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Rental Market Slowdown

Things have started to slow down here in our rental market. Demand has slowed down, units are taking longer to rent than before and Class A tenants are becoming slimmer to find. I use to post a unit for rent, schedule showings in 15 minute increments over a 2 hour period on a Sunday morning and have the listing removed within 7 days. My latest rental unit has been on the market for almost 4 weeks now. You might think maybe my price is too high but compared to a few investor friends that recently rented comparable units, I'm actually well priced.

In my opinion, this is what’s happening: rents went up real high and way too fast in the last couple years, so did the general cost of living. It’s no joke when we say grocery bills have gotten out of hand. However, salaries didn’t keep up the same pace. People are running out of money and living more and more on a pay check to pay check basis with no savings for a first and last month’s deposit. Therefore they are stuck in whatever their current living situation is and unable to make changes. Those that do have savings and are able to secure a rental will have the top pick of the available units. Others, might just be waiting for rates to drop slightly so they can qualify to purchase or they are already getting into the market to purchase. Especially first time home buyers can get help from government programs.

I also believe that there were a lot of new investors that emerged during Covid when everyone had access to cheap money. This is a trend that happens every-time the market cycles into the peak. (I strongly recommend reading the book “The Secrets to the Canadian Real Estate Cycles” by Don Campbell to learn more about the market cycles and how to think like a strategic investor. It really helped shape our business.) And just like any roller coaster, after a peak comes a rapid drop and it’s no exception for the Real Estate ride. A lot of new units were created, whether by new developers either trying to make this a full time gig, or even one-time builders that finally got the opportunity to realize a dream or monetize a plot of land they’d been sitting on. I’ve also seen a lot of new basement apartments or above-garage unit creations in the last couple years.

Basically what this means is that a lot of the demand for rental housing has been met in our general area. It means that landlords must finally start offering more competitively priced units, more amenities, and work harder at keeping their existing good tenants. This is finally great news for renters, not so good for investors.

What I’m curious to see is how many of these new investors will pass the test of time and keep their rental properties through all the fun things that come from being a landlord: non paying tenants, problem tenants, leaky toilets at 2 am, flooded basements, complaints, theft and of course everyone’s favourite these days, the high interest rates.

So What can you do to protect your investment?

  • Remain under leveraged. Resist the urge to borrow above capacity or to take on more than you can chew on.

  • If you’re cash flowing negatively due to high rates, if you’re able to support the loss, try to keep plowing through until the market shifts into the next cycle.

  • But if you can’t support the loss, there’s no shame in selling your property and trying again in a couple years. Hopefully you’ll still walk away with a chunk of cash from the sale and count it as an educational experience

  • Follow the law and be a decent human being (don’t be a sketchy landlord)

  • Even if your rental has been sitting on the market for a few weeks, don’t give in to a bad application just to get it over with. I always say it’s better to have a vacant property for 2 months than to rent to a bad apple. Bad tenants can cost you way more. Screen thoroughly.

  • If after a couple weeks of no luck, adjust your asking price or consider negotiating with the right applicant if you can afford to do so.

Good luck getting through this cycle investor friends!

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