Two new zoning bylaws have opened a rare window of opportunity for investors in Kelowna
Heading into 2023, Canadian investors are up against two major economic headwinds—rising interest rates and rule changes that make being a landlord increasingly difficult.
For real estate investors in Kelowna that means some rental properties won’t produce worthwhile returns in the years to come.
With interest rates above 5%, finding properties that produce a positive cash flow is a challenge. Most of the obvious ones—good single-family homes, homes with legal suites and Airbnb condos—have been picked over by investors, driving up the valuations.
New Kelowna duplex legislation
New legislation in Kelowna has opened a window of opportunity for duplex investors. Kelowna duplex homes can now be further subdivided into 3-plexes or 4-plexes under the RU4 zoning bylaw.
If you own a half-duplex or full-duplex in Kelowna, you can now add a secondary suite to each half-duplex property and create up to a 4-plex.
With rental rates at record highs and vacancy at a record low 0.6%, this new legislation helps increase our supply of rental housing at a critical time and opens a window of opportunity for duplex investors.
In 2022, Kelowna’s population grew to more than 142,000, pushing rental rates up to record highs. From 2020 to 2022, the one-bedroom rental rate in Kelowna jumped 35% from $1,450 to $1,950, while the two-bedroom rate grew 45% from $1,650 to $2,385, according to Zumper.com.
Student housing legislation passed
Student housing legislation passed
A second piece of legislation may impact student housing and further benefit duplex and multi-family homeowners in Kelowna. Kelowna landlords are no longer permitted to sign lease agreements that start in September and terminate in June.
In past years, Kelowna landlords signed student leases that stipulate the tenant had to move out on May 31. That let owners rent out their units for summer vacation rentals, which are way more profitable. In the summer, you get weekly what you’d get monthly the rest of the year.
Landlords will now be reluctant to sign lease agreements with post-secondary students at all. With no mutual agreement in place to end tenancy, most landlords won’t want to risk losing out on their summer revenue by entering into a year-round student tenancy. Why do 12 months of work when you can earn the same money renting for 12 weeks of summer?
As a result, I expect to see some student renters left in a lurch, and more demand for studios, apartments, and by-the-room rentals.
“House hacking” an advantage for investors
In recent years, I have introduced my book of investor clients to a technique called “house-hacking.”
House hacking involves buying a property with the right configuration, separating it into additional units, then renting out each space individually, often bundling incentives like internet, utilities and laundry.
If you find the right duplex house plan, you can now create up to four sources of rental income in Kelowna. As an investor. you get two huge benefits—more revenue than you possibly could have earned before and far lower tenant risk.
That’s because if you have two doors in your portfolio and one tenant vacates, you lose 50% of your rent that month. But if you have four doors and one is vacant, you only lose 25%.
Heading into 2023, I believe half-duplex and full-duplex properties are one of the best investment opportunities for anyone seeking a passive stream of income in Kelowna.
The duplex homes segment is a bit less obvious. Most people just aren’t aware of it, so valuations haven’t been chased up. You can still get a good deal on a half-duplex because the revenue growth hasn’t been priced in.
We’re already seeing three-bedroom rentals for $2,700 per month near the UBC Okanagan campus, so seeing $1,000 per bedroom rents next year is not out of the question.
The main obstacle for duplex investors in Kelowna? A limited inventory of duplex housing with 51 duplex homes on the MLS, many of them located near Kelowna’s post-secondary schools.
To see the latest duplex homes for sale in Kelowna, check the 2022/23 Kelowna Duplex Hot List.
AJ Hazzi is the founder of Vantage West Realty, Inc.Contact him at (250) 864-6433 or [email protected].
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.