Best market in Canada

mdinani

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May 21, 2018
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#1
Hi everyone,
I'm looking for my first purchase and am intrigued as to what everyone thinks the best location is. I am looking for something small to get my feet wet and just try it out. In 2018, what do you think the best market is? I have the flexibility to move around Canada as I please so I'm open to everywhere!
 

Matt Crowley

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Dec 14, 2013
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Edmonton
#2
Calgary / Edmonton for industrial

Toronto / Vancouver for office (especially development) - if you can get your head around the economics. Tech companies are seriously investigating these markets, as they should be.

Multi in Canada right now - hard to justify buying in place as cheaper to develop, lots of nearly obsolete product. In general, I don't like multi in Canada right now but depends on location and pricing. I think better returns in multi right now in Canada probably from a mezz debt position.

I like Kelowna but may be oversupplied and some developers are pulling back. It is a bit of a balance between how much talent they can attract in their tech sector and need for units.

Stay out of small cities Alberta, especially Red Deer. Medicine Hat has surprisingly won some substantial tech contracts and I think poised for some interesting growth - but need to be very picky and take a strong urban perspective. The city has a legitimate cost advantage in utilities which should bode well for growth in tech companies as electricity is a major cost.
 

Matt Crowley

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Dec 14, 2013
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Edmonton
#4
Management fees are 15% minimum. So if you are charging market rents, you are at $2,500 / month with management fees of $375 per month. So cash flow is $125 per month, before cyclicals. Pretty bad.

$1,500 cash flow per year on an assets worth ~$375,000 = 0.4% cash flow yield per year. How is that good? Also you will pay taxes on your PPD, so owning that real estate is essentially an unpaid hobby that earns less money than a GIC. Plus you will pay for cyclical upgrades like roof, hot water tank, driveway... so that asset is losing money every year.
 

Willyboy

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Registered
Aug 19, 2016
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#5
Management fees are 15% minimum. So if you are charging market rents, you are at $2,500 / month with management fees of $375 per month. So cash flow is $125 per month, before cyclicals. Pretty bad.

$1,500 cash flow per year on an assets worth ~$375,000 = 0.4% cash flow yield per year. How is that good? Also you will pay taxes on your PPD, so owning that real estate is essentially an unpaid hobby that earns less money than a GIC. Plus you will pay for cyclical upgrades like roof, hot water tank, driveway... so that asset is losing money every year.
Matt, by 15% you mean the manager's fees plus maintenance and vacancy or you mean just the manager's fees to lease the property and follow up?
 

DustinT

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Sep 17, 2017
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#6
Management fees are 15% minimum. So if you are charging market rents, you are at $2,500 / month with management fees of $375 per month. So cash flow is $125 per month, before cyclicals. Pretty bad.

$1,500 cash flow per year on an assets worth ~$375,000 = 0.4% cash flow yield per year. How is that good? Also you will pay taxes on your PPD, so owning that real estate is essentially an unpaid hobby that earns less money than a GIC. Plus you will pay for cyclical upgrades like roof, hot water tank, driveway... so that asset is losing money every year.
You don’t set aside money for cyclical upgrades? You take it out of cash flow? Why would you do that?


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Martin1968

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Jan 22, 2017
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#7
I too find SFH not very attractive as an investment, but cashflow of $500.00 IMO is pretty good.
And the 15% management fee, who would pay that to a prop manager as you can do a way better job managing yourself.
Missing in the calculations is mortgage pay down as well as assett appreciation.
So all in all not as negative as the 0.4 calculated.
Having said that, those who understand cyclical expenses also know that these are real cost and can potentially have a negative impact especially when cashflow is way less then $500.00
 

bb2

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Sep 10, 2007
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edmonton
www.vivarenttoown.com
#9
If you want to start small industrial and commercial are not where you want to start or multi for that matter.
Suited properties aren’t for everyone but after owning a lot of different types of properties for over 30 years they are my favorite because of the cash flow.
They are totally renovated suites with very little deffered maintenance.
I can say they have done far better than a GIC!
Its important to run the numbers on any property you are buying


