So, lots has happened in 2010. After attending the REIN ACRE program at the end of 2009, I felt comfortable investing in Calgary real estate. Now I`m not so sure! Whats the real story out there? Inmigration is down considerably, and the energy sector is still a big question mark. Houses aren`t selling, and inventory is way up. Article today shows a significant increase in mortgage arrears in Alberta. Everyone has read the housing bubble articles. Where is Calgary going to be on REIN`s list of top investment towns for 2011?
Is Calgary still #1?
- Thread starter Bear
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If you haven`t seen the report already, here it is: REIN™`s Top Canadian Investment Cities. And you may be happy to see just where Calgary ends up on this list of the best places to invest in the Canadian Real Estate market in 2010-2015
http://www.donrcampbell.com/top-canadian-i...-financial-post
http://www.donrcampbell.com/top-canadian-i...-financial-post
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it doesn`t matter where it is next year. It matters where it is 5 or more years from now.
Inventory is up and houses aren`t selling.....sounds like an investors dream to me!
Energy sector questionable....are you using any less energy than you did last year? I would love to say I am but I am not and neither are most of my friends, nieghbours or relatives.....we ain`t using any less of it and they ain`t finding any more of it......again think long term.
Yes there are bubble articles! Include them with your offer to purchase!
Make lemonade out of the lemons my friend!
We haven`t been purchasing for the past 6 months or so but we are actively seeking investment capital to place this winter. Did two presentations this week to entrepreneurial folks and the message was well received. People are scared of the stock market right now and looking for a place to put cash.....I might as well say thank you very much....here is a great place to put your cash for the next 5 years!
Inventory is up and houses aren`t selling.....sounds like an investors dream to me!
Energy sector questionable....are you using any less energy than you did last year? I would love to say I am but I am not and neither are most of my friends, nieghbours or relatives.....we ain`t using any less of it and they ain`t finding any more of it......again think long term.
Yes there are bubble articles! Include them with your offer to purchase!
Make lemonade out of the lemons my friend!
We haven`t been purchasing for the past 6 months or so but we are actively seeking investment capital to place this winter. Did two presentations this week to entrepreneurial folks and the message was well received. People are scared of the stock market right now and looking for a place to put cash.....I might as well say thank you very much....here is a great place to put your cash for the next 5 years!
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The Oil Sands Silent Boom - sounds like Alberta should continue to do ok.
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QUOTE (Bear @ Sep 13 2010, 04:40 PM) energy sector is still a big question mark.
Gas prices are still low, but oil prices are quite high, and the change to multi-stage frac`d horizontal wells has meant the number of service-hours required for a well (and the # of workers) is much higher. (more workers == more housing demand)
It is practically impossible to get a frac crew right now, they`re all booked on long-term contracts. Even big companies like the one I work for are having a difficult time getting frac crews for long term contracts at rates 10%+ higher than last year.
Basically gas activity is as low as it will go. If gas prices turn around and come up then you`ll see gas start to match oil`s current high activity, generating tons of extra jobs. Even if gas stays low, there isn`t much downside in employment and activity from here.
Michael
Gas prices are still low, but oil prices are quite high, and the change to multi-stage frac`d horizontal wells has meant the number of service-hours required for a well (and the # of workers) is much higher. (more workers == more housing demand)
It is practically impossible to get a frac crew right now, they`re all booked on long-term contracts. Even big companies like the one I work for are having a difficult time getting frac crews for long term contracts at rates 10%+ higher than last year.
Basically gas activity is as low as it will go. If gas prices turn around and come up then you`ll see gas start to match oil`s current high activity, generating tons of extra jobs. Even if gas stays low, there isn`t much downside in employment and activity from here.
Michael
QUOTE (bizaro86 @ Sep 14 2010, 09:30 AM) Gas prices are still low, but oil prices are quite high, and the change to multi-stage frac`d horizontal wells has meant the number of service-hours required for a well (and the # of workers) is much higher. (more workers == more housing demand)
It is practically impossible to get a frac crew right now, they`re all booked on long-term contracts. Even big companies like the one I work for are having a difficult time getting frac crews for long term contracts at rates 10%+ higher than last year.
Basically gas activity is as low as it will go. If gas prices turn around and come up then you`ll see gas start to match oil`s current high activity, generating tons of extra jobs. Even if gas stays low, there isn`t much downside in employment and activity from here.
Michael
Michael, Thanks for the insight. Good to know now that the latest Fracing techniques require more manpower.
