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Rents Are Going Wild - Check Out This Western University Property

Message from Tom & Nick

We went out for some BBQ yesterday!

That’s a big chunk of the office team here at Rock Star.

Marketing, Membership and Operations…all of us sharing a few laughs over lunch at Stack BBQ Smokehouse in Oakville.

And let me tell you…it’s an elite team!

We can do some high level marketing, some Rock Star membership magic, and close some complicated real estate transactions with our eyes closed.

Well, maybe Nick and myself can’t…but the Rock Star team can!!

As summer travel plans begin to kick into high gear, we’re feeling pretty grateful to get to work with such a great group.

It’s a wild world right now so to have such good people around makes all the difference.

And speaking of a wild world.

Have you seen what’s happening to rents in Ontario?

Specifically student rentals?

They’re absolutely exploding.

When we started out with student rentals over 20 years ago we were getting $325 per room.

Now $850 or $900 a room by Queens or Western University is pretty much normal.

And we’re now seeing rents go north of $1,000 (see the example below!)

Part of the reason for this is Canada’s absolute explosion in non-permanent residents.

Some are students and some are on work permits and it’s all putting pressure on housing.

Check out this chart from our friend Ben Rabidoux:

Is that not simply wild?

What exactly is our government thinking?

The Ontario government keeps telling us that we’re building 1.5 million homes over the next ten years but we’re so far off that pace it’s laughable.

We’re not even at 100K new completions over the last year.

And check out this tweet from Steve Saretsky:

Between regulations and development charges it’s nearly impossible for builders to build quickly or profitably.

This sounds insane, right?

With property prices as high as they are, how is that possible?

Well, fluctuating interest rates make it extremely difficult for builders to plan projects and development charges on new builds are taking up 30% of the costs.

We’ve said this for a long time and we stand by it.

If you own a single-family home in Southern Ontario you’ll be considered a unicorn very soon.

Single-family homes in the Golden Horseshoe area are harder and harder to come by.

And they’re still our favourite type of investment property because you can run them as rentals, duplexes (if zoning allows), you may be able to add on a garden suite or a laneway house, you can run it as a student rental or use a rent-to-own strategy on it.

The flexibility gives you multiple ways you can earn income.

If you end up with a vacancy you can change the usage of the property.

Nick and I have had one single family home operate as a rent-to-own (the tenant got a new girlfriend and wanted a bigger home so they chose not to buy it), we then ran it as a student rental for several years and today it’s a single family rental with plans to duplex it and possibly even add on a garden suite in the future).

And as we mentioned earlier, rents have increased dramatically because of the massive population boom going on.

Check out this student rental property by Western University.

This is Mike Desormeaux, part of the Rock Star team, who is helping out an investor with it:

While everyone is telling us that you can’t find cash flowing properties in Ontario, we’re still uncovering them.

It’s definitely been a harder process with rates as high as they are…but they do exist.

And here’s where things get super interesting

We think the central bankers may be very near the end of their “higher rates for longer” stance.

Inflation is tumbling down in Canada.

And with debt levels as high as they are you can’t have positive real rates.

Positive real rates (interest rate minus inflation) means that the debt is growing faster than the economy.

The central bankers can’t have that for long and they know it.

Which means we may very likely have lower rates at some point in our future.

What’s going to happen to property prices in this area with these three things going on:

  1. Massive population growth for years.
  2. New housing supply that is not only NOT keeping up…it’s slowing.
  3. And central bankers having a need to DEVALUE the currency further?

We’ll let you decide.

We think we know the answer. Time will tell, of course.

Anyway, that’s enough fun for this week.

Enjoy the brief sunshine today while we have it!!

And enjoy the long weekend…Happy Canada Day!

Tom & Nick

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