respectively.

“We know that the value of home ownership is strong among Canadians – it is clear that possessing real estate remains a desirable means for building wealth over time. Many choose to invest in real estate not only as a way of generating income and reaping the benefits of value appreciation, but to provide an opening into the market for future generations of their family, ” said Phil Soper, president and CEO, Royal LePage. “Despite the hurdles of low home supply and increased lending rates, young people are more inclined than ever to make real estate investing a part of their financial planning for the future. In fact, survey results tell us that many of them are actually prioritizing an investment property over owning their primary residence.”

Location, amenities and property type still valued among investors

Across Canada, single-family detached homes are the most popular type of investment property, with 44 per cent of real estate investors owning this type of home. Condominiums are the second-most popular type of investment (37%), followed by townhomes (11%). According to the survey, Canadian real estate investors report that the opportunity for property value appreciation over the long term (69%), positive cash flow on a monthly basis (54%), and low maintenance costs or variable expenses (44%) ranked as the top three priorities when buying their residential investment properties.

Forty-four per cent of real estate investors say that their investment property is located in a different town or city than where they currently live. Access to a post-secondary educational institution is also a major factor, with 47 per cent of investors reporting that proximity to a major Canadian university or college motivated their decision to buy in a particular location.

“While much of the emotion is removed from the buying process of an investment property compared to purchasing a home for personal use, investors value many of the same characteristics, such as location, local amenities and property type,” continued Soper. “Many real estate investors extend their search into more affordable markets, and are prepared to take on the additional commitment of owning property beyond the region in which they live to cash in on the financial benefits.”

Fifteen per cent of residential investors do not own their primary residence – 12 per cent of investors rent, the majority of whom are aged 18-34, while 3 per cent live rent-free with family or friends.

“I find it interesting that a material number of investors do not own the home they themselves live in. Many of these people have likely invested in a more affordable city than the one they live in,” added Soper. “This tactic demonstrates Canadians’ deep-seated belief that real estate is a worthwhile long-term investment.”

Investor finances amid global economic uncertainty

The increased cost of borrowing has had a significant impact on variable-rate mortgage holders in Canada over the past year, and those with investment properties have also been feeling the effects. Increased lending rates have caused nearly one third of investors (31%) to consider selling one or more of their properties. Investors aged 18 to 34 are the most likely to weigh the decision of selling at least one of their investment properties (54%).

“Much higher mortgage rates and the increased cost of home maintenance and utilities have prompted some over-leveraged investors to consider selling,” said Soper. “That said, there was speculation that the investor segment would experience a serious downturn during the pandemic, as pre-construction projects were postponed and condos in downtown neighbourhoods emptied out, driving landlords to cut rental rates to keep tenants. Given widespread housing shortages across Canada, residents quickly returned to urban centres as the health scare was contained. Rents not only rebounded, they rose sharply and it became obvious that the sector’s downturn was temporary. This only underscores the importance of working with a real estate professional who can help investors make sound, long-term purchase decisions that can withstand short-term economic turbulence.

“Like any financial investment, real estate comes with its own set of potential risks. When considering including residential real estate to your investment portfolio, it’s important to lean on the advice of experts, including a financial advisor, mortgage broker and real estate agent, to ensure your investment is in line with your long-term strategy and risk tolerance,” added Soper.

Looking to the future, 44 per cent of investors say they intend to keep their investment property or properties in their current state over the next two years. During the same time period, 26 per cent of investors plan to renovate one or more of their investment properties, while 24 per cent are planning to sell one or more of their homes.

“Investors play a pivotal role in supplying much-needed housing units to renters across the country, and will continue to be an important part of the Canadian real estate ecosystem as the nation welcomes an unprecedented number of immigrants in the coming years,” said Soper.

Royal LePage 2023 Real Estate Investors Report – Data chart: rlp.ca/table_2023-real-estate-investors-report

Regional Summaries

Greater Toronto Area

In the Greater Toronto Area, 64 per cent of investors own one residential investment property; 34 per cent own two or more. Forty-seven per cent of investors in the GTA say that they are likely to purchase an additional residential investment property within the next five years, lower than the national average of 51 per cent, and lower than the figures reported in the Greater Montreal Area (52%) and Greater Vancouver (54%).

