Unaffordable housing, old age social security, silver splitters, RRSP’s, and long-term tenants are and will continue to be, commonplace in the ultra-expensive Vancouver and Lower Mainland real estate market. These are the key ingredients to creating a wonderful portfolio of investment properties over the next decade.
The unaffordability of housing is a constant headline. At times, the noise and media attention diminish but for as long as I have been selling real estate, which has been 25 years, the drum of unaffordable housing has been thumping in the background. All the while, the newly elected Provincial NDP government, mayors, and city councils from around the region continue to beat their own drums, promising that they will find a way to create and manufacture affordable housing through various models, rules, and regulations. Do they get the big picture? Unfortunately—or fortunately, depending on your viewpoint—we live in a world-class region that means affordable housing does not and will not ever exist. The keyword here is “ever” as I see this as a huge opportunity for investors. Housing, and more importantly to the investor, rental units provided by the housing are an essential need and a commodity that will become rarer as the time goes on. In fact, the supply lines are currently at all-time lows throughout the region. This need will continue to outstrip the supply, vacancy rates will continue to stay low, and rents will continue to rise.
Millennials are often the focus of our attention when describing the new tenant. However, more and more seniors or pensioners are seeking places to rent as they are moving from other parts of Canada and looking to “live a little” in the diverse city of Vancouver. Meanwhile, 55+ homeowners are looking to downsize, which we often associate with selling the big family home and buying a smaller home. Many of these seniors and empty nesters would say they are not downsizing just for the money, but they are downsizing for the freedom of no mortgage, no maintenance, less responsibility, and the freedom to come and go as they desire. I look at this statement and interpret it as the following, “We cannot afford our lifestyle or the lifestyle we desire in the future without selling everything and/or downsizing significantly.” Their old age pension plans and RRSPs will not support the lifestyle they so desire. I also believe a significant number of these “downsizers” would rather move directly into a rental home and cash out of the market completely if the right rental home were available.
I recently ran a rental ad to see if there was a rental market for the 55+ homeowner interested in liquidating their real estate and becoming a tenant for the next chapter of their lives. This is the ad I ran:
Are you 55+? Are you TIRED of homeownership and ALL its costs? Is the financial BURDEN getting you down? Are you looking for FREEDOM? Do you want to TRAVEL and experience NEW adventures? Or maybe you just NEED a change? BREATHE in this exclusive luxury RENTAL condo, 2 bedrooms and 2 baths within walking distance of Starbucks, Safeway, restaurants, boutique shops, and parks. $1600 per month. Call today and START your new adventure.
I was pleasantly surprised, and even a little shocked by the response. Yes, I had the usual prospective tenants looking for their next apartment to rent, just like the couples that have never been able to save up enough for a down payment to buy their own home. What shocked me was the response I received from financially upward and mobile wealthy couples. These were retired or near retirement couples looking for that freedom of no responsibility, financial freedom, and the opportunity to be adventurous without the commitment of home ownership. Digging deeper, many of them wanted cash in the bank versus equity in their home. Debt-free seemed to be the ticket for contentment and happiness for these prospective tenants, along with the financially strong and freedom-seeking seniors is the silver splitter.
The term ‘silver splitter’ was recently coined in the UK. Silver splitters is a description of a mature married couple divorcing after 20-30 years of marriage and splitting their assets. Many of these couples find themselves becoming tenants for the balance of their lives after dividing the assets and not being able to get back into the unaffordable market of London and the surrounding region. This scenario sounds and looks very familiar to the Vancouver and Fraser Valley market.
Fifteen years ago, a few partners and I constructed a purpose-built, multi-family rental building not knowing who our target tenant was going to be. As we started the lease-up program for the building, we became aware of the high percentage of seniors that we were attracting and signing to long-term leases. Our location was across from a major mall, on a bus route, walking distance to restaurants, and close to all essential amenities; the perfect formula for attracting long-term senior tenants. Today, the building still looks like new (pride of ownership by the tenants) and virtually a 0% vacancy rate. Our only challenge with this tenant profile is that rental increases due to the long-term tenancies have not been able to keep up to market rents; however, the benefits of these senior and silver splitter tenants have outweighed the higher market rents and is a wonderful property in my portfolio.
If you want to create a wonderful real estate portfolio of excellent properties, make sure to accommodate the senior and silver splitter with the right location. Check the fit and finish of the building, search for a scarcity in the rental market, all within a marketplace that is unaffordable for the average homeowner.
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STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales