With talk of how to best approach the white-hot Vancouver real estate market everywhere, residents of BC are becoming pretty crafty. From rural properties to mixer-mortgages, Vancouverites are finding ways around the financial obstacles to owning – including buying out of city, and sometimes out of province.
In my own business, I have seen an increasing number of clients diversifying their real estate portfolio and choosing to purchase their investment property in other cities and provinces; and so far the decision has paid off in more ways than one.
One of my current client’s is from Toronto but knew she wanted to buy in Vancouver. In Toronto she owns two properties — an apartment in the city and one in Mississauga. Renting it out as an investment property, she had a fairly handsome return and since purchased the price has increased as well. This allowed her to refinance in order to take out equity to put towards a home in Vancouver.
Together my client’s properties are worth approximately $550,000, something that would have been impossible to find in Vancouver. But here’s where she really won out: although rent in both places are similar to what you would find here in BC, her ROI is much higher because both properties were much cheaper to finance when compared with Vancouver. Her Mississauga property brings in around $1’275 a month from rent, and the Toronto property (a gorgeous 1-bedroom in a very nice area of the city) around $1’850. Both properties bring her a positive cash flow, and beyond the money, a solid asset that has given her increased financial freedom and confidence.
A survey done by TD Bank in 2014 (called the TD Investor Insights Index) showed that 32% of respondents bought properties other than their homes as investments. Not only that, TD pointed to data from Statistics Canada that showed “the total value of principal residences has risen 52.2% from 2005 through to 2012, while “other real estate” investments have risen 70.4% over the same period.”
Until now popular hubs for investment properties have been cities like Calgary, Toronto, Mississauga, Hamilton and Edmonton, but that is changing. With its gorgeous farmland and pristine shorelines, Prince Edward Island has become such a popular spot for non-residents that they had to put restrictions on how much land could be bought. Still a reasonable restriction at 5 acres of land or 165 feet of shoreline, much of this was being snapped up by American investors, but Canadians from out of province are now following suit; buoyed in particular by Ontario farmers looking for cheaper land than what is available in their home province. But although there remain strict rules for purchasing and despite that P.E.I. encourages homeowners to become residents, it’s hard to argue with the numbers released last year by the Canadian Real Estate Association. With the average price of a home in P.E.I. at $165,505, it is the second cheapest province in Canada to buy.
If you’re interested in potentially buying an investment property out-of-province (regardless of what province you’re actually living in) there are a few things to be aware of. You want to find a property that can command a rental price high enough that it pays your mortgage, as well as any strata fees if applicable, and property tax that you will be paying. Ideally, the rental price will come in slightly above this to give you a small but healthy (and growing) annual return. You also want to work with a realtor who is familiar with the area you’re looking into.
In the last couple of years I have worked with buyers from Vancouver who have purchased investment property outside of BC, as well as a few who invested in our province from outside. Whichever way you go, if it makes sense for you financially and you can gain a return, out-of-province real estate can represent a sound investment.
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As a self employed successful person, it really isn’t that simple. First and foremost, it has to be owner occupied…..so there goes any investment you maybe thinking of. If you have 20% to bang down, this loophole can be fixed. I have spent the past couple of months trying to buy a condo out of province, and if someone had been straight right away, I wouldn’t have wasted my(and owners) time…..very frustrating reality.
Dear Clair, Whether you are self-employed or an employee, the minimum down payment for an investment property is 20%. Depending on how you declare your income and how much you pay yourself, sometimes the better option for someone who is self-employed is to go the stated income route. Unfortunately, this becomes more challenging on investment properties as you may only be left with alternative lenders with possibly higher rates and fees. Stated income is usually best for owner occupied homes.