Future house price growth question across different major cities in Canada

[Willyboy]

Good morning REIN members. I'm just curious to hear what the experts and analysts have to say about where each major city will be headed in terms of house price appreciation in the middle to long term. I have been doing lots of research lately to just try and figure out what we could expect from those big cities in Canada but apparently due to my lack of experience or maybe long term vision on real estate I can't seem to draw a clear picture of that all.
What I mean is every province and city has its local real estate cycle or market which means when some cities are performing well in a certain province other cities are performing bad in another province like Alberta on one hand and Ontario and BC on the other hand which are headed in opposite directions due to different economies currently.
So what I'm wondering about is if one has to buy three properties today one in Calgary, a second one in Toronto and a third one in Vancouver and hold onto them for between 7 to 10 years and after that same period i.e 7 to 10 years sell them all, sit down and compare the gains which one would you think will be the best performer in terms of price appreciation considering the price changes during the 10 year period overall and the net outcome when adding up the numbers for each year for 10 years?
I was trying to figure out this because I think the numbers in Calgary today and maybe in the next few years could be either flat or up and down a little bit where as in Toronto it's mainly on the upside for now at least but we don't know how long in the future it will continue and as for Vancouver it started to level off or slip a little bit this year.
As an example I was trying to do the math in such a way that could look like this:
Calgary: Flat this year and for the next 2 years and then 5% appreciation for every year after, which would add up to 35% in 10 years.
Toronto: 10% this year, 5% for the next three years and maybe 2 to 3% for the 6 years after which would add up to 35 to 40% in 10 years.
Vancouver: - 10% this year then flat for 2 to 3 years and maybe 7 to 8 % for the next 6 years which would add up to 30 to 40% in 10 years.
I could be wrong though and that's why and where I need the opinion of the experienced and long term members who probably have dealt in real estate for the last few decades and know the long term outcome and differences in performance in the different cities.

 

[ExcellHomes]

Canada's market is growing gradually, So i think, we will see increase in future prices.

 

[Thomas Beyer]

I'd use 2.5-3.5% on average per year or 25-35% in ten years, plus perhaps another 1-2.5% (or 10-25% in ten years) for desirable single family house neighborhoods. Reasons: a more muted economy and slightly rising interest rate environment with a government intent to make buying more difficult. Take anything above 3-4% as gravy as certainly some pockets of markets will go up more than that.

Focus on the ability to actually get to the 10 Year mark as that is not trivial.

 

[Willyboy]

Use 2.5-3.5% on average per year or 25-35% in ten years in a more muted economy and slightly rising interest rate environment with a government intent to make buying more difficult. Take anything above 3% as gravy as certainly some pockets of markets will go up more than that.

Focus on the ability to actually get to the 10 Year mark as that is not trivial.

Thomas that is generally speaking which I fully understand.
But If you were to buy today one property to hold for 10 years and hoping for the best price growth after the 10 year period which city would you choose first, second and third if you had the choice between Vancouver, Toronto and Calgary?

 

[Thomas Beyer]

Buy three and tell us in ten years.

You can't buy Calgary, Toronto or Vancouver as these are vast cities with 50+ subareas each with widely different growth potential each. I'd buy close to upcoming subway or LRT stations in either cities. You'd be fine in ten years if you can hold that long with cash at hand given current prices.

Many older well situated houses in these three cities will grow 50-100% in ten years but they tend to poorly cash flow unless you put down 30-50% or more for a ten year hold with break even cash-flow. Many houses today in "Vancouver" will go from $1M to $2M but rent for maybe $2000-$3000 a month which is insufficient to hold ten years with 20% down. Where in "Vancouver" do you envision buying ? Does Surrey, Delta or Coquitlam count as "Vancouver"? Does Vaugh or Pickering count as "Toronto"? Minimum in Vancouver today for a house is $1.2M in E-Van. West side will go up more but don't show up with less than $2.5M. Can you qualify for a mortgage for $2M with $500,000 down ? Do you want to take that risk as that $2.5M house will likely be $3.5M in 2027. Make $1M on $500,000 invested. Not bad.

How much money do you envision investing ? $200,000 ? $500,000 ? $65,000 ?

