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Investors set sights elsewhere amid low cap rates

by Neil Sharma on 14 Aug 2018

With cap rates at a 2-3% low, the time is nigh for investors to ditch the diminishing returns on their Toronto and Vancouver investments.

“If someone said, ‘I’ve been investing in Ontario but there are no great returns left, what should I do?’ I’d introduce Orlando to them,” said Jeffrey Leuchter, a Royal LePage sales representative. “The investment side in Orlando has huge upswing. The returns in Orlando currently are what Ontarians saw three to 10 years ago.”

One reason Leuchter is extolling Orlando is because the short-term rental market is white-hot. For starters, it’s the most popular vacation city in the United States—even beating out Las Vegas this year as the top spring break destination—and that is writ large in the amount of amenities on offer.

“In Orlando, if you look after your property, you’re guaranteed renting it out 70% of the year. Of 52 weeks, you’re renting it out a minimum of 36.4 weeks,” said Leuchter. “With the entertainment world in Orlando and the number of visitors they get annually, what better place for a short-term rental than Orlando? You get 70% occupancy.”

Local economy is usually top of mind for any investor, says Marc Dupuis, co-founder of Simple Acquisitions, a Canadian company with a predilection for American real estate. In Orlando’s case, roughly 50,000 new jobs are in the pipeline this year, meaning new residents are flocking to the city in droves.

Cash flow is another consideration, added Dupuis.

“The cash flow opportunities in Orlando are good,” he said. “Returns are still predicted to be better than top-tier markets, like San Francisco. Rents are very high right now and they’re expected to go up a little more.

“Mortgage payments in Orlando have gone up 72%, so people are flocking to rentals and that’s good for real estate investors. That creates pressure in the supply and demand equation. It’s good for demand.”

There’s nary a doubt that Orlando is benefitting greatly from government’s hands-off approach to the real estate market. Juxtaposed with Ontario, Leuchter says investors are licking their chops.

“Most people who are heavily investing, or did invest in Ontario, are looking for other opportunities. The Ontario government has made it so difficult for foreign investors and local investors, in the sense that if you want to buy homes and flip them, you have to pay extra money to have that privilege,” he said.

“The U.S. doesn’t have the extra taxes that Ontario does. My focus right now is on short-term rentals because with the laws in Ontario, it’s tough to change a tenant. In Orlando on a short-term rental, you completely wipe out any headaches that I may have been experiencing as an investor in the Ontario marketplace. I have guys who will yield 40-50% returns a year after appreciation in Orlando. If we can get a 10% return in today’s market in Ontario, that’s good.”


Related stories:
Real estate in U.S. city expected to appreciate 35%
Condos are Montreal's breadwinner segment


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