Central Surrey Investment Property Profile
In the midst of recent challenges in the real estate market, Central Surrey emerges as a beacon of opportunity. Despite the turbulence of the past year, characterized by high rates, decreased sales, and declining prices, Central Surrey remains amidst an inventory shortage scenario. The city’s trajectory indicates promising growth, with a projected influx of 107,000 residents by 2031, driven by significant developments such as the forthcoming UBC campus and burgeoning sectors like warehousing, academia, and office spaces.
The anticipated construction of 25,000 condo units by 2029 aligns with the burgeoning population, suggesting a demand-supply equilibrium in the foreseeable future. Economists forecast this inventory shortfall to persist until 2033, underscoring the current demand for properties. Furthermore, speculations of a 1% interest rate reduction by the Bank of Canada this year and the next, coupled with a 25% market decline and prospects of recovery fueled by pent-up demand, hint at an opportune moment for real estate investments.
Now presents an advantageous window to strategically invest in Central Surrey’s real estate landscape. Consider the opportunity to secure studio condos priced at $400,000, slated for completion in 2028. With an initial investment of 10%-15% deposit on offer and the balance upon completion, your total investment outlay amounts to $91,500. Conservative estimates suggest an ROI of 61% upon completion, escalating to 200% by 2024 and a staggering 409% by 2043, assuming a modest 3% annual appreciation rate.
For those seeking higher returns, options abound with 2-bedroom condos, albeit requiring a slightly higher upfront investment. While initial cash flows may depict a negative trajectory, averaging $100 per month in the first year, the long-term strategy emphasizes leveraging time and resources to optimize profitability.
The intention of an investment like this is to complete it and hold it long-term. The idea is to use leverage and the time value of money to drive profits.
Surrey as an Investment Location
With nearly 520,000 residents and a land mass of 316 square km, the City of Surrey is growing a big way, with a population projected of 800,000 residents by 2041, representing a growth of 35% in just 17 years. It is the lower mainland’s 2nd largest city, trailing only slightly behind Abbotsford in terms of land mass. With access to growing industries including manufacturing, supply chain management, agriculture and a growing office sector, Surrey is attracting attention as a desirable place to live.
Offering 5 hectares of parkland per 1,000 people, Surrey is known as the City of Parks. Surrey’s growth plan is supported by the expansion of its roadway and transportation networks, with a number of capital construction projects on the go for 2024. The growth will be supported by an improved transportation network of 16 km of Skytrain line and rapid bus service to the Skytrain from Guildford and Newton.
North Surrey Investment Property
With access to the Skytrain, Surrey Memorial Hospital, and world-class universities, including the newly announced UBC expansion into the area, Central Surrey has become an appealing place for international students to live. UBC’s vision create course offerings that welcome up to 10,000 students and 1,000 faculty members within the Surrey campus.
This area is particularly appealing for investment as it boasts many new developments competing for investment property sales, making the terms appealing to those wanting an income-producing property. The area is home to a large population of young people looking for Skytrain walkability and access to entertainment. The area attracts a 55% rental occupancy rate with renters who are willing to pay a median rent of $1,895, an 18% year-over-year increase. Within the local condo market, one-bedroom units in the area retain the highest resale prices in dollars per square foot.
Central Surrey is ideal for investment into a pre-sale one-bedroom or studio condo, as it offers the best combination of affordable housing, access to transit, and a selection of university campuses.
Demographic Information
31,376 people reside in 13,448 households within a 20-minute walk of Surrey Central SkyTrain. The median age for the area is 37.1, and 89% of the resident’s mother tongue is English. The average household income for the area is $80,901, with average spending of $10,418 on food, $8,635 on transit, and $1,6340 on accommodation. The residents in this area spend 31% less than the average Canadian on transportation but pay an average of 12% more on education.
International Students
This area is home to a large population of international students who live and study in Central Surrey. International study is big business for Canada, with 621,565 students in Canada during 2021 and 22% of them landing in BC. With 72.5% of students planning to apply for a post-graduate work permit, students relocating to the area make this location their home, often purchasing their first property, a condo, after graduation. This dynamic keeps rental and resale prices in the area robust.
