There are homes for sale in every area of the city. But as an investor looking to create wealth using asset appreciation over time combined with (monthly positive) cash flow to achieve a reasonable overall return on investment there are certain areas of the city that offer more upside than others.
As the mid-summer heat continues to scorch our city, our super-hot real estate market maintains its healthy glow. Homes in most areas of Edmonton continue to sell very quickly – especially for a summer market. But just because a home sells quickly, does that make it a good investment? Just because a home sells over list price in a bidding war, does that mean the successful buyer won; or did the seller win?
Well, as an investor there’s more to consider than the price we pay to own an asset. Terms on the deal and terms on the money (wherever vendor loans apply) will contribute to the overall outcome of the investment. But beyond the quality and condition of the home, some geographic areas have and will continue to outpace the rest of the market. A rising tide raises all the ships, and an Up-Market for a city is a blanket statement which would contemplate an average of all areas. Some areas will be flat, others may be down, but if the majority of the areas are up, then some will say that the city is up overall. But, if you can select an area that is more likely to go up more than the rest of the market, then obviously you’re positioning your investment for a higher rate of return.
Additionally, because real, long term investors rely on the income they collect to pay down the debt on their assets, the relationship between the price one pays to own the asset (cost) and the income potential needs to be favorable. In other words, the income must justify making the investment and some deals don’t – these investors speculate that the value will increase over time and thus insufficient cash flow is ok. These are speculators not investors.
Choosing the best area for investment requires careful consideration of potential for appreciation over time and the right relationship between cost and income. To that end, we’ve gathered information from the CMHC rental market report and compared that data to historical price appreciation for those same areas. But, because past performance is NOT an indication of future performance, I’m selecting the following area based on desirability, location and accessibility, and area amenities.
While most would consider the University area to be a prime location for investment because of the high amount of renters in that area it doesn’t make the top 3 on my list because rents have not kept pace with prices in the area. So unless you’re getting a great price, the rents barely justify the investment. What’s more is appreciation. While many have done well in this area seeing the value of their assets rocket upward, the area has become flat posting a boost of just 3.3% since January, 2010.
Many will be surprised to know that the top performer (income and appreciation) has been and will continue to be Millwoods. This area of Edmonton has seen healthy price appreciation of 21% since January 2010. The relationship between price and income is a healthier 3.7% per month which outpaces all other areas of the city except Downtown and The Hudson bay area (Kingsway and Nait) which experienced little or no appreciation since January, 2010. Millwoods will continue to be a top performer because it’s no longer the South East community on the outskirts of Edmonton. The city has grown far past Millwoods now and this area is no longer considered to be ‘so far’ from the action. Additionally, once the city executes its plan to expand the LRT into the South East, the communities of Millwoods will be even more accessible. Millwoods has long been recognized as very ethnic – home to many new Canadians, and this won’t change going forward. So more of the people who will account for the growing population settle in Millwoods, they create even more pressure for rental and resale inventory in the area. I predict Millwoods will be a top performing community for investors going forward.
Honorable mention goes to the areas of West Jasper Place, East Central Edmonton, and Castledowns. All of which have reasonable numbers for rental income vs. price and 5 year price appreciation along with good prospect for future growth of the metrics that matter to investors.
Be sure to check out our interactive map on the main page of our website to find homes for sale and get community information. If you're ready to start investing or are a seasoned investor we are ready to help you by listening to your needs and goals to help you to make smart, informed choices. Contact us, tell us your investment goals and let's work together to create positive cash flow for you.