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Willyboy

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Aug 19, 2016
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#11
If you want to start small industrial and commercial are not where you want to start or multi for that matter.
Suited properties aren’t for everyone but after owing a lot of different types of properties for over 3 years they are my favorite because of the cash flow.
They are totally renovated suites with very little deffered maintenance.
I can say they have done far better than a GIC!
Its important to run the numbers on any property you are buying


Sent from my iPad using myREINspace
What about a fourplex or an eightplex? Would you rather have one fourplex if legal or 2 suited houses instead? Or one eightplex or 4 suited houses instead? I'm assuming they will all be handed over to a property manager.
 

bb2

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Sep 10, 2007
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edmonton
www.vivarenttoown.com
#12
4 plexes and suited duplexes are also attractive and very similar to suited sf properties. Good 4 plexes are harder to find. Bungalows that can be suited in the area I specialize in are abundant.


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Matt Crowley

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Dec 14, 2013
812
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Edmonton
#14
For SFH: Management fees are 10% for the leasing trailer (amount you pay for the PM to say they are managing your property). You pay fill rates, marketing fees, property inspection fees, supervision fees, setup fees...add them up = ~ 15%.


Yes, better to build your own system.

Matt, by 15% you mean the manager's fees plus maintenance and vacancy or you mean just the manager's fees to lease the property and follow up?
Just the manager's fees.

You don’t set aside money for cyclical upgrades? You take it out of cash flow? Why would you do that?
6 of 1. Either you fund up front cash and drag IRR or fund as you go. No debt escrows for SFH (unless you count expensive LOC). Doesn't change conclusion on performance.

I too find SFH not very attractive as an investment, but cashflow of $500.00 IMO is pretty good.
And the 15% management fee, who would pay that to a prop manager as you can do a way better job managing yourself.
Missing in the calculations is mortgage pay down as well as assett appreciation.
So all in all not as negative as the 0.4 calculated.
Having said that, those who understand cyclical expenses also know that these are real cost and can potentially have a negative impact especially when cashflow is way less then $500.00
No... the PPD is not missing. That is part of the "income" return. But you can make as much money investing in debt as PPD (paying 3% on your mortgage = to earning 3% investing on debt). So it's a wash...ignoring how much riskier the SFH investment is with that sliver of cash flow before cyclicals.


As far as doing better than a GIC... Check out the Teranet hedonic index. Property prices in Edmonton are flat, flat, flat. https://housepriceindex.ca/#chart_compare=c11,ab_edmonton

What research do you have to suggest a suited home is worth more than the cost of putting in the suite? Love to see it. My research says $0 to minor value added with the suite when it comes time to sell.

My thesis on Edmonton in a nutshell: values are flat. Need to find deep value add or opportunistic strategy as there is not an appreciation wave to ride.
 

Martin1968

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Jan 22, 2017
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#15
It’s all very one side response if you ask me. But I think I need to keep in mind that you are a real estate analyst? Correct?
It’s about the same to me as when I ran my own businesses, I had (have) a very good accountant that I definitely needed when it came to making good choices on the money earned, but for sure I knew pretty quick that accountants are (in general) no entrepreneurs an I wouldn’t go to them for business advice.
I think I would put you in that category also.

Let’s just make it simple
100K investment today on 3% return will, after inflation, (let’s keep that low at 1.5%) earn you 75K over 25 yrs
100K investment on a 350K house (75 DP and 25K suite development) over 25 yrs with $500 cashflow monthly
Adds up to 150K just cash flow over 25 yrs

Let’s say your cyclical expenses, roof, windows, doors, siding Etc is adding up to $60K over 25 yrs. (sometimes you get lucky with an insurance claim so the 60K could be way less)

25 yrs of owning the prop, again we will go moderate and say value increased 25% is $87,500.00

Mortgage paid down to 0 after 25 years. Both principal and interest paid for by tenants.

About paying 3% interest on the mortgage, why would I/we care? Who is paying for that? Yup, my tenants.

