A landlord investor would be better off buying a small apartment block than condominiums if they want to profit in Calgary's red-hot rental market, according to veteran commercial realtor in the city.
The rental vacancy rate in Calgary is now 1.3 per cent, according to Canada Mortgage and Housing Corporation (CMHC), down from 1.9 per cent a year ago, and most landlords are increasing rents. Alberta has no rent controls.
The environment is seen as prime for a landlord investment.
Dominick Hubaczek, an investment analyst and associate in investment sales with Colliers International in Calgary, said potential landlords would be best off buying an apartment building, despite rising prices.
The average small apartment block price now ranges from $150,000 to $180,000 "per door", Hubaczek said. But, he noted, CMHC financing is available at around 2.5 per cent for five-year terms, with 10-year terms around 3 per cent, at an 85 per cent loan-to-value ratio.
Capitalization rates for Calgary apartment buildings are in the 5 per cent range, he added.
"In terms of buying condos as a rental versus a small apartment building, from a returns aspect I would definitely say apartment building," Hubaczek said. "After factoring in the mortgage payment, condo fees and maintenance/management, many [condo] investors are just breaking even, hopeful for value appreciation over time," he said.
"Financing for investment condominiums will require, at minimum, a 20 per cent downpayment as of latest [federal government mortgage] rule changes. Also, with an average condominium apartment price in Calgary exceeding $300,000, three condo's would set an investor back about $900,000. The same amount could probably allow them to purchase a six-unit apartment building. With rents in private condominium rentals achieving only a $400-$600 premium on average, there is still a larger net income generated by an apartment building with double the unit count," Hubaczek explained.
