Invest Like A Pension Fund
The apartment building market had a record year in 2018 at $8.3 billion and they’re looking to potentially beat that market in 2019. At the 6 month mark of 2019, the apartment building market hit $4 billion. We’re seeing rental growth rates of over 7% on rents year after year which is a very attractive asset that, of course, people are jumping all over. At this point, the only reason 2019 wouldn’t beat that record would be that there just isn’t enough product out there. Many apartment building owners aren’t looking to sell and want to pass it down to the next, creating generational wealth. This causes huge search and demand for these types of rental properties.
New Players Entering The Game
Historically, the traditional players that were buying these properties were Real Estate Investment Trusts and Private Canadian Investors. We’re seeing a shift away from that now as other players are getting into this business, as shown in the chart.
Originally, private investors dominated the apartment buying market. Now, when we look at these numbers, we see pension funds and private equity getting into the real estate market and account for over 42% of the overall purchasing growth in the real estate investment market.
So why this change? It’s simple, these big players, meaning the pension funds and private equity people, like the returns that they’re getting on these apartment buildings and the security that comes with them. Apartment buildings tend to weather out storms. Be it recessionary periods or bumps in the economy, they continue to provide long-term and stable cash flow. For a long time these investments had been seen as boring and slow moving without big returns, but the increase of rents are becoming much more attractive. Especially when considering the continuous immigration, population, and job growth that Toronto is experiencing.
Follow The Money
High salary investors are expanding their billion dollar portfolios working at pension funds and private equity. These very-smart-with-their-money people are turning to real estate investing, more specifically residential real estate, and buying apartment buildings. These people make more money than I do. Chances are they make more money than most if not all of us. This tells me we should be jumping on this bandwagon.
“Woah, Alex, are you saying we should be buying whole apartment buildings?”
No, we do not have the money to buy an apartment building. But! We can buy individual units within a structure or multiple structures and build an apartment building within our portfolio. And the one advantage you have over the pension funds? The liquidity of these units. For example, if you have 5 condos and want to cash in on some of your possessions, you have the ability to sell 1 or 2 and still get return on the remaining 3 condos. Whereas, when you own an entire apartment building, you would have to sell the entire building in order to get the capital out of it. This gives you a lot more freedom and options with your investments while still creating long-term, stable cash flow.
At the end of the day, the building isn’t coming down. People will always need a roof over their heads and with Toronto’s continuous growth and the shortage in apartment buildings going up, it’s an investment you can feel confident making.