Boom-bust musts

Alberta is finally on its way out of the worst recession it has seen in three decades. The economic buds are starting to show, and though we aren’t in full swing yet, the change in the air is unmistakable. The province is poised to lead the country in growth for 2017 – GDP is expected to grow by more than 2%. On the back of this optimism, we are seeing quickly filled vacancies, multiple offers and the avoidance by locals of the trucking routes between Fort Mac and Nisku – all good signs for investors considering venturing into Wild Rose Country.

But should everyone be stampeding in to catch the next boom? No – Alberta is not for the faint of heart. Our real estate cycle goes up and down faster than most areas, resulting in exhilarating booms and nauseating busts. It is a market for dispassionate investors – a commitment to numbers rather than headlines is a must – who have a long-term view of the wealth they hope to generate.

Assuming you belong to the breed of iron-stomached warriors who have been able to succeed in the Alberta market, welcome to the land of opportunity. In 2017, buyers still have a great choice of product, as well as the option to negotiate prices and terms. A situation like this doesn’t happen often and is a great opportunity.

Preparing for battle
Being a resource-based economy, Alberta is at the mercy of international markets. As we have seen, a drop in oil prices can have a devastating effect on the province’s real estate market. But investors don’t need to sit back and watch their returns evaporate. Here are three simple principles that can help mitigate the effects of unforeseen economic downturns.

1. Buy one notch above the ‘typical’ investment property in the area. Yes, Alberta has been hurting in recent years, but the overall prosperity of the last three decades has created a demographic of highly paid people who, despite the temporary hardships of late, are still very used to a high standard of living. Renters or owners are not suddenly going to settle for less. In our portfolio, the properties that are one step above the rest are the ones that stay rented and re-rent quickly – and they don’t cost much more than what everyone else is buying.

2. Look for low maintenance. This is especially key for out-of-town investors, but even for locals, this can make or break an investment. The number-one reason why a tenant will leave isn’t lower rent – it’s because maintenance is not being done. In a downturn, when options are abundant, tenants will leave if they don’t feel their needs are a priority. Properties don’t need to be brand-new, but a newer place helps keep tenants happy and insulates an investor from having to dole out cash in tough times. Keeping properties well maintained is integral to long-term investing.

3. Keep on top of your property manager. Keeping your tenants when the market is down and vacancy is rising means keeping them happy. Choosing the right property manager is critical; keeping them on their game is even more so.

We believe in hiring people who are better than you to do the things you are not good at and deferring to their expertise in many instances. But no matter how much responsibility you hand over to your property manager, this is still your business, and you must manage it. This means you call the shots on when and how you get paid and what happens in the event of a vacancy. (Did you know some management companies will actually charge you more for a vacant unit than for a full one?) When and where your property manager advertises, when and how tenants contact them, and how they deal with maintenance issues are ultimately your decision.

(Another little-known fact: Some property management companies actually do ‘inspections’ of clients’ properties when facing tight cash flow. They then generate a list of maintenance requirements that you pay for, along with their surcharge for ‘arranging’ the maintenance. It’s an excellent stream of income for them.)

Get regular reports, and ask your property managers for an explanation on any issue that doesn’t make sense. Test them as if you are a tenant – see if your unit is listed on websites, call and find out if your property manager is answering his phone, etc. Stay on top of your managers. They may be the ‘experts,’ but you are the client, and if they drop the ball, they will cost you your tenants. In a slow market, this is unacceptable.

A volatile market like Alberta requires investors to be a bit braver, a little savvier and a lot more patient in order to take advantage of the vast number of opportunities on offer. But it takes a proactive, aggressive approach as well. Investors here must be willing to take a few extra steps to insulate themselves from the downturns we’re so often exposed to. A well equipped and well managed property will weather a bust. Just imagine what it will do during a boom.


Corey and Tiffany Young are the founders of InvestorOnFire. To find out more about their strategies and view pre-analyzed properties across Canada, visit investoronfire.com.
 

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