Kitchener or Edmonton?

ekisielewski

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If you were to invest in single family homes and could just as easily invest in Kitchener/Waterloo/Cambridge area or in Edmonton where would in invest and why?

Thanks for your input

Elisabet K.
 

bizaro86

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#2
I would choose Edmonton, because I think the political climate in Alberta is more conducive to RE investors making money. I dislike the idea of rent control.



Regards,



Michael
 

ChrisDavies

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#3
Edmonton, both because of economic fundamentals and because of the favorable political climate (good for business, good for landlords).



And the Oilers', but the last few games haven't been going so hot...
 

bizaro86

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[quote user=ChrisDavies]And the Oilers', but the last few games haven't been going so hot...


And by few, he means 368. ;)



Michael
 
R

RussellWestcott

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Elisabet, great question. To fully get YOUR answer to this will require a bit of digging and research on your part. Looking at the number and fundamentals (remove the emotions) will be the only way to truly get the proper business decision for you.



Some thoughts for you. Grab a pen and paper and directly compare each of the cities




[list type=decimal]
[*]Grab a copy of the Property Goldmine Scorecard (from your ACRE` program), and see which city gets more check marks on the economic fundamentals?




[*]Assume your had $50,000 to invest which city would you be able to get a better property for the same investment dollar? Which city would get better cash flow?




Then go into a few of the intangibles (and some tangible), for example property management, rental environment, ease of business, taxes etc...
[/list type=decimal]


Compare and contrast each of the 2 areas and you should be able to come up with your answers. If I were to tell you which one I choose I would be putting my personal bias, based upon the research I completed. This is a very worthy exercise to give you confidence in the region you choose to put your money
 

mortgageman

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#6
I'd largely base my decision on the town I lived in and if I was prepared to self-manage or hire property managers.

Since I live in Edmonton I'm biased towards Edmonton and invest here.
 

ThomasBeyer

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#7
Both areas provide good upside, assuming a new right-of-center government or coalition in Ontario in the next provincial election, otherwise this province is toast and therefore you should not put any money into Ontario, and start selling now.



The question really is: I have X $s to invest, say $60,000, would it be better to buy a house in KWC for $250,000 that rents for $1,800 or one in Edmonton for $350,000 that rents for $2,400 (assuming an up/down type property as those rents are very hard to get from one family).



I think the answer then depends on what is more manageable for you, and where do you see those property's values in 5 or 10 years ? Likely it'll be higher in Canada's #1 oil town, Edmonton .. but that is not guaranteed, of course. Half of our portfolio is in Alberta, if that is any comfort to you and we're buying in SK and AB only going forward for the next few years.
 

housingrental

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#8
I would not invest in either at this point.



There are huge risks involved with investing in Edmonton - or anywhere in Alberta - and the impact resource industries have on it you should be provided with a significant risk premium when investing - and you are not.



The rent to purchase price does not work for me in Kitchener or Cambridge - it might for you - but it does not for me - and I view most single purchases in the area as a bet on near term future appreciation. I'm not willing to make this bet.



Waterloo student housing, if the right product purchased at the right price, was the way to go until a few weeks ago. Until there is regulatory stability you might as well look at it like this - the city of Waterloo has sent a message - Do not invest here.



I've been hearing good things about short and mid term government bonds.



Hope this helps.
 

ThomasBeyer

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#9
[quote user=housingrental] ... There are huge risks involved with investing in Edmonton - or anywhere in Alberta - and the impact resource industries have on it you should be provided with a significant risk premium when investing - and you are not.
..


Enlighten us please where the risk is that would stop Alberta from growing substantially above average through in-migration and an expanding resource based economy ? nuclear fushion ? imploding population worldwide ? nuclear fuelled cars ? people moving back to unheated caves ? solar energy ? wind turbines ?



Yes, natural gas might be used more in the US to reduce dependency on foreign oil .. but that also benefits Alberta !!



The ONLY risk I see right now is political: an NDP / Liberal lead coalition government taxes W-Canada's resources and funnels significant $s into the shrinking economies of Quebec and Ontario to buy votes. However, this would destroy Canada's economy to a degree that hurts all .. however it is a risk one shoudl be mindful of.



The growing world needs what W-Canada has to offer: oil, gas, water, coal, uranium, potash, agricultural land .. all resources with limited supply in a growing world !!!



Show me a low risk / high return investment with a yield well above inflation .. and I (and 100,000 others) will listen !!



[quote user=housingrental] ... I've been hearing good things about short and mid term government bonds.







yeah sure .. but a bond that yields 2.5% amid a rising interest rate environment to see bond value plummet by 20 or 30% !!! Hold a 10 year bond to maturity and make 25% in 10 years. Yes, that would work for some. You are loosing FOR SURE due to inflation. It is called "return free risk" !!



Bonds are NOT a great investment right now .. unless they are decent quality corporate bonds around 5-7% !
 

bizaro86

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#12
[quote user=housingrental]There are huge risks involved with investing in Edmonton - or anywhere in Alberta - and the impact resource industries have on it you should be provided with a significant risk premium when investing - and you are not.


Alberta real estate is correlated to the Alberta economy, which is correlated to the energy industry. Now, you are correct that there is a risk associated with potential energy downturns, and you need to be compensated for that risk. But the energy industry also endows Alberta with significant upside potential. Oil prices have gone up significantly this year, and may continue to do so. The boom potential in Alberta gives the opportunity for smart investor's to sell into a very strong seller's market. This potential growth compensates for the downside risk.



