Big White is AWESOME! Buying property here.

Or... more specifically at Big White.

I'm guessing you have considered it... well if you are reading this. Or maybe you will read this and then say - 'brilliant, what is the number of my realtor?' Or maybe you will say - "Ha! This lunatic is a lunatic." 

Property Values.
Property values at Big White have been on a roller coaster since I arrived in 2000. Back then I purchased a small piece of land in Snowpines for $105k and a small 2 bed, one bath condo for $129k. From 2002 to 2011 the same piece of land had both increased to $200k then back down to around $25k - if... you could find a buyer. 2019? There is no land available but I would guess similar Lots would be in the $100k - $150k range.

Wait... what am I worth?

Big White is a small place, roughly 2400 properties, mostly multi family, very small hotel room size properties to some very large (and expensive) single family homes, at the other end of the spectrum - as I write $109k to $6.3m. The $6.3m property is only four bedroom (nine bathrooms...) but large - the Master Bedroom is 46'x36' or 1656 square feet... to put that into perspective, it is roughly the size of my four bed, three bathroom house. If interested this is the link. It is quite nice... expensive to buy and maintain tho.

$500k would get you anything from a 2 bed 2 bath place to a 5 bed 4 bath - quite the range.

Historical Property Values.
In the last generation (20 years) the market peaked around 2007. My development company was selling 1100 sq ft very high spec condos for around $425k and premium single family homes for $2m (3900 sq ft Edge homes). Four years later the same properties were roughly $200k and $1m respectively - quite a drop eh? Yes, it was painful.

Today (April 2019) they are around $350k and maybe $1.5m respectively. Not bad if you bought at the bottom, not great if at the top of the market.

And that is 12 years later. 12 years and the market has still not fully recovered. 

Shall we buy... or sell?

Factors Affecting Values.
You can look at value from a number of perspectives - Capital Ratio, Replacement Cost and Market Value.

Capital Ratio. Important to Investors
Okay, lets say you put your money in the bank and the bank gave you 1% interest. For every $100 you would earn $1. The Cap Ratio is 1%. Now let's say a property would give you $5 on every $100 you spent, or a 5% Cap Ratio. An institutional buyer may come in and want to buy every available property that gives it a minimum 5% Cap Ratio. 

Let us say a typical property can generate $5k per bedroom per annum. Then a two bed place is worth $200k, four bed $400k. At $6k per bedroom the values are $240k and $480k. At 5% Cap the $6.3m log cabin is worth $400k. The one bedroom $109k studio is worth $100k.

Replacement Cost. 

How much?

Important to buyers who want to live in the property. Current costs of construction are in the region of $400+ per sq ft, plus land. For example, a condo in The Raven 1100 sq ft would cost around $440k plus land ($23k in 2006) plus furnishings ($30k in 2007). The $1.1m house down the road with 3600 sq ft - $1.44m plus $300k for land.

As you can see it is far more expensive to build that to buy something already in place.

Market Value.
Important to investors, buyers and owners.
Or what does something comparable cost? The Raven unit my development company still owns is on the market for $349k. Why? Well the last property sold for $380k, other properties are $370k - $400k. We want to be competitive. 

Comparable Values for the Raven in the example above.

• Historical 2007 - $410k (we refused and offer at this amount)
• Capital Ratio at 5% or $12,500 = $250k
• Replacement Cost = roughly $500k
• Market = $350k

Note - other factors play a part, wear and tear, maintenance, operating costs, taxes, owner usage requirements... the list goes on and on.

However, as important in the equations is Future Market Value or 'How much will it be worth?' How long is a piece of string? I don't know the answer to that either. But, I can make some guesstimates based on some known quantities.

The argument for value growth.

• Revenue - what are the projections? Well, Big White is evolving -



Yep, values are gonna go this way.

• Summer activities. A Timbers property enjoyed $2k of rentals in the summer of 2018 - A 5% Cap adds $40k to the value.
• More buyers are buying to own, reducing the availability of both vacation rental properties and long term rental properties. This is leading to a drop in supply. 
• Values have not reached construction costs. Developers will not begin to develop property until property values are around 20% higher than construction costs. The Raven property at $350k would need to be $600k. Or Construction costs need to drop by 50%...
• Is this likely? No. Construction at Big White uses around 4 times more concrete than similar properties in Kelowna (snow load requirements). The cost of concrete is roughly 60% higher at Big White - concrete is trucked up from Kelowna. If labor costs dropped by half and fuel costs dropped by half and raw material costs dropped by half... then maybe. But if that happened we would have bigger things to worry about anyway.
• Supply and Demand.
• There are as I write (April 2019) 85 properties listed at Big White. An efficient market (number of buyers match the number of sellers) is estimated to be around 5%-8% of total properties. 2400 properties would indicate 120 - 192 listings. Supply is too low, this indicates a sellers market. 
• Will the Supply change? No new places will be built until values jump 40%-50%
• Will demand drop? Yes, if values jump 50%.

What if we buy and the market crashes...?
What if we wait and the market jumps...?

The Argument for downward pressure on values.