Add up and subtract/calculate and decide for yourself what is better.

Now, your assumption is that we are all dumb people and don’t know how to manage a property?
So, yup we will all pay 15% management fee, (by the way that’s a point you are right on, 10% is standard but upcharges on many things could amount to 15% annually)
NOT SO! I know that many people on this forum do an excellent job managing themselves at 0%

I would want to point out that it’s the same principal I used when running my own small businesses. What you can do yourself is money in your pocket.
I could have hired managers for each business I had at 80K per job annually to manage my businesses and the staff of appr 50. Would have costed me a total of 240 K annually for 3 of the businesses that I ran simultaneously.
Yet, I went without managers, worked my ass off from 6 am till 10 pm 6 days a week, till my wife started bulking at the idea I was married to my business instead of her. So.......I ANALYZED her valid complaints and decided to sell everything off and started investing in RE. Now she is complaining I’m home to often. (Not true, she is very happy)
Guess that’s what my expensive hobby did for me.

A few other things, I have read before on these forums that value ad on a suited prop is zero, however I have seen otherwise in the Calgary area by experience, similar props, but one suited (legal) and another not for 40K difference. Seems there is a value ad for income producing props. Maybe not in Edmonton? Could be.....don’t know that market well enough. But in any case,if prop doesn’t have value ad due to being suited, it will still increase in value over a loooong timespan of owning it. Even when a market is down or flat for a while.

I have no problem with you holding a mirror in front of us, cause thats what your comments can do, so,e things you say are definetely food for thought, you just have to lay low on your certainties and truths that you are presenting to us.

What I would like to know tho from you, what real estate product have you invested in? And give us some friendly advice on why that is the better route, and what we can expect in returns over a 25 years period, cause we might be dumb, but never tired of learning and making money the easy way.
 

Willyboy

Inspired Forum Member
Registered
Aug 19, 2016
95
14
8
#16
It’s all very one side response if you ask me. But I think I need to keep in mind that you are a real estate analyst? Correct?
It’s about the same to me as when I ran my own businesses, I had (have) a very good accountant that I definitely needed when it came to making good choices on the money earned, but for sure I knew pretty quick that accountants are (in general) no entrepreneurs an I wouldn’t go to them for business advice.
I think I would put you in that category also.

Let’s just make it simple
100K investment today on 3% return will, after inflation, (let’s keep that low at 1.5%) earn you 75K over 25 yrs
100K investment on a 350K house (75 DP and 25K suite development) over 25 yrs with $500 cashflow monthly
Adds up to 150K just cash flow over 25 yrs

Let’s say your cyclical expenses, roof, windows, doors, siding Etc is adding up to $60K over 25 yrs. (sometimes you get lucky with an insurance claim so the 60K could be way less)

25 yrs of owning the prop, again we will go moderate and say value increased 25% is $87,500.00

Mortgage paid down to 0 after 25 years. Both principal and interest paid for by tenants.

About paying 3% interest on the mortgage, why would I/we care? Who is paying for that? Yup, my tenants.

Add up and subtract/calculate and decide for yourself what is better.

Now, your assumption is that we are all dumb people and don’t know how to manage a property?
So, yup we will all pay 15% management fee, (by the way that’s a point you are right on, 10% is standard but upcharges on many things could amount to 15% annually)
NOT SO! I know that many people on this forum do an excellent job managing themselves at 0%

I would want to point out that it’s the same principal I used when running my own small businesses. What you can do yourself is money in your pocket.
I could have hired managers for each business I had at 80K per job annually to manage my businesses and the staff of appr 50. Would have costed me a total of 240 K annually for 3 of the businesses that I ran simultaneously.
Yet, I went without managers, worked my ass off from 6 am till 10 pm 6 days a week, till my wife started bulking at the idea I was married to my business instead of her. So.......I ANALYZED her valid complaints and decided to sell everything off and started investing in RE. Now she is complaining I’m home to often. (Not true, she is very happy)
Guess that’s what my expensive hobby did for me.

