Is Real Estate Too Expensive In Your City?

When I Got Started

I live in Ottawa, and I got started in real estate back around 2001-2002.  Back then, you could buy a duplex for a little over $100,000 (I know because I bought one for exactly $114,900).

However, I found it strange that many of the people I talked to said Ottawa real estate was too expensive.  Hmmm… were we investing in the same city?  The duplex I had just bought covered the mortgage with ONE rent.  How much cheaper did they want it?

 

Fast forward to today, and people are still saying real estate in Ottawa is too expensive.  In fact, I’ve heard the same thing for over 15 years! (even from some of my students)

Today, the same duplex I bought would sell for at least $350,000. And one rent would certainly NOT cover the mortgage, despite the lower interest rates on mortgages that are now available.

Could someone argue that Ottawa real estate is too high?  Sure… but then again, that same person could have argued the same thing 15 years ago (or even 40 years ago).

 

A Trip To Montreal

Recently I was in Montreal visiting some friends, and one of them took me on a tour of the south shore area to look at investment properties.  I thought it would be interesting to compare Ottawa real estate with Montreal, just to see how expensive prices truly are here in the nation’s capital.

Now keep in mind that this is not a list of official data from the local real estate board… I got these numbers from an informal discussion with my friend who owned some property in the area.

Check out what I found…

Property Details Value (estimated)
Triplex with units rented between $900-$1200/month, all inclusive Between $500,000 and $600,000
6-unit building with 2-bedroom apartments rented between $450-$650/month, utilities extra, parking included Approx. $500,000
6-unit building with large 3-bedroom apartments rented between $600-$770/month, utilities extra, parking included Approx. $600,000
8-unit building with 2 and 3-bedroom apartments rented between $700-$750/month, utilities extra Approx. $750,000
9-unit building with 1, 2 and 3-bedroom apartments rented between $460-$750/month, utilities extra, parking included Between $700,000-$750,000
15-unit building with 3-bedroom apartments rented between $700-$750/month, utilities extra, parking included Approx. $1.4 million

 

The Results

What I found interesting was that many (but not all) of these properties were priced similar to Ottawa properties (depending on the area).  But (and this is a BIG but) the rents were substantially lower!

Why should that matter?  Well imagine two properties, one in Ottawa and one in Montreal, same price, same number and size of bedrooms, same quality of tenants, same financing, same tax rates, etc… but in Ottawa, a 2-bedroom apartment rents for $850 on the low end, and in the south shore area of Montreal, it rents for $700.

Which do you think will have the higher cash flow?  You guessed it… Ottawa.

 

It’s All Relative

Now I’m not trying to put down Montreal at all… it’s a beautiful city, with many features that Ottawa doesn’t have, as well as some incredible investment opportunities.  What I am trying to show is that ‘too expensive’ is relative to other cities and towns (and even to other countries).

In fact, in many countries…

  • Real estate must be purchased for cash. There are no mortgages available.
  • Real estate is so expensive, the only mortgages people can afford are interest-only (you will never pay off your mortgage… ever!)

The thing to keep in mind is that real estate ALWAYS seems expensive today, no matter where you live.  But due to a variety of factors such as inflation, immigration, constructions costs and more, the prices will usually go up in the future (at least they do most of the time in major cities and nearby towns).

What are prices like in your town or city?  Do you find them too expensive?

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Paul Blacquiere

Founder and Editor at Spirepoint Wealth
Paul is an entrepreneur, investor, speaker, educator and publisher. He's founder and editor at Spirepoint Wealth, a financial education company dedicated to helping people improve their finances, create more cash flow and build long-term wealth.
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  • Well said!! If it wasn’t for rent control here in Montreal, real estate would be much different. I would wonder if prices wouldn’t be higher then they are now. Here in Montreal you need more cash to buy because the economic value of a property doesn’t match the market value and banks will only lend on that, which means buyers have to make up the difference. For example I’ve seen a 6plex listed at $600K and the bank will only lend out $325K. So in Montreal, we’re buying on the numbers, however always having one bigger eye on the potential.

    It’s always a great time to buy real estate. -jenn (Montreal Real Estate Agent)

    • Paul Blacquiere says:

      I don’t blame the banks for restricting the amount they’re lending… they are just looking to control their risk, and it’s not hard to see in a rent controlled area like Montreal, the income just can’t support the higher mortgage payments on some properties.

      One thing that I didn’t mention is that in cities like Montreal, with rent controls and high prices, people often can’t afford to buy a home outright, so they buy a duplex or triplex instead and rent out the other units. This creates tremendous price pressure on those types of properties, which normally would only be of interest to investors.

      Personally, I think rent controls should be eliminated everywhere and allow free markets to set the rates – a fair price for fair value. If a landlord has high rent but poor ‘customer service’ for his/her tenants (e.g. doesn’t repair anything), tenants will just move elsewhere where landlords provide a better standard of living.

