Updated: Jan 1, 2021
Location, location, location…. you have probably heard this many time before. This is one of the most important aspects of real estate investing. You cannot screw this up, you must make sure you do your homework here. We concentrate on 5 main attributes: population, employment, real estate price, vacancy rates, and transportation.
On a macro level we want to make sure that the city your considering has steady population growth over the next 20-30 years. The best resource for this data is StatsCan. The site has a variety of different data that enables you analyze the increase/decrease in the population. For example, migration is forecasted to be 46% of the growth in Ontario over the next 25 years. Our population is also going to shift from 17.6% to 23.4% of people +65 years old during the same time. This information is critical for understanding what type of real estate to invest in and most importantly the location. The below chart highlights regions in Ontario and their forecasted growth over the next 25 years. We only included the top 12 for visual purposes – but the one thing that stands out as well in this example is that all but one region has a significant population (>100k). This is our internal criteria for entering new markets. We prefer larger towns/cities to mitigate risk.
This information is critical for understanding the overall marketplace of the city. This information will give you an overview of the tenants’ ability to pay rent. You want to make sure the city has a diverse industry and not dependent on a singular employer. Start by searching the city and province websites. You will be able to get a lot of information from the latest census. The first thing you want to look up is unemployment rate and where it stands in comparison to other markets and the province. Then you want to see if there has been job growth within the city over the last 5 years. Try to determine if the city has BIA (Business Improvement Areas). Take a drive and see how far along they are with the initiative(s). Next step would be to figure out the primary industries and employers in the city. Try to understand if the employers are financially stable. Given an economic downturn would they still be around, or would they need to lay off their work force? Below is an example of the labour force in Hamilton.
Real Estate Price:
We use CMHC (Canada Mortgage and Housing Corporation) to determine the average rental and housing prices. This information tells us whether certain markets are better to invest in versus others – all other factors remaining neutral. Below is the type of information that you can get from CMHC. We also pull average house prices as well and run an analysis to determine the best ROI given those two data sets. Example: RENT/HOUSE PRICE = %. The higher the % the better payback. Keep in mind this is a very high-level analysis but nevertheless an indicator if you are just starting out.
CMHC is another good resource for Vacancy Rates. Our advice is to look beyond current rates. Look at the historical data – see if there were spikes in last 10-15 years. Its important to understand why those spikes happened. Is there a possibility those events could repeat? If so, ensure that you are prepared and base your analysis on worst case. A market with vacancy rates <5% is considered healthy.
We look at both inter and intra city transportation. We want to ensure that the location has access to good transit within the city but also can connect to other metropolitan areas. This will help not only attract tenants, but also increase your re-sale value. For us, the starting point is inter-city transportation. In the GTA, that means access to GO transit - specifically train service. You can simply start off by visiting the Metrolinx website. Find out their current service area and future projects. Next, we look at intra city transit. In Hamilton, this service is provided by HSR. Its important to look for express buses. This is more favourable as it typically has better and faster access to all other routes within the city.
Now, the 5 main attributes help us determine which city we should concentrate our efforts on but there are other things we should consider prior to finalizing our location. Schools and crime rate help us determine the specific neighbourhoods within the city. These are good reference points to have when you start looking for an investment property.
We use the Fraser Institute to look at rankings. The site uses province wide testing to determine school ranking with a score of 0 to 10. It also shows where the school is in comparison to the average and overall province. The easy map navigation and colour coding makes it extremely easy to look up your investment location.
Every regional police service will have a different portal to highlight crime rates – some are more user friendly then others. Most will have a map with type of crime committed. Here we typically filter for violent crimes, burglaries, and vandalism. We want to concentrate on the more serious crimes here. That way we can easily spot bad neighbourhoods and areas to avoid.
Fraser Institute School Rankings: https://www.compareschoolrankings.org/
Metrolinx Projects: http://www.metrolinx.com/en/greaterregion/projects/default.aspx
If you’re interested in finding out more information on how you can invest with us on our next deal – reach out to us directly at 289-242-6294 or firstname.lastname@example.org
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The information provided in this blog is for entertainment purposes only and is not intended to be a source of advice with respect to the material presented. The information contained in this blog do not represent legal or financial advice and should never be used without first consulting with a financial professional to determine what is in your best interest to meet your individual needs.
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