“Owning a home is part of the Canadian dream. While owning a primary residence is itself a viable investment, many Canadians look to real estate investing as a means to build financial security; the benefit of which is not only having a tangible asset and possibly monthly cashflow, but also the potential for appreciation over time,” said Mike Heddle, broker, Royal LePage State Realty. “Consumers are becoming more educated on real estate investing, and their confidence and interest in the sector has increased in recent years. As the generation who grew up watching income property shows on HGTV, savvy millennials looking for opportunities to build generational wealth are a fast-growing segment of the GTA investor market.”

According to the survey, the most popular type of investment property for GTA investors is the single-family home, at 44 per cent. When choosing a property, the top three priorities for investors in this region are opportunity for property value appreciation over the long term, positive cash flow on a monthly basis, and low maintenance or variable expenses.

“Purchasing an investment property is much more of a business and financial decision, compared to buying a home for personal use. Still, investors will have very specific requirements for a property in terms of location and the potential return. Often, we see family, friends and like-minded individuals partnering on an investment property,” said Heddle. “Geography is a key factor when it comes to real estate investing. Many investors aren’t afraid to buy in a city outside of where they live if it allows them to take advantage of lower prices, but will still prioritize a specific location for its amenities, such as access to transit, if it can benefit their future tenants.”

Heddle noted that real estate should be considered a long-term investment that often requires waiting out temporary fluctuations in the market.

“It’s important that an investor can withstand market downturns from time to time. During the pandemic, we saw some first-time investors enter the market when interest rates had dropped to record lows and home prices were beginning their upward climb. Fast-forward a year or two, and they are now faced with significantly higher borrowing costs, likely resulting in neutralized or decreased monthly income,” said Heddle.

“Working with a real estate professional who understands the ins and outs of investing and can offer insights into the short- and medium-term outlook of the market can be supremely beneficial. Historically speaking, the GTA has been a thriving market for real estate investors. I imagine in the years to come, the region will continue to attract quality investors from all over.”

According to the survey, 36 per cent of investors in the GTA say that increased lending rates have caused them to consider selling one or more of their investment properties, more than the national average of 31 per cent and higher than the figures reported in the Greater Montreal Area (26%) and Greater Vancouver (28%). When asked about their plans for the future, 24 per cent of investors in the region say they are likely to sell one or more of their investment properties within the next two years.

Royal LePage 2023 Real Estate Investors Report – Data chart: rlp.ca/table_2023-real-estate-investors-report

Greater Montreal Area

In the Greater Montreal Area, 64 per cent of investors own one residential investment property; 34 per cent own two or more. Fourteen per cent of Montreal investors report that they own three or more investment properties, nearly double the national average of 8 per cent, and noticeably higher than investors in both the Greater Toronto and Greater Vancouver regions (6% and 7%, respectively). Fifty-two per cent of investors in the GMA say that they are likely to purchase an additional residential investment property within the next five years.

“The attractiveness of investing in real estate in Montreal is not unrelated to the fact that property prices are much more affordable here than in Canada’s other two largest cities,” said Aline Zafirian, residential and commercial real estate broker, Royal LePage Village. “Real estate is a powerful investment vehicle because of the leverage offered by the mortgage, as you can own 100 per cent of the asset with as little as 20 per cent down on an income property,” she added. “What’s more, the amount of money required to put a down payment on a building in Montreal is far less compared to a similar property in Toronto, where the market value is almost double. This partly explains why investors in Montreal own more investment properties than elsewhere in the country.”

According to the survey, the most popular type of investment property for GMA investors is a condominium, at 33 per cent. Among the three greater regions, GMA investors are more likely to own an entire duplex (18%) or triplex (17%). When choosing a property, the top three priorities for investors in this region is opportunity for property value appreciation over the long term, access to strong rental demand or a large pool of tenants, and positive cash flow on a monthly basis.

