Niagara’s Acres of Diamonds: The land of ridiculously undervalued properties and ridiculously high rental income

Wednesday Mar 27th, 2019


An old adage from Dr. Russel Conwell seems cliché among salespeople and investors who stay current in the residential and multi residential real estate space, but this is truly the condition of the Niagara real estate market. There are a number of economic and social conditions leading to this phenomenon that is better than Dr. Conwell’s diamonds, these diamonds make you cash every month!

Niagara is specially situated within 1-hour drive of Canada’s biggest city and along the U.S. border, we enjoy many famous attractions such as the obvious Niagara Falls but as well wineries, restaurants and casinos, breweries and home to many involved in the growing cannabis industry, many of which are growing and thriving with the growing population.

Industry is on the uptick, so where is real estate? Same story there. In 2017 in the wake of the foreign buyers tax across the province of Ontario, the real estate experienced record breaking sales prices, Niagara region did much the same. But now 2 spring seasons later where are we? We are now even higher than we were then! In March 2019 the average sales price for the city of St. Catharines broke a record. (Now as a rule of thumb I’m not a fan of averages because if you had your head in the furnace and your feet in a snowbank on average you should be comfortable, averages tend not to tell the full story. But comparing an old average with a new average can be a good comparison to get a general sense of the situation.)

The Niagara real estate market is chalked full of rich gems that to an investor would be nothing short of hitting gold…or diamonds. Many properties throughout the region still under the 400k mark and often yielding well over 2.5k a month for a single family, one bedroom can be rented easily for over $1000/month and two beds? Well, that will run you anywhere between 1300-1600/ month depending on how well you know the landlord. 3 bedrooms? Well you might as well purchase at that point because if you can afford over1700+/ month you probably have a strong enough income to be approved by a bank or mortgage broker- pending your credit score and debt servicing.

How can you tell? I get asked in most real estate investment meetings. Many rookie investors look at the age of the roof, or how well maintained it is, or better investors may look at the overall economics of the neighborhood as a starting point. But as a first stop you have to assess the property by its ability to produce cash flow, because it’s the cash flow that will get you through the buyers remorse you may experience from time to time.  So as general filter if the gross income divided by the sales price is not greater than 10% I’d advise you to move on to the next investment. I use this practice because if you are entertaining properties that have only 5% positive cash flow from the gross, if interest rates move or taxes go up, you may be stuck flipping some of the cost. You DO NOT want to be in a negative or even close to negative cash flow position. That’s why I use 10% or greater of gross as a starting point.

Back to Niagara, how is it a diamond mine? The Real Estate Intelligence Network has sighted St.Catharines as one of the top 10 places to invest in real estate in 2019.Well because rents have been skyrocketing in the wake of the local housing crisis, and landlords are able to charge virtually whatever they like for new tenants. This situation leaves the landlords in charge of supply therefore in charge of the shelf prices of the units. Causing seemingly unattractive properties to be cash flow kings. This situation is leading local landlords, and soon to become landlords, into their own Acres of Diamonds, as Dr. Conwell would put it.

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