Service companies along with oil companies, this year have had the greatest demand for more office space. As I mentioned before, year to date the downtown office market tenants have absorbed more space than the 10 year annual average of absorption of office space. Another green shoot... (unfortunately Stelmach`s Royalty changes still have the natural gas office users on life support -- yes, gas is low and Stelmach will hide behind the market conditions as the reason the industry is in trouble) If gas prices rise...
It is practically impossible to get a frac crew right now, they`re all booked on long-term contracts. Even big companies like the one I work for are having a difficult time getting frac crews for long term contracts at rates 10%+ higher than last year.
Basically gas activity is as low as it will go. If gas prices turn around and come up then you`ll see gas start to match oil`s current high activity, generating tons of extra jobs. Even if gas stays low, there isn`t much downside in employment and activity from here.
Michael
Michael, Thanks for the insight. Good to know now that the latest Fracing techniques require more manpower.
Service companies along with oil companies, this year have had the greatest demand for more office space. As I mentioned before, year to date the downtown office market tenants have absorbed more space than the 10 year annual average of absorption of office space. Another green shoot... (unfortunately Stelmach`s Royalty changes still have the natural gas office users on life support -- yes, gas is low and Stelmach will hide behind the market conditions as the reason the industry is in trouble) If gas prices rise...
R
RussellWestcott
Guest
Guest
Bit of a side topic -- REIN™ members who are in attendance at the meetings in Alberta (tonight and tomorrow), will be in for a special treat. A oil and gas insider will be sharing his insights into the future of Natural gas... will be a great presentation for all who are impacted by this natural resource.
I was even talking to an investor up in the Grande Prairie region, and he stated this are really starting to pick up in GP again. Many of the companies are hiring again, and there is a strong buzz happening in the City again.
I was even talking to an investor up in the Grande Prairie region, and he stated this are really starting to pick up in GP again. Many of the companies are hiring again, and there is a strong buzz happening in the City again.
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QUOTE (Bear @ Sep 13 2010, 04:40 PM) So, lots has happened in 2010. After attending the REIN ACRE program at the end of 2009, I felt comfortable investing in Calgary real estate. Now I`m not so sure! Whats the real story out there? Inmigration is down considerably, and the energy sector is still a big question mark. Houses aren`t selling, and inventory is way up. Article today shows a significant increase in mortgage arrears in Alberta. Everyone has read the housing bubble articles. Where is Calgary going to be on REIN`s list of top investment towns for 2011?
We saw lots of promising things within the Calgary market in 2010. LOTS of trade up buyers (selling their current primary and trading up to another) and also lots of people putting capital back into their properties and shopping around for that next house.
Buyers are still shopping for that great deal and aren`t hesitating to come in with offers significantly less than the asking price but they are out there viewing property and making offers. They weren`t doing this in 2009. We are also entering the best time of the year for investors to buy.
What we need is better rents. They have fallen off considerably since 2007/2008 and haven`t really come back. I blame all the condo buildings (now `apartment` buildings held by overseas money similar to vancouver) for adding a lot of high quality stock and giving tenants more selection. For some reason there are 1000s of investors willing to buy 300k 700ft^2 condos and barely break even. The only thing that explains it is the seed money used by developers must be coming in so early and at such a discount that the numbers make sense, or there is capital being `parked` in these buildings because they are safer than whatever other alternative the initial investors have.
The fundamentals look great long term for Calgary. Problem is finding the right property to get into the market and getting an attractive return in month 1. There is lots of junk on MLS and lots of untraditional rental product available that is keeping rents down so you need a good property to stay full and rent for a good $. If you are only looking at your year 1 numbers you won`t be blown away, but I think that would be the case with nearly any income property investment in Canada right now.
We saw lots of promising things within the Calgary market in 2010. LOTS of trade up buyers (selling their current primary and trading up to another) and also lots of people putting capital back into their properties and shopping around for that next house.
Buyers are still shopping for that great deal and aren`t hesitating to come in with offers significantly less than the asking price but they are out there viewing property and making offers. They weren`t doing this in 2009. We are also entering the best time of the year for investors to buy.
What we need is better rents. They have fallen off considerably since 2007/2008 and haven`t really come back. I blame all the condo buildings (now `apartment` buildings held by overseas money similar to vancouver) for adding a lot of high quality stock and giving tenants more selection. For some reason there are 1000s of investors willing to buy 300k 700ft^2 condos and barely break even. The only thing that explains it is the seed money used by developers must be coming in so early and at such a discount that the numbers make sense, or there is capital being `parked` in these buildings because they are safer than whatever other alternative the initial investors have.
