Want to understand RE market in USA (I'm Canadian)

8 Replies

Hi bigger pockets,

I am an RE owner in Ontario, Canada. I encountered bigger pocket a month ago, and have been following, reading, and enjoying myself here. 

I come across many investors in BP referring to multifamily/residential rental deals they are interested/closing at an absurd returns and prices. I see a lot of 7-8%, even double digit capitalization rate properties, which are beyond unimaginable returns in Canada. In the city I live in Canada, Waterloo, any capitalization rate 5-5.25%, excluding CapEx is considered a "deal". Pretty much any RE on market with 4.75%+ cap will get sold quickly. I am just wondering are these real numbers investors pay or I am missing out on hidden costs or type of deal (such as just purchasing building only, on a rented land).

For example, I just closed a deal few months ago, with 5000 rent, operating cost 1600 (utility, p tax, minor maintenance) at 750k. at 5.4% cap, this isn't a bad deal here. Even if you go to smaller towns with 5000-7000 people, with drug problems, cap rate wont go over 7~7.5% here. Is there really that much disparity between Canadian and USA RE market? Appreciate any opinion that will shine light on this :)

Originally posted by @Abe Homulo :

Hi bigger pockets,

I am an RE owner in Ontario, Canada. I encountered bigger pocket a month ago, and have been following, reading, and enjoying myself here. 

I come across many investors in BP referring to multifamily/residential rental deals they are interested/closing at an absurd returns and prices. I see a lot of 7-8%, even double digit capitalization rate properties, which are beyond unimaginable returns in Canada. In the city I live in Canada, Waterloo, any capitalization rate 5-5.25%, excluding CapEx is considered a "deal". Pretty much any RE on market with 4.75%+ cap will get sold quickly. I am just wondering are these real numbers investors pay or I am missing out on hidden costs or type of deal (such as just purchasing building only, on a rented land).

For example, I just closed a deal few months ago, with 5000 rent, operating cost 1600 (utility, p tax, minor maintenance) at 750k. at 5.4% cap, this isn't a bad deal here. Even if you go to smaller towns with 5000-7000 people, with drug problems, cap rate wont go over 7~7.5% here. Is there really that much disparity between Canadian and USA RE market? Appreciate any opinion that will shine light on this :)

 This is precisely the reason I started an RE investment company in the US back in 2013.  The last building I sold in Canada  had the exact same figures you just mentioned with respect to rent  and sales price  back in 2014.  $5,000 in rent,  $750,000  sale price . So things have flatlined since then. 

Prices have gotten crazy in many US cities as well now too hence the reason for the switch a couple years ago into buying distressed mortgages

Originally posted by @Roy N. :

@Abe Homulo , @Chad Urbshott

Canada is a big place.  There are markets where you can get still find 8-10%+ (cash-on-cash) returns with a little digging.

 That pales in comparison to the 30-40% cash on cash unlevereged returns you can achieve on non performing notes. 

Originally posted by @Chad U. :
Originally posted by @Roy N.:

@Abe Homulo , @Chad Urbshott

Canada is a big place.  There are markets where you can get still find 8-10%+ (cash-on-cash) returns with a little digging.

 That pales in comparison to the 30-40% cash on cash unlevereged returns you can achieve on non performing notes. 

 Absolutely, but I thought the OP was talking apples rather than oranges ;-)

@Roy N. cities in southern Ontario wouldnt have double digit cap rate unless you are purchasing century old house in lowly desired part of a small town. I understand if you move out of this region you are probably right about better returns

@Chad U. i am getting hit hard by municipal/provincial level of rent controls and requirements so you really made the right choice to 1. move out of canada 2. switch to different business without such regulations. Here in waterloo the rent controls dont even let you rent out more than 4 rooms in a house no matter what the size of building is. 

@Caleb Heimsoth Thanks for the shout out. 

@Abe Homulo There is a big disparity between the US and Canadian markets. But that would happen anytime there is one market with a deeper buyer/seller pool than another. @Roy N. mentioned a good point about Canada being a huge place, but net-net you will find a deeper asset pool in the US. But remember that deeper is not always equal to better. 

@Chad U. 30%-40% unleveraged cash-on-cash returns sounds nice but can you operate on scale (say $10M-$20M)? If so, sign me up.

Originally posted by @Omar Khan :

@Chad Urbshott 30%-40% unleveraged cash-on-cash returns sounds nice but can you operate on scale (say $10M-$20M)? If so, sign me up.

 Definitely scalable. Not all at once but at a nice gradual pace is doable.