• International Market
• Exchange rate factors. In 2005 the British Pound bought you $2.5 CDN. US$1 bought CDN$1.65. Today $1.72 and $1.3 respectively. Properties that were cheap for the international market are far more expensive. This factor puts downward pressure on the market.
• The exchange rate is affected by a number of things - US Donald Trump (the wild card puts downward pressure on the Greenback), UK Brexit (the uncertainty again downward pressure) Canada Oil prices (strong oil prices drives up the value of the CDN$).
• Mortgage Limitations
• Banks don't like risk. Your mortgage cost is related to the perceived risk the bank is exposed to.
• For example, a family in Kelowna buying a $400k house to live in is far less of a risk than a speculative investor from the UK buying a property in Snowpines to rent. The Kelowna family maybe able to secure a 95% mortgage at 2%... the speculative investor? Maybe 50% at 5%.
• Big White because it is considered 'Recreational' is a higher risk.
• Snowpines with its unique Company Share Structure ownership title in a Recreational area... is very high risk. Banks don't lend to buyers.
• The Mortgage Limitation puts significant downward pressure on values at Big White, especially Snowpines.

Let me think...

But what is my guesstimate? Okay, take the Raven, if revenue grows as expected in the winter, and grows at 100% in the summer (remember it is a super low base) for a couple years before stabilizing  (maybe $1k, $2k, $4k, $6k...) then $560k in seven years. Or roughly 7% per annum. 

Selling.
What if you want to sell (especially in Snowpines)? Market value is low because of the mortgage limitations. Buyers cannot fund the purchase and they also ask themselves 'who will be my purchaser when I sell?'

So, Market Value is going to be far below replacement value. But if you have been trying to sell you know this anyway. 

But you can still sell... if you can find the right kind of buyer and are willing to employ none traditional means.

None Traditional Purchase Options.

• Rent to Own. 
• The buyer rents the property at an increased rate with a fixed price and fixed future completion date.

  

  What if we did
  that?

• For example, market rent $18k per annum for a $300k home.
• Over payment maybe $24k per annum ($6k towards outstanding debt).
• Future completion - 5 years.
• Price in five years - $300k less the $30k (the $6k x five) already paid.
• Benefits to the owner-
• Property is sold.
• Property costs are covered.
• If the buyer backs out, excess rent is retained by the vendor.
• Benefits to the buyer-
• They step into the property market.
• The future price is fixed - they know the future commitment.
• The future price is reduced by the excess paid - a savings pot.
• They enjoy any capital increases in property value.
• They build a credit history.
• Vendor Take-Back or Wrap Mortgages.
• In this case the owner agrees to finance the purchase for example from 5 - 10 years. The vendor will usually demand a down payment, usually in the region of 5%-10% plus a higher interest rate.
• Benefits to the owner.
• Property is sold.
• A lump of cash is secured.
• Higher interest rate is earned on the capital employed.
• Stable income is provided.
• Benefits to the buyer.
• They own their own property.
• Their payments go to paying down the Capital rather than rent.
• Their downpayment is likely to be less than a traditional purchase at Big White.

Yeah, don't worry... cleaning costs are included in the rental rate...

Revenue Stream Options.
I will touch on this quickly.

• Vacation Rental. 
• Rental Company - Big White need more properties, their demand is far in excess of their supply. The same goes for Vacasa, and Chalets at Big White. The charges are high - as much as 50% of revenue.
• Self Managed - AirBnB, Allura Direct, Owner Direct.
• Their cost profiles vary from fixed fee to a percentage of the revenue.
• You will have to manage cleaning/turnovers.
• This is challenging, cleaning companies are expensive but changeovers can be any day - do you want to drive up from Kelowna on Christmas Day?

Long term tenants have unique hobbies.

• Staff or Long Term.
• Staff - like Big White we are desperate for more properties; again our demand is in far excess of our supply.
• Pros-
• We have a long term track record of providing reliable property management services.
• Our rates are very competitive.
• Our tenants are screened and more often than not are returning tenants.
• We guarantee income.
• We guarantee properties are returned as found. This does not include normal wear and tear.
• We are on call 24 hours a day.
• We have our own maintenance team.
• We hold a deposit from the tenants.
• We cover all utility costs.
• Self Managed long term.
• Pros -
• Higher revenue - despite the huge demand... we don't work for free... However, we do offer competitive rates.

There are risks...

So, finally... ownership can be complicated, there are risks, future value projections complicated. But if you are interested in property at Big White, ask yourself why you want to own...

• Long term investment?
• Revenue generation?
• To live?
• To spend time (weekends, holidays) with the family?
• A combination of any/all of the above?

Answering these questions will help you choose the property that is right for your needs.

A little self promo here - if you are looking to buy as an investment, we are looking for long term rental properties.

In addition, if you are looking to sell and willing to offer 'Rent to Own' or 'Vendor Finance' terms, we are actively searching for property to acquire.

Please contact us at solidorentals@gmail.com if you interested in either.

Sólido Properties Ltd has been doing business at Big White since 2001. From property development, property marketing, property sales, property maintenance and renovation. Our development portfolio includes - The Raven, The Timbers, The Edge and Glacier Lodge.