A few other things, I have read before on these forums that value ad on a suited prop is zero, however I have seen otherwise in the Calgary area by experience, similar props, but one suited (legal) and another not for 40K difference. Seems there is a value ad for income producing props. Maybe not in Edmonton? Could be.....don’t know that market well enough. But in any case,if prop doesn’t have value ad due to being suited, it will still increase in value over a loooong timespan of owning it. Even when a market is down or flat for a while.

I have no problem with you holding a mirror in front of us, cause thats what your comments can do, so,e things you say are definetely food for thought, you just have to lay low on your certainties and truths that you are presenting to us.

What I would like to know tho from you, what real estate product have you invested in? And give us some friendly advice on why that is the better route, and what we can expect in returns over a 25 years period, cause we might be dumb, but never tired of learning and making money the easy way.
I asked two realtors in Calgary who dealt with suite addition if the value will increase if you resell and they both said no it will be 1 to 1 value add. When I asked them what they meant by 1 to 1 they said if it costs you 50 k to add a suite the whole house will increase by 50 k only approximately but not more.

However they said the bank evaluation when refinancing might be higher than 1 to 1 and this will help in financing another house.
 

bb2

Frequent Forum Member
REIN Member
Sep 10, 2007
118
76
28
edmonton
www.vivarenttoown.com
#17
It’s all very one side response if you ask me. But I think I need to keep in mind that you are a real estate analyst? Correct?
It’s about the same to me as when I ran my own businesses, I had (have) a very good accountant that I definitely needed when it came to making good choices on the money earned, but for sure I knew pretty quick that accountants are (in general) no entrepreneurs an I wouldn’t go to them for business advice.
I think I would put you in that category also.

Let’s just make it simple
100K investment today on 3% return will, after inflation, (let’s keep that low at 1.5%) earn you 75K over 25 yrs
100K investment on a 350K house (75 DP and 25K suite development) over 25 yrs with $500 cashflow monthly
Adds up to 150K just cash flow over 25 yrs

Let’s say your cyclical expenses, roof, windows, doors, siding Etc is adding up to $60K over 25 yrs. (sometimes you get lucky with an insurance claim so the 60K could be way less)

25 yrs of owning the prop, again we will go moderate and say value increased 25% is $87,500.00

Mortgage paid down to 0 after 25 years. Both principal and interest paid for by tenants.

About paying 3% interest on the mortgage, why would I/we care? Who is paying for that? Yup, my tenants.

Add up and subtract/calculate and decide for yourself what is better.

Now, your assumption is that we are all dumb people and don’t know how to manage a property?
So, yup we will all pay 15% management fee, (by the way that’s a point you are right on, 10% is standard but upcharges on many things could amount to 15% annually)
NOT SO! I know that many people on this forum do an excellent job managing themselves at 0%

I would want to point out that it’s the same principal I used when running my own small businesses. What you can do yourself is money in your pocket.
I could have hired managers for each business I had at 80K per job annually to manage my businesses and the staff of appr 50. Would have costed me a total of 240 K annually for 3 of the businesses that I ran simultaneously.
Yet, I went without managers, worked my ass off from 6 am till 10 pm 6 days a week, till my wife started bulking at the idea I was married to my business instead of her. So.......I ANALYZED her valid complaints and decided to sell everything off and started investing in RE. Now she is complaining I’m home to often. (Not true, she is very happy)
Guess that’s what my expensive hobby did for me.

A few other things, I have read before on these forums that value ad on a suited prop is zero, however I have seen otherwise in the Calgary area by experience, similar props, but one suited (legal) and another not for 40K difference. Seems there is a value ad for income producing props. Maybe not in Edmonton? Could be.....don’t know that market well enough. But in any case,if prop doesn’t have value ad due to being suited, it will still increase in value over a loooong timespan of owning it. Even when a market is down or flat for a while.

I have no problem with you holding a mirror in front of us, cause thats what your comments can do, so,e things you say are definetely food for thought, you just have to lay low on your certainties and truths that you are presenting to us.

