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Is the Waterloo market over saturated?

T

TandDGil

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Hello everyone,
We are Tom and Diane from Ottawa (This is Diane writing.) We are Ottawa based rental property investors. Due to a difficult summer finding good tenants, we are starting to re-organize and look at other cash-flow real estate opportunities. We have become interested in student housing and spent month thoroughly investigating the Ottawa market. We just found the properties we would trust in are too over-priced here. Earlier this month we had a Realtor look at properties near York University and the University of Toronto. Again, the prices are too high to cash-flow as we desire.

Due to the Ontario landlord site and this one, we have been thinking about Trent university and the University of Waterloo (and to a lesser extent, Lakehead) If it wasn`t for these helpful sites, we would not have known about the opportunities at these schools. Of the two, we feel the student population and future growth is likely better in Waterloo.

While reading the Waterloo website last night, we became concerned over something written on it:

QUOTE Supply and Demand


If you are not receiving many calls, the first thing that you need to consider is how available you are making yourself to prospective tenants. Do you have voicemail, e-mail, or an alternate phone number where you can be reached? Secondly, you need to consider the demand for housing. Currently, there is an over-abundance of student housing in Kitchener-Waterloo. Thus, you may want to consider adjusting your rent, being flexible with your lease period, and take extra care in ensuring that your accommodations are well-maintained and attractive to students.

Could someone invested there provide further information on this. Is it true? Is it possible to have better maintained properties to ensure no vacancies? After a very difficult summer, screening out so many applicants, we would hate to go to another oversaturated area.

We appreciate this wonderful forum and appreciate any advice anyone can give.

T and D :-)




http://www.och.uwaterloo.ca/landlords/current.html
 
Hi Tom and Diane;
Here`s a link you should find interesting:
Hello everyone,

We are Tom and Diane from Ottawa (This is Diane writing.) We are Ottawa based rental property investors. Due to a difficult summer finding good tenants, we are starting to re-organize and look at other cash-flow real estate opportunities. We have become interested in student housing and spent month thoroughly investigating the Ottawa market. We just found the properties we would trust in are too over-priced here. Earlier this month we had a Realtor look at properties near York University and the University of Toronto. Again, the prices are too high to cash-flow as we desire.

Due to the Ontario landlord site and this one, we have been thinking about Trent university and the University of Waterloo (and to a lesser extent, Lakehead) If it wasn`t for these helpful sites, we would not have known about the opportunities at these schools. Of the two, we feel the student population and future growth is likely better in Waterloo.

While reading the Waterloo website last night, we became concerned over something written on it:



Could someone invested there provide further information on this. Is it true? Is it possible to have better maintained properties to ensure no vacancies? After a very difficult summer, screening out so many applicants, we would hate to go to another oversaturated area.

We appreciate this wonderful forum and appreciate any advice anyone can give.

T and D :-)




http://www.och.uwaterloo.ca/landlords/current.html


 
Hi Tom and Diane,

Good to see you`ve made it over to the REIN site.

Mike is correct. The operating business is great, currently financing is the issue. If you have a student property in good condition, in a good location, and you manage it well, you shouldn`t have a hard time renting your property. I manage and rent to hundreds of students and currently have zero vacancies.
 
Hi Mike,
Re "
The only other change since the presentation is that CMHC now has started to blatantly discriminate against properties occupied by students - declining solid purchasers on the basis of occupancy. "

I thought this was the case prior to also?




QUOTE (MikeMilovick @ Oct 18 2009, 10:50 AM) Hi Tom and Diane;

Here`s a link you should find interesting:
http://www.mikemilovick.com/media_clip.php


I did the presentation in Fall of last year - the only thing that has happened since is that both universities went 700 students over their target enrolment - requiring the universities to rent off campus accommodation for their first year students.

If you think vacancy rate of 1.7% is over-saturation, then you are quite justified in your thoughts. If you work off of CMHC indicating that 3 to 5% vacancy is a "healthy, balanced" market, then Waterloo is still very much a landlord`s market.

To put some perspective, there would have to be about 3000 not rented - to achieve the low end of the 3% vacancy...

The only other change since the presentation is that CMHC now has started to blatantly discriminate against properties occupied by students - declining solid purchasers on the basis of occupancy. This will likely end up as a Human Rights issue if this isn`t resolved shortly. In the meantime, it has made financing very difficult as CMHC is really the only liquid lender at present embracing income properties.

Mike
 
QUOTE (MikeMilovick @ Oct 18 2009, 07:50 AM) ...
The only other change since the presentation is that CMHC now has started to blatantly discriminate against properties occupied by students - declining solid purchasers on the basis of occupancy. This will likely end up as a Human Rights issue if this isn`t resolved shortly. ..

interesting thought .. I would argue that CMHC`s role is to provide insurance to lenders based on reasonable assumptions .. AND to ensure that house prices do not accelerate too dramatically !

One such reasonable assumption is that houses occupied by students / rented to students frequently are too expensive, i.e. the value is not the house but through the inflated income approach it generates !

i.e. are you sure that CMHC declines based on "occupied by students" or on "value" ? Likely the latter because that same house not rentable to students might be 25-40% less !!

