St. John’s Investment properties have increased – when will the rents?

July 8, 2008 · Filed Under Market Trends, St. John's Investments and St. John's Real Estate 

For the last few years 2-apartment homes have been increasing in demand and in price, particularly in the past 6 months.  The majority of investment properties in the St. John’s, Mount Pearl, Paradise real estate market have been selling in days, with multiple offers and selling well over the asking price.  This time last year your standard 2-apt home was around $180,000 to $199,000.  Currently they are $220,000 to $240,000 (East End St. John’s) and can be built new for approx $260,000.

The bases behind people purchasing a 2-apt is obviously as an investment, to have the rental income greater then the expenses and create a positive cash flow.  Last years price of $180,000 your monthly mortgage would be approx $1050 (assuming a 5% mortgage rate).  In today’s market, your $240,000 investment mortgage payment is approx $1400. (again assumed 5% interest rate).  That’s a $350 dip into your cash flow.

St. John\'s vacancy Rates

When will the rents increase locally?  I haven’t seen them increase in quite some time.  Average rentals are approximately $900 for a main floor 3 bedroom unit and about $600 for a basement apartment.  At those rentals, you are left with a $100 positive cash flow and you haven’t included property taxes and other investment property expenses.

Another factor is the average price in St. John’s and surrounding areas have increased for a single dwelling.  June MLS stats show the average price for a single dwelling home in St. John’s is approx $190,000, considerable higher then the average price from 2007.  First time buyers are being pushed out of the real estate market and are being forced to rent, creating an even further demand for investment properties.  St. John’s vacancy rate was 2.6 per cent in December 2007 compared to 5.1 per cent in 2006. (Forecast for 2008 is slightly lower vacancy rate according to CMHC). This marks the first decline in the vacancy rate since 2003 and largely reflects the impact of a decrease in the home ownership rate among first-time buyers and increased economic activity.

It’s only a matter of time….but the rents have to increase.

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