Multifamily Values Double – from ONE rent increase!
I started investing in real estate 23 years ago, and multifamily apartment buildings in 2003. The most common metric has always been price per door, which has been on a wild ride across Canada all the way from $20K a door in a small town, to $500K or more in Toronto and Vancouver. With such a gap in price what is a good deal these days? Lets look at one market.
One of my niche prairie markets is Saskatoon, so let’s make things simple and look there. Rents have just taken a HUGE jump and values have DOUBLED seemingly overnight. What happened?
Quite simply – rents. Let’s take a walk down memory lane. Back in 2006 the price per door went from $50K a unit to $100K, IN ONE YEAR, and that value and rents have essentially been stuck in an 18-year time warp, until today…
That’s right, the same apartment building in Saskatoon that was valued at $100K/door back in 2006, was valued about the same up until last year, 18 years of flat rents and values.
Avenue living has been making waves for their massive rent increases in Calgary, which is now one of the tightest and most expensive rental markets in Canada, closely approaching Vancouver and Toronto for rent competitiveness. Avenue Living started with one building in Brooks, Alberta, a small town with little upside and has grown exponentially. Now, they have taken their bold approach to Saskatoon, the next major rental bump due to intense competition and lack of supply – and low rents, until now.
In a few short months, they have raised their rents about $400 across their entire Saskatoon portfolio, and most landlords who own buildings are not even aware of it.
This translates to a value of almost $2,000,000 on a 24-suite building! This means that after 18 years of ‘flat’ multifamily valuations, walk up apartments are now worth closer to $200K/door than $100K, and the value of the building has doubled from only ONE RENT INCREASE.
And there is likely much more upside to come – as you can raise rents every 6 months with no rent controls!
The good news for landlords is that this situation is not about to change any time soon. The conditions that caused the 2015 to 2020 slump (rising vacancy, overbuilding, ultra-low interest rates, commodity bust) are now gone. It is simply too expensive to build enough supply to meet demand. Interest rates are too high forcing would be home buyers to rent, as they cannot qualify for a mortgage, or even afford to move for that matter. In migration has accelerated from immigration, and those fleeing higher priced markets elsewhere in Canada (AKA Everywhere else!).
Saskatoon rents on a 1 bedroom are now $1450 from $1050, which is a large jump however they are still the cheapest rents in Canada for a major city – ranked 35 on rentals.ca.
I have been writing offers all week – and it looks like by the end of the year prices will spike as the cat is out of the bag on the ‘real’ rents. Buy anything that cash flows folks!
I am currently selling one building that just had another rent survey, and priced at $175K a door delivers over 7 CAP with increases I will be giving later this month. Within one year this project will be worth $200K+ so this is a tremendous opportunity for this massive growth market.
DOWNLOAD The proforma here.
Once you have reviewed the Proforma – and wish to have access to the full data vault, please email me and I will send you a confidentiality agreement to provide you access to the data vault.
P.S. I will be selling 4 more apartment buildings in the next 24 months. Why? Simply we have reached the end of our JV target and it’s time to leave some skin for the next investor(s).
24 Suites – Premium location and condition – Saskatoon.
18 Suites – Booming Leduc, Alberta.
18 Suites – Fort Saskatchewan, Alberta
Large concrete mixed commercial – Beaumont, Alberta (14 apartments + 8 commercial bays).
Stay tuned for more information, and happy hunting!
Cory Sperle
