Real Estate is Local
by Paula Ellis for CanadianFinancialFreedom.com
October, 2006
Are you worried about the upcoming ‘so called’ real estate crash -the one all the big financial guys are saying is imminent?
If you said yes, you’re not alone. We’re all worried, and so we should be. Things will change if there’s a major crash in the real estate economy.
But there are things you can do to soften the blow of the crash. That’s completely another story, though and requires another article.
If, however, you bought right, you might just experience continuing growth in your selected area. After all, one of the biggest secrets of real estate is that it’s very localized. The old
adage ‘location, location, location’ isn’t always the governing rule, but it does make some sense. People will always need to rent, so if your prime real estate holdings are cash flow
properties with rental income, and you have purchased right, you’ll will probably continue to experience growth,
even in the crash market.
If your properties are cash-flowing properly (you’ve hopefully bought with that in mind) you will realize that people will continue to need to have a place to live, even though they may
start to do without other things.
However, separate from the issue of cash if real estate’s local nature. Even today in Canada, there are places that are booming, and there are places that are busting. You’d be hard-
pressed to find appreciation in most parts of Saskatchewan, for instance, as the population unfortunately continues to dwindle. In Alberta, however, everything is booming. Fort
McMurray, Edmonton, and Calgary are perfect examples. Those places will likely continue to boom, even if there is a dip in the market everywhere else. The oil sands are on their way
to being a prime source of oil in stable North America, and there seems to be no dip in the energy consumption of North Americans - so, the oil centre is a good place to drop your real
estate shopping cart.
You can also find better local areas that are closer to home, which will likely not experience the same kind of dip as other areas if there is to be a crash. There are a few things to look
for:
□           Population increases. Has the population in your selected area decreased or increased over the last two or three census? Check with the towns or city halls as they may have
even more current information with respect to population. Statcan.gc.ca is a good place to start for this information.
□           Development potential. Check with your local town hall or city hall for stats on other development issues, such as housing starts. If housing starts have been up for some
period of time, it means that this is somewhat of a hot area. On the other hand, if there have been too many housing starts, your market may be saturated - as they’re predicted will be
the case with the Toronto condo market. You could also research whether the town is ‘developer friendly’. All developer friendly towns have experienced major growth.
□           Roadway Development. Check with the Ministry of Transportation to see if there have been recent developments in roadways or highway announcements. MTO’s website
here in Ontario is a great example of valid information. It’s not just major highway developments which affect real estate, but also more minor changes, such as road widening, or a
new highway ramp - as can be seen all around Woodstock, Ontario.
□           Real Estate Listings - speak to local agents, who will have all the inside info on this. They will be able to comment on the booming areas, or the hot areas of town. Be
careful, as they are motivated by commission and some will say a not-so booming area is a booming area just to get you to buy. If you’ve developed a relationship with an agent (who
is hopefully also an investor), they will be in with you for the long haul, they’ll direct you to authentically booming areas.
□           Infrastructure changes. Anywhere there’s been new municipal services added is a great place to invest. There is always additional value in towns where there are new services.
For example, Baysville, Ontario is a small town in Muskoka of only 800 or so year-round residents. However, it sits at the entry point of the prestigious Lake of Bays (with its
million dollar properties), it’s now easily accessible by the new Highway 11 billion dollar commitment and completion by the MTO, and has recently been completely overhauled
with new municipal services. Although the population hasn’t yet increased, can you imagine what’s going to happen to this little town over the next five to ten years? There are gems
all over the country which have these factors associated with them - as a real estate investor, it’s your job to find them.
□           Job Announcements. If you can locate a community that has all of the above, plus has had major job announcements by either the government or the private sector, or even
recent developments in that area, you’ll be in luck. Real estate will always be in demand where there are jobs. This is one of the main reasons why real estate values have gone crazy in
Alberta: jobs, jobs, jobs!
□           Commercial Development. Often jobs will follow a new commercial development, and of course, wherever there are jobs, there is an increase in real estate values. If you’ve
noticed a new Wal-Mart, a new Home Depot, a new Smart Centre, a new strip mall, or a home builder who sells out quickly in a newly developed area, that’s the place to be. If you’re
a little guy like us, you’ll be happy to follow in the footsteps of these huge companies who have spent thousands on research. Their deep pockets will have already paid for population
studies, roadway traffic studies; they will already have assured themselves that values will go up. Why not follow those thousands of dollars of study?
□           Waterfront. Anywhere near the water is slated or permanently destined to go up, and the sky’s the limit. Considering they’re not adding any more waterfront anytime soon
(LOL), the value will continue to rise. If you can locate waterfront that has any of the positive real estate values as above, then you’re onto a diamond area.
□           Trends. Trends are always valid gauges of real estate values. For example, if you consider the fact that there will be millions of baby boomers entering their senior years over
the next little while, you should consider the real estate needs of that trend. Will baby boomers still want a huge house, common during the wild 80s, and still being built by
upwardly mobile families today? Will baby boomers want to spend their leisure years in the big cities? Or do you think they’ll want to slow down with a place in the country, but
with access to a hospital and shopping? Once you determine what the trend will be, all you have to do is buy that type of property with the other factors considered, and you’ll be in
the money.
□           University and College Expansions. If a university or college receives a large donation or is able to somehow fund a huge increase in student population due to capital cost
building, then you can be sure property values will go up - especially within walking distance of the new centre. Even in small cases, this is a valid measure of real estate popularity. A
hot tip: watch where Nipissing University decides to put their southern Ontario campus.
□           Public Transportation Developments. This is an essential decision-maker for your property and area analysis. If there will be a new public transportation development in the
near future, you’ll strike it rich! Joking aside, any new public transportation change will ultimately bring more people to the area, which in turn will allow for more commuters, which
in turn will drive the cost of real estate up, up, up.
□           Vacancy rates. You can get this information from the local authorities, the rental companies, or the Internet with government statistics. If you know there are a lot of renters,
but not much supply, and you’re looking for cash flow properties, that might be a place for you.
□           New Home Building. You can be sure that wherever the new home builders are, further development will follow. It’s very common for builder or developers to hold onto
several chunks of land and release them in phases, who’s release could be years apart. And moreover, when one builder starts another one quickly follows. And when there’s residential
homes and subdivisions, commercial development follows.
If your research shows your selected town to have 8 or more of these elements, then you’ve probably got a winner. What you must always consider is that real estate is very local, and
your research will furnish you with the relative local information which can make or break your real estate investment career. Choosing just anywhere may be okay for positive cash
flow, but it will not be okay for huge gains in appreciation. You might give up a small percentage of your cash flow (but not make it negative) in exchange for potential huge gains in
appreciation. If you’ve find a locality where many of the elements listed above are in place, and your cash flow is good or excellent, you’ve got yourself a local winner!