UPDATE - READ THE UPDATED 2017 Q3-Q4 VANTAGE REPORT HERE
With the first half of the year on the books, I wanted to summarize where we are at during these interesting times.
The Desire for Investment Properties Is Staggering
As you might expect with two years in a row of double digit property value growth in the Okanagan, and the headlines that go with it, we have seen the number of properties purchased for investment increase by 40 percent. This is a combination of baby boomers looking to augment their retirement income and out-of-towners catching wind that Kelowna’s market is in the full swing of a real estate boom and looking to get a piece of the action.
Now not all real estate investments in Kelowna have performed equally. Some have really exploded. Those holding properties in the new RU7 designations are seeing huge gains as values on war times houses in the North and South end of downtown have gone from the mid-400s to the low-700s in many cases.
This is all due to the infill development potential that these city lots hold, as four units are now permitted on a regular sized city lot. Multi-family properties from duplexes, fourplexes and apartment buildings have become so scarce that prices have jumped nearly 40 percent. A duplex in Rutland, for example, that could have been purchased for $550,000 last year can fetch $750,000 in today’s market.
Suited homes have also seen dramatic equity gains. Gone are the days of buying a single family home with a suite for under $500,000. Even the most affordable of neighborhoods like Glenrosa are posting sales in the low $500s for a 1970s bi-level home with an income suite.
Rising rents have kept up with sky rocketing values reasonably well but CAP rates have fallen from six percent to five percent to four percent over the past two years. This means investors from markets such as Vancouver are coming in search of yield. Because of our relative affordability compared to their market, and the prospect of a few more years of property value increases, they are willing to forgo the huge positive cash flow, satisfied with breaking even as they watch their equity pile up from mortgage pay down and capital gains.
Is It Time To Sell Your Kelowna Investment Property?
Many people that have been holding property since before the boom are electing to cash in at this stage. With thousands of units of purpose-built rentals coming down the pike in the next one to two years, we expect to see the vacancy rate climb a little and rents on older units to soften.
With this we may see prices stabilize on the multi-family properties.
This is good news for renters in the Okanagan, but a sell signal for many landlords.
It appears the best strategy for this market is a buy-fix-sell-in-a-year strategy. If you are wanting to purchase a holding property before they no longer cover themselves, a five-bedroom home with a suite will still cash flow nicely, and will always fare well in any downturn as it always in high demand for both investors and first time home buyers alike.
Always remember, investors don’t put themselves in negative cash flow situation chasing capital gains, that’s called speculating and it’s how people go broke.
Stick to the fundamentals and buy well-located real estate that is positive cash flow and has the opportunity to add value. That is a strategy that never goes out of style and is a fast track to building real, multi-generational wealth. View the entire Vantage Report that dissects the data neighbourhood by neighbourhood, spotting trends and opportunity in our Okanagan market, view the entire report here.
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