PRIZM Segments
The three largest PRIZM Segments for the area make up 51.2% of the population; they are broken down as follows:
- Social Networkers 19.4%
- Friends and Roomies 17.6%
- New Asian Heights 14.2%
All three segments are young renters, primarily single people who live in high-rise buildings. These segments have an emphasis on entertainment, fitness, and social activities. This indicates there is a large demand for single-dwelling units that appeal to young people and are located within walking distance of transit.
Central Surrey Rental Market
When choosing a location for your investment property purchase, you want to select an area that commands favorable rental income in relation to housing costs. In other words, you are looking for an area where the prices are on the lower end, and the rents are on the high end in relation to the sale price prices. An easy way to compare locations is to look at the price-to-rent ratio. This ratio is a simple calculation that allows you to compare the relative costs of buying and renting across different markets. In essence, it is a measure that determines what areas will produce the best return on your investment from a rental income perspective.
Rent to Price Ratio = Average price of a property type / Average annual rent obtained for property type.
Generally speaking, the lower the rent-to-price ratio is, the better the investment looks. If the rent-to-price ratio is 15.5 or less, then it’s a no-brainer. If the rent-to-price ratio is between 15.5 and 21.5, then the investment is worth a look. Anything above that won’t net you a rental return.
In the chart above, I’ve compared the rent-to-price ratios for several areas in the lower mainland. You can see that Maple Ridge, Mission, Surrey, and South Surrey stand out as having favorable rent-to-price ratios. This will allow you to narrow the search down to those four locations.
The City of Surrey obtains favorable property sale price-to-rent ratios, making it a good location to purchase a cash flow-positive property.
There is robust demand for rentals in the area, with a 55.92% rental occupancy rate for 2022. This is projected to expand to 56.23% in 2027. 87% of the housing in the area are apartment dwellings, and 39% of the population live in one-person households. The local area rents have seen healthy rental price increases over the past 12 months, with 2-bedroom unit prices rising the most at 13%, but 1-bedroom and studio prices trailing not too far behind at 11 and 5%, respectively.
Condo Sale Market
In the Central Surrey condo resale market, one-bedroom and studio units fetch the highest dollars per square foot while selling faster. This indicates that 1-bedroom and studio condos are in higher demand in this area.
Pre-Sale Market
There are currently 36 projects in the coming soon phase of construction in Surrey, with a total of 18,621 units to be completed between now and 2029. There are currently another 26 developments marketing 6,508 units with only 758 units remaining. The prices start from $399,900 and go up to $1,300,000. The cost per square foot ranges from $795 to $1,200 per square foot, with high rise costs per square foot ranging from $1,000 – $1,200 per square foot. The City of Surrey’s population is projected to grow by 107,330 residents between now and 2031, meaning that the population in the area can easily absorb the units added to the marketplace.
Financials
The typical deposit is 10 – 15% at the time of offer. Below are different scenarios based on the size of the unit purchased.
Studio
Assuming that a studio home is purchased at a price of $400,000 plus GST, then $40,000 will be needed at the time of the offer. At the time of completion, an additional $51,500 will be at the time of closing.
1 Bedroom
If the home is purchased for $500,000 plus GST, then one would need a $50,000 deposit at the time of offer and another $64,500 at the time of closing.
2 Bedroom
If the home is purchased for $640,000 plus GST, then one would need a $64,000 deposit and another $82,700 at the time of closing.
Don’t have a Down Payment? No Problem
If you need to borrow the down payment, there are two options available:
- Line of Credit at an interest rate of 9% with a cost of $900 per $10,000 borrowed.
- Home equity line of credit at an interest rate of 4.7% with a cost of $470 per $10,000 borrowed.
Buy Now, Borrow Down Payment From HELOC
If the unit completes now and you borrow the funds on a home equity line of credit. Then it will cost you $4,112.50 per year in interest annually to service the funds. If you hold the property with a 5-year holding time horizon, then you’ll have paid $20,562 in interest, which will reduce your projected earnings from $89,243 to $59,732.
