Photo: AJ Hazzi
We’re back, baby!
Seven reasons investors are drooling over Kelowna in 2016
We’re back, baby!
These are exciting times for Kelowna homeowners and investors. We are going to explore why sales for Kelowna investment real estate have shot up 30%, and why there has never been a better time to invest.
It wasn’t long ago that we were the talk of the proverbial real estate town, but after slipping into a six year slump following the global financial crisis, all the money seemed to flow into Alberta, Vancouver and Arizona. With the Canadian dollar on par with the US, we couldn’t compete with deals south of the border no matter how nice our view of Okanagan Lake.
Like a once immortal high school quarterback, we faded into obscurity.
Well it’s our time once again. With much of Canada battening down the hatches since oil went below 40 bucks and new government leaders emerged, this four-season playground has been setting records.
We have our own unique micro climate here in Kelowna, and I’m not talking about the stellar weather. I’m talking economics. It’s easy to get caught up in what’s happening in Alberta, and to make the assumption that Kelowna will be suffering along with them. Maybe that’s because half the cars on the road in Kelowna have red license plates.
People are surprised to learn that Alberta only represents 13% of our total sales, and despite the loss of thousands of jobs in Alberta last year, that number held true to within a couple percent. Is it possible that fewer Albertans will stake their claim in Kelowna in 2016?
Perhaps, but with the opportunity in resource work in northern BC, as well as our bustling construction industry and a couple hundred baby boomers Albertans reaching retirement age every single day, the smart money says no. Regardless, Alberta is not the driving force of the Okanagan market.
Let’s look at the economic fundamentals that are underpinning this strong economy, and understand the indicators that tell us what we need to know to reliably predict the direction of real estate for the foreseeable future.
One ~Job growth
BC is experiencing solid growth in current economic conditions. Kelowna, in particular, was just rated the number two hottest job market in Canada. We have an emerging technology sector, a thriving tourism industry, and endless work for skilled labourers, due, in large part, to a construction industry on fire. Experience shows that people will go where the jobs are. After years of losing our workers to the Alberta job market, we are now seeing the pendulum swing the other way.
Two ~ population growth
Over the past 12 months, we have seen an influx from across Canada, and other parts of the world. Students are piling in, as UBCO continues its expansion. Young families are migrating to Kelowna for the lifestyle and the opportunities. Retirees continue to flock here because of our world class amenities, good hospital, and agreeable weather. Kelowna is very much a destination town that is garnering attention on a world stage.
Three ~ Increased rental demand
Demand is up, as people move to the city and rent for a period before putting down roots and buying a property. Ask any local property manager, they will tell you that they have their pick of quality applicants. There is a frenzy for new rental listings. There has never been a better time to be a landlord in Kelowna.
Four ~ Increased rental prices
Of course, near zero vacancy rates lead to sky rocketing rents. In the past year, we have seen average rents increase by 20% or more. For example: What was once $1500 is now $1800. This has turned average performing properties into home runs.
Five ~ Increased property demand
Combine upward trending rents with cheap mortgage rates to create the perfect storm. We have just finished our strongest year for demand, with record setting months in 2015. Sales were up 13% year over year. This has been the trend since the slump ended and the recovery began in 2013. As a result, the number of properties being purchased for investment has risen dramatically. We saw an increase of over 30% in the number of properties purchased for investment last year.
Six ~ Decrease in supply
Our inventory levels have plummeted to the levels of our peak boom period in 2007, putting us in a seller’s market since the spring of last year.
Photo: AJ Hazzi
Seven ~ Increase in prices
Always the result of low inventory and high demand, we are seeing prices rise in a steady, sustainable way. Values in 2015 were up roughly 8% year over year, and our average home here in Kelowna is again poised to meet, or exceed, that level of growth in 2016.
Photo: AJ Hazzi
Now, as savvy investors, we know better than to buy for appreciation, even though it’s hard not to think about the huge levered return we get when prices trend upward. However, by definition, that is mere speculation. As real investors, cash flow is king, and this is actually why Kelowna deserves your attention.
An average five bedroom house for $420,000 with a suite in the basement will bring in as much as $2,800 per month (that’s $1,650 up and $1,150 down). On the cash flow alone, you are seeing a 12% return. Factor in the mortgage pay-down and completely ignore appreciation: You see returns of 20% on your investment.
Seven big reasons why you should strongly consider adding some prime Kelowna real estate to your portfolio this year, before prices and interest rates inevitably rise.
For a list of the top 10 cash flow properties, email me and I will send you right over.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
