New Member from the Canadian Rockies :) - Questions about whether Buy & Hold in BC is worthwhile?

Question

Hi everyone,

We are in a small town in the Canadian Rockies (Golden BC) and are looking into whether or not it is viable to purchase a rental property or two.  We should have some extra cash in our corporation in the next couple of years, and we are trying to do our homework now - before the cash sits idle for too long.

In our town, we have limited options for multi-family (there are 3 small apartment buildings), but a lot of the town is zoned R2, so there are quite a few properties with income suites in the basement - or we would have the option to add a suite into a suitable property.

In some VERY PRELIMINARY calculations, it appears difficult to have any property in our area provide any cash flow without a large downpayment ($100K plus).  Is this normal?  Especially in BC??  The Cap Rates hovers around 5%, the COC is terrible (equivalent to our "High" Interest savings account with ING or slightly better), but the Total ROI starts to look mildly better- in the 12-14% range.

I guess we are wondering what is considered "reasonable" in the BC marketplace, outside of the Vancouver area.  We would like to buy and hold, and are looking for some monthly cash flow to supplement our future Early Retirement plans.

We have lots to learn, and are just starting to dig through the resources on this site!

Cheers,

Alison K

Marcia Maynard · Answer

Account Closed Welcome to Bigger Pockets! I fell in love with the Canadian Rockies years ago! Even convinced my husband to go there for our honeymoon in 1995. Saw Banff, Lake Louise, Emerald Lake and went heli-hiking in the Bugaboos on our honeymoon. Cross country ski vacations in BC too.  Haven't been to your area, but it must be beautiful! Two weeks ago I was in Vancouver BC (my husband entertains on cruise ships so he is in and out of there often) and we took the Grandville route from the airport to the cruise port. I was saddened to see all of the stately homes being torn down to make way for condos and apartment complexes. Certainly see what others have said about real estate valuations. Unbelievable!

Brie Schmidt · Answer

Account Closed who is Canadian and might be able to help you

Account Closed · Answer

@Marcia Maynard  Thank you for the warm welcome (and apologies for my extremely delayed response.)   BC is indeed spectacular, no matter which corner of the province you find yourself in!  I'd encourage you to come and check out our area - especially if you enjoy nordic skiing.  We hosted the Canadian Masters Nationals in 2012, and the trails and facilities around here went from great to spectacular.  You got very close to us in your travels- Emerald Lake is within an hour drive from my front door :)

Back to the topic of real estate - I dropped the idea after an initial look into it, but cannot seem to let it go.  Back to doing research and learning what I can...hopefully in the next year we can find something that will meet our needs, and start this journey off!

Account Closed · Answer

Thank you@Shahriar K.   I will take a closer look over the next year and see if I can shake anything out of the cracks!  Otherwise, we may have to start looking elsewhere - or simply become Index investors! :)

Also, thank you to @Brie Schmidt for reading a noobie question, and pointing me towards some potential assistance.

Finally, a big thanks to @Larry Smet - we are definitely not in the same neck-of-the-woods, but your comment IS helpful.  Even though we are in a recovering market (I did assume a 2% annual appreciation) I will do future calculations as though there is none.  I am in no hurry, and I am certain that there is a gem to be found somewhere near to home.  I haven't yet given a lot of thought to investing outside communities that we do not have immediate family in/pass through frequently - let alone outside the country.  I'll have to find some posts on that subject to peruse.

Thanks all - hope you had a great long weekend!

Larry Smet · Answer

Hi @Alison Kippan

Thanks for tagging me @Brie Schmidt

As you can see, I'm not too close to BC and can't comment on your market.  However, if it's anything like a lot of major Canadian centres, it will be difficult to get a good cash-on-cash return.  That's one reason I invest in the US like @Shahriar K..  My market is the mid-west - mainly in Chicago.

By the way, if your COC is so low and your Total ROI is 12-14%, it looks like you may be assuming a significant rate of appreciation.  I'd caution you to not assume you're going to get any appreciation, especially if your market is overheated like some Canadian markets. Depending on where your market is in its cycle, it can be a dangerous way to base investment decisions.  There's lots of posts on the subject on BP and some people sit on the other side of this fence, but many buy and hold investors base their decisions only on their cashflow and any appreciation is just a bonus.

As you research your market you'll get a better and better idea of how good of an investment is in your town.  I'd suggest networking with some other RE investors in your town or area - look for a REIA in your area or start one yourself.

Good luck and let us know how it goes.

Larry

Shahriar K. · Answer

Hi @Alison Kippan I have looked at the properties in Penticton and what you are describing for cap rate is true over there also, that's why I haven't bothered looking in BC and am looking in WA state. Since you live in a small town you might be able to get in touch with the owners of the properties that are similar too what you want to purchase and see what they have to say, you might even find a off market deal this way also.