      The big problem with rent controls is that they restrict the income a property can generate, and as a result, landlords are forced to restrict their spending on repairs and maintenance. Over time, the rental housing stock simply gets worse and worse…

      • Carolina Velarde says:

        I agree a 100% with Paul’s comments, but unfortunately, I don’t think things are going to change here in Montreal in that respect, not for a long time anyways.

        That being said, I do believe there are always good opportunities if you only take the time to do your due diligence and research the properties available in the market. How well a building has been maintained is one of the main factors in any decision to buy a property, but extremely important here in Montreal.

        The potential could also be a double-edge sword since the increase in rent is so restricted, and it can take a fairly long time to increase the rents to the desired level. Have to be very conscious of it when making your decision.

        Carolina Velarde
        Montreal Rela Estate
        Investors Group

        • Paul Blacquiere says:

          Even in hot, rent-controlled markets like Montreal, it’s always possible to find a great deal. Usually that involves a good realtor (they get leads coming to them all the time), but you can also searching for deals yourself before they hit the market (approaching or marketing to property owners directly). It is more time consuming though, and for most people, I believe it’s best to leverage a realtor who is in touch with the local marketplace every day.

          I see you and Jenn have started a real estate group in Montreal. How’s it going?

  • ModernWorld says:

    dollar for dollar property prices vis-a-vis rental income are more attractive in Ottawa…rents are very affortible in Montreal considering it being one of the biggest cities inCDA…makes me question our realestate values as a city for investors, and the opportunity for tenants to live comfortably in the second biggest city in CDA beautiful as it is to boot…go figure!

    • Paul Blacquiere says:

      I think you’ll find where ever there is a city with a large renter population and an influential tenants association, there’s a good chance that government policy will be pro-tenant (e.g. rent control).

      If you’re a tenant, that’s great! You get cheap living. If you’re a landlord, you may want to consider investing elsewhere or buying a small multi, living in one unit and renting out the others.

      Despite the above, I do believe there are still a lot of great investment opportunities in Montreal. Over the last few years, I’ve had a handful of students bring me deals to look over that had excellent numbers.

      Also, if you’re a more experienced investor looking for large deals, Ottawa just doesn’t support the size of some of the large multis you can find in Montreal (e.g. 100 units, 300 units, etc.)

  • Pat Sherk says:

    Coming from a totally different and much smaller city (Charlottetown, PEI), I have not found this to be a problem as far as my research has shown. Prices are lower of course and some properties even seem undervalued if anything. There are two major challenges involved in getting into the real estate “game” here and they are a) the challenge of lower rents which makes for difficult cash flow if you want to hold on to the property and b) the limited number of properties that are available to buy. The number of properties for sale at any given time here is certainly knowable and you have to be vigilant to new properties coming onto the market as the “good” ones don’t last very long. It is a very finite market. The “up” side to this is that the city is very easy to “know” if you pay attention and have lived here for any length of time. I know the majority of it on a building by building basis. This makes new possibilities very quickly apparent.

    • Paul Blacquiere says:

      In a market like that, you definitely need to have good connections with local realtors who can bring you deals before they are listed.

      Another option is to do your own marketing for motivated sellers… you’ll get the deals before realtors even know about them.

      With smaller cities and town, one good thing is that the cash flow is usually better than in larger cities. So if you’re a cash flow investor, that’s good for you.

      On the down side, depending on the location, the appreciation may be low or non-existent. So if you want large gains, you’ll want to focus on buying properties at a discount (instant equity).

  • malcolm setter says:

    I hail from Fort Mcmurray and prices seem to expensive here! However when
    I first came up here 5 years ago I couldn’t believe they wanted 500,000 for
    a 3 bdrm single detached, I thought it was to expensive. This week we just made
    An offer on a similar house for around 900,000 which cashflows fantastic
    And other than the frightening price is an excellent property. I agree with Paul
    In that every market seems to expensive but you need to look at where it has been
    And where it is going because chances are it will seem much more expensive the longer
    You wait!

    • Paul Blacquiere says:

      Wow, I remember hearing a few years back about how expensive properties were in Fort Mac… I can’t believe how much they’ve appreciated since then!

      For those who don’t know, Fort McMurray is a town (or a city? How big is it now?) built for the oil sands operations setup in Alberta. Billions of dollars have been spent there, and many people get paid crazy salaries to work the oil rigs.

      Malcolm — How much is it to rent a house up there?

      • Malcolm Setter says:

        Fort Mcmurray is around 100,000 people right now and expected to continuing growing drastically over the next few years. The disposable income here is average 24,000 per year after all living expenses, which is 3 times Calgary or Edmonton. And the 3 bdrm house we made an offer on has a 2 bdrm legal suite and whole house is currently rented for $5800.

