Out of Town Investment

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Attracted by relative price, today we see an influx of capital from investors in hot real estate markets from Ontario and British Columbia rushing to purchase assets in Edmonton. The net rent-to-mortgage ratio is mind-boggling rosy, in comparison to these investors’ home markets.

The Edmonton real estate market, before this pandemic boom, has been in decline since 2014. Outside of select central affluent areas, most of us have seen a year after year decrease in our property values. Infill properties in the best communities sat vacant for years and were eventually sold for a fraction of their initial offering price. Urban sprawl builders had to become more and more creative to attract and retain qualified buyers, as the purchasing pool of buyers shrunk year after year. The more creative home builders became to compete in the market, the more deprecation homeowners faced in new areas, on homes they had purchased just a few years ago.

Marketed infill and investment opportunities are being snatched up, and I wonder what the medium to long-term effects will be. New duplex, triplex, fourplex projects with projected high cap rates sell out immediately regardless of community. But where are the economic fundamentals fueling higher rents and quality occupancy? Once the stimulus wears off, aren’t we more or less where we were before, with double-digit unemployment but a new inflated higher cost of everything? How much sense does it make to buy a new infill project in a low-income neighborhood in a declining marketplace?

The marketplace is a fickle landscape, and today the herd chooses to buy. The safe money in Edmonton has been in the central periphery resale markets that serve white-collar professionals, medical professionals, and university researchers and educators. The difference between owning an entire new duplex in Parkdale vs. a single-family 1950s home in Parkview is very different, although the price will look the same. One area is low-income, hard to manage, and depreciating, while the other is affluent, stable, safe, and appreciating in the long term.

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