Rental Investment Options

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Old apartments a hot new rental market investment
Investors on track to spend a record $1 billion for Metro rental buildings this year
By Frank O’Brien                                                                                          Aug. 25, 2015, 11:28 a.m.

 

The 61-year-old wood-frame apartment building on West 11th Avenue in Vancouver doesn’t look like much. No balconies outside, no elevator, no granite countertops or stainless steel inside.

It has only 10 rental units. But when the building sold this spring, each of the old suites was worth $360,000, or more than $335 for each creaky square foot.

Like many aging Vancouver apartment buildings, it had doubled in value in the past 10 years and represents the most seductive real estate investment in Canada.

Sales of rental apartment buildings in Metro Vancouver are forecast to top $1 billion this year for the first time, and the price per door appears irrelevant.

Across Metro Vancouver, the average rental building sells at $231,000 per suite, by far the highest in Canada, according to a Colliers International survey.

As a comparison, Calgary apartment buildings sell for an average of $171,700 per suite. Toronto’s average is $195,600.

Describing the market as “explosive,” Vancouver realtor Mark Goodman, a multi-family specialist with HQ Commercial, notes that of three apartment buildings he recently sold, two were bought with unconditional offers and for more than the asking price.

“It is all about search for yield,” said Don Campbell, founding partner and senior analyst with the Real Estate Investment Network. “The price is not all that important.”

According to Campbell, the typical capitalization rate on a Vancouver rental property is often tiny: in the 3.2% range. But investors can secure government-insured mortgages for around 1.8%, which is lower than the annual rental increase allowed under B.C. residential tenancy rules.

“The money is free,” Campbell said.

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