In the wake of the pandemic, Jordan Stacey and his wife decided to take the plunge into Canada’s scorching real estate market as landlords, but the North Vancouver-based couple knew better than to invest in their home province.
“There are a couple of reasons we decided to go with Alberta as our market of choice,” he said of the couple’s decision to purchase six doors in Leduc, just outside of Edmonton. “One is the cost to acquire a property alone is lower than it is in British Columbia or Ontario, and in Ontario, you pay the Land Transfer Tax—and in Toronto, you pay two LTTs; one is municipal and the other provincial. In B.C. you have an LTT too, so the cost for investors could be much higher.”
The Staceys purchased three two-storey townhomes totalling six units, which were brought to them by Alberta on Fire, an Edmonton-based firm that recommended the properties after studying the Staceys’ investment goals.
“While you’re not looking at the same capital appreciation as you are in some other markets, you’re looking at higher cash flow, which is more important to us in our lives right now, so it made more sense to go for a cash-flowing investment as opposed to something that was just a capital appreciation play,” Stacey said. “There’s no rent control in Edmonton, so when your lease is up with a tenant, you can adjust the rent however you want, and obviously as a landlord, you want to be mindful of how much you’re adjusting your rent by because when you have a good tenant, you want to keep them, so it’s nice that way.
“What’s also favourable in Alberta is if you have tenants who are non-paying, it’s somewhat easier to evict them than it is in B.C. or Ontario. There have been some nightmare stories over the pandemic with non-paying tenants and trying to get them out of properties.”
As out-of-province landlords in Alberta, the Staceys are far from unique. According to Luc Cote, a sales representative and operations manager of Alberta on Fire, most of the brokerage’s clients are from Ontario, and echoing Stacey, Cote says the LTT is highly dissuasive—doubly so in Canada’s largest city.
Moreover, markets like Toronto and Vancouver only make sense if investors can absorb annual losses in pursuit of the capital appreciation play Stacey alluded to, but for mom-and-pop investors that simply isn’t feasible.
“In Edmonton, the dollar goes farther. It’s a third of the average price in major Ontario cities and we don’t have any rent control. Rents increase here by as much as the market can take, and that’s what’s exciting,” Cote said. “Although interest rates are going up, so are rents. Alberta’s on fire for a reason.”
In Toronto, for example, interest rates have made home purchases financially prohibitive, and while the city benefits from surging migration—the federal government announced early last month that Canada will target 500,000 newcomers per annum starting next year—rent control stymies landlords’ abilities to cash flow positively. And because landlords typically prefer variable-rate mortgages, a rising interest rate environment compounds the problem, however, in Alberta rents can rise as much as landlords need them to carry their mortgages.
In other words, the free market reigns supreme in Alberta, unlike in Ontario and B.C. where it’s shackled by the latter provinces’ regulatory regimes.
“Our Ontario-based clientele are struggling to find anything that cash flows near where they live and that’s why they come out to Edmonton where they get more doors with their capital, and these doors carry themselves in cash-flowing income, so it’s a nice compliment to their portfolios,” Cote said.
The Canada Mortgage and Housing Corporation’s MLI Select program, which was created to incite heavier investment in the country’s multifamily sector, makes investment in both existing and new-build multifamily properties simple in markets like Edmonton, Cote noted in stark contrast to, say, Ontario or B.C. MLI Select rewards investors with favourable financing conditions depending on how well they adhere to a point system that prizes affordability—which Edmonton has in spades—energy efficiency, and accessibility.
“As far as purpose-built rental in Ontario goes, the numbers don’t typically work for MLI Select, however, in Edmonton we can build new construction,” Cote said. “The scorecard places a lot of importance on energy efficiency, which is more of a green model, and that helps with financing.”
Taking into account that Canada has insufficient rental stock to house current and future Canadians, Edmonton is destined for a more prominent national role going forward.
“Alberta is a great market to invest in,” Stacey said. “Whether we put all of our resources there or not is up to what opportunities arise and where the deals are. We’re happy to invest anywhere as long as the returns are good. For what we’re doing right now, Alberta is a market that suits our strategy, and that’s why we’ve invested there and why we’ll continue investing there, but we’re always open to looking at any market whether in Canada or outside of the country.”
As things stand today in Canada’s real estate market, only Alberta is on fire.