As you may already know through personal experience or from friends and family, the Calgary rental market is experiencing the lowest vacancy rates in years. Landlords are benefiting from the thousands of new Calgarians that have moved here since 2010 and the 25% less homes/condos available to purchase since 2012. As a result of this demand and limited inventory, monthly rental rates have increased substantially.

Owning a condominium, as an investment property, is a great way to participate in this demand/cycle and also a good mix to have in your investment portfolio. Here are some reasons why people choose condos for investment properties over single family homes:
Cost – Condos generally cost less to purchase than a single family home
Location – Condos are located in areas that have the most demand from prospective Tenants – Downtown, Beltline & close proximity to Central Calgary & Public Transit.
Generally there is less maintenance on a condo than a Single Family Home
Let’s take a look at a real life scenario of a Return On Investment for a condominium in the SW area. Let’s also keep in mind some realistic variables and risks such as: different interest rate options, occupancy rates, unexpected expenses, increase/decrease in asset value etc.

Property: 2 bedroom / 1 bathroom, built in 1978, clean & re-modelled in the 90’s

Purchase Price – $210,000
Initial Investment = $42,000 (20% down required, no CMHC fee)
Lawyer Fee = $1,000 (one time)
Mortgage Amount = $168,000 (25 year Amort @ 3.29% Fixed 5 year rate)

Total Monthly Costs = $820 Mortgage Amount + $344 Condo Fee + $100 Property Tax + $20 Tenant Insurance = $1284

Current Market Rent $1,600 – Expenses = $316 positive cash flow = $3,792 toal profit for the year

What is the Capitalization Rate?

Divide the yearly profit $3,792 by the initial investment of $43,000 (down payment + lawyer fee) = 8.8%

In this scenario you invested $43,000 and are earning 8.8% on your investement in your first year. This does not include the amount of principle that is getting paid down by your tenant which is $4,419.35. Taking the principle paid into consideration, your capitalization rate is now 19.1%

So the question is, can you receive 19% on another investment and still have an asset which you can see, touch, live in and sell?

Feel free to contact me for a discussion on investment properties, their risks, rewards and how to choose the best one!