QUOTE (MikeMilovick @ Oct 18 2009, 07:50 AM) ...
.. In the meantime, it has made financing very difficult as CMHC is really the only liquid lender at present embracing income properties.
CMHC is not a retail lender like CIBC or Royal Bank or TD. It is a purchaser of mortgage backed securities from banks, an issuer of mortgage backed bonds to institutional investors and/or an insurance provider to lenders !

The reason why traditional banks don`t lend to the degree you like is likely my first point: inflated values !

A house with 6 rooms rented at $500/room or $3000/month would likely be rentable to a family only for $1600 or so .. and such would be valued LOWER.

Also often (but not always) 2 or 3 of the 6 rooms are likely borderline legal, i.e. basement suites or not zoned for such rentals.

Hence the justifiable cautious approach by banks and CMHC as the bank`s mortgage insurer !
 
Given the challenges of getting financing, would an option be to sell a place in Ottawa and shift the mortgage to the Waterloo property? Do lenders do this? We would like to do our homework on this before approaching our current lenders.
 
This is Diane again. We appreciate the help so far.

Do you offer 8 month or 1 year leases? If 8 months, can you still cash-flow?
 
Hi Thomas

You`re correct the properties Mike are referencing have much higher rent if occupied by students.

However all of them are outright legal. Registered with the city with lodging licenses or multi-plex or accessory apartments. Fire department and ESA no deficiency`s letters. Regular servicing from professional smoke detector and extinguisher companies. Inspections from fire department.

Some of these properties have been nothing but a student rental for 20+ years.

Should it really have relevancy that my 9 bedroom house, thats safer than most non rental properties, can only be rented to a family for $1300/month ? But I`m currently getting $3800/ month ? And I got $3600/month last year ? And similiar idea in past years.. And that it was originally licensed for this apx 23 years ago ? And has been continuously operating as a student residence for this time?

How would the above property that has 100% occupancy and 100% collection, was rented 9 months in advance, and have no deferred maintenance be higher risk than a nearby 50 year old non student multi-plex with deferred maintenance, and lower occupancy and collection rates?


QUOTE (thomasbeyer2000 @ Oct 18 2009, 06:31 PM) interesting thought .. I would argue that CMHC`s role is to provide insurance to lenders based on reasonable assumptions .. AND to ensure that house prices do not accelerate too dramatically !

One such reasonable assumption is that houses occupied by students / rented to students frequently are too expensive, i.e. the value is not the house but through the inflated income approach it generates !

i.e. are you sure that CMHC declines based on "occupied by students" or on "value" ? Likely the latter because that same house not rentable to students might be 25-40% less !!


CMHC is not a retail lender like CIBC or Royal Bank or TD. It is a purchaser of mortgage backed securities from banks, an issuer of mortgage backed bonds to institutional investors and/or an insurance provider to lenders !

The reason why traditional banks don`t lend to the degree you like is likely my first point: inflated values !

A house with 6 rooms rented at $500/room or $3000/month would likely be rentable to a family only for $1600 or so .. and such would be valued LOWER.

Also often (but not always) 2 or 3 of the 6 rooms are likely borderline legal, i.e. basement suites or not zoned for such rentals.

Hence the justifiable cautious approach by banks and CMHC as the bank`s mortgage insurer !
 
Unknown
QUOTE (TandDGil @ Oct 18 2009, 11:31 PM) Given the challenges of getting financing, would an option be to sell a place in Ottawa and shift the mortgage to the Waterloo property? Do lenders do this? We would like to do our homework on this before approaching our current lenders.
 
Nearly all places are for minimum 12 month terms

Most places that rent for 8 months are for:

Lease take over (re-renting a rented apartment for tenant who rented May to May and decided not to come back to school)

Farther away than you want to be

Show poorly

Over priced

Being, or might be, knocked down for new build

Started renting very late


QUOTE (TandDGil @ Oct 19 2009, 07:20 AM) This is Diane again. We appreciate the help so far.

Do you offer 8 month or 1 year leases? If 8 months, can you still cash-flow?
 
QUOTE (thomasbeyer2000 @ Oct 18 2009, 06:31 PM) interesting thought .. I would argue that CMHC`s role is to provide insurance to lenders based on reasonable assumptions .. AND to ensure that house prices do not accelerate too dramatically !

One such reasonable assumption is that houses occupied by students / rented to students frequently are too expensive, i.e. the value is not the house but through the inflated income approach it generates !

i.e. are you sure that CMHC declines based on "occupied by students" or on "value" ? Likely the latter because that same house not rentable to students might be 25-40% less !!


CMHC is not a retail lender like CIBC or Royal Bank or TD. It is a purchaser of mortgage backed securities from banks, an issuer of mortgage backed bonds to institutional investors and/or an insurance provider to lenders !

The reason why traditional banks don`t lend to the degree you like is likely my first point: inflated values !

A house with 6 rooms rented at $500/room or $3000/month would likely be rentable to a family only for $1600 or so .. and such would be valued LOWER.

Also often (but not always) 2 or 3 of the 6 rooms are likely borderline legal, i.e. basement suites or not zoned for such rentals.

Hence the justifiable cautious approach by banks and CMHC as the bank`s mortgage insurer !


Thomas is right about inflated values. For Toronto Members you might be familiar with the townhomes at York U (Village at York University by tribute)

They are going for $600k+ while similar units would go for $400k+ else where in Toronto..and I`ve seen 13 rooms piled into these houses with 3 kitchens.
 
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