The fundamentals look great long term for Calgary. Problem is finding the right property to get into the market and getting an attractive return in month 1. There is lots of junk on MLS and lots of untraditional rental product available that is keeping rents down so you need a good property to stay full and rent for a good $. If you are only looking at your year 1 numbers you won`t be blown away, but I think that would be the case with nearly any income property investment in Canada right now.
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Brett has hit it exactly with this writting. The questions are - what will year 2, year 6, etc.. look like and will it have been a good entry point? Very very tough to say YES right now for Calgary or most other area`s in Canada. With a standard LTV leveraged purchase there`s little money to be made from ongoing operations. With current property values materially capital appreciation is NOT guaranteed when looking out to year 3 or even year 8 - 2020 might look an awful lot like 2010 when it comes to housing prices.
Re ". There is lots of junk on MLS and lots of untraditional rental product available that is keeping rents down so you need a good property to stay full and rent for a good $. If you are only looking at your year 1 numbers you won`t be blown away, but I think that would be the case with nearly any income property investment in Canada right now."
Re ". There is lots of junk on MLS and lots of untraditional rental product available that is keeping rents down so you need a good property to stay full and rent for a good $. If you are only looking at your year 1 numbers you won`t be blown away, but I think that would be the case with nearly any income property investment in Canada right now."
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QUOTE (RedlineBrett @ Sep 17 2010, 08:48 AM) We saw lots of promising things within the Calgary market in 2010. LOTS of trade up buyers (selling their current primary and trading up to another) and also lots of people putting capital back into their properties and shopping around for that next house.
Buyers are still shopping for that great deal and aren`t hesitating to come in with offers significantly less than the asking price but they are out there viewing property and making offers. They weren`t doing this in 2009. We are also entering the best time of the year for investors to buy.
What we need is better rents. They have fallen off considerably since 2007/2008 and haven`t really come back. I blame all the condo buildings (now `apartment` buildings held by overseas money similar to vancouver) for adding a lot of high quality stock and giving tenants more selection. For some reason there are 1000s of investors willing to buy 300k 700ft^2 condos and barely break even. The only thing that explains it is the seed money used by developers must be coming in so early and at such a discount that the numbers make sense, or there is capital being `parked` in these buildings because they are safer than whatever other alternative the initial investors have.
The fundamentals look great long term for Calgary. Problem is finding the right property to get into the market and getting an attractive return in month 1. There is lots of junk on MLS and lots of untraditional rental product available that is keeping rents down so you need a good property to stay full and rent for a good $. If you are only looking at your year 1 numbers you won`t be blown away, but I think that would be the case with nearly any income property investment in Canada right now.
You`re right. The problem is low rents. In Calgary, two bedroom resale apartments go typically for between $170 and $220K. With average 2 bedroom rents of around $1000 per month, positive cash flow is difficult to get. Break even cash flow requires around 25-30% down. Even then with rising interest rates, things are getting more difficult.
However, when you include appreciation of 6 to 8% annually (which right now seems speculative, but was the historical number for Calgary over the past 4 decades or so) things in terms of ROI look quite good (20-30%). As pointed out at REIN workshops with an LTV or 75% and annual appreciation of 3%, you are making about 4 x 3= 12% ROI and that does not include the principal reduction paid for by your renter.
Such returns are not that easy to achieve. Of course, you always have to compare with other investment options. Compare break even cash flow on a income property with a stock market investment that does not pay dividend. Ever invested in growth stocks? Hi Tech?
When compared with peak market prices, two bedroom aparments and townhouses in most parts of the city have come down significantly - up to 30%. To get back today to those peak levels will take 3 to 5 years depending on the economy. Rental rates will hopefully recover as well.
Real estate not other investment types are easy money. There is the odd case that you may get rich overnight. The lotto comes to mind. For the rest you have to look at:
[list type=decimal][*]What is my ROI?[*]What is my cash flow?[*]How long do I have to hold the investment?How liquid is it (how tough is it to get out when things get sour?)How much risk?How much work/time is required from me?[/list type=decimal]
Buyers are still shopping for that great deal and aren`t hesitating to come in with offers significantly less than the asking price but they are out there viewing property and making offers. They weren`t doing this in 2009. We are also entering the best time of the year for investors to buy.
What we need is better rents. They have fallen off considerably since 2007/2008 and haven`t really come back. I blame all the condo buildings (now `apartment` buildings held by overseas money similar to vancouver) for adding a lot of high quality stock and giving tenants more selection. For some reason there are 1000s of investors willing to buy 300k 700ft^2 condos and barely break even. The only thing that explains it is the seed money used by developers must be coming in so early and at such a discount that the numbers make sense, or there is capital being `parked` in these buildings because they are safer than whatever other alternative the initial investors have.
