A happy purchase comes down to 2 things: a location that satisfies your criteria and a price that makes sense. We'll go over those 2 factors in-depth using a top down approach, starting with evaluating cities, followed by neighbourhoods, and finally the properties themselves. This post has 4 parts:
Choosing a city
Choosing a neighbourhood
Choosing a property
Pricing
Let’s dive in.
1. Choosing a city
An ideal city is one that attracts people (population growth) with good paying jobs (income growth). We’ll also need to “buy in the path of progress” in order to capitalize on future gains.
To that end, here’re some factors I look at when evaluating cities:
Population growth: should be above provincial average, ideally.
Median income growth: should be above provincial average, ideally.
Unemployment rate: should be below provincial average, ideally.
You can obtain those data from Statistics Canada’s website. They also provide an excellent API which allows you to conveniently pull data programmatically (if you’re interested let me know).
Here’s the latest data for all 51 cities in Ontario. If we apply all 3 conditions above, the most attractive cities are Ottawa, Vaughan, Markham, Guelph, and Waterloo (of course they are, by no means, the only ones worth investing in):
(Note that the official unemployment rate usually doesn’t take into account underemployment and those who have given up searching (even though they need a job), so the actual situation is usually somewhat worse than reported. Use this stat mainly for comparison purposes)
We’ll need to consider future developments too, particularly:
Existing / future rail transit: haven’t you heard “Rail is Grail”? A good rail transit system can drastically boost a city’s appeal. At the moment only Ottawa, Toronto and Waterloo have rail networks (in addition to the province’s GO network). Peel region is getting one, but not any time soon (Hurontario LRT Project is expected to complete in Fall 2024). Check out my custom map to see where the existing stations are in the province.
Current / future infrastructure projects: you can check out what Ontario is building from the Ontario Builds website. Healthcare, education and transit projects are particularly valuable.
Other factors that may affect your pool of eligible cities:
Presence of good property managers: you may or may not need a property manager, but if you do, do a quick Google search or ask around to see if you can find at least 3 good property managers (with reasonable service fees) in town.
Budget: you’ll need to know the average sold prices for the types of property you’re interested in too, so do some research on that and see what cities you can afford. Sites like CREA offers a good overview, but if you need something more granular (e.g. fully tenanted 2-storey detached homes with separate basement entrance & interlock driveway), just ask any realtor for help.
Once you have selected a decent city, let’s further examine its neighbourhoods.
2. Choosing a neighbourhood
You may have different concerns, but for me safety is the top priority. For this, check out the crime maps from my Resources page (different cities will have different maps, and some are better than others). Take a look at the McLeans list too, for reference. Also, do a quick Google search for various neighbourhoods in the area. Not everything is quantifiable and may not be evident in the numerical data.
Other than safety, we’ll also want to look at:
Neighbourhood profile: PRIZM will be able to tell you a great deal about the folks that live in a particular neighbourhood. Just punch in the postal code and you’ll get the demographic profile for that neighbourhood.
Unemployment rate: you (or your tenants) generally don’t want to live in neighbourhoods with high unemployment rates. This data can be accessed from a number of sources, including GeoWarehouse (most realtors have access to it and will be glad to provide you with the statistics).
Neighbourhoods attractions: are there any good schools in the area? Scenic parks? Highway entrances? Shopping malls? Famous buildings? Each of us will have different preferences, but generally the biggest draws are good schools and hospitals. You can see the locations of top 300 elementary & secondary schools (according to Fraser Institute) from my custom map too.
Average rent in the area: this is particularly useful if you intend to rent out your basement suite to cover part of the mortgage (obviously investors need to pay close attention to this number too). Canada Mortgage and Housing Association (CMHC)’s website can provide you with average rents for private apartments (but not other house types). For current listings, you can check out rental sites like Facebook Marketplace or Zolo or even Kijiji to see what are the going rates for the types of homes you’re interested in.
Vacancy rate: CMHC is the place to go for this sort of data (only data for private apartments available, but they can be used as comparison tools among areas). Investors obviously want to avoid areas with high vacancy rate.
Found a good neighbourhood? Great, let’s look at the properties themselves.
3. Choosing a property
After you have located a good neighbourhood, picking a property is mostly about making the numbers work. Key attributes we look at when filtering properties:
Listing price: don't forget to leave some buffer in case of bidding wars.
Potential rent: remember to factor in vacancy rate and rent default rate too.
Layout: some properties have layouts more suited for rental purposes than others (e.g. those with isolated laundry area where all tenants can easily access or separate basement entrances).
Property age & condition: obviously newer & better kept houses will lead to fewer maintenance bills.
Maintenance: detached properties with large gardens will obviously require more maintenance than townhomes with mulched front yards. Think about how much maintenance you would like to do.
Amenities: is the house close to transit / shopping / parks / laundromat? A laundromat may be important to 2nd suites without their own laundry rooms. Similarly, being near a bus stop will be a plus for student rentals properties.
Materials: if you’re buying a rental property, you may not need to pay a premium for things like quartz countertops, crown mouldings or heated steps (even though you may not want to pay for those things which have been included in the purchase price, there’re nice & cheap upgrades you can totally do to add a bit of class to your rental properties).
Finally, we’ll review data that will help us arrive at reasonable bid prices.
4. Pricing
There’re 2 aspects to this: the overall market trend and statistics specific to the property. First, let’s examine market trend metrics:
Sold price / listing price (SP/LP): this will tell you whether a typical unit in the area is sold for higher or lower than the asking price.
Sales to new listings ratio (SNLR): SNLR < 40% indicates a buyer’s market (i.e. buyers have bargaining power), and SNLR > 60% means a seller’s market. Anything between that is a balanced market.
Home price index (HPI): this indicator tells you how prices have changed for a model home since 2005 (when the HPI is at 100). Different areas will have a different model home (with different characteristics). If you’re interested in the sophisticated method they used to calculate HPI, read here.
You can find the above statistics at the city level from the Toronto Regional Real Estate Board’s website (updated monthly). Zoocasa & HouseSigma are good sources to obtain sold prices for certain property types. If you need more details than that (e.g. only include properties with separate entrance & have recently been renovated), your realtor will be able to help you further.
As for metrics specific to the property, pay attention to:
Property days on market (PDOM): number of days the property has been unsold for. There’s a market for almost any type of property, and long unsold periods usually mean a pricing issue. See if you can convince the sellers (or their agent) to come to a more realistic price.
Comparables: how much were similar houses in the neighbourhood sold for? Comparables ideally should have similar number of bedrooms, bathrooms, kitchens, square footage, house type, approximate age…etc… More often than not the recently sold units around your target property won’t have all the similar characteristics, so you may have to look at properties somewhere else to figure out the appropriate adjustments. For example, if your target property has a separate entrance and the recently sold houses in the area don’t, you can look at statistics from the nearby neighbourhoods to see if you can observe the price difference a separate entrance makes.
Don’t forget seasonality effects too. Market is usually most busy in the summer months. Prices are higher, but you’ll also have a lot more options to look at.
Comentarios