Income Property in Lower Town - A Data Driven Analysis
Invest smarter with this data-driven analysis of income properties in Lower Town.
On This Page
- Overview
- Net Income from Investment Properties in Lower Town
- Capitalization of Investment Properties in Lower Town
- Prices of Income Properties in Lower Town
- Tenant Reliability in Lower Town
- Who rents apartments in Lower Town?
- Supply and Demand Indicators
- Appreciation of Investment Properties in Lower Town
- Wrapping Up the Analysis
Overview
In Lower Town, the rent to value ratio is high. As such, cash flow positivity is achievable with a small upfront investment.
Proximity to social services distinguishes Lower Town real estate investments. Investors must understand how that proximity will shape their investment in the neighbourhood.
To help you understand real estate investments in Lower Town, this article pairs neighbourhood-level data with expert analysis by investment realty specialist, John Castle.
| Ottawa | Lower Town | |
| Average Capitalization | 4.5% | 6.7% |
| Real Appreciation Since 2010 | 22% | 4.8% |
| Average Credit Rating | 759 | 735 |
| Crime Rate | 4.9% | 7.8% |
| Vacancy | 1.8% | 0.3% |
Net Income from Investment Properties in Lower Town
Rent, turnover, and vacancy contribute to the income realized from investment properties. In this section, we look at each of those metrics in the north and south of Lower Town. We will also compare them with the rest of Ottawa.
How much is rent in Lower Town?
Lower Town income properties generate 10% more rent per unit than the Ottawa median. Rents are highest near Rideau Street.
Between 2018 and 2019, Lower Town rents increased 50% faster than rents in Ottawa. Most of that increase is attributable to increases near Rideau Street.
Change between 2019 and 2018.
How often do tenants turnover in Lower Town?
Tenant turnover is roughly comparable to turnover in Ottawa overall. Consider the following one year (left) and five year (right) turnover rates.
The tenant-initiated rate of turnover correlates with crime in the neighbourhood. The higher crime rate near Rideau Street may explain its higher turnover rate.
This map of assaults agrees with the research: crime correlates with tenant turnover and is more prevalent within 400m of shelters.
This map of various crimes also agrees with the research: crime correlates with tenant turnover and is more prevalent within 400m of shelters.
What is the vacancy rate in Lower Town?
At 1/6th of the vacancy rate across the city, vacancy in Lower Town is negligible.
Capitalization of Investment Properties in Lower Town
Income properties in Lower Town capitalize faster than those in other central neighbourhoods.
Prices of Income Properties in Lower Town
Multifamily Property Prices in Lower Town
On a per-unit basis, the median sale price of a multiplex in Ottawa is 28% higher than in Lower Town.
Single Family Investment Prices in Lower Town
The median sale price of a single family home in Lower Town is typical for Ottawa. Distance from Rideau St. adds value – even when we account for differences in repair and size.
Tenant Reliability in Lower Town
In this section, we look at what the data says about tenant reliability. Specifically, we’ll look at credit scores and income relative to rents. We also consider income sources not represented in the statistics.
Do tenants miss payments?
Credit data suggest that residents pay their rent. The average TransUnion credit score in Canada is 655. In Ottawa, the average score is 759. In Lower Town, the average is 735. That is still within the range deemed ‘good’ by most scales – but it is lower than city average.
We can attribute some of the difference to the prevalence of renters in Lower Town. Renters have lower credit scores than homeowners do. However, that doesn’t account for the entire difference. Credit scores are higher in other Ottawa neighbourhoods where renters predominate.
That said, relative to socioeconomically similar neighbourhoods, credit scores in Lower Town are excellent:
Are tenants able to afford their units?
The rent to income ratio near Rideau is the second highest in the city. Only tenants in the neighbouring Byward Market spend more of what they make on rent.
Do government subsidies affect affordability statistics?
Probably. Subsidized rents are recorded at their pre-subsidized value. Consequently, unaffordability in Lower Town is worse than the data suggest. Per capita, there are more subsidized units in Lower Town than there are in Ottawa. As such, unaffordability remains worse even in the relative sense. Consider the following data on the prevalence of subsidized rental units
Do scholarships and family support of students affect affordability?
Given its proximity to Sandy Hill, you might assume residents near Rideau are students. Accordingly, you might also assume that residents receive scholarships and family support. If so, their real income would be higher than in the data indicate.
