Good investment

Calgary's resale home market seen as an attractive opportunity for rental income

Calgary is drawing more attention from real estate investors in recent months as its lower-priced homes relative to larger urban centres make it an attractive opportunity.

That's the assessment of two seasoned investors in residential real estate: Patrick Francey and JG Francoeur with the Real Estate Investment Network (REIN)

“We've been very bullish,” says Francey, CEO of REIN. “When you buy that property, you can put a tenant in it at a rent that can cover costs and still be left with some cash at the end of the month.”

In the Greater Toronto Area, Vancouver and other parts of B.C. and Ontario, that's a more difficult task for investors where prices are generally much higher.

Francey notes investors buy real estate for three reasons: to generate cash flow, to pay down the mortgage thereby increasing equity, and capital (or price) appreciation. Calgary's market currently provides all three upsides for investors.

“What you can buy in Calgary for $550,000 or $600,000, you can still cash flow (as a rental). You're hard-pressed to find that quality of property in other markets.”

By comparison, a single-family home of similar size in Peterborough, Ont., costs $640,000, says Francoeur, chief growth officer at REIN.

“Then you need to put in another $100,000 to create a duplex,” he says, adding the extra unit helps ensure the investment is profitable. “But you can probably get a similar duplex in Alberta for $485,000.”

What's more, rental income has more room to grow in Calgary.

“What I rent here in Peterborough for $2,300, rents for $1,600 to $1,800 a month in Calgary,” he says about a three-bedroom home.

At first glance that may not seem advantageous, but Francoeur explains the lower purchase price means less rental income is required to generate free cash flow after costs. Even better, rents have more room to grow in Calgary as the pandemic ends and migration returns, driving demand for rental units.

As for capital appreciation, the resale market has seen a surge in demand driving up prices in the spring by 10 to 15 per cent, year over year, says Calgary realtor Tim Jones with Re/max Prime.

“We are just approaching pricing of 13 years ago,” he adds, noting Calgary could see further gains of 15 to 25 per cent gains in the next two years. “Relative to other major cities in Canada, the region offers great value for investors.”

A potential driver of future demand is the expected economic rebound following the pandemic. Additionally, Jones expects unprecedented economic stimulus combined with the city's well-educated, resilient and entrepreneurial workforce to spur even more economic growth.

“The majority of investors and, in general, buyers have very positive views of our market's growth, and that now is a good time to buy,” he adds.

Upsides aside, Francoeur cautioned investors regarding the city's condominium market. Although low-priced relative to Toronto and Vancouver, the segment is in less demand than single-family homes, townhomes and semi-detached homes.

“As an investor, you have to consider what people are looking for, and most tenant profiles are looking for more space, an extra bedroom and a room for an office,” Francoeur says.

Relative to other major cities in Canada, the region offers great value for investors.