Cash Flow Key to Residential Real Estate Investing

Tuesday, September 25th, 2012

Glen Korstrom

A new Urban Analytics survey aims to alert real-estate investors to the industry wisdom that the best way to assess investment properties is to examine how much net profit rental income will generate.

The Vancouver consulting firm focused on Burnaby neighbourhoods – primarily because the research was sponsored by Hungerford Properties, which is developing the two-tower Altitude project at UniverCity on Burnaby Mountain near Simon Fraser University (SFU).

The study found that rental prices atop Burnaby Mountain are either above or equivalent to other areas of the Lower Mainland, but that the cost to buy property is lower.

Urban Analytics principal Michael Ferreira told Business in Vancouver that the cost of condos in the SFU neighbourhood is about $450 per square foot. That compares with $540 per square foot near Brentwood, $570 per square foot near Metrotown and $500 per square foot in the Highgate neighbourhood.

Rental rates atop Burnaby Mountain, his study found, are about $1.99 per square foot. That’s more than:

  • the average $1.96 per square foot that landlords can generate near Metrotown;
  • the $1.92 per square foot that condominiums rent for near Brentwood; and
  • the $1.89 per square foot that’s the going rental rate in Highgate.

“Most of the investors in the market today are Asians,” Ferreira said, “so we also looked at where they’re buying today other than Burnaby.”

He found that condominiums in Richmond’s city centre and at the University of British Columbia campus provided less positive cash flow than those at SFU.

Richmond condominiums cost an average of $550 per square foot and can be rented for an average of $1.91 per square foot, whereas those at UBC cost an average of $910 per square foot and draw a rent of about $2.57 per square foot. The Real Estate Investment Network (REIN) independently produced a report last year that found that Surrey is the best place to invest in Metro Vancouver and that Maple Ridge was the next most attractive.

Rents and property ownership costs were included in the calculation.

In addition to city and regional real estate boards and realtors, REIN’s more comprehensive study used a variety of research reports from:

  • Canadian Mortgage and Housing Corp.;
  • Statistics Canada;
  • Multiple Listing Service;
  • Canadian Home Builders’ Association.

“Surrey will reap the benefits of the Gateway program,” the report noted to explain why Surrey is a better investment real estate city than others.

“A number of projects are in various stages of completion that will positively impact the commute for residents to and from Surrey and improve transportation logistics for businesses. In the next decade, the city will continue to see explosive population growth – one of the important factors to consider when deciding where to invest.”

© 2012 Real Estate Weekly

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