What goes up is LAND as all these cities have none anymore and only further out can you get new subdivisions. As such buy the most land you can get with break even or positive cash-flow with the cash at hand. That might be a TH. Or a small farm. Or an ugly $1.2M crappo in E-Van on a 40x120 lot on a noisy street. Not a condo as land per $ is the lowest usually. I'd say buy a normal house in a decent older mature neighborhood close to school, LRT/subway and highway. You will do well.

Why those three cities anyway ? Why not smaller towns with potentially even more upside such as Kamloops, Pemberton, Hamilton, Kelowna, Oliver or Cochrane ? I buy all over BC now but Calgary and GTA will be decent growth stories too.

The trick is to buy well, and then hold on financially and emotionally. Then clone, systemize and repeat with your own money or other people's money i.e. JVs or syndications. The rest is minor detail.

 

[mynick]

I'd buy close to upcoming subway or LRT stations in either cities. You'd be fine in ten years if you can hold that long with cash at hand given current prices.

I buy all over BC now but Calgary and GTA will be decent growth stories too.

The trick is to buy, and then hold on financially and emotionally. The rest is minor detail.

You never mentioned about bad or good neighborhood. Does it mean it is not important? Location in my understanding includes the reputation of neighborhood. But in some forums, some said that the reputation of a neighborhood would be changed every 10 year. Do you think so? If yes, how can we find good tenants while the bad neighborhood is not easy to find good ones?

 

[Thomas Beyer]

You never mentioned about bad or good neighborhood. Does it mean it is not important?

Of course it is critical where you buy. I mentioned "50+ areas of each city". What matters also is what you pay, and how well you manage. If it were that easy, why join REIN or other real estate clubs, education firms, incubators or firms. Everyone would be rich and wealthy.

As mentioned above, the trick is to buy well, and then hold on financially and emotionally. Then clone, systemize and repeat with your own money or other people's money i.e. JVs or syndications. The rest is minor detail.

Does it really matter if the house you bought in GTA went up 42% in ten years, but the one in Calagry only 38% or the one in E-Van only 35% ?

 

[Matt Crowley]

Very general report just published by Avison Young: https://avisonyoung.uberflip.com/i/770979-ay2017namericaukgermanyforecastjan12-17final ...very broad real estate investment strokes but informative. Keep an eye out for ULI update

This is last year's ULI: http://uli.org/wp-content/uploads/U...Real-Estate-United-States-and-Canada-2016.pdf

 

[Willyboy]

Of course it is critical where you buy. I mentioned "50+ areas of each city". What matters also is what you pay, and how well you manage. If it were that easy, why join REIN or other real estate clubs, education firms, incubators or firms. Everyone would be rich and wealthy.

As mentioned above, the trick is to buy well, and then hold on financially and emotionally. Then clone, systemize and repeat with your own money or other people's money i.e. JVs or syndications. The rest is minor detail.

Does it really matter if the house you bought in GTA went up 42% in ten years, but the one in Calagry only 38% or the one in E-Van only 35% ?

Thanks Thomas for the insight. Pretty helpful. It doesn't matter to me if the house went up a few percentage points more or less in a city than in another say one 35% the other 40% as the numbers would be close to each other but what matters is if one city went up 35% and another one 60% or 70% as this would make a big difference as I'm planning on investing about 800,000 to 900,000.

 

[Thomas Beyer]

.. if one city went up 35% and another one 60% or 70% as this would make a big difference as I'm planning on investing about 800,000 to 900,000.

Well why not place $300,000 per city i.e. a house for $600-$1M each ? 10 years out is tough to forecast. All 3 cities will grow and in all three cities prices will go up, some neighborhoods more than others. Vancouver is more Asia dependent, Calgary more oil&gas dependent and Toronto more diverse / more dependent on overall immigration and Canadian overall growth. As such you will get a balance of three different growth factors. I would also invest some (say 1/4 to 50%) in the US as we will see more growth there under Trump and a likely still appreciating currency. i..e $200-225,000 cash per city, with one of 4 being in the US, say Phenox, AZ or Dallas, TX or Tampa, FL or Portland, OR.

As the economists always say:" It is tough to forecast, especially the future."

