There are many things that can affect the market value of a property, ranging from interest rates to home improvements to the mood of the seller. Below are some of the key dynamics that tend to have the largest influence on home values that every homeowner or aspiring homeowner should be aware of. These factors are often gauged by sophisticated Real Estate investors before they decide to invest in an area:
1. Increase in Disposable Incomes
This is one of the most important indicators. If a town’s average disposable income is increasing faster than the national average, real estate prices are poised to follow suit. Key indicators: a) increased average income; b) decreasing income tax rates; c) increasing retail sales. Be wary of towns where demand is driving values upward while the average income is remaining flat.
2. Job Growth & Migration
It pays to read the news regularly in the town you would like to invest in or have invested in. Be on the lookout for announcements of new jobs, major expansions, or new employers. Ideally you can purchase in areas where the population is growing faster than the provincial average and where the reputation of the town, city or region is strong.
3. Political Climate
Business friendly politicians generally equal real estate friendly investment areas. Look for regions where development is wanted, not shunned. Look for areas with forward-looking economic development offices where they sell the area to potential employers. Progressive towns attract business while other towns lose it.
4. Infrastructure Expansion
Here’s another reason why reading local news in areas that you plan to invest in can pay off for you big time. Look for planes, trains, highways, sewers, land annexation or expansion plans. Don’t buy until the construction begins or until plans have been completely firmed up, it can be dangerous to buy based on rumors alone. Trains and rapid transport are huge opportunities (towers that spring up at subway stops as an example). To enjoy a nice price increase relative to other areas of the town, city or region not affected by the infrastructure enhancement, try to buy within 800 meters of the station, or exit/entrance etc.
5. Areas Of Renewal
If chosen correctly this consistently provides the biggest bang for investment dollars. This is best defined as areas that are moving up from one economic class to the next, often described as “tough, yet funky”. In these areas, you’ll witness a mix of run down to well-kept, recently fixed up properties. Often you’ll see these areas mentioned in the news, every city and most towns have areas like this. The local perception is the hardest to change, so often locals miss the opportunity.
6. Mortgage Interest Rates
Low interest rates allow a greater proportion of renters to become homeowners, which in turn can lead to an increase in home sales and therefore push prices higher. That said they don’t significantly increase mortgage costs (on a $100K mortgage a quarter % increase in rates only increases the payments by about $14). With interest rates historically low for the past several years, this is less of a factor now than it would be when rates first dropped.
7. Maximizing Value and Zoning Opportunities
Sophisticated real estate investors look first at a properties physical attributes, and then they examine how they may be able to change the property to optimize profit way beyond just renovations. As an example, an old hotel that is converted into loft apartments (advanced), or taking a single family home and converting it to a duplex (less advanced but still can be tricky). You need to know zoning bylaws and tenant regulations to make the transition successful. A small percentage of properties will have this potential, but make sure you have the required finances and expertise before taking this on, or find a partner.
8. Buy Wholesale; Sell Retail
You can buy properties at wholesale any day of the week in any town across the country, there are many investors across Canada who make their entire livings this way. This can include buying rundown properties and fixing them up, developing raw land or buying properties that are going to foreclosure. In Canada, accessing foreclosure properties is tougher than in other countries such as the US. The best opportunity for this in Canada is the pre-foreclosure market, some investors will advertise targeting distressed homeowners and then provide them with a much needed opportunity to sell.
9. Stand Out
Quality marketing is a real estate investor’s best kept secret. You must be proficient to get above market rents and values for your properties. An example of this would be how two incredibly similar houses in the same neighbourhood can easily sell or rent for a 5-10% variance from each other. Matching your message to your prospective target in a compelling way is critical.
10. Renovations and Sweat Equity
Areas in transition are great sources for homes that need improvements. Look for well-built but neglected homes. Keep the work simple and in line with what a renter or owner is looking for. Remember, smaller aesthetic investments such as in paint, flooring or carpeting can provide the biggest bang for your buck. Landscaping and exterior work also typically provide a solid return.