Secrets of CanRE Cycle

Where is Kamloops in the Real Estate cycle?

The answer can be found in “The Secrets of the Canadian Real Estate Cycle.” The credibility of the authors is without question, Don Campbell has led the Real Estate Investment Network to be the most accurate predictor of which towns will perform well for the past 22 years!

From the rear cover:

With full-on analysis and exacting detail, this book addresses the fundamentals of the real estate cycle. Investment experts Don R. Campbell, Kieran Trass and Greg Head have collaborated with Christine Ruptash to produce this comprehensive guide to understanding the market cycle in your target area and which investment tactics to use to maximize profit in your current investments and strategically invest for portfolio growth.

After I read the book, I found that Kamloops is in the Recovery Phase of the Cycle. Read this detailed analysis and see if you agree!

The Recovery Phase precedes the Boom Phase, and starts on chapter 8(page 91) of Don Campbell’s Book, The Secrets of the Canadian Real Estate Cycle.

Recovery Begins

You know that a market is in the midst of the Recovery Phase when:

Ability to purchase real estate is within reach for many people.

The Real Estate Investment Network (REIN) suggests looking for areas that score in the “Hot Zone” of 25-39% on the housing affordability index, so Kamloops falls nicely in the middle of that range.

The Kamloops affordability index
The cost of running a starter home(house with a suite, $350K value) is between  $20-26K/yr and the median household income is about $78,000*.

Kamloops Median Wage

26K/78,000 = 33% for a home with a suite @ $350k

20K/78,000 = 25% for a three bedroom townhouse @ $200k

 

In Middle of Recovery

This stage is evidenced by strong returns. My last purchase has cashflow of $800/mo on a $67,000 investment, so 14% per year on cash-on-cash alone. This excellent Return on Investment(ROI) doesn’t include the profit centers of appreciation and mortgage paydown. Because prices are low compared to rents, there are strong returns.

 

Key Drivers are

population increases: I see the population growth all around me, there are lineups at the coffee shops. new construction everywhere, and tons of leads for my rental ads.

The table below from Stats Can shows slow population growth(1.4% increase in taxfilers) from 2008-2012, and it will be interesting to see what the data shows from the past 2 years, I suspect it will rise sharply from based on what I have seen on the street.

Kamloops Pop Growth

– rent increases:

I just raised my rents in a 2 bedroom basement from $975 to $1200(not including utilities), a $225(23%) increase from 2012 ago.

continued decline in vacancy rates

I had 40 phone calls from 1 lead for a 2 bedroom in the North Shore(less desirable area) I had advertised for $1000 2 months ago. I raised the rents to $1111 and had it rented the next day.  I closed on a 3 bedroom townhouse this spring(March 27) and had it rented for April 1st for $1877. CMHC vacancy rates show higher than zero, but with my marketing/staging/reno systems, my vacancy rates are zero, and other landlord I know have no trouble renting out their properties.

increase in construction levels

The $80M Kamloops hospital(current with 2015 completion date), two brand new Sandman hotels(completed 2014), new Faculty of Law at TRU(the first in 33 years in all of Canada) lots of houses starts, 73,000 sqft comercial space, and 2 huge projects forthcoming(Ajax mine and Kinder Morgan twinning pipeline with base in Kamloops) demonstrate increase in construction levels. In my economic fundamentals update in last month’s newletter, I point out $74 million of infrastructure spending that was recently completed, announced, or is ongoing.

increased affordability

As detailed above, REIN suggests looking for areas that score in the “Hot Zone” of 25-39% on the housing affordability index, so Kamloops falls nicely in the middle of that range with 25-33% affordability.

From the book:

These drivers revitalize Real Estate in neighborhoods that transition to higher value neighborhoods, previously deffered maintence now takes priority.

This is exactly what is happening in downtown Kamloops where you can buy a house, reno, and have the value increased by $40-80K over the cost of the renovation.

From the book:

Building service companies experience a mini boom.

My brother in law(soon I hope) is in construction and is run-off-his feet busy.  In fact, if it were not for him and a great handy man I recently found I would be scrambling to find good tradesmen. Two of my project were left unfinished last month by a contractor who abandoned my job sites without notice and without payment(the importance of holding back most of the money on a project)!

 

Media Clues

– article that its more cost effective to own than to rent
– confusion about if RE is a good investment
– lots of people pointing to value deteriorating in the preceeding years

I found this article includes most of these sentiments, and I will be keeping this website up to date every week with more media headlines 🙂

Based on what I have observed, Kamloops is just entering the “Middle of the Recovery Phase”.

 

Here is what is going to happen next.

 

End of recovery phase:

This is tough to identify because shifts in key drivers are moving, but not in an overt negative way.
– investors start to get reduced returns on new investments as prices start to outpace rental increases
– the number of people per household will increase as rising rents begin to impact the affordability of renting(I am already seeing this with some tenant applicants trying to put more than 2 persons per bedroom).

From the book:
The impact of the drivers can be disguised because they come into play. this is because RE starts looks like an attractive investment vehicle to more people, the increase in investment interest happens as values are naturally increasing, so all of a sudden there is an upward surge in real estate prices.

Media Clues:
– there will be headlines about RE value increases, some will think this is now the boom time, and cite real estate value increases: realtors will do this
– others will question if a boom exists, saying that the increase is temporary due to influencers and speculators(such as when Ajax Mine and Kinder Morgan pipeline are under construction)

This is often the shortest phase of the real estate cycle.

Therefore, at this time there is a window of opportunity, the perpetual “bottom of the market”.  A few options for real estate investors at this time: raise rents on your portfolio, keep buying the deals(there will be less than earlier in the cycle), refinance, or wait and sell into the upcoming boom cycle!

– To learn everything I know about the Secrets of the Canadian Real Estate Cycle, pickup your copy now.  This is a great book I have referenced over and over again while I learn where the place to invest is. –

The cool thing about Kamloops is that there is not a lot of data on it so this place is a hidden gem.  Kamloops is no longer a REIN darling in the last couple annual reports(it used to be the #3 top town), likely because the predictions a few years back that it would do well have not come into fruition yet.

Report on Kamloops For Real Estate Investors (2)

The housing market has stayed flat for a while, but the changes are finally here so now is the time to take action.

 

I know I am!

 

Until next time,
Stay S.A.F.E.

 

*Part of the challenge of researching a market like Kamloops is that data such as the Housing Affordability Index is not readily available, and data that exists can be dated.  I source the most current data and make inferences from related reports to get the information needed to make an informed investment decision. This difficulty in finding data on Kamloops is part of the reason many people are unaware how great the economic fundamentals are in this market.  Since I am the only person I know measuring Kamloops Economic Fundamentals at this level, please subscribe to my newsletter to “stay in the ‘loops.”