Nov. 18, 2009 - The most affordable of Alberta's five largest communities, Lethbridge also has the lowest vacancy rate in that group at 3.1 per cent in April 2009. Several factors have contributed to this tight market in recent years, including a growing number of apartments converted to condos and an insufficient supply of student housing. This leads to stiff competition amongst students and low-income families for housing. Many students choose to pay for their accommodation over the summer, even when they're not living there, simply to ensure they have a place to live in the fall.
 
Indeed, the city's postsecondary institutions are the backbone of its revenue investing. The University of Lethbridge and the Lethbridge College students together account for about 20 per cent of the city's 85,000 residents. Housing provided by the schools is far from enough to accommodate its student population and thus lengthy waiting lists exist. Lethbridge College, alone, has a list of more than 200 students.
 
This leads to students looking to apartments for accommodation. The rental universe consists mostly of older properties, many with illegal basements. For years these have proven the best return-on-investment for owners, but now the city has cracked down to enforce compliance with the fire code and thus they've lost their attractiveness. The city provided a grant where the first number of applicants could get money to convert their suites, but now an investor may be left footing the bill themselves for the conversion.
 
Also, be wary of the recent trend of converting apartments into condos. There is a large ghost-inventory of such properties not yet up for sale. This is because a large company from Calgary converted many suites and has been releasing them a few at a time so as not to flood the market.
 
For the best value, Robert May, a realtor and mortgage expert with Canada First Mortgage, suggests buying entry-level single-family homes in Varsity Village around the university. Demand is strong for these properties, which are typically 25-years-old, 1,000 square feet and contain three-bedrooms. These homes are subdivided into three units that rent for about $600 per bedroom. That means if you purchased a unit for $270,000 with 25 per cent down at 4.29 per cent interest, you could have a positive cash flow of about $240 per month.
 
Though the city's postsecondary institutions provide a steady stream of tenants, investors should be aware of efforts that are underway to provide more student housing. This includes a $13-million student residence the college is building that is scheduled to be completed by September 2010. The initiative will provide housing for about 250 students and rent will range from $400 for units shared by four students and $750 for a single-occupant room. Experts are calling for even more efforts to increase the city's rental universe, such as tax incentives for builders as well as support for the renovation of existing units. That said, even with such efforts vacancy rates are forecasted to remain low given the size of the student population.
 
Another factor contributing to the city's low vacancy rate is the increasing number of migrants who are attracted to the city's affordability and diverse economy. Unlike many cities in the province, Lethbridge is not dependent on the oil and gas industry. Rather, the economy is agricultural-based. Also, half of the workforce is in health, education, retail, hospitality and heavy manufacturing industries. It also has a beckoning alternative energy sector, including wind farms and biofuel. Thus, though unemployment has risen during the economic downturn, at 5.5 per cent in June 2009, it was well below the provincial rate of 6.8 per cent.
 
Traditionally centered in the downtown core, the commercial sector is spreading south, making the Lakeview are an attractive target for investors. "Because of this relocation, it's making the south end most desirable because you'd be closer to work and amenities," says May. Here, your best buys are simple box-built bungalows, 45-years-old and 1,000 square feet. These units are rented, often, by young families who are in the last step of the rental chain and who typically will purchase their first home in the area as well.
 
May offers one last word of caution for investors: don't be fooled by the affordability of the communities blanketing Lethbridge. Though prices in Coalhurst to the west and Coaldale to the east may seem attractive, they're difficult rental markets because they're not served by transit. "Investors come from larger cities are used to suburbs being as decent as the core, but this is not the case in Lethbridge."

From the October 2009 issue of CRE