The Calgary real estate cycle is shifting. This isn’t the first time we have witnessed and experienced cycle changes, and it likely won’t be the last, but is it still a good idea to invest in Calgary real estate?
A slowing market forces real estate investors to fine tune their strategies, as any weakness in your portfolio or your plan will start to expose cracks that may have been covered up in a ‘hot’ market.
Real Estate investing should be about fundamentals, not emotions. It should be about yield, not price nor rate, and in Calgary, at the moment, it should be about your long term investing goals, rather than about the quick flip.
When it comes to investing, you must take a look at your perspective and how the market is performing compared to longer term averages and fundamentals. When a previously ‘hot’ market slows, the pace of that change is perceived to significant even though it may still be at or above what would be considered a great market. It’s like when you first drive for a few at hours at 120 kph ad then have to slow to 50kph, when we pull off in the city. The 50kmh is perfectly fine for the road you’re now on, but feels very slow for the first little while.
The Calgary market is still decent when it comes to the rental rates, vacancy rates, average rent, and net migration. And, with the change comes increased inventory and lower prices. All of which still support investing in Real Estate in Calgary.
If you haven’t invested yet in real estate, you may be surprised to find out just how profitable revenue properties can be. In fact, returns of 15 per cent, or more, before factoring in appreciation or tax benefits are not uncommon.
To buy a rental property, you need a minimum of a 20 per cent down payment, which can be as little as $30,000 – or $15,000 if you partner with someone – decent credit, and the ability to think long term. FYI, there are presently 127 listings on the Calgary MLS for under $200,000.
These low price-point properties are a great starting point for rookie real estate investors, as they’ll have a relatively small mortgage, low maintenance fees and there’s high rental demand in this segment. They are, in many ways, a smarter investment than stocks or bonds.
Real estate investment can be also be simpler than investing in stocks. You buy a house / condo and rent it for the same or greater amount than it costs you to own it. If you can’t, don’t buy it. It is real. You can touch it, drive by it and know exactly what is happening with it at any given moment.
It can also be relatively easy, as once it’s rented, it’s mostly hands-off, aside from when it’s vacant or needs repairs.
It also makes complete financial sense. Over an up to 30-year period, a rental property will become free and clear – with the renters having paid off the mortgage – and you’ve received a steady flow of income for the time that you owned it.
Let’s go back to the returns, take for example an inner-city condo purchased for $200,000. With 20% down payment, the mortgage payment, property taxes, condo fees would be a little less than $900 per month. Average rent is over $1100. Meaning a monthly cash flow of $200 or $2400 annually, which is a 6% return on the cash flow alone. In addition to cash flow, the mortgage is also being paid down by almost $3,500 in the first year, which is another almost 9% return, for a total return of 15%. This is before adding appreciation and tax benefits (the mortgage interest charged on the rental property, would be a tax deduction), this could increase your annual returns by another 5 to 25%.
The best thing about this example is it’s simple and real. It isn’t some crazy strategy from a late-night infomercial. In this example, the investor turns a $20,000 investment into a 15+% annual return and at the end owns a property worth $200,000, and likely considerably more.
If you would like to know more about investing in real estate, contact me.
