Strategy: Big markets, big money

by Alice Yang on 07 Nov 2019

Don’t let the number of zeroes on the asking price deter you from investing in Canada’s most expensive cities. There are numerous advantages to investing in markets such as Vancouver, Victoria, Toronto and the pricier parts of Montreal. I’ve had success in making my properties in Vancouver cash-flow, and I’m here to provide a few tips to help you do the same.

First, let’s take a look at the benefits of investing in expensive cities:

  • High demand. Desirable universities and public schools, good living conditions, job opportunities, higher average income, and higher migration rates and population growth all make major markets a go-to destination for residents of all stripes.
  • Low vacancies. It’s easier to find tenants in major markets. You can be pickier as a landlord, and you don’t have to deal with vacancies as often.
  • High rent. You’ll be able to charge more money per square foot.
  • Potential for premiums. Executive suites, rented out as fully furnished luxury units, demand sky-high rents. That’s hard to do elsewhere.
  • Easier management. There will be more property management companies to choose from. Or, if you also live in the city, you can manage them yourself.

Don’t be afraid to pay

Investors often wonder how you get your foot in the door in an expensive city. Vancouver, for example, was a seller’s market from about 2015 until this year. Winning in a multiple-offer scenario was the name of the game. I’ve seen a lot of investors call it quits in such a situation, as multiple offers are never fun for buyers or their Realtors.

Some investors have a ground rule to never place a bid in a multiple-offer scenario. My personal advice is that it never hurts to try. I recommend having your Realtor speak with the listing Realtor and try to feel out the strength of the other offers to see if it’s worthwhile submitting an offer. You can’t win the lottery without buying a ticket; the same goes here. You will never own a property if you don’t write offers.

Sometimes you win, sometimes you lose, and that’s just part of life. You have to accept that you will never win all of them. Just be determined and move forward to the next opportunity. Don’t get discouraged.

I’m not recommending that you pay over the asking price, but it really depends on the market and your own economic predicament. Going over asking doesn’t necessarily mean it’s a bad deal.

I’ve won several multiple offers before, for both myself and my clients, and even if we paid slightly over fair market value, the market kept going up. Keeping in mind the attractive qualities of larger markets listed above, these are still great long-term investments that generate cash flow.

Be realistic

I went to numerous real estate seminars when I first started investing in real estate, and most of them stressed the importance of buying a property for half of the asking price or well below fair market value. While this might have been possible during the recession in the US, the average investor needs to have more realistic expectations. Buying properties for next to nothing is an extremely rare situation, even in a declining market.

In big cities where demand is high and inventory and vacancy rates are low, don’t expect to pay 10¢ on the dollar or achieve anything close to a 10% cap rate. While sometimes low-balling on a starting offer is a good strategy, I recommend providing reasons to justify your offer.

Paying fair market value doesn’t mean the property is a bad buy over the long run; it may do very well in terms of cash flow, or it might have excellent future redevelopment potential. Focus on what your potential earnings would be rather than saving a few bucks on the purchase. What’s the advantage of saving $5,000 or $10,000 now when you can potentially make $100,000 a few years down the road?

Be cash-creative

If you can’t afford to buy in big cities but are dead set on investing in them, you’re going to have to get creative to find financing. Taking out a line of credit or getting an interest-free loan from your family or a (really, really good) friend are both options, as is finding a joint-venture partner.

CREW features a lot of articles about attracting JV partners. It’s a winning strategy – and it’s really not that hard to do. If you can prove to a wealthy partner that you can make them more money while they do absolutely none of the work, you’ll be able to find the capital necessary to buy a good property.

You should also consider looking at suburbs with easy access to the downtown core. More and more people are taking mass transit, so purchasing near a subway, Skytrain or LRT stop, which can offer fast transportation into the most desirable parts of a city, is a good option. 

Juice your cash flow

If you can’t make money on your purchase, there are multiple ways to optimize your cash flow instead. These strategies will make your unit more attractive to a wider range of renters, leading to, in many cases, intensified demand and higher rents:

  • Furnish the unit and rent it as an executive suite
  • Rent lockers or parking separately (or charge tenants extra for parking)
  • Offer flexible move-in and move-out dates
  • If possible, rent on a shorter lease and increase the rent more often
  • Rent by the room
  • Include cable/internet – negotiate with your service provider for a discount if signing a long-term contract
  • Allow pets (making sure first that your strata/condo allows them)

Owning property in an expensive market is an almost foolproof way of making money. Don’t let the high barrier to ownership discourage you. Speaking from experience, it’s worth the effort.

Alice Yang is an awardwinning, Vancouver-based Realtor with experience in home renovation, design, creative financing and acquiring cash-flowing properties in various provinces. Contact her at [email protected]

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