I've been looking at prices and rents on realtor.ca and kijiji. The price/rent ratio near Montreal (where I live) is absolutely terrible. Revenue/price are <7% and once you subtract expenses you end up with cap rates in the 3-4% range.
So I look around the surrounding regions. Trois-rivieres/Shawinigian in the Mauricie region have around 150k population and their price/rent ratios are a world of difference. Revenue/price ratios of 10-12% are not uncommon. I'm wondering if the region is economically depressed or something. I understand that rents are significantly lower, 3 bedrooms seem to rent for around 500-600. But even so, with 4-plex 3 Br selling for 150-200k, there is a lot of room for vacancy and expenses. Are houses in these regions hard to finance? I'm trying to understand, what is the problem here?
I've studied the area as well and it's in fact interesting. Acquisition is cheap and returns are good.
The reason it stays that way is because the region is depending on plants in TR mainly. These are fragile and will continue to be as print usage is dropping hard.
That being said, if that ever happens, rents are not going to go down, your property value might though.
I'm still pondering this, because what you said about Montreal is crazy true.
Hi @Jeffery Zhang ,
For the past year I've looked at a whole lot of properties within a 1:30h radius of Montreal, mostly because I found the price/rent ratios in Montreal to be uninspiring as well. Like you, I found that most cities such as Trois-Rivières, Sherbrooke, Drummondville, St-Hyacinthe and such all had much better ratios.
I think that the reason why there is such an imbalance is due to the fact that property prices have risen a lot in the past 15 years in Montreal, and rents did not increase nearly as much.
Keep in mind that if you invest in these mid-size cities, you're mostly doing it for cash flow, because houses will typically not appreciate as much, compared to bigger cities such as Montreal. In some cases it might even stagnate for long periods of time. Try to look at stats for various cities to see which ones are thriving the most (population increasing, etc). It's a bit of work but it should be well worth it. Those which have a good student population can be a good place to invest if you don't mind managing this kind of tenant.
In Montreal there are still areas where you can bet on appreciation, but it will be harder to have a good cash flow.
I think lack of appreciation in someways is a good thing. None of these are geographically constrained places, any price appreciation above the rate of inflation is just going to encourage new construction.
@Philippe, it's good to hear that the favorable ratios are due to lack of appreciation rather than collapsing local economy. If they are similarly interest rate insensitive when interest rates go back up, that would be really great.
@Marc, I'm curious why you think the rents would not decrease if the plants closed. My biggest concern about investing in these cities is the possibility of a detroit scenario. Given how close Montreal is, wouldn't people just flock to Montreal if local job markets collapsed? My other concern is that despite the awesome looking gross yields, how rentable are these properties? A high gross yield is only an illusion if the market have so much vacancy that you have to expect a long period of vacancy in between tenants.
From my point of view, if plants close, people will relocate to other jobs. Some may leave but smaller cities like this one tend to stay away from the big city. It's a mentality thing, at least for 35+.
Detroit was quite different, as both the local market & country collapsed. Plus, Detroit was the pillar of Michigan, while TR is not quite that for the province of Qc (without minimizing its importance)
Makes sense? :P
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