Buy in 2028, Borrow Down Payment from HELOC
If the unit completes in 4 years with a 5-year holding timeline, then you’d borrow $40,000 now at a holding cost of $1,880 per year or $9,400 over five years. Then, if you borrowed the down payment as well, you’d hold the additional for 12 months $47,500 at a cost of $2,232.50 for a total cost of $4,112.50. In year 5, there is a projected profit of $53,477, less the cost of borrowing the down payment at $4112 for a net profit of $49,365.
Assumptions Made
In the unit options section below I have made some assumptions in the calculations. Below are details of those.
Rent – Central Surrey rental rates have been on the rise over the past few years, experiencing gains of 5 – 11% over the past 12 months. For the purpose of the financial modeling, I will assume rental rates increase in alignment with the Bank of Canada’s target inflation rate of 3% annually. I project the rental rate for a studio condo.
Property Price Growth – I assumed a property appreciation rate of 3%.
Mortgage Rates and Term – I assumed a mortgage interest rate of 4.7% with a term of 30 years.
Unit Options
Long closings are great options for investment properties because they allow you to defer half the down payment while still earning a return on the total value of the investment.
Studio Unit
Purchasing a studio unit will cause you to be cash flow negative of approximately $130 per month in year 1 but your return on investment will be 40%, or $35,000 upon completion in 2028, increasing to 188%, or $165,000 in 2034 and if you hold the unit until 2043 you can see returns of up to 531% or $465,000.
Studio Unit Income Rental Income Statement
Studio Unit Profit Statement
1 Bedroom Unit
Purchasing a 1 bedroom unit will cause you to be cash flow negative of approximately $291 per month in 2028, but your return on investment will be 49%, or $43,000 upon completion in 2028, increasing to 221%, or $194,000 in 2034 and if you hold the unit until 2043 you can see returns of up to 628% or $550,000.
1 Bedroom Unit Rental Income Statement
1 Bedroom Unit Profit Statement
2 Bedroom Unit
Purchasing a 2-bedroom unit will create a positive cash flow of approximately $420 per month in 2028 and your return on investment will be 68%, or $59,000 upon completion in 2028, increasing to 327%, or $286,000 in 2034 and if you hold the unit until 2043 you can see returns of up to 587% or $916,000.
2 Bedroom Unit Rental Income Statement
2 Bedroom Unit Profit Statement
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Liz PennerREALTOR
ABOUT LIZ PENNER | YOUR BEST LANGLEY REAL ESTATE AGENT
Liz Penner is a top-selling licensed real estate salesperson with the Fraser
Valley Real Estate Board and has been a top-selling realtor specializing in the residential resale of condos, townhomes, and houses for over a decade. Liz assists residents of the Langley and Surrey areas to sell real estate while looking out for the client’s best interests. Liz also helps first-time homebuyers, families, and repeat purchasers with their property search process, ensuring that her clients get access to the very best homes on the market while receiving excellent service ensuring that they find the perfect place to call home.
Liz holds a BBA in leadership and has completed a variety of specific training through the Fraser Valley Real Estate Board in the areas of selling strata properties, foreclosures, estate sales, and new construction properties. Liz is also well versed in POAs, the Strata Property Act, and more.
If you are looking for a knowledgeable and professional real estate agent that is willing to do everything possible to ensure that you get top dollar for the sale of your home or to find the dream home you are looking for in the Surrey and Langley, BC areas then get in contact today.
WHY LIST YOUR HOME FOR SALE WITH LIZ PENNER
- I’ve helped sell over 400 properties throughout the Langley and Cloverdale area, and I’d love the opportunity to do the same for you.
- I’ve experienced straightforward sales and sales that have gone off the rails, back on the rails, off the rails, and then back on again. That’s just the way the real estate train rolls, and it never rattles me.
- I’ve got a solid toolkit to pull from when a problem arises. I take my job seriously each time, and I will make sure you get top dollar for your Fraser Valley, Langley, or Cloverdale home, smooth sailing, or otherwise.