What I would like to know tho from you, what real estate product have you invested in? And give us some friendly advice on why that is the better route, and what we can expect in returns over a 25 years period, cause we might be dumb, but never tired of learning and making money the easy way.



Sent from my iPad using myREINspace
 

bb2

Frequent Forum Member
REIN Member
Sep 10, 2007
118
76
28
edmonton
www.vivarenttoown.com
#18
It’s all very one side response if you ask me. But I think I need to keep in mind that you are a real estate analyst? Correct?
It’s about the same to me as when I ran my own businesses, I had (have) a very good accountant that I definitely needed when it came to making good choices on the money earned, but for sure I knew pretty quick that accountants are (in general) no entrepreneurs an I wouldn’t go to them for business advice.
I think I would put you in that category also.

Let’s just make it simple
100K investment today on 3% return will, after inflation, (let’s keep that low at 1.5%) earn you 75K over 25 yrs
100K investment on a 350K house (75 DP and 25K suite development) over 25 yrs with $500 cashflow monthly
Adds up to 150K just cash flow over 25 yrs

Let’s say your cyclical expenses, roof, windows, doors, siding Etc is adding up to $60K over 25 yrs. (sometimes you get lucky with an insurance claim so the 60K could be way less)

25 yrs of owning the prop, again we will go moderate and say value increased 25% is $87,500.00

Mortgage paid down to 0 after 25 years. Both principal and interest paid for by tenants.

About paying 3% interest on the mortgage, why would I/we care? Who is paying for that? Yup, my tenants.

Add up and subtract/calculate and decide for yourself what is better.

Now, your assumption is that we are all dumb people and don’t know how to manage a property?
So, yup we will all pay 15% management fee, (by the way that’s a point you are right on, 10% is standard but upcharges on many things could amount to 15% annually)
NOT SO! I know that many people on this forum do an excellent job managing themselves at 0%

I would want to point out that it’s the same principal I used when running my own small businesses. What you can do yourself is money in your pocket.
I could have hired managers for each business I had at 80K per job annually to manage my businesses and the staff of appr 50. Would have costed me a total of 240 K annually for 3 of the businesses that I ran simultaneously.
Yet, I went without managers, worked my ass off from 6 am till 10 pm 6 days a week, till my wife started bulking at the idea I was married to my business instead of her. So.......I ANALYZED her valid complaints and decided to sell everything off and started investing in RE. Now she is complaining I’m home to often. (Not true, she is very happy)
Guess that’s what my expensive hobby did for me.

A few other things, I have read before on these forums that value ad on a suited prop is zero, however I have seen otherwise in the Calgary area by experience, similar props, but one suited (legal) and another not for 40K difference. Seems there is a value ad for income producing props. Maybe not in Edmonton? Could be.....don’t know that market well enough. But in any case,if prop doesn’t have value ad due to being suited, it will still increase in value over a loooong timespan of owning it. Even when a market is down or flat for a while.

I have no problem with you holding a mirror in front of us, cause thats what your comments can do, so,e things you say are definetely food for thought, you just have to lay low on your certainties and truths that you are presenting to us.

What I would like to know tho from you, what real estate product have you invested in? And give us some friendly advice on why that is the better route, and what we can expect in returns over a 25 years period, cause we might be dumb, but never tired of learning and making money the easy way.



Sent from my iPad using myREINspace
I totally agree with this post! Well said.


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Martin1968

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Registered
Jan 22, 2017
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#19
I asked two realtors in Calgary who dealt with suite addition if the value will increase if you resell and they both said no it will be 1 to 1 value add. When I asked them what they meant by 1 to 1 they said if it costs you 50 k to add a suite the whole house will increase by 50 k only approximately but not more.

However they said the bank evaluation when refinancing might be higher than 1 to 1 and this will help in financing another house.

I would not disagree with that but as an investor I’m in the business of creating a profit and not trading dollars for dollars. If you add a suite, garage or an extra bathroom at retail price, then the trick is to build these additions that create extra value, for way less then retail (contractor) prices. And again, if no direct added property value, then there is still added value for you the investor, through extra rental income.