        • Paul Blacquiere says:

          Population growth is definitely a good sign for increased real estate prices. And a good thing about high disposable incomes is that your tenants are more likely to pay their rent 😉

  • Stephen Kyte (613-362-5983) says:

    If I could bring you back 10 years from today and sell you a duplex for just over 100K that generated $800+ per month per door in revenue would you jump on the opportunity knowing what you know today?
    Well I can`t turn back the hands of time but opportunities like this still exist even today. Just change the city name from Ottawa to Cornwall and voila, opportunities abound.
    The mill town has transformed itself from the once smelly manufacturing town to a diversified Mecca for distribution and call centre’s. Infrastructure spending is booming with the new multi-pad ice arena, hospital expansion, new bridge to USA and the list goes on and on. With an unemployment rate below the national and provincial average and within a 1 hour drive to both Ottawa and Montreal, the town located on the banks of the St. Lawrence is still a secret location that many investors are overlooking.
    Do you really want to wait until the word is out or will you be the one that sees what others miss this time around!

    • Paul Blacquiere says:

      Thanks for bringing this up Stephen.

      Just last week I was having lunch with a past student and he owns a property in Cornwall with good positive cash flow. I heard there were alot of changes happening, but you’ve brought up some interesting new ones I hadn’t heard.

      It could be a good opportunity for those who live in either Ottawa or Montreal to invest in something relatively close to home… if you don’t mind the drive when you just want to check in on your properties… maybe combine it with a shopping trip to the US 🙂

      What types of properties are most common? Single homes, small multis, or large multis? Or a mix of these?

      • Stephen Kyte (613-362-5983) says:

        Generally duplex, triplex and quads are the most common in Cornwall. Single homes generally do not cash flow well due to the lack of a multiplier. There are not many units over 5 doors and when they do come to market they are snapped up quickly. Part of my daily routine is to draw up a complete analysis of all income properties as they come to market.

        • Paul Blacquiere says:

          @Andy (if you’re reading this post)… Stephen could be a good realtor to call to find more deals in Cornwall 🙂

  • Janet Mathieson says:

    Hi Paul, what about those of us in Victoria? I’d love to find a duplex for $115,000!! Cash flowing properties are definitely difficult to find here. Apparently they do exist though. We’re thinking of Nanaimo as a long term hold city. My cousin lives in Fort Mac and last rental story I heard was $4500/month but it included housekeeping services.

    • Paul Blacquiere says:

      I can imagine! Both Victoria and nearby Greater Vancouver have very high average prices, with Vancouver being the highest in Canada.

      Check out some stats I found on the BCREA (page 2)

      http://www.bcrea.bc.ca/news_room/2010-12.pdf

      Vancouver _average_ price in December 2010… over $700,000!

      Fort Mac is just about as crazy… average in December 2010 was over $550,000 — at least Victoria is lower this this! 🙂

      http://creastats.crea.ca/area/

      What kinds of rents can you get in Victoria? Does it come close to Fort Mac?

  • Fiona Styles-Tripp says:

    Hi Paul,

    I think the prices in Edmonton are fairly high making cash flow difficult. Single homes are going for $350,000 and up and rents are around $1000/month.

    For the same amount of money I can purchase several condos in Mesa, Arizona where condos are selling for $60,000 and the rents are $720-950/month. Obviously the cash flow on these are much better.

    Fiona

    • Paul Blacquiere says:

      I think anything even remotely close to the oil sands in Alberta has high prices (or will have soon). There’s a hint for any Albertans… look for smaller towns/cities close by, watch to see if any oil projects are coming soon, or for workers buying up property.

      The US is a whole different story and while you’re right, you can definitely find some excellent cash flow deals, I’ve been hesitant to recommend it to people for a few reasons…

      1) Remote management is always more difficult – you need a good team in place to take care of your properties

      2) Tax planning is much more complicated, as you have to understand 2 tax systems – the US and Canada. In addition, I believe the US just introduced a new ‘death tax’ that carries a very high tax rate over certain estate values, so if you pass away, your heirs could lose a substantial chunk of the equity (note: I am not an accountant — please consult one familiar with Canada and US tax laws before trusting what I say)

      3) I don’t think the economic crisis in the US is over yet, especially in real estate. We’re just coming into the next wave of mortgage resets for ARMs (adjustable rate mortgages). While these are not sub-prime, they may have the same effect as the sub-prime crisis that hit in 2008. Prices could drop even lower in some centres due to more foreclosures.

      SIDE NOTE – I took a trip to Phoenix, Arizona and while I was taking a cab to the hotel, I saw something I’ve never seen before… a GIANT billboard advertising over 700 foreclosures available. You read right… over 700. There were also for sale signs everywhere. The cab driver told me a lot of Canadians were buying up vacation properties there because of the low prices and the strong Canadian dollar.

