Canadian dollar is near par and the U.S

It had to happen eventually. The Canadian dollar is near par and the U.S. real estate recession is in full swing. So it's only natural that Canadians start asking themselves, "When is the time to buy property south of the border?"

The answer, according to some property veterans, is now. Kim, a Calgary developer with 15 years experience in Alberta and in Arizona, says he's starting to see amazing bargains in the US, where he has developed condos. Mr. Kim doesn't claim to know whether or when U.S. property prices will bottom. But certain rental properties, he says, offer extraordinary value.

He tells of a 19-unit, single-storey building across the street from Arizona State University's campus. Despite full occupancy, the panicking owner originally listed it for $1.6-million (U.S.). She finally agreed to Mr. Kim's $1.2-million with a $900,000 vendor take-back mortgage (meaning she would only get $300,000 cash and the rest would be paid to her like a mortgage, over time with interest.)

At that price, the cap rate - industry jargon for the income the property produces divided by the price - was about 11 per cent, unheard of in Canada, where current cap rates are closer to 7 per cent. Not only that, but Mr. Kim was able to finance part of the equity down payment with a bank loan, meaning his investment was very small, the rest being borrowed. Borrowing magnifies your returns (if you're right.)


The building needed some work to get it to modern standards, but the developer saw that as an opportunity because the $180,000 in renovations would allow him to raise rents by $100 a suite per month. "That's where the value is. Put in a nominal amount of work and your return is excellent if you know what you're doing."

With bank financing, the cash-on-cash return on the building would be about 30 per cent if it all worked out - which it has so far. But the real upside to the deal will come later as the land is zoned for multi-storey residential, meaning it can be upgraded.

Mr. Kim's research tells him that postsecondary enrolment goes up during a recession, such as the United States has entered. Rents in those neighbourhoods are fairly immune from a downturn. Yet there's so much fear and loathing that even these property prices are being dragged down in panic selling (or to raise money to salvage other developments).

"Someone is going to make a lot of money down there," Mr. Kim says. "Investors and I will be among them."