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Buying and owning Real Estate is an exciting investment strategy, that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost up front, then paying off the balance, plus interest, over time. While a traditional mortgage generally requires a 20% to 25% down payment, in some cases, a 5% down payment is all it takes to purchase an entire property. This ability to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can in turn take out second mortgages on their homes in order to make down payments on additional properties.
Here are four ways in which investors can put properties to good use:
There is some good news for Calgary’s long-depressed real estate market.
According to new data from the Calgary Real Estate Board (CREB), home sales in May 2019 across the city were 11% higher compared to the same period in 2018, representing 1,921 units sold for the month. But this is still 10% below long-term averages.
Growth in sales last month was primarily propelled by homes priced under $500,000.
Furthermore, the month finished with a decline in new listings, and it pushed down inventory levels, with 7,467 units listed — a 12% drop compared to last year.
The disparity between sales relative to inventory levels has improved, but the market is still oversupplied.
“While sales activity remains low based on historical activity for May, the easing prices have brought some people back to market, while also preventing some others from listing their homes,” said CREB chief economist Ann-Marie Lurie, in a statement.
For detached homes, sales for this housing type reached 1,182 units in May, which is a 12% increase over the same month last year, but still 13% below long-term averages. Inventories for detached homes fell from 4,504 units last May to 3,921 units this month, and it is the first time since May 2017 that year-over-year inventories declined.
Attached homes also saw improved sales activity; year-to-date sales for attached went up by 2%, making this the only home type to see a year-to-date improvement.
Apartment sales, however, continued to struggle, with the year-to-date sales sitting at 1,030 units, representing a 7% decrease over the same month in 2018 and 28% below long-term averages. Continued oversupply could cause prices to further drop.
As of May, the benchmark price for apartments was $246,900 — 0.6% lower than the previous month and nearly 3% lower than last year’s levels. Since 2014, prices for this home type have dropped by 17%.
Overall, the benchmark price for the month across all three home types was $423,100, which is a slight month-over-month improvement but 4% lower than 2018 levels.
If there are no companies willing to move into Calgary's empty office towers, real estate developers Strategic Group are betting people will.
That's the thinking behind the developer's decision to reconfigure some of its office buildings in Calgary and Edmonton as rental apartments, rather than fighting the headwinds of persistently high office vacancy rates.
One of those is the Barron Building, a historic building on Stephen Avenue that was Calgary's first skyscraper and the home of some of its first oil and gas giants when it was completed in 1951.
"I love the building," said Strategic Group president Randy Ferguson, in a Monday interview with Calgary Eyeopener host David Gray.
The building is 11 stories tall with a single residential unit: a penthouse apartment that once belonged to J.B. Barron.
The plan was to keep it that way when Strategic Group bought it, but then the oil crash happened, said Ferguson.
"We put a redevelopment plan together that we worked on since 2012 to convert the building — double the floor plate — into an office building while still respecting the architectural characteristics of the building," Ferguson said.
"Unfortunately," he added, "our plan was completed and permitted in 2015 where things came to a little bit of a stop in the office industry."
Now the interior is being reconfigured into residential units, with an expected opening in 2020.
That same phenomenon came into play a few years ago, when Alberta Health Services announced it wasn't renewing its lease at another Strategic Group building, known as the Cube, on 11th Avenue S.W., across from the Midtown Co-Op.
Rather than trying to find a new tenant to replace their departing one, the company decided to repurpose the building as apartments.
Ferguson said the combination of design and location made it an appealing candidate.
"We looked at the building over what might happen in the next 10 to 15 years as an office building," Ferguson said, "and we looked at our costs and our returns on converting it to residential — and due to the location and the physical structure of the building, it was ideal for repurposing."
The building contains 67 suites. Ferguson described it as "more of a jewel box type building" than a lot of the high rise style apartments downtown, which distinguishes it from them, and as the thinking goes, appeals to a different sort of demographic.
"There is a big propensity and a big demand for purpose-built rentals in the city of Calgary today," Ferguson said.
"That could mean singles, it could mean empty nesters. It could mean new citizens moving into the city and even into the country."
The Cube is still under construction on its exterior, but has people living in it already.
"We're particularly proud of the Cube," Ferguson said, "because it's the first repurposing project that we're delivering into the two big markets in Alberta."
Strategic is also converting several office buildings in Edmonton into residential towers, for the same reason they're doing it in Calgary: older stock offices can't compete with new office buildings in a shrinking office demand economy.
But, Gray asked, what about the condo gluts that exist in both cities?
Ferguson suggested that there's room for rental units, particularly when compared with aging rental stock in both cities.
"The two youngest cities by a demographic in the country are Calgary and Edmonton and a young population," Ferguson said. "Remember, our average age is 35, and a young population has a greater propensity to rent than to buy.
"The second leading economic indicator is the fact that our rental inventories in the two big cities in Alberta, greater than 50 percent of that inventory was built prior to 1976 — so there's tranches of inventory every year that are becoming functionally obsolete."
It's not cheap to convert office buildings into residential units. The Barron Building conversion will cost $44M, while the Cube's is around $24.5M — but Ferguson said it beats the alternative.
Will it change downtown Calgary?
Could a ghost town transform into something resembling a community?
"It can absolutely change," Ferguson said.