“Failure is part of success.” -Hank Aaron

RENTAL INCOME POPULAR ROUTE TO RETIREMENT – BUT EMPHASIS MUST BE ON POSITIVE CASH FLOW

B.C. FLAT WITHOUT VANCOUVER FROTH

WHERE FLIPPING PAID OFF IN LAST 6 MONTHS – AND WHERE IT WILL IN THE NEXT 6 MONTHS

ABBOTSFORD DRAGS DOWN VALLEY CONDO PRICES

SACRED COW: PRESSURE MOUNTS ON ALR

HOW ABOUT AN OCEANFRONT COTTAGE FOR $116,000?

Rental Income Popular Route To Retirement – But Emphasis Must Be On Positive Cash Flow

More than 40% of Metro Vancouver residents in a recent Ipsos poll said they planned on buying a rental investment as a retirement strategy.

The Investment Rental Property Survey, done for North Vancouver-based Blue Shore Financial, found that 21% of respondents already own an investment rental
property, and a further 54% are looking to purchase one within the next 5 years.

Investor landlords said they had bought for future retirement (49%) or in order to take advantage of rising real estate values (44%). In particular,
investment condos were cited as the top rental property at 45%, followed by houses (29%) and townhomes (14%).

Of those who own investment rental property, other key findings from the survey include:

  • The majority of property purchase prices were ‘under $300,000’ at 34%, followed by ‘$300,001-$450,000’ category at 27%.
  • 53% of respondents funded their rental property down payment or purchase by drawing on savings, followed by using a Home Equity Line of Credit
    (18%), carrying a mortgage on their primary residence (16%), and using a family-financed option (14%).

We have consistently advised investing in rental real estate as both a hedge against inflation and as a retirement investment plan, but in today’s Metro
Vancouver market the stakes are high and caution is advised
. It is more important than ever to emphasis positive cash flow and have a sufficient
downpayment to make that happen. In most municipalities the vacancy rate for condo rentals is around 0.7% so finding tenants is not a problem. The
challenge is making sure the rental income covers the mortgage and strata fees.

Note that 44% of those polled said they were investing to take advantage of rising real estate value. Bluntly put, condos have not seen great appreciation,
especially in lower-priced markets across the Metro region
. One investor we know bought a Sunrise-Hastings rental condo seven years ago and sold it this
spring for just $20,000 more than what she paid for it.

In parts of the Fraser Valley, condo prices have not risen or have even reversed over the past year. And remember that capital gains must be paid when and
if the condo is sold for a profit.

Go for cash flow: To invest in today’s Lower Mainland condo market you need at least a 25% downpayment and 30% or more is recommended to assure the rental
income will cover your expenses: the mortgage, property taxes, insurance and strata fees. Do not include utilities: the tenant should pay for parking,
cable, heat and hydro.

Buy near transit stations. Coquitlam and Port Moody are good bets right now because of the SkyTrain extension that opens next year. We found a dozen
potential rental condos in Port Moody priced under $250,000 this week including a $169,000 one-bedroom that, with a 20% downpayment, would require a $610
mortgage payment, plus strata fees of $230 for a total of $830 a month. Projected rent would be in the $950-$1150 range.

Hire a property manager: A manager will cut about 10% of your profit, but a good manager will help screen tenants, arrange cleaning and take care of those
plugged toilet calls that always seem to come around midnight.

Major Point: The best advice is to keep buying rental condos and ignore if it is “good or bad” market. Buy for long-term passive income. Nothing beats real
estate as a retirement play or a way to keep ahead of inflation.

BC Flat Without Vancouver Froth

The projections for B.C.’s housing market are certainly bullish: the BC Real Estate Association expects sales demand this year to be the strongest since
pre-crash 2007 and is forecasting the average MLS price will rise 7.5% this year. Both CMHC and the Conference Board of Canada also see B.C.’s market
leading the nation.

But look close and it is plain that, without the froth of Vancouver, B.C. prices are as flat as day-old beer.

Greater Vancouver composite home prices are up 6.2% so far this year, compared to 2014, and BCREA says they will rise 7.1% by year-end.

In comparison, markets outside of the Lower Mainland are seeing much more modest price increases. Prices in Victoria are forecast to rise 3.1% this year,
with the rest of Vancouver Island inching up just 2.8%, the same as in Kamloops, and just slightly better than the Okanagan and Northern BC, at 2.6%.
Kootenay MLS prices are expected to stay flat for the second year in a row and will not budge in Powell River.

But we see some exceptions: the Northwest areas of Prince Rupert and Kitimat and the Northeast centres of Fort St. John, Fort St. James and Dawson Creek.
The reason: we are confident that Malaysia state-owned Petronas will OK the start its $36 billion liquefied natural gas (LNG) plant this month, which will
quickly reverse a recent slowdown in northern price appreciation,

Gibsons and Sechelt on the Sunshine Coast. The average detached house price on the Sunshine Coast is $365,400, which is about $700,000 less than in Greater
Vancouver, but prices on the coast have been edging steadily upward this year. There is a buzz building around the Coast and we see prices rising sharply
in 2016 as more retirees and first-time buyers move in.

Five Hottest Markts For Flipping In Last 6 Months

– AND WHERE IT WILL IN THE NEXT 6 MONTHS

Flipping, or speculation, in the Metro Vancouver housing market has received a bad rap recently with the mayor – who recently made $405,000 buying and
selling a house within 20 months – calling for an end to speculation and asking the province to do something about it, which of course they can’t, won’t
and shouldn’t.

