Real estate investing is contingent upon a slew of factors, all of which are unique to their locales. In a chat with CREW, the Real Estate Investment Network (REIN) shared its insights into how to invest in Canada’s three biggest cities.
Greater Toronto Area
Price points in Toronto’s core have been exorbitant for years and they’re only getting worse, which makes finding cash flow positive properties very difficult. Jean-Guy Francoeur, REIN’s chief growth officer, says that, in addition to identifying a market just outside of the GTA, investors can make the numbers work by adding suites to the property.
“A great tactic right now is choosing a region that’s strong economically and buying a single-family home, which yes, appears expensive, but once you add in a suite or a garden home, those properties cash flow very well,” he said. “Take Peterborough, for example, where we’re seeing this a lot, or Orillia or Barrie. These are phenomenal strategies.”
Francoeur added, “You might even take a duplex and add a garden home. Investors only buy properties with lots over 7,000 sq ft to add a garden home down the line. By the time you add a garden home to a duplex, you have three units and it will cash flow very well.”
Investors are bullish on Toronto’s condominium market again now that COVID-19 inoculation is spiking and the pandemic appears to be nearing its conclusion. As such, investors are anticipating the floodgates open and for immigrants to pour into Canada in record annual numbers.
Not so fast, warns Patrick Francey, REIN’s CEO. He noted that there were only 17,000 permanent resident admissions in May, putting Canada on pace for 100,000 in 2021—roughly a quarter of its 401,000 target. And while condominiums might be considered entry-point housing, it takes more than chump change to buy one.
“We want to see an immigration number that isn’t happening yet; it’s talked about and a lofty goal by our federal government, but we’re not even close to that yet, so as investors, we have to consider the fact that borders are still not open. As much as we’re optimistic that they will, we don’t know that they will,” said Francey.
He added that until there’s clear indication from the federal government that Canada’s growth plan is back on track, investors shouldn’t presume that it will be.
“When we talk about speculation, are the borders going to open? We don’t know, and I don’t think anybody really knows. We’re talking about opening up the U.S. border, but now we’re looking at our border officers going on strike, and that’s going to choke things. Then there’s a lag time with all those things that take time to reopen. If you buy a condo today thinking that by the end of the year there will be a couple of hundred thousand new immigrants in the country, it won’t even be close to that.”
“For Quebec in general and Montreal specifically, they have a phenomenal model for sixplex development, with three units on one side and three on the other. Every apartment has its own floor and two or three bedrooms. It works better in Quebec than anywhere else in the country. I don’t understand why they don’t do more of that in Ontario, B.C. or Alberta,” said Francoeur.
Montreal has been experiencing a mini condo boom the last few years, but multifamily housing reigns supreme in the city, and for good reason. The inherent risk to condo investing is that the risk is concentrated in a single unit, but in a multifamily dwelling, investors can absorb the financial loss from a vacant unit as long as the other ones produce rental income. Moreover, says Francoeur, plexes in Montreal can be purchased for around half of what they would cost in Ontario or B.C.
“You can build [a sixplex] in Montreal for less than a duplex in Ontario,” said Francoeur. “You get a lot more bang for your buck in Montreal, and I love that about Montreal.”
Things get a bit dicey in Canada’s most expensive real estate market, but there are sound investment strategies for the region, assures Francey. Victoria is an economically propitious city with strong underlying fundamentals, and the Lower Mainland has some sleeper markets, too.
“You have Vancouver Island, which has Victoria, and you have the Lower Mainland, which includes Langley, and it’s always going to be a multi-unit investment, even a conversion of something in which you add a suite to bring up the rental income, because those will always be the most effective strategies,” said Francey. “It’s rare that you can have a property that cash flows just based on what the rent is today.”
It’s well-nigh impossible for a single-family home to cash flow in Vancouver, and while the downtown condo market has some opportunities—“you really have to know the downtown condo market to find them,” said Francey—investors would be wise to focus on Lower Mainland municipalities like Langley, Abbotsford and Chilliwack.
“Even there you have to add suites to those housing units,” said Francey. “In Langley, there are some townhouse opportunities, although that depends on when you’re getting in. We’re seeing investors going out to the Okanagan Valley, but the best way to cash flow in the region is to add units.”