Canadian investors generating rich profits out of southern U.S. real estate opportunities
At the October Jurock Real Estate Outlook Conference in Vancouver, Janet LePage of Western Wealth Capital told a packed house of Canadian investors that they could make more money in the U.S. than they can at home by investing in lucrative Arizona rentals.
Hard to believe at a conference surrounded by Canada’s most expensive and fast-moving housing market, where the loonie is about the only investment heading south.
But LePage put up convincing evidence that even at around $0.70 to the American dollar, Canadian money can go further and increase faster in the U.S. Sunbelt.
LePage, a Vancouver-based investor and property manager, specializes in the apartment rental market in Phoenix, Arizona, a city ranked No. 3 in the U.S. Southwest for residential investments, according to a recent All Property Management survey. Phoenix is one of the fastest-growing cities in the U.S. It’s population is forecast to rise by two million people to reach a total of six million within the next 15 years.
The Phoenix rental vacancy rate is falling and rental rates are rising, according to LePage, who often works with Ozzie Jurock’s Real Estate Action Group investors.
Western Wealth owns 14 rental apartment properties in Phoenix with a total of 1,700 units, all bought in the past four years, and posting an average 2% vacancy rate. While prices in Phoenix have risen, LePage said her investors have been making steady 8% to 10% cash-on-cash returns annually.
“As prices have risen, financing has become easier and cheaper,” she explained. Mortgage rates on rental investments have dropped from 8% to the 3% range and the loan-to-value ratio is now 30%, compared to 50% in 2011, she said.
LePage said the lower-valued Canadian dollar represents an opportunity for Vancouver-area buyers.
For instance, LePage and her partners have averaged a US$75,000 profit on each Phoenix rental building over the last three years. When that is translated to Canadian dollars, the profit is close to $100,000, she said.
A senior Bank of Montreal analyst agrees.
“We expect the U.S. greenback to rise further against the Canadian dollar, boosting capital gains appreciation for Canadians who purchase U.S. property,” said Sal Guatieri, senior economist with BMO Capital Markets.
BMO notes that U.S. house prices have soared 24% in the past two years but are only about halfway back to their peak in 2006.
“Traditional destinations for Canadian snowbirds remain affordable,” Guatieri said.
BMO is forecasting that U.S. house prices will continue to increase in an improving U.S. economy.
LePage added that supplemental financing for 75% of a property value can now be arranged, which in Arizona requires only an appraisal and inexpensive paperwork.
“We can use that 75% to pay the investor partners quickly for their initial investment, while the building continues to make a profit,” she said.
“I love Phoenix, and Canadians should not be afraid of the lower dollar.” •
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