A builder doesn’t sell the house he builds for cost price either right?
 
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Michel Lafleur

Inspired Forum Member
REIN Member
Apr 30, 2015
75
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18
#20
Regarding the best market in Canada for investing, it depends what product you invest in. Commercial, industrial, residential, land development, etc., and whether you are a long term investor versus short-term (quicker cash) investor.
I can only really speak about residential.... I havent done commercial, industrial or land development.

I know Edmonton & Calgary have been quite appealing for investors fromother provinces (ON & BC primarily) as the price of entry is much lower here than Vancouver or Toronto for example. We also have more inventory available to choose from, and less competition for those homes, which helps keep projects more affordable for investors.

For buy & hold - go with the market you know and have confidence in. Also match your strategy to the market (do you want to buy rent-ready "turn-key", or do the BRRR method? (Buy, renovate, rent & refinance?)

Many quick cash investors are enjoying fix & flip in the Edmonton area. That strategy also works in busier markets, but more $$ in for the same end result (ROI is lower if you have to invest more into the deal.) I know pre-sale condos that are then assigned seems to be a popular investment product in & around Vancouver. Not my strategy (or market), but I know it works well for those who prefer hands-off investing.

For buy & hold residential - I always recommend going the legal suite route. That has historically been easier & better supported in Edmonton than in Calgary (although I hear Calgary is getting better for suites.) Basically this gives you the opportunity for more total rents out of the same single family property. Would you rather rent out your whole house for say $2000/month, or rent it out as $1400 up + $1000 down? More rent, plus you are less likely to have total vacancy (risk mitigation with 2 suites under 1 roof.)

One observation I've had as a Realtor in the Edmonton area is that turn-key legal suites may or may not work for the traditional investor 20% down financing. If its recently renovated & legally suited, banks have a hard time appraising the property to support a loan because there aren't as many sold comparables on MLS supporting a purchase price of say $460k. When its vacant and advertising "rents may be $$$$ up + $$$ down + $$ garage"....the banks get skeptical and want to know actual numbers, not possible numbers. I have seen these scenarios where the banks want more down (25-30%, or they say they can only support financing a purchase price up to $$____, which means the investor puts down their 20% and an extra $20-$30k bridging the gap between contract price and what the bank wants to see.) If it truly cash-flows and/or works for that investor's model, the savvy investor will make the deal work, even if it means more $$ down up front.

If the unit is currently rented with signed leases in place, then the banks are more likely to support the higher purchase price as they want to know debt coverage is funded by the property, without the investor funding out of pocket on a monthly basis. If its fully rented and cashflowing, lenders can use some of the rental income to increase buying power. This would be a true "turn-key" rental. For this reason, its important to be working with an investor focused lender who understands what you are trying to accomplish.

If your investment model is more of the BRRR method mentioned above, then Edmonton has many great options. As Brenda mentioned above, there are many affordable suite-able bungalows & bi-levels available in Edmonton's prime rental areas. I can think of many investors who bought low (~$300k as an example), invested say $60k into reno's & suite legalization, and got an ARV appraisal for ~$460k. With 80% LTV @ $460k, this covers the costs of the initial purchase + renovations. These investors then have a property that cashflows well, has low maintenance costs (fresh renos = mostly new items and low maintenance), and will appreciate better than the fixer upper they started with. Plus with the refinance, they are into the property for much less than the traditional 20% down. The appraisals do show up in the mid to high $400's (in Edmonton at least) for fully renovated legal suites, although these rarely go onto MLS to be used as sold comparables (which banks rely on for financing approval purposes.) The savvy investors keep these as long term rentals.

Regarding values, on MLS I have seen that a legal suite typically sells for ~10% more than a SF home in the same area. Building that legal suite often costs the investor ~10% more $$ (& time). If you are flippng, probably not worth the effort. But, if you are planning long term, its totally worth the extra investment up front.
 
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