Think twice before investing in the Okanagan

[Dave Martin]

pretty sure the kelowna airport flies direct to ft. mac.
i also see that hwy 97 is getting at least a couple more lanes added to it, heading to and from the airport.
if alberta starts doing well, kelowna will do well. it's just as easy to fly to ft. mac from kelowna, as it is from calgary or edmonton, and oil industry workers are well aware of that now.

add the wave of retirees that are bailing out of vancouver... i have faith in the okanagan. i just wish i had a pile of investment capital to knock the purchase prices down to reality.

 

[Cory Sperle]

It blows my mind that people will throw buckets of cash at already superheated markets. Any investor that invests based on fundamentals will see that the perfect storm to dive in right now is in Alberta or Saskatchewan, where it is a no-brainer. Economies improving, the oil patch recovering, buyers market for homes and renters, continued massive in migration. The downside risk in Kelowna is just too high right now.

 

[Dave Martin]

yeah maybe. i just can't fundamentally imagine why anyone would want to live in alberta or sask.
for the person earning $200k/yr in oil dollars, or the person selling a $2mil property in vancouver, kelowna probably doesn't look too bad.
but then there's a lot more to the okanagan that just kelowna. just like there's a lot more to bc than just vancouver.

 

[Cory Sperle]

Fundamentally many people live in Alberta and Saskatchewan because that's where the jobs are. Fundamentally the value of a home is directly tied to what the average person can afford to buy. The affordability metric is horrible and I honestly don't know how most moving there are able to afford the rents. Yes there are some fleeing Vancouver with a suitcase full of cash but that actually represents a small portion of buyers. Reality check, unless you are a doctor, lawyer, dentist, accountant, or some other professional your chances of earning $100,000 in Kelowna are slim. It may seem exotic or exciting to invest in a place deemed more desirable to live, however very tough to make money now in my opinion unless you know the market very well, have lived there a long time, and are prepared to wait 10+ years to get your money back. You will get an immediate lift in the next 2+ years in markets like Edmonton, Red Deer, and Saskatoon.

 

[Martin1968]

yeah maybe. i just can't fundamentally imagine why anyone would want to live in alberta or sask.

Why?

 

[Cory Sperle]

People want to live there because they are both fabulous places to live, work and raise a family that's why! I grew up in Saskatchewan and lived in Edmonton for 9 years. I do find your comments somewhat offensive and they offer no useful contribution to this thread.

 

[Dave Martin]

just being a smart-ass guys. lighten up.
you said it cory, it's a matter of what you want or expect out of your investment. i'd even take that further into including what your method of investing happens to be, and where you're at with your personal portfolio.

what made you leave the prairies behind?

 

[Thomas Beyer]

Okanagan attracts mainly retirees as weather is better and prices used to be lower. I’d also give Kelowna a pass as prices are now approaching, or exceeding Calgary prices, with far lower incomes. BC gov may expand 15% land transfer tax premium to areas outside of Lower Mainland.

The question is who is renting your 500,000 house as you wait for it to become 600 or 700,000. Can you get enough rent?

Also with the new OSFI rules generally mortgages will be 20% lower than today so we might have a 2-3 year lull anyway.

Generally what goes up in price is LAND. Okanagan is dotted with ALR, native land and tight city limits. As such I’d buy a cheap acreage or sub-dividable land or maybe a mobile home park that you can eventually redevelop. Buy and hold is tough unless you cater to students and summer guests which works in some pockets.

Proceed with caution. If it cash flows then ok to buy with 25-30% down. Don’t overpay.

 

[ryanlake]

Okanagan attracts mainly retirees as weather is better and prices used to be lower. I’d also give Kelowna a pass as prices are now approaching, or exceeding Calgary prices, with far lower incomes. BC gov may expand 15% land transfer tax premium to areas outside of Lower Mainland.

The question is who is renting your 500,000 house as you wait for it to become 600 or 700,000. Can you get enough rent?

Also with the new OSFI rules generally mortgages will be 20% lower than today so we might have a 2-3 year lull anyway.

Generally what goes up in price is LAND. Okanagan is dotted with ALR, native land and tight city limits. As such I’d buy a cheap acreage or sub-dividable land or maybe a mobile home park that you can eventually redevelop. Buy and hold is tough unless you cater to students and summer guests which works in some pockets.

Proceed with caution. If it cash flows then ok to buy with 25-30% down. Don’t overpay.

Whats ALR Thomas?

Sent from my SM-G930W8 using myREINspace mobile app

 

[Matt Crowley]

@CorySperle thanks for the thread.

On Alberta hitting the pricing bottom, I don't agree. Even class B in Calgary has seen little price compression. Sure, rents have fallen but values have not. Average price per unit going back to 2016 for stick built is $180,000 per door. If you are very efficient at a 30% OE and rents for stick units average $1,150 rent, the going-in cap is 5.4%. More likely, OE is 35% and going-in cap is 5.0%. The premium you get for rent on newer units in great locations still pencils and makes buying older units for $180k / door hard to justify.

The bottom has not been reached for pricing (IMHO), and in fact has barely moved. Investment funds with mandates have been overspending in the market, holding onto positions, and waiting for value improvement on in-place assets. I'm starting to see distress in the Alberta market this year: Walton is a great example. But more recently, Reid Homes (http://www.calgarysun.com/2017/10/11/reidbuilt-homes-for-sale-as-it-battles-debt-problems)... I wonder if Rohit is going to buy them, I'm sure that are looking at it.

* Note I am talking about investment real estate not SFH market here

But distressed projects like Infiniti (Edmonton, bought out of receivership by RMS this year) and others are examples of what is beginning to happen... no 30% / year recovery where investment makes sense.

 

[Cory Sperle]

Thanks for the informative reply. Not sure where your going with this, but my only point of this thread was to discuss the risks of investing in the Okanagan vs. markets like Edmonton. If it's not the bottom surely it is very close to it with economic news in Alberta mostly improving from what read.