A Blue-Chip Investment Property
First, what is a Blue-Chip investment property? I liken it to blue-chip stocks but in real estate. A Blue-Chip stock is seen as a relatively safer investment, with a proven track record of success and stable growth. Often a Blue-Chip stock comes with a dividend component too. In my opinion a Blue-Chip investment property is a good buy and hold investment that is highly desirable, located in a stable market (i.e. city – preferably capital city) with a proven track record that is in a growing location with a high probability of appreciation and providing monthly positive cash flow after all expenses in the short and long term.
What is the recipe for a Blue-Chip investment property? Just like baking a cake or making bread you need to have the right ingredients and an idea of what it will look like or desired outcome for success. With that in mind, I always recommend starting with the end in mind. So for your investing, I recommend that you think about the following questions.
- What is the purpose or desired outcome for investing in the property?
- What are the exit strategies (have more than one)?
- What is the timeline for holding the property?
Ingredients
In the theme of baking a good cake, you need to have the key ingredients, which are gained through research and due diligence.
- A diversified Economy that can & will withstand economic changes that all economies will experience
- Growth of the Gross Domestic product (GDP) aka big investment dollars being spent in the economy creating jobs and population growth
- Stable, growing, and contributing population
- Stable, healthy and sustainable market that will have a strong propensity to continue a rising trajectory over the longer term with the understanding that it will deviate from the trajectory from time to time
- Buying at the right time in the real estate cycle for buy and hold. This is NOT when the market is at a peak.
- This is where you need to understand at what point in the real estate cycle is the target market at such as recovery, boom, or slump
- A recovering market is usually the most lucrative time as the seller is most motivated
- Decreasing inventory supply means that your property values will have the best chance of rising over the holding period which is more than 5 years. Anything less is almost speculating.
- Good Quality Neighbourhood – You want to buy where people want to live.
- You want a neighbourhood where there are good income levels or at least the income levels are increasing.
- Being conveniently close to shopping, amenities, schools and access to good transportation infrastructure is always a plus for attracting tenants and future buyers.
- Choosing the best Blue-Chip property for your needs and capabilities – When you start with a quality property (i.e. fresher ingredients) you get a better outcome
- Good quality owner occupier properties usually involve construction to a higher standard than rental stock or entry level
- Newer construction will be to current building and safety codes and have all the desired modern conveniences and finishes
- It will command a higher rent and thus getting a better rent to price ration over both short and long term
- It has an appeal to both tenants and owner occupiers over both short and long term
- It stands out in comparison to other properties in the area
- It has good structure: systems, controls, and management
Baking Time
Baking time has to do with the time it takes to grow your investment to get your desired finish product so to speak just like baking a cake
- Having the ability and desire to hold the property even when the market does ebb and flow, in terms of swings in inventory supply, vacancy and rental rates.
- Ideally the holding period would be indefinitely, but you must consider the multiple exit strategies you may wish to employ.
- Never sell, and enjoy the rental income
- Pass it on for legacy
- Eventually to live in it
- Refinance to buy more (be a net investor)
- Do you want to sell?
- If selling, who and what is the demographic of your buyer?
- Will the property appeal to owner occupiers, investors or both?
- Could the buyer be the tenant with a rent to own program,
- Who is your target demographic if selling?
Temperature
The temperature has to do with the real estate market itself and the investing climate of the desired market in which you are interested, and the property opportunity is located.
If the temperature is too high you get burned (highly volatile and hot markets like Vancouver or Toronto where there is fierce competition and people are regularly paying over asking). If it is too low, you don’t get the “rising”/appreciation that you were seeking (markets that don’t have the sustainability and are soft in values due to poor fundamentals). This thinking helps you get the temperature just right and in my experience that is investing where the market is recovering, has the correct fundamentals, but the masses are unaware or are not confident enough to jump in so lower competition leads to greater opportunity.
A Case Study of a Blue-Chip Investment Property
Essence at Windermere in Edmonton was a recent of example of a Blue-Chip investment property. Why?
In short, Essence has the right ingredients, baking time, and temperature for a Blue-Chip property.
Ingredients
It is located in Edmonton, Alberta which has been through an economic downturn for the last few years. Alberta has one of the youngest populations of all provinces, which means that they are net contributors in the economy. Edmonton, the capital city of Alberta, it is the gateway to the north, it is the working town. The population grew and continues to grow even during the ups and downs in the Alberta economy.
Essence is located in the young and affluent neighbourhood of Windermere which is minutes to the Anthony Henday Ring Road. It is one of the neighbourhoods within Edmonton closest to the airport. There are excellent schools and shopping in the area. The average household income in the area is among the highest in Edmonton and therefore there is a strong and healthy home, townhome, and condo owner-occupier’s component. For those that rent in the area, they tend to be paying rents and are sustainable tenants.
The property is newer (completed in 2019) and is predominantly owner-occupier with all the quality finishes, components, size that you would want and expect to have in an owner-occupier product. The tenants that rent in Essence see the value in living that neighbourhood and are willing to pay for the quality and lifestyle Essence provides.
There is some entry level product in the area but that is why Essence stood out as a Blue-Chip property. It is not the cheapest but is one of the best quality properties there. My clients were able to acquire it at an extremely good value so that there is strong appreciation potential for the future.
It provides good value for the investor as the rents cover all the operating and financing costs and still produces a positive cash flow (that monthly dividend).
Baking Time
As Alberta continues its economic recovery, Edmonton stands to strongly benefit being the capital city. Edmonton with its economic diversification, growing infrastructure, shrinking existing housing inventory and strong education and young population is well positioned to grow at a steady pace.
My investors that acquired the Essence investment opportunity were able to purchase it at a value that positions them well and will have a strong appreciation potential as the Alberta and Edmonton economy continues to strengthen. By holding this property for a minimum of 5 years not only is the mortgage being paid down, but it is also producing positive cash flow and it is a product that should appreciate well. Although I am not recommending selling the property, I see that it has an excellent opportunity to remain a desirable property for both owner- occupiers and tenants well into the short- and long-term future.
Temperature
Because the headlines talk about the frothy hot markets of the likes of Vancouver, Montreal, Hamilton and Toronto, etc., and Alberta keeps on getting negative press, so many people are banking on appreciation alone and so they are buying in these markets without doing research on the fundamentals. There are opportunities for those investors that do their research and are willing to look elsewhere, like in Edmonton. Essence is a shining example of the benefits of doing that due diligence to discover that right market temperature in order to have a strong potential for a rising investment opportunity in a Blue-Chip investment property.
Here is the bad news! That Blue-Chip Essence cake has been eaten by all my investors that stepped up, but I am still researching other blue chip investment opportunities. If you wish to be at the front of the line for the next opportunity, I strongly recommend that you contact me below and let me know that you are seriously interested in the next opportunity that is presented.
