Economic uncertainty and shifting trade policies between the U.S. and Canada have made it more important than ever for real estate investors to safeguard their portfolios. A fluctuating Canadian dollar vs US dollar, changes in interest rates, and evolving government regulations can directly impact investment returns and increase FX Risk. I prepared some steps that investors should take in order to prepare for the coming months of potential currency fluctuation.
Monitor Exchange Rates Closely
The Canadian dollar tends to depreciate when trade tensions rise. If you are a Canadian investor or own U.S. properties, trade tensions could increase your costs significantly. Even if you only invest in Canada, currency shifts can impact construction costs, material imports, and even investor sentiment, impacting cap rates.
What to do:
- Keep an eye on exchange rates and their trends.
- If you’re dealing in U.S. real estate funds, implement currency hedges to manage risk.
Diversification Isn’t Just a Buzzword — It’s Protection against FX Risk
A diversified real estate portfolio helps buffer against economic shifts. If one sector takes a hit, others may stay stable.
Action steps:
- If most of your holdings are in residential properties, explore commercial or industrial investments.
- Consider different markets with strong employment rates and population growth, as they hold up better in uncertain times.
Lock in Financing before Interest Rates Shift
The Bank of Canada has been decreasing interest rates, and many expect some other drops this year. When trade policies are uncertain, central banks can modify their guidance to protect against inflation. If your properties rely on variable-rate mortgages or USD loans, this could increase your financing costs and expose you to more FX Risk.
Plan ahead:
- Lock in fixed-rate mortgages where it is possible, aiming to stabilize payments.
- Review your loan terms and ensure you’re not overly exposed to rising rates.
Real Estate as an Inflation Hedge—Know Where to Invest
Real estate has historically been a strong hedge against inflation. If currency fluctuations or its drivers cause inflation to rise, property values and rental prices may follow suit. Check out our blog on US Real Estate for more information.
Best approach:
- Invest in high-demand areas with strong employment growth.
- Look for properties where rents can be adjusted with inflationary trends.
Thinking About investing in the US? Be Strategic
A weaker Canadian dollar makes buying American real estate more expensive, but it also means existing U.S. property owners earn more when converting rental income back to CAD.
Mitigate risk by:
- Focusing on U.S. markets with strong rental demand to maximize returns.
- Generating USD-denominated income to avoid frequent currency conversions.
Work With a Trusted Advisor to mitigate FX Risk
At Finalyze CFO Services, we help real estate investors navigate economic shifts, mitigate risks, and build resilient portfolios. Whether you’re looking to secure financing, optimize your rental income, or explore cross-border opportunities, we provide tailored strategies to help you crush your goals!
Ready to learn more? Click here to book a complimentary consultation today.