At one point last week stocks were down 10% since May. Like many, I own some stocks and/or REITs, so scary days! Oil is down to $40 and likely to stay there for some time. So what are the implications for our main investment market - rental housing?
I phoned a few of our on-site building managers this week and asked them:
- Is the rent down 10% ? Answer: "No, it is flat and renovated suites are up"
- Did 10% of tenants leave? Answer: "No, why?"
- Are you sure the building vacancy hasn't moved to 10% over the last 2-3 months? Answer: "No, of course not"
- Do competing landlords in the area offer incentives or are their rents down 10% or have they seen 10% vacancies? Answer: "No, they are like ours, all full and same rent, more or less"
I then phoned a few multi-family realtors in Texas, BC and Alberta (three of the markets we'd typically buy in today) and asked:
What is for sale with all this doom-and-gloom, $40 oil and the new orange NDP government in town now in Alberta ?
- Are building values coming down?
- Are there any deals ?
- We have money to invest and want to buy buildings 10% cheaper than a few months ago...
Answer, as you can imagine: "No! prices are still very strong and in MANY case actually have gone up as fearful investors leave the far more volatile industrial or office real estate space and look for safer heavens, let alone the spooked stock investors that lost 100's of billions the last few weeks in various stock markets around the world.
Sorry, no deals. Many folks even de-listed as they don't know where to put their cash after they sell their buildings".
Some doom-and-gloom in the apartment building space!
You see, residential rental real estate behaves fairly predictably in good times AND very predictably in bad times!
That is THE key reason we have made so much money in that space over the last decade and a half, and continue to like them it.
- Even in a $40/barrel oil environment.
- Even in an anti-business, tax-hiking, spend, spend, spend, debt-creation NDP environment (that may soon spread to the whole of Canada).
- Even in a recession or a Dow Jones 1000 point in 2 day retraction environment.
The chart below shows that even in a completely flat market you can make 6-12% by just holding and paying down your mortgage. As in PLUS 6-12%. Not minus.
The numbers listed above are even better now as mortgage rates are ridiculously. For example consider this scenario:
$1M asset, $250,000 (or 25% down) invested, with a yield or CAP rate of 5% and a mortgage rate at 2.5% you make $25,000 every year or 10% on the actual cash invested, without any equity upside. Usually we re-invest the cash-flow and force rents up in upgraded units for higher value down the road.
Thomas Beyer is the President and Founder of Prestigious Properties - www.prestprop.com