WHERE SHOULD I INVEST???
Who doesn’t love a good game of Monopoly? But what if you’re playing with real money, and a real retirement plan? Most of us would like to have a little more strategy and a little less “game” when our own money is on the line.
Conventional wisdom suggests “investing where the returns are best.” Right. Got it. That brings us full circle back to the original question: where?
Some investors will have specific criteria: 20% Return on Investment, averaged over 5 years, or a specific cash-on-cash return. Great, you know your numbers for your investment portfolio! Where?
In a non-COVID world, we would simply take a good long look at the economic fundamentals of any given location. We would search for GDP growth—hmmm, tricky one planet-wide this year. No problem, where are jobs growing—nope, that doesn’t work either. Where are people moving to or immigrating toward? Well, immigration is down Canada-wide by 64%, and specifically to Alberta by 65% in the second quarter of 2020.
We could look for “hot” markets. Prices are rising in Toronto? But rental rates are falling—in some cases by as much as 22% (as reported by Rentals.ca in Toronto’s downtown core). So that suggests paying more for a property that will receive less income—not our first choice for good business!
Conventional real estate wisdom … meet COVID.
Today, real estate investing is going to require some math, some fundamentals, and a commitment to long term strategies. In order to receive the benefits, real estate investors will need courage, time and a solid plan (A, B and C!)
Where are we investing today? We like markets that we know well, and for us that is Alberta. We like properties that we can manage ourselves, so that’s about a 100+ km radius. We keep in mind that even with 15% unemployment, that means roughly 85% of people are employed—so we are paying attention to those jobs. However, today’s reality involves working from home, and a big current trend is people moving to suburbs and exurbs. We’re not following that to be trendy, but because affordability is often better outside the city centres. These days, we might even be able to get better rent in an exurb for a similar house—and pay $100,000 less for it! Cochrane is a great example.
Another key in our decision making is our ideal customers. We love houses that will attract young families of all shapes and sizes. We are recognizing that as the world emerges from COVID (eventually), there will be many millennials looking to become first-time homebuyers. Whether they rent from us to start, or provide an exit strategy by purchasing one of our properties, this huge demographic gives us a solid customer base going forward.
The question of “where to buy,” isn’t a simple answer, and we believe it is unique to each investor’s goals. Our strategy is simply to buy in this low point of the Alberta economic cycle; our target is good family homes (potentially suitable!), where our cashflow will cover our expenses and then some. We don’t know if the economic re-opening will be squashed by the 2nd Wave of COVID or not. We do know that if we wait too long, we’ll miss many fabulous opportunities. And we love the Buy and Hold strategy in today’s marketplace. We think the world will look very different in 5-10 years.