However, the data suggest that residents near Rideau are not students. In student neighbourhoods, part-time employment is high, but full-time and non-employment are low.
For example, part-time employment in neighbouring Sandy Hill is 50% more prevalent than in Ottawa overall. Whereas, for full-time and non-employment, the statistics are almost reversed.
We don’t see that employment pattern near Rideau. There is more non-employment near Rideau, but otherwise, the employment figures are normal.
Data: Prevalence of non-full time employment in 2019
Who rents apartments in Lower Town?
Tenants in Lower Town are young. They want to live near the Market but want to avoid paying the premium for a unit in the heart of the entertainment district. This is especially true near Rideau, where there are more tenants in their early twenties.
Supply and Demand Indicators
Are there many vacancies?
The vacancy rate in Lower Town is negligible.
Is there new supply coming online?
New apartments are being built. There are 11 rental units (0.3% of inventory) under construction in 2020. That’s a small but significant number. For perspective, let’s compare two socioeconomically similar neighbourhoods: Vanier and Carlington. In Carlington there are no apartments under construction. In contrast, fast gentrifying Vanier has 171 apartments (2.5% of inventory) under construction.
What’s the take away? Lower Town rents are high and prices are low. Those facts should motivate development. But they aren’t motivating much of it. Development is often forward-looking. The dearth of new projects speaks to the neighbourhood’s future.
How many residents rent their house or apartment?
Lower Town residents predominately rent their dwellings. The prevalence of renters is twice what it is in Ottawa overall.
Most residents in Lower Town live in rental properties. Data: Age of renters in Lower Town in 2019
Appreciation of Investment Properties in Lower Town
Appreciation in Lower Town , and especially near Rideau, has lagged Ottawa overall. That lag becomes more pronounced when we compare Lower Town with other central neighbourhoods, which tend to appreciate faster.
Consider the following examples of appreciation of homes from 2015 to the present.
Appreciation Accelerators and Decelerators
Salvation Army relocation
The effects of a shelter on a neighbourhood are most pronounced within 400m of the shelter.
The Salvation Army and the Shepherds of good Hope are both within 400m of Lower Town. Together, they can accommodate 289 guests. The Salvation Army accommodates 58% of those guests.
However, other services for the homeless, and those at risk of homelessness, will remain in the neighborhood.
Subsidized housing to remain
The ratio of subsidized rentals to unsubsidized rentals is nearly 100% higher in Lower Town than in Ottawa . Subsidized housing and crime correlate. As such, the persistence of subsidized housing may tie crime to the neighbourhood.
The City’s plan to curb homelessness includes more subsidized housing units. In light of its abundance of social services, Lower Town would seem to be a prime location for additional subsidized units.
Safe injection sites
Three of the four supervised injection sites in Ottawa are located within 200 meters of Lower Town:
- 179 Clarence: Ottawa Public Health
- 230 Murray: Ottawa Inner City Health
- 221 Nelson: Sandy Hill Community Health Center
In July 2019, the Province gave the Shepherds $2 million to replace their portable safe injection site on Murray St. with a permanent one. The new facility will include two additional injection booths. There will be 14 booths in total. Notably, the facility is the only 24 hour safe injection site in the City.
The Province had decided to defund the Clarence Street supervised injection site. The Federal government has stepped in to fill the funding gap.
Rehabilitation facilities
On a per-capita basis, there are more rehabilitation facilities around Lower Town than around any other neighbourhood. Additional funding was granted to each site in 2019.
Section Summary
The closure of 51% of the shelter beds may not boost property values because of the abundance of subsidized homes, safe injection sites, homeless shelters, and rehab facilities that will remain.
Wrapping Up the Analysis
Lower Town’s socioeconomic challenges favourably affect cash flow. Those challenges slow appreciation, which keeps cap rates – and thus cash flow – high. Those challenges also increase tenant turnover. Vacancy in Lower Town is negligible, so the faster turnover boosts multi-year effective rental income, which further improves cash flow.
There are dependable people who want to rent in Lower Town. In order to find them, landlords will need to screen-out more high risk applicants than usual.
Lower Town makes sense for cash flow focused investors who don’t mind putting in extra work to keep units occupied.
For assistance locating and acquiring an investment property in Lower Town, contact John Castle.