In the never ending cycle of the real estate market, there always seems to be patterns emerging. When you are able to study these patterns and learn from them you will see opportunity where others see only bad things. I believe in many Canadian cities right now opportunity is knocking quite loudly for real estate investors and all one really needs to do is open up the door.
One such opportunity is the infrastructure spending that governments of all levels are partaking in. The most notable area of this in my opinion right now is through the transit expansion. In the Vancouver area construction is about to begin on the sky-train extension known as the Evergreen Line. In Edmonton they are building out the light rail (LRT) and Toronto continues to talk of subway expansion.
So how exactly does one go about taking advantage of this opportunity? Well, for starters, you should begin by looking at the rule of 800 meters. Simply put if you were to put a dot on a city map of the location of an upcoming transit station you would then draw a circle around that dot with the radius being 800 meters. This will give you a focus area that will provide an increase in property value and market rent of about 10-15% higher than comparable properties outside this circle. It is important to note this increase in value will take place a few months after the project has been completed.
Now, let’s get back to the true opportunity that is presenting itself right now. I am going to use the Evergreen Line as the running example in this article. Construction for this project has begun now, early in 2012 and is scheduled for completion in 2016. Right around the time construction is announced and starts people get excited and a temporary bump in value (or asking price) will take place. Then as construction gets under way, noise will pick up, roads will be closed or congested and people begin to get irritated, thus values will reduce. AKA, opportunity is knocking. The beauty of this is not only will prices recover they will jump due to the value increases of the 800 meter rule.
Another interesting phenomenon is that often times city planning departments will run new transit projects through rougher neighbourhoods they want to rejuvenate. This is done for several reasons:
- Any land the city needs to acquire can be done so more economically.
- Neighbourhoods which have been run down have land developers can pick up
- Rezoning in rougher neighbourhoods can be easier as the residents do not always have enough money or lobbying power to cause a fuss.
- Long term project completions can allow developers a chance to build large scale projects that can complete around the same time as the transit projects
- Increases in population density and property values means more tax dollars for the city. (property tax is one of the few methods of collecting money a city has)
So this means you have an opportunity to pick up property at a discount, in an area where prices are already lower than those around it. Moreover, you know that once the projects are complete the property and the neighbourhood are going to see a significant INCREASE in market value and potential rent. A prime example of this was Yaletown in Vancouver. Once an industrial wasteland where no one wanted to be, now it has some of the highest property values in the world.
So there is one neighbourhood I believe has enormous potential for the next 36 months or so and that is Burquitlam (I agree it is a silly name). This area is the site for one of the new sky train stations, is full of older single family homes, the city has been approving mass rezoning for the area and a number of developers are about to break ground on new buildings. There is an opportunity to find decent properties at a reasonable price, gain positive cash-flow in the short term and have a big boost in the medium term. There are no guarantees in life but some good research and a little action you can dramatically increase your odds of success.