 

[Willyboy]

Well why not place $300,000 per city i.e. a house for $600-$1M each ? 10 years out is tough to forecast. All 3 cities will grow and in all three cities prices will go up, some neighborhoods more than others. Vancouver is more Asia dependent, Calgary more oil&gas dependent and Toronto more diverse / more dependent on overall immigration and Canadian overall growth. As such you will get a balance of three different growth factors. I would also invest some (say 1/4 to 50%) in the US as we will see more growth there under Trump and a likely still appreciating currency. i..e $200-225,000 cash per city, with one of 4 being in the US, say Phenox, AZ or Dallas, TX or Tampa, FL or Portland, OR.

As the economists always say:" It is tough to forecast, especially the future."

Yes I like this idea. Also the idea of smaller towns. A good way to get a balance.

 

[mynick]

Does it really matter if the house you bought in GTA went up 42% in ten years, but the one in Calagry only 38% or the one in E-Van only 35% ?

For me, it does not matter at all if you set 10 years for the timeline. What I consider is usually cash flow to be sure that nothing can interrupt my journey towards 10 year anniversary

I prefer to calculate the equity more than the gain since the gain is something too difficult to forecast!

 

[mynick]

Yes I like this idea. Also the idea of smaller towns. A good way to get a balance.

If I have lived in Edmonton, I would prefer to focus on Edmonton or Calgary. Calgary would be better since it is in the list of top 10 livable cities in the world (with Vancouver and Toronto). That would be an attractive for foreign investors (Asian) for real.

 

[Willyboy]

If I have lived in Edmonton, I would prefer to focus on Edmonton or Calgary. Calgary would be better since it is in the list of top 10 livable cities in the world (with Vancouver and Toronto). That would be an attractive for foreign investors (Asian) for real.

The thing is no matter where I live and even if I lived next door to my rental property I will still hand it over to property management to be taken care of I mean 100% of the time and for 100% of the tasks related which means it can be anywhere in Canada since I won't be involved in the day to day activities and that's why I'm looking for the city or town that could yield the highest return on price appreciation over the long run and of course I will be looking at the rental returns and occupancy as well to maximize the profit.
And for that reason price appreciation is much more important to me than cash flow because the cash flow will always be negative if I put only 20% as a down payment and taking into account the higher cost I will incur due to property management fees, maintenance fees, property taxes, vacancies, insurance, tenants not paying the rent.....etc.
So eventually my final decision will be based on the assumption of what city or town might have the potential to be the best or one of the best performers in the long term

 

[Thomas Beyer]

For me, it does not matter at all if you set 10 years for the timeline. What I consider is usually cash flow to be sure that nothing can interrupt my journey towards 10 year anniversary

I prefer to calculate the equity more than the gain since the gain is something too difficult to forecast!

Cash-flow is just the requirement to create wealth, i.e. the ability to HOLD. You need to consider all THREE aspects of real estate: cash-flow, mortgage paydown AND value appreciation. More on this here http://myreinspace.com/threads/what-is-better-cash-flow-or-higher-roi.26596/

 

[Tyler - Picket Fence Properties]

And for that reason price appreciation is much more important to me than cash flow because the cash flow will always be negative if I put only 20% as a down payment and taking into account the higher cost I will incur due to property management fees, maintenance fees, property taxes, vacancies, insurance, tenants not paying the rent.....etc.
So eventually my final decision will be based on the assumption of what city or town might have the potential to be the best or one of the best performers in the long term

I disagree. Cash flow is not always negative with 20% down after all expenses and provisioning for repairs and vacancies, you likely haven't found a good enough deal yet...if you're purchasing based on where you think price appreciation will be the largest; it's anyone's guess.

 

[mynick]

Cash-flow is just the requirement to create wealth, i.e. the ability to HOLD. You need to consider all THREE aspects of real estate: cash-flow, mortgage paydown AND value appreciation. More on this here http://myreinspace.com/threads/what-is-better-cash-flow-or-higher-roi.26596/

Yes. But my priority is always the ability to hold.

 

[Thomas Beyer]

Yes. But my priority is always the ability to hold.

Then you need to have more reserves, buy a smaller asset or put more than 20% down.

Cash is King - Cash-Flow is Queen (TM) !