Traditional wisdom states that the three most important factors when choosing Real Estate are location, location, location. Savvy real estate investors have always found that where you buy is far more important than what you buy or when you buy. At City Condo, we understand that not all markets are equal and that when choosing a real estate investment, it is critical that you choose the right market to invest in. When looking to invest in a Real Estate property, we always look for what we call the ‘Market Fundamentals.’
Housing prices are strongly influenced by the job market in the area, when the economy is strong, house prices naturally go up. However, the opposite is also true and when an economy is weak and jobs are being lost, housing prices are sure to follow as people can no longer afford their homes. A prime example of this was the Alberta Housing market, where between June 2014 and February 2015 crude oil prices dropped 75%. The result was a massive layoff of oil industry workers and those workers could now no longer afford their homes and housing prices dropped dramatically. All industries go through periods of boom and bust, the key is to invest in market that is not dependent on one particular industry to supply jobs. A diversified economy means that even if one job market in the region goes into decline, the overall housing market remains stable.
Growing employment and population
All prices are governed by supply and demand, and in real estate demand is typically governed by two main economic indicators, employment and population. When employment is growing, population follows closely and when there is a growing population, more people are looking to purchase or rent properties, causing both rents and housing prices to rise.
Low interest rates
Not specific to individual cities, the Bank of Canada governs interest rates for the country as a whole. Changes in the interest rates affect the ability of Canadians to afford real estate and consequently the housing prices. Low interest rates encourage investors and home buyers to act now, while rising rates, or even the perception of incoming rising rates, can discourage them. Pay close attention to statements made by the Bank of Canada and be prepared should interest rates rise. Currently, rates are the lowest they have been in a generation which make it a very appealing time to invest.
Real estate is unique in that when rents rise, which they nearly always do in any major urban center, you get increased cash flow year after year. The provincial government has restrictions on how much the rent can be raised on an existing tenant and announces how much they can be raised based off of changes in the Consumers Price Index. However, there is no restriction on how much a new rent can be changed during tenant turnover. Ensure that the market you are investing in has a strong history of rising rents to get the best return on your rental property.
Low Vacancy rates
Nothing is worse for an investment property than to remain vacant. When vacancy rates are high, landlords cannot be as selective when screening potential tenants. Rising vacancy rates can also be a sign of slow or stagnant rental rate growth. When vacancy rates are low, landlords can ensure that their property will generate a constant stream of income, and can be more selective to ensure that they find a tenant to respect their property.