Michael
 

housingrental

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A few notes:



You are assuming significant inflation in your analysis. I'm not
counting on this. I'm more concerned about deflation, and risk of drops
in price level among certain asset classes - resources, real estate, and
Alberta and BC real estate - being the most likely. We might also see a situation play out with real estate falls in value while in general price levels rise. There's minimal upside, and significant downside... hardest hit will be those that hold multi-family buildings in Alberta and BC.



Continued increases in resource prices is not a given - I do not know
how the future unfolds but here are a few possibilities - Capital
flight, are current valuations at equilibrium based on current and
expected usage or based on financial market bets? will expected usage
come to be? Technological advancements reducing cost? Labour rates
dropping? Less labour needed - ie costs and profits could increases but
job growth does not have to follow from this? I can go on but you
should get the idea...



Population growth in Alberta is not a given. Population growth is
helpful, but even if this happens it does not require price levels in
real estate markets to follow. There are other factors that also
influence this - so for example you can have a scenario with:

Increased supply of units at a lower price - can be due to - lower costs
to build, lower land values, developers taking a hit on projects,
increased cost of debt servicing, tightening of available credit to
future purchasers, increased density per unit (multi-generational
families, roommates, etc..), increased costs of ownership (property tax,
utilities, repairs, etc..)



Even if you have a very rosy outlook on Alberta, which I do not, the question you need to ask yourself before investing is:



Have prices fallen sufficiently over the last few years to hit an equilibrium point?



Markets tend to overshoot on the upside and downside. From the outside
looking in it looks to me like price level's overshot, have fallen, and
have to fall further to be where they should be.... often times
prices will fall even further beyond that.... in Edmonton, Calgary, and a
variety of other areas that make up the frozen wasteland that is
Alberta, this has yet to happen.



Sitting on cash or government bonds allows you to take advantages of
opportunities when they present themselves. This might be in 1 year, or
4, or X. I'm willing to make the bet that the opportunities available in
the future if you have cash available will be a better choice than an
immediate investment. You might not be willing to make that bet and are
hoping that the near term returns above bond rates over the next X years
will provide a higher total return. Time will tell.



The amount of cash available, comfort with risk, etc.. should help guide
an appropriate portfolio allocation - ie someone with lots of $ might
prefer X% in cash and X% with a ladder government bond approach for each
year for X years. It might be more prudent for an investor with little $
to sit entirely on cash as they'll need to be able to pull the trigger
on an investment in the future.
 

ThomasBeyer

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#14
[quote user=housingrental]... risk of drops
in price level among certain asset classes - resources, real estate, and
Alberta and BC real estate - being the most likely...


enlighten us why you think this is ?



Why would prices FALL in the areas of the highest in-migration in Canada .. in the area with the most resources .. and the lowest taxes and the highest GDP growth ?



have you ever been in AB, SK or BC ?



Your opinion is noted .. BUT IT IS PURE $#@%^&$ in my (humble) opinion !!!!!!!!!!!!
 

bizaro86

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#15
[quote user=housingrental]You are assuming significant inflation in your analysis.


I am not assuming anything. It's not intellectually rigorous to make assumptions about the future.



What I am saying, is that deflation and inflation are both possible, but the upside potential in an inflationary environment pays for the downside risk in a deflationary environment. It could be either, but the weighted average return (weighted by probability) is positive. There are two reasons for this: negative returns have a lower bound, and inflation is more probable than deflation, based on history. Inflation is much more common than deflation, and even if we have deflation in the short term, long term inflation is likely.



I also consider it prudent to buy investments that provide a positive return even in a declining market, by buying under market value, performing value-add renovations, and buying with positive cashflow.



Maybe Alberta prices have further to fall. I'm perfectly fine with that, as it will allow me to continue to buy even better deals next year!



Michael
 

bizaro86

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#16
[quote user=housingrental]frozen wasteland that is Alberta


Although I disagree with your outlook, I'm interested in hearing contrary opinions, as it strengthens the intellectual certainty to a decision if you can objectively refute the objections to it.



However, this comment is certainly on the borderline of good taste. I may not agree with the way the government of Ontario does things, but I don't apply negative connotations to the whole province.



Michael
 

housingrental

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Hi Michael

The post was in response to Thomas not you

I agree with you on:

I also consider it prudent to buy
investments that provide a positive return even in a declining market,
by buying under market value, performing value-add renovations, and
buying with positive cashflow.




- except where you have declining market I'd add potentially in a...



The most skilled investor, finding the best deal, can still lose a lot of $$$ if changes in prices levels go against them
 

housingrental

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Sure Thomas



As in my last post if resource prices fall it can have this impact.



The province having in the future highest GDP growth is not a given - it could have the largest decline.



The province might not have the highest in-migration in Canada

Even if it will you can still have declines in housing prices with population growth - I listed some factors for this in my last post



The lowest taxes is not relevant - its not had a very recent material shift in tax policy that will create in increase in future growth. It also has potential to change moving forward - think when its tax revenue coming in is lowered and there's political pressure for a more socialist direction in policy - or many other possible permutations.



You are looking at a static model and advocating investments based on this - you might be right, or you might not - time will tell - if you are right it does not mean that scenario is a given or others could not have happened. Do not less past success over inflate your confidence - Markets will cut down the confident if you give them enough time.



Please see my other posts on this prior - My Canada ends at Temagami.



You might not agree that this potential vision of the future will play out, but you do not need to equate it with feces. Or do the lack of counter arguments you can provide require this? :)