      Anyways, just my 2 cents worth…

      • Jeff says:

        I did immense research on investing in the S.W. United States, so much so that I recently purchased 2 homes in Las Vegas that were foreclosures. I found a good R.E. agent and more importantly a great property manager that arranged a contractor to do repairs to the properties and get them ready for market. They were both rented in less than 10 days and earning 8%-10% on my investment.

        I choose Vegas because I enjoy traveling and visiting there and the fact that it’s a world class city.
        I would agree that tax planning is a bit more complicated but its not something that should stand in the way of a personal dream or an investor’s desire to succeed.

        The tax systems are not that much different depending on how the property is held.

        • Paul Blacquiere says:

          I agree, an investor shouldn’t let extra tax planning stand in the way of investing anywhere, even in the US. And if you can find properties that cash flow and you’ve built a great team, it can work.

          But for most people who just hear that ‘American real estate is on sale’, they just get excited to buy, thinking they’ll make a fortune investing. So they jump in without researching, no team in place, not consulting with an accountant, etc. For those people, I recommend to stay away, especially if they are hoping for big gains anytime soon…

          Paul

  • Moe Muise says:

    Hi Paul,

    I’ve been on your list for some time and have really enjoyed the material you put out (including this article). I’m also an internet marketer, and am always interested to see the promotional methods you use.

    Now, on to a question that I’m sure you’ll find annoying (but I just have to ask it!): are there any neighbourhoods in Ottawa that you think are poised for good capital appreciation over the next few years?

    Moe

    • Paul Blacquiere says:

      Thanks Moe. I’ve always told my students that if they want to succeed in real estate raising investor capital, finding deals before realtors do, or building any kind of business, learning how to market is a MUST.

      Ottawa is a small city, but it’s also a big city in that I don’t know of all the areas around town that might be poised for growth. A couple of hotspots I know of… Little Italy (Preston street area) – just check out all the new shops on the main strip. Lebretons Flat is still in progress (and will be for some time), but checkout anything nearby, which will become hot in a few years (e.g. Hintonburg)

      A few things to watch for in your area to see if there’s growth potential…

      – Look at the city’s long term plan. It’s available for free online or in print from their offices. It shows a 20-year plan for everything, so you can see what’s coming.

      – Buy in the path of progress (e.g. new roads, new transportation hubs, etc.)

      – Watch where developers are building and buy nearby. As their development grows and matures, your property will go up in value. (A good example of this in my own neighbourhood… 1500 homes being built, 1000 more planned)

      – Keep in mind that Ottawa real estate has averaged approx. 6% appreciation over the last 50 years. So as long as you don’t buy in a bad area, you should do fine.

  • Edna Keep says:

    Thanks Paul for the great information. Makes me feel fortunate to be buying in Saskatchewan. You can still find some reasonable prices in Regina. For an example we have a 2 bedroom apartment condo for sale for $145,000 and the rent is $1,050/mth. Condo fees are $265, property tax is $100. Regina has the new transporation hub and alot of growth happening.
    We recently bought a 3 bedroom bungalow with a 1 bedroom basement suite with a den for $270,000 and rents are $2,100.

    • Paul Blacquiere says:

      You’re welcome — glad you’re enjoying it. 🙂

      You seem to have some pretty decent rents compared to property values. That certainly makes it easier to carry the property while you wait for appreciation to kick in. In a future article, I’ll go into detail on how to compare different markets, so you can pick a place to invest with the best returns…

      Paul

  • AL Rivard says:

    In 2013 I find Ottawa Re is too expensive and actually due for a correction. Toronto and Vancouver are going through it. In my area towns go for 300 to 325K they rent about 1600$ +-

    By the time you pay the mortgage on minimum down plus taxes ect. you end up even if that. So you are gambling on capital gains. I wish I knew in 2000 what I know now. I still remember in the 90’s being able to buy a town for 100k. Definitely the better years have gone buy and now I am being patient , but always looking, waiting for market correction which is slightly started in Ottawa, singles are down 6%. When I feel the time is right I’ll buy. The bottom line is to trust your instinct and not do a move that you are uncomfortable with. sometimes the best move is the one you don’t make.

    • Paul Blacquiere says:

      Hi Al,

      If rents had kept pace with home prices over the last few years, it would definitely be much easier to buy with positive cash flow.

      It just makes it that much more important to analyze properly, be conservative with your numbers, and always negotiate a great deal up front (in other words, buy at a discount – the bigger the better).

      Personally, I think when interest rates rise, the markets will be due for a correction, which will cause all sorts of bargains to appear. The rental market will improve, as there will be many people forced to be renters because they were barely squeaking by as homeowners when rates were low, and now they can’t afford the higher rates.

      Those who bought real estate properly will not have a problem… they can just hold on, wait out ‘the storm’, and let their tenants pay down their debt.

      Paul


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