The following article is from Canadian Real Estate Wealth Magazine.
Whether it’s long weekends at the cottage, weeks spent on the coast exploring Atlantic Canada, or months travelling across the vast mainlands, holiday-makers have numerous options to choose from. So, too, do investors looking for vacation properties in some of Canada’s most sought-after markets.
Here are the top markets to consider when you’re thinking of investing in vacation homes.
1) Banff & Canmore Kananaskis region
Peak season: July to August
Best buy: Tourist-zoned townhouse accommodation complexes
Average rent (1-bedroom): $1,200 a month
Banff National Park, the first national park in Canada, has been drawing tourists from all over the world for decades. Each year, the park plays host to four million visitors, not to mention the influx of migrants who work in the tourist industry in the summer months.
Eternally popular with visitors all year round, the nearby region of Canmore Kananaskis is abundant with opportunities for investors to house these visitors. Situated 15 minutes south of the park, Canmore is home to 12,000 permanent and 6,000 part-time residents. The town’s close proximity to Calgary makes it a great stopover for regional visitors from the city, and its nearness to Banff draws visitors from the world over. The real estate market has undergone significant gentrification in the past nine years and is expected to continue to grow as the area bills itself as an all-season crowd-pleaser.
Banff itself has a permanent population of 8,300, and this grows during the tourist season, which peaks in July and August. Skiing, snowboarding and dog-sledding bring visitors to the area in the winter, while hiking, climbing, spas, fine dining and shopping are a pull for guests in the summer months.
Property types in Banff are varied, ranging from hostels to campgrounds, to inns, bed and breakfasts, chalets, condos and backcountry lodges. That said, owning rental property in Banff Park is somewhat restrictive, given its status as a UNESCO World Heritage Site.
Christopher Vincent, of Sotheby’s International Realty Canada, explains that because Banff is a national park there is a Need to Reside Clause that permits ownership of property in the park only as long as the specifications of the clause are met.
In order to own property in the national park, the person living in the residence has to work in Banff, own a business in Banff, or have worked in the park for the last five years prior to retirement. This requirement can sometimes make purchasing an investment property challenging. That said, if you qualify, the returns are huge and the vacancy rates are consistently below 1 per cent.
Cap rates in Banff and Canmore are generally around 3–5 per cent, and properties in Canmore do not have the same restrictions. However, there are zoning requirements that investors should be mindful of, depending on their target tenant demographic.
According to Vincent, anything zoned as residential cannot be used for short-term rentals, therefore any rentals would have to be for more than 28 days. Vacation accommodation zoning allows for nightly or weekly rentals of up to 28 days maximum. The zoning of tourist home properties allows for both short-term and long-term stays.
“For the most flexibility, investors may consider tourist-zoned townhouse accommodation complexes, which allow for both long– and short-term rentals and fetch high rents,” says Vincent.
Rentals in Banff National Park will fetch a premium, but properties just outside in Canmore are also lucrative. A 650–700 square foot one-bedroom plus den generally rents for about $1,200 per month, and a three-bedroom apartment will rent for about $2,000 a month.
“The rental rates in these regions are definitely higher than the surrounding areas,” says Vincent.
Housing prices have declined slightly over the past few months, but have remained stable in the long term. In January, 2013, the average price of a single-family home in Canmore was $821,000 and the average price of an apartment was $260,000. One-bedroom units in popular condo-hotel developments can be picked up for as little as $160,000, and property management companies in the area will run them on behalf of the investors. Property taxes are generally low, and Alberta does not have a land transfer tax.
The variety of property types leaves investors with many options. “They could also buy into regular accommodation – anything from an entry-level regular two-bedroom apartment starting as low as $180,000, which will rent for about $1,100 a month, right through up to single-family homes,” says Vincent.
“Banff and Canmore are two communities where people choose to come and spend the winter, and they tend to be short-term tenancies of about six months to a year,” he explains. “It’s a good, consistent turnover, and people are willing to pay a premium to spend that season in the mountains.”