“Montreal’s housing stock is unique because it is older, which gives it a very different architectural and urban planning design, which explains the strong presence of plexes,” commented Zafirian. “Unlike investors in Toronto and Vancouver, who are faced with higher purchase prices, Montreal real estate investors can benefit from potentially higher profitability ratios, with lower monthly carrying costs. In addition, Montreal’s rental housing stock allows a duplex or triplex owner to live in their unit at a lower cost since it is partially financed by the other tenants, which is less common elsewhere in the country.”

According to the survey, 26 per cent of investors in the GMA say that increased lending rates have caused them to consider selling one or more of their investment properties, a rate that is lower than the Greater Toronto and Greater Vancouver regions. When asked about their plans for the future, 20 per cent of investors in the region say they are likely to sell one or more of their investment properties within the next two years.

“The rise in interest rates in 2022 was significant and rapid, so some investors were not able to absorb these costs quickly enough. Since the financial risk of real estate investment is lower in Montreal due to lower property prices, investors’ capacity to hold onto these real estate assets may be less threatened when interest rates rise,” commented Zafirian. “For the next few years, we would anticipate that inflation levels and interest rates will return to lower levels, which could stimulate the appetite for real estate investment. At the same time, the pace of housing starts is not keeping up with existing and future demand, which should continue to drive up property values,” she concluded.

Royal LePage 2023 Real Estate Investors Report – Data chart: rlp.ca/table_2023-real-estate-investors-report

Greater Vancouver

In Greater Vancouver, 67 per cent of real estate investors own one residential investment property; 29 per cent own two or more. While 21 per cent of investors in the region do not own their primary residence – notably higher than the national average of 15 per cent – 54 per cent of investors in Greater Vancouver say that they are likely to purchase an additional residential investment property within the next five years.

“The appetite for real estate investment is strong in the Greater Vancouver area. Unlike stocks or other investment types, real estate investing offers the convenience of dual utility – you can live in your home or rent it out as a source of income. There is a positive association between home ownership and the creation of personal wealth in Vancouver,” said Adil Dinani, sales representative, Royal LePage West Real Estate Services. “Buying an investment property is an important financial decision for many investors who are looking to take advantage of anticipated long-term price growth in the region. As trusted advisors to our clients, we often guide prospective investors to not just buy the market, but to focus on buying the opportunity, especially during slower seasonal periods and market corrections.”

According to the survey, the most popular type of investment property for Greater Vancouver investors is a condominium, at 52 per cent. When choosing a property, the top three priorities for investors in this region are opportunity for property value appreciation over the long term, positive cash flow on a monthly basis, and low maintenance or variable expenses. Out of the three major urban centres in Canada, a property’s proximity to a post-secondary institution had the greatest influence on Greater Vancouver investors when making a purchase, at 53 per cent.

“Older millennials with young children are an integral part of the growing investor pool in Greater Vancouver today. Many of them are thinking of their future, and are investing in real estate as a way to build generational wealth for their family,” said Dinani. “Location plays a significant role in the type of property an investor chooses. Transit-connected, master-planned communities that are walking distance to everyday amenities are a hot commodity, as are investment opportunities near established post-secondary institutions that offer a continuous stream of rental demand.”

Dinani noted that while higher borrowing and operational costs have put pressure on some Vancouver investors, many have been able to withstand increased expenses amid market fluctuations over the past year.

“When the pandemic took hold, many in the industry, including myself, thought there would be a slowdown in investor appetite as buyers moved away from condos and opted for more space in the suburbs. However, those changes never fully materialized – investor confidence has held firm. In fact, it came back stronger than ever with the help of record low interest rates. In today’s post-pandemic era, despite higher borrowing costs, I expect more people will enter the investor segment as rates hold and eventually ease. Buyers will be looking for opportunities in the market.”

According to the survey, 28 per cent of investors in Greater Vancouver say that increased lending rates have caused them to consider selling one or more of their investment properties. When asked about their plans for the future, 28 per cent of investors in the region say they are likely to sell one or more of their investment properties within the next two years.