Investors see opportunities within local housing market
Within the next six months, 26-year-old Calgarian Chad Kanovsky intends to take the plunge and buy as many as four multi-family units as income-producing investment properties.
The commercial real estate associate already has a stock portfolio, and is looking to diversify by adding local real estate.
Yet Kanovsky, who started working in land development as a teenager for his father’s company, is adamant he will not be jumping into any “get-rich-quick” investment.
“I’m not looking to make a million dollars in the next year and then go to Mexico,” he said.
Instead, Kanovsky, armed with both a business degree and a real estate licence, foresees a 25-year plan that will launch based on his father’s admonition that “you never want to catch a falling knife.’” In other words, instead of trying to judge when the bottom of the market might hit, he will wait until there is a slight market up-turn.
At that point, Kanovsky plans to buy in an inner-city neighbourhood (he is looking in the Beltline, Bankview, Bridgeland and Kensington) where there is strong “rent-ability” in an area that resonates with young professionals who want work, restaurants and nightlife all to be within walking distance.
Calgary mortgage broker Nolan Matthias applauds Kanovsky’s approach to doing his research before diving into the deep end of rental properties.
Matthias, co-founder of Mortgage360, ascribes to the Warren Buffett school of investing in tough times: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
And with low interest rates in a depressed oil economy, Matthias said there are current opportunities to invest in income-producing real estate – albeit, in an educated way.
He discourages those looking for “get-rich-quick” schemes, instead recommending a 25-year strategy. That includes investment basics that take into consideration net migration, vacancy rates, a 20 per cent down payment and the overall health of the local housing market.
Matthias describes Calgary’s current real estate market as “flat” while the rest of the country booms, making it already down eight or nine per cent compared to elsewhere. In other words, he sees it as a prime time to purchase.
“It’s an investment strategy everyone understands,” he said. “You buy in a great location, you rent for 15 to 20 years, generating income, and then it’s yours free and clear.”
Matthias favours inner-city income-producing properties, noting vacancy rates in suburbs are as high as 10 per cent, while the core sits at one or two per cent, with higher rents.
He also looks for two-bedroom apartment-style condo units (he avoids detached homes given their outside maintenance costs) in older, well-maintained, three or four storey walk-up buildings.
“They don’t have elevators, which are expensive to maintain,” said Matthias
CREB® chief economist Ann-Marie Lurie also cautions potential investors that while there is opportunity in a real estate market that now favours buyers, there has to be a strong understanding of all the financial costs of investing.
“It doesn’t come for free – the idea of easy money is not true,” she said. “If it were that easy, everyone would have done it.”
Lurie said potential investors have to consider the location of a purchase (prices have not gone down uniformly across the city), what kind of rent the home can bring (and whether you can sustain a period of vacancy) and how long you can wait for appreciation in value.
She cites the example of city apartment units whose prices dropped in the 2007 recession, and which only returned to previous highs last year.
Lurie added investment buyers also have to take into consideration all potential costs, such as management fees for someone to look after the property if you are not prepared to do it yourself, the cost of repair, and other contingencies.