Overbuilding

[Hutchym]

In Some smaller Ontairo cities (25,000 - 100,000 pop.) you can find great value buys that cash flow significantly easily. These are great RE buys for cash flow. However, there is something that bothers me about these cities. In many rural cities the population is stagnant or falling. Yet, they continue to expand by building new homes. This is also why so many rural towns have a hard time controlling downtown economics (population with money moves away from downtown). Basic supply and demand says that if the population stays the same and you continue to build the price of all existing homes eventually will need to fall. In saying that I realize there is less people per home than 40 years ago. Many of these places though, are closing schools, because the population is not even maintaining.



An example is Sarnia, On. The population is stagnated. They continue to build in 3 or 4 new subdivision areas. They even project future population decline. from roughly 71,000 to 65,000, from alltime high of 80,000. Yet, footprint of the city is significantly larger now than at 80,000.



Maybe I'm missing something. Anyone else thought about this as well?



Mike

 

[Thomas Beyer]

Indeed. To me IN-migration is THE key variable.



Do not buy in town with falling populations.



PERIOD.



There are enough cities with rising populations. Populations rise for only 3 reasons:

a) people move there because there are jobs, or

b) there is a high birth rate, or

c) because it is nice to live (aka Vancouver or Canmore or a host of other "pretty" towns with scarce jobs but high house prices).



Cash-flow usually exists only in the former 2 category, not the latter !



Most AB or SK towns qualify, as do some, but not most BC or ON (or US or European or S-American) towns and probably many Asian towns, too !

 

[TangoWhiskey]

This is a great post that many folks really don't want to look closely at, partly because its a pain to do that much research and partly because it's hard to look for reasons to pass up what seems to be a good investment. A trend that's playing out in many many towns across Canada though that I hope should work well for the next ten to fifteen years is where regional hospitals are located. Although populations of younger people are definitely declining these towns pull in the rural older set from the satellite towns, village and country areas and this older demoraphic has a very high ratio of single person households. This increasing population then eventually moves into care homes that are very labour intensive - the 12 to 15 dollar an hour stable jobs that are really a landlords bread and butter. Another aspect I'm trying to play is reaching out to congregations of large local churches to get these ideal older pensioner tenants - just part of that building a community aspect in an apt bldg that promotes long term tenants who are more likely to be good tenants. Get your ground floor units full of seniors and your upper units with the younger people who will be taking care of them. So while population stagnation is a given across much of Canada going with healthcare is a good defensive strategy. Try to find the hospitals that are new or redone in the last 5 years that have at least a few specialists and you should be fine. It goes back to your niche: who are your tenants? Where do they work? How do you reach out to those people? If you can find a niche, you are better prepared defensively as you can really work to make sure your building stands out from the competition.



One area I would also look to find is where baby boomers want to retire in your stagnating region. These folks want sushi or at least options for stuff to do, and that will also mean service sector jobs you can rely on. Ideally you find a town that has both trends.

 

[Thomas Beyer]

Indeed, this is an excellent strategy that served us well in smaller centers with hospitals, catering to seniors, such as Camrose,AB, or Sudbury, ON or Campbell River, BC or Yorkton, SK or Powell River, BC .. with the caveat that this is a slow growth, steady, 10+ year wealth creation strategy that works only in well selected and appropriately priced buildings ideally with an elevator.

 

[stevegwhite]

I have a theory that in the next 5-10 years you're going to find that telecommuting makes a huge jump and many people living in the city will ask themselves why they're paying $450,000 for a two bedroom condo on a subway line when they can get a Victorian home with huge yard and fresher air for 2/3 the price.



I think small cities and their surrounding towns will see an uptick as the wave of young professionals have their first kid and living on Queen or the Danforth with a 40 year mortgage isn't trendy anymore. A $80k job done from home in Woodstock or Napanee can buy a lot of land, toys and happiness.



As I said, just a theory.