July 14, 2009 -The city of about 85,000, Fredericton, NB, saw average prices essentially maintain to start 2009, down just 0.4% to $144,635 for year-to-date January to February, compared to $145,164 in 2008.
Larry Booker, local realtor at Re/Max Realty, Fredericton, says he expects sales activity to pick up beginning in March.
A stable work force backed by federal and provincial government offices, two universities, a military base and an RCMP detachment are all combining to help keep the economy buoyant.
Vacancy in Fredericton for 2008 was 4.3%, down from 6.5% in 2007. Rising student population at the University of New Brunswick and St. Thomas University is expected to cause the vacancy rate to tighten further this year.
"We are expecting the universities will see an increase in attendance this fall as generally, people may be laid off from work and they will probably look towards education to help increase their odds of becoming re-employed," says Booker. "This, for Fredericton, is one of the nice side effects of a down economy across Canada."
Buyers may want to look to the downtown core for prime long-term rental investment opportunities, since this is where most of the student population is located. Properties here also have proximity to offices and shopping areas, and thus may appeal to non-student tenants - young working professionals who want to be able to walk to work and take advantage of nearby amenities such as bars, restaurants and other local features.
One example of a prime rental property in Fredericton is a 22-unit property located downtown. The property is close to major office buildings and provides on-site parking, Booker says. The 22-units are identical one-bedroom apartments that rent from $525 to $550, depending on the upgrades. Traditionally, the building has had few vacancies.
"Asking price is $1.2 million," says Booker. "Yearly gross revenues are $140,000, while annual expenses are about $50,000, for a net before interest income of $90,000. On a $1.2-million purchase price, this provides a 7.5% annual return."
At an entry level price point, fourplexes with one-bedroom units in Fredericton North go for about $120,000. Each unit rents for $395 per month for a gross annual income of about $19,000. After expenses, the net income is about $10,000, an 8.3% return. However, this property may be more prone to vacancies since it is in a less than prime area, says Booker.
Investors who are not afraid of a little handiwork may also want to consider boroughs such as Fulton Heights or Skyline. Homes here are in the 30- to 50-year-old range and in need of some updating, but local realtors say they could be poised for notable appreciation in the next three to five years.
"The price of new construction continues to rise, so the gap between new builds and older homes is becoming greater," says Dave Watts, local realtor at Exit Realty Advantage. "Updated homes will bring in good value from the young families that are popping up all over the place, to the baby boomers that are not in a position to buy new construction."
The purchase price for these homes is about $145,000, and the rental rate is about $900 per month.
A 20% down payment and interest rate of 4% would mean a monthly mortgage payment of $511 per month (not including renovations), generating almost $400 per month in positive cash flow. A basement suite could rent for an additional $600 for a total of $1,700 per month.
From the June 2009 issue of Canadian Real Estate
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