The fundamentals look great long term for Calgary. Problem is finding the right property to get into the market and getting an attractive return in month 1. There is lots of junk on MLS and lots of untraditional rental product available that is keeping rents down so you need a good property to stay full and rent for a good $. If you are only looking at your year 1 numbers you won`t be blown away, but I think that would be the case with nearly any income property investment in Canada right now.
You`re right. The problem is low rents. In Calgary, two bedroom resale apartments go typically for between $170 and $220K. With average 2 bedroom rents of around $1000 per month, positive cash flow is difficult to get. Break even cash flow requires around 25-30% down. Even then with rising interest rates, things are getting more difficult.
However, when you include appreciation of 6 to 8% annually (which right now seems speculative, but was the historical number for Calgary over the past 4 decades or so) things in terms of ROI look quite good (20-30%). As pointed out at REIN workshops with an LTV or 75% and annual appreciation of 3%, you are making about 4 x 3= 12% ROI and that does not include the principal reduction paid for by your renter.
Such returns are not that easy to achieve. Of course, you always have to compare with other investment options. Compare break even cash flow on a income property with a stock market investment that does not pay dividend. Ever invested in growth stocks? Hi Tech?
When compared with peak market prices, two bedroom aparments and townhouses in most parts of the city have come down significantly - up to 30%. To get back today to those peak levels will take 3 to 5 years depending on the economy. Rental rates will hopefully recover as well.
Real estate not other investment types are easy money. There is the odd case that you may get rich overnight. The lotto comes to mind. For the rest you have to look at:
[list type=decimal][*]What is my ROI?[*]What is my cash flow?[*]How long do I have to hold the investment?How liquid is it (how tough is it to get out when things get sour?)How much risk?How much work/time is required from me?[/list type=decimal]
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QUOTE (housingrental @ Sep 17 2010, 09:19 AM) Very very tough to say YES right now for Calgary or most other area`s in Canada. With a standard LTV leveraged purchase there`s little money to be made from ongoing operations. With current property values materially capital appreciation is NOT guaranteed when looking out to year 3 or even year 8 - 2020 might look an awful lot like 2010 when it comes to housing prices.
Or 2020 could be trading at 2x what is now. Or at (1.05)^10 = 1.63x. No one has a crystal ball.
Always boils down to each investor`s internal risk/return barometer. If you aren`t buying that income property what are you putting your $ into?
Or 2020 could be trading at 2x what is now. Or at (1.05)^10 = 1.63x. No one has a crystal ball.
Always boils down to each investor`s internal risk/return barometer. If you aren`t buying that income property what are you putting your $ into?
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Fair enough... time will tell...
The problem is most of the drivers to move up price levels don`t seem to be there looking ahead...
The ease of financing, cost of financing, and net income (expenses have been increasing at faster pace than rents in most area`s in Canada recently) are all giving a picture of downside....
I think income property - with high enough cap rate, enough value to be added through upgrades and increased net income, and low LTV is the way to go - Ie so you pump out enough cash flow over the next few years to still provide a desireable total return when accounting for any loss of asset value + provide margin of safety on asset value from value add of upgrades... The problem is very few opportunities are available in most growing area`s like this... or doable at 7%+ cap rate to justify risk at this point.
QUOTE (RedlineBrett @ Sep 17 2010, 03:11 PM) Or 2020 could be trading at 2x what is now. Or at (1.05)^10 = 1.63x. No one has a crystal ball.
Always boils down to each investor`s internal risk/return barometer. If you aren`t buying that income property what are you putting your $ into?
The problem is most of the drivers to move up price levels don`t seem to be there looking ahead...
The ease of financing, cost of financing, and net income (expenses have been increasing at faster pace than rents in most area`s in Canada recently) are all giving a picture of downside....
I think income property - with high enough cap rate, enough value to be added through upgrades and increased net income, and low LTV is the way to go - Ie so you pump out enough cash flow over the next few years to still provide a desireable total return when accounting for any loss of asset value + provide margin of safety on asset value from value add of upgrades... The problem is very few opportunities are available in most growing area`s like this... or doable at 7%+ cap rate to justify risk at this point.
QUOTE (RedlineBrett @ Sep 17 2010, 03:11 PM) Or 2020 could be trading at 2x what is now. Or at (1.05)^10 = 1.63x. No one has a crystal ball.
Always boils down to each investor`s internal risk/return barometer. If you aren`t buying that income property what are you putting your $ into?