Meanwhile, aside from the Point Grey neighbourhood where the mayor cashed out, what have been the best areas to buy and flip a house in Metro Vancouver in
the past six months?

Here are the top 5.

Based on MLS sale prices, the top area for flippers is West Vancouver, where the typical house price increased 14.6%. On the average price of $2.29
million, a quick six-month flip could have theoretically made around $334,000.

Burnaby North is the second hottest flip market, with a 13.7% increase in the past six months and a potential return of $153,000.

North Vancouver typical detached house prices rose 12.6%, with a potential return of $147,000.

Tsawwasswen in South Delta rang in with an 11.9% price increase in the past six months, offering a potential return of $103,300.

Burnaby South buyers saw an 11.7% increase in typical house prices since last November, returning a potential $135,000 for a nimble flipper.

 

Here are the next 5

Where can a flipper make the most money over the next 6 months?

West Side Vancouver: It takes a lot of money to get into this market, but the payoff will be the spectacular. Buy a house at today’s price of $2.5 million
and you should be able to flip it for a $275,000 profit by Christmas. Best bet: Marpole where new zoning is putting pressure on land assembly sites.

Burnaby East: Typical house prices are up 10.6 in the past month; 13% in the past year and land assembly pressure and new developments will drive prices
higher this year.

Based on current house prices, returns of $120,000 on a house flip are probable.

Port Moody: The typical house price is up 9.3% in the past year and 6.8% in the past three months to $991,500. We believe demand will increase as the new
Skytrain extension prepares to open. Buy a quality house today and sell by year-end and the return could be in the area of $105,000.

Port Coquitlam: Currently undervalued compared to its neighbours, PoCo is playing fast catch up with typical house prices rising 2.6% per month. A
six-month house flip could return $77,000.

South Delta: A wave of cashing-out Vancouver homeowners is pooling in the sunny South Delta towns of Ladner and Tsawwassen. A new bridge will replace the
tunnel in two years and a giant shopping centre opens in 2016. Buy today in Ladner – where average house prices shot up 9.7% in the past 3 months – and
pocket at least $70,000 when you sell near year-end.

Abbotsford Drags Down Valley Condo Prices

We are surprised to see the Fraser Valley Real Estate Board report that benchmark condo prices in the Fraser Valley fell 2.8% in May from a year earlier to
$192,500.

When we dug down, the reason for the price slide became apparent: it is Abbotsford. Average condo prices in the eastern suburb plunged 11% last month
dragging the Valley condo price metric down with it.

In reality, most of the Fraser Valley market is seeing condo prices rising compared to a year ago, with exception of Abbotsford and Mission, where condo
prices fell 6.6%.

Based on MLS averages, condo prices in Surrey are up 3.6%, but up 19% in Surrey-Cloverdale. Central Surrey condo prices are flat compared to year ago.
North Delta saw a 24% rise in average condo prices in May compared to May 2014, to $184,500.

Across all of the Fraser Valley, the average – not benchmark – price for a resale condominium last month was $233,214.

Sacred Cow: Pressure Mounts On ALR

Consider this fact: there is 150,000 acres in Metro Vancouver – 22% of the land base – in the Agricultural Land Reserve (ALR). In comparison, there is only
476 acres of privately owned land that is serviced and ready for industrial development, and about 2,400 acres that could be suitable for industrial
development.

Which is why a subtle new campaign is being mounted to take a look at thawing some of the ALR for future commercial and residential development. The ALR,
according to NAOIP, a Vancouver-based development association, is a key reason why it now costs millions of dollars to buy a few acres anywhere in Metro
Vancouver. In a recent survey nearly 30% of developers cited a shortage of land and the ALR as the biggest long-term problem.

Chris MacCauley, a NAIOP vice-president, said the developers know the political optics but feel something has to be done before the area actually runs out
of commercial land. He notes that higher density and more productive agriculture means less land is required for both farming and commercial real estate.
“It is time to stop looking at it as a fight and start to work together to find solutions,” he said.

However, it looks like a big fight is brewing.

Major Point: It would not take a lot of ALR land to make a difference. For example, River District in East Vancouver, by Wesgroup, is developing just 120
acres of land into a town of 17,000 complete with its own downtown.

How About A Nice Oceanfront Cottage For $116,000?

Recreation real estate is becoming back in vogue after a seven-year slowdown as the recent Royal LePage annual recreation report points out. The exception
to this is in Alberta, some border areas of eastern B.C. that cater to Albertans, and in Newfoundland, where a depressed energy sector has reduced activity
levels and put downward pressure on prices, the report noted.

The national survey includes a breakout of average prices for a “typical” waterfront cottage accessible by land.

The least expensive such parcel is near Fredericton, New Brunswick, with an average price of a cottage on the Atlantic oceanfront at $116,000.

AVERAGE WATERFRONT COTTAGE PRICES ACROSS CANADA

SELECTED MARKETS

Area / Average price

Newfoundland $150,000

Nova Scotia $400,000

Fredericton, NB $116,000

SE New Brunswick $150,000

Mont-Tremblant, PQ $500,000 – $1.5 million

Muskoka, Ont. $540,000-$700,000

Rideau Lake, Ont. $265,000-$450,000

Lake Winnipeg. MB $200,000

Candle Lake, SK $420,000

Sylvan Lake, AB $1,000,000

Pine Lake, AB $370,000

South Cariboo, BC $260,000

Kelowna, BC $1,000,000

– Source Royal LePage Recreational National Report, 2015