Investing in the Kelowna Real Estate Market: What to Look Out For
By now you've probably read all the headlines about the real estate market getting ready to tank with prices set to drop upwards of 25%!
If you're reading this in 2023 and prices haven't dropped like 'they' said they would then, whew, we dodged an economic collapse the likes of which we have never seen in this country. Even when the world was imploding back in 2008!
You're not here for prognostications though, you clicked on the link because you want to learn about investing in real estate here in Kelowna.
Let's get after it then.
First Things First: Set Your Budget
This is always the first rule in investing in real estate, whether you are buying in Kelowna for a personal property or if it's for an investment.
Set the budget and know what you are comfortable spending.
Now, look at that number and figure out if it lines up with what is currently listed for sale. I see this from investors a lot, especially ones coming in from Alberta, where their budget doesn't line up with the current state of the market.
It is very rare if not impossible to find a condo with more than 1 bedroom, that allows for STRs (Short Term Rentals, more on that later in the post), that is close to the beach and shopping for less than $450,000.
Start your condo or townhome search and do some digging prior to coming all the way out to Kelowna, get to know the market a little bit so you know what you will have to spend versus what you want to spend.
What is an STR (Short Term Rental)?
Short Term Rentals are what you would stay in if you booked an apartment, house or townhome through VRBO or AirBnB.
The advantage to STRs over a traditional style rental is going to be the revenue that can be generated. The traditional rental is going to get you somewhere between $1800-$3000 per month, depending of course of the size of the property, location and what's included.
Some short term rentals that I have seen here in Kelowna will generate around $300-$500/night so if you take the median and look at 21 days rented out of the month as a conservative estimate you could be around $8000 per month in the peak months of the year being June, July and August.
So here's what I would do if it were me...look for a property that is going to have a good opportunity for STR cash flow, rent it out between May 1st and September 30th with the STR through AirBnB or VRBO and then do a short term agreement between Ocotber 1 and April 30th.
If you take the average of $400 per night with 21 nights rented you are looking at $24k in revenue in the peak months and figure about $5k in May and about the same in September giving you around $34k in revenue in 5 months.
That 2 bedroom and 2 bathroom condo is likely to rent out for $2400 per month (I've seen as low as $1800 and as high as $3k but let's be conservative), if you add that revenue to the STR you are just over $50k in revenue for the year.
Measure that against a property yielding $3000/month and you are way ahead with the short term rental option.
Which Buildings in Kelowna Allow Short Term Rentals?
The caveat here is that this could be subject to change at any time depending upon how the condo boards of these buildings feel about the STRs.
The buildings that currently allow short term rentals in Kelowna and West Kelowna are:
- Barnoa Beach
- Copper Sky
- Discovery Bay
- Playa del Sol
- St Paul
- Sole Downtown
- Sunset Waterfront
- The Cove
In these buildings you will find 1 bedroom and 2 or 3 bedroom options ranging in price (September of 2022) between $415,000 - over $800,000.
What are the Costs Associated With Investing in Kelowna?
Having moved back to BC from Alberta last year I can tell you that the land transfer tax was a shock to the system.
This is money that the provincial government collects and puts into the general coffers, it's maddening that it is done this way, the only option is to pay it and that is done at your closing with the lawyer or notary.
The land transfer tax is 1% on the first $200,000 and 2% on the balance up to $2M dollars. So, if you are purchasing a property of $600,000 your land transfer tax bill will wind up being $10,000.
If you are purchasing in Kelowna or in West Kelowna (this does NOT include Lake Country) you will also be subject to a speculation tax of .5% of the assessed value of the property so long as the home is not occupied by you for more than 6 months.
Property management for AirBnB is a must in my opinion, that's why we have partnered up with InfiniteBnB and their team to help manage your investment property. Your costs around the PM could be around 20% just as a management fee, please keep in mind that InfiniteBnB would be turning over your property once every 4 days so it's a little different than a property manager looking after a long term tenant.
Of course you will have strata fees and property taxes, I can tell you the strate fees really vary here in Kelowna. I've seen some as high as $700/month but they include all utilities and some as low as $200/month.
Alright the last piece is the GST, I would recommend consulting an accountant on this but having a GST # could save you a headache when going to purchase a property like this as the GST could wind up being a pass through and could save you thousands of up front costs.
What You Need to Invest in Kelowna
Your downpayment is going to have to be 20%. You will likely have to apply for a business license with the city to operate your AirBnB.
You should consult an accountant, a lawyer or notary, get acquainted with a local Kelowna Mortgage Broker and of course hire us as your guide to expanding your real estate portfolio in BC.
If you want to book a Zoom consultation you can do that right here: Book a Meeting with Kelley
You can always give me a call at 778-716-7527 as well.
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