Across many of the Western Canada markets that westerninvestor.com covers, it’s a pretty good time to be alive right now, if you’re a residential real estate investor. But arguably nowhere is this more the case than in Vancouver’s Mount Pleasant neighbourhood these days.
Mount Pleasant is one of the trendiest areas in Vancouver, and has seen huge growth in recent years, taking the neighbourhood from primarily low-level industry to a hotspot for achingly cool young urbanites to live, work and play. Craft breweries galore, hipster coffee bars, startup tech businesses and organic food stores have sprung up in their dozens, accompanied by all the people who want to live near them. And with limited new home development in the area, the demand for existing homes – both to own or to rent – has soared. What’s more, it’s not looking like it’s stopping any time soon.
No surprise, then, that investors who were savvy enough to enter Mount Pleasant attached property market one year ago will have seen a delightful uplift in prices over the past 12 months. Combining condo and townhome sales in May this year (88 sales registered on the MLS® in total), from both Mount Pleasant East and West, the median sale price was $760,000 – 22.2%, or $138,500, higher than May 2016’s median of $621,500. Check out this infographic showing recent median price rises.
That means for the investor who bought a median-priced attached unit a year ago and, let’s say, sank $135K into a 20% down payment and fees on the unit – that’s more than a 100% annual return on their investment. Not too shabby.
Cash flow considerations
That said, it would have been tough to make the same unit cash-flow positive over the year, with that down payment. A $500K mortgage will cost you around $2,300 a month to service under current rates, not to mention strata fees and property tax adding probably another $400 a month. And even with vacancy rates well below 1%, you’d have been looking at renting out this typical, probably two-bed unit of around 800 square feet for about $2,200 a month. So an investor would need to either eat the monthly loss, confident of the overall speculative gain – or bump up the initial down payment to about 35% to create a positive cash flow. Even then, at an initial total lump sum of $235K, that’s still a 58% return on your investment in a single year.
The same Mount Pleasant unit, if you were to buy it today for $760K, would cash flow if you put 40% down, took out a $460K mortgage and rented it out for $2,600. A quick look at today’s Craigslist rental listings shows that’s easily done.
Medium- to long-term outlook
Question is, will the same unit garner a similarly great uplift in price over the coming year or more? Well, it’s tough to say what will happen for sure, but I certainly wouldn’t bet against it – particularly in the medium to long term.
The key to future investment growth in this neighbourhood, both for rental prices and home price uplifts, lies to the north of the area – the False Creek Flats. This 450-acre wasteland is now the new home of the Emily Carr University campus, will soon house the new St Paul’s Hospital, and has been masterplanned to accommodate massive amounts of new industrial and commercial space, with incredibly few new homes set to be built.
Indeed, Daryl Simpson of Bosa said recently, “Look at the 450 acres in False Creek Flats, with 1,400 residential units in total earmarked for that area. That’s three homes per acre. That’s insane. Ask Ryan Holmes of Hootsuite what he needs, it’s not 450 acres of industrial land, its proximate residential units [so employees can afford to live in Vancouver close to work]. Ask Amazon, they’ll say the same thing.”
That’s bad news for would-be local home buyers – but great news for existing and would-be investors. With so many more young professionals and hospital employees wanting to live near their new workplaces, home prices, rents and vacancy rates in the Mount Pleasant region can only improve for investors.
The kicker? You’ll have to get in now, if you haven’t already, as prices could keep skyrocketing.
Local REALTOR® Keith Roy agrees. “This area, especially along Main Street, has returned to being the centre of the city after many years of focus on the West Side of Vancouver. It’s safe, fun, vibrant, easy to access and has great transit and wonderful public spaces. I would expect continued growth in this area for many years to come.”