How to Invest in Real Estate in the Alberta, Canada Oil Sands

Oil commodity prices are setting records, and regions with rich oil reserves are booming. But you don’t have to go to the Middle East to invest in real estate in one of these booming economies. Alberta, Canada contains the second largest proven concentration of oil in the world in its oil sand deposits according to the BBC.  While high oil prices are a bonus to the province, this doesn't necessarily make it a good place to buy real estate. This article will explain how you can invest smartly in the real estate in Alberta, Canada.

Understand the economic environment

A good place to start your research on Alberta real estate is the Government of Alberta website (http://alberta.ca/home) and Alberta, Canada website (http://www.albertacanada.com/. Look for areas with strong job growth, development and continued in-migration. Areas that are rich in natural resources such as food, fuel and fertilizers will perform especially well.

Target your city

The two main cities in Alberta are Calgary in the south—known as the business center, flush with oil dollars—and the northern capital city of Edmonton, which is a hub to the oil sands and supports many blue collar jobs. Edmonton is well situated to support the growth of oil refineries. The area known as Refinery Row in Fort Saskatchewan is located just 20 minutes from Edmonton. There are many other cities that offer great potential. To name a few in no particular order: Red Deer, Grand Prairie, Fort McMurray, Lacombe and Airdrie.

Get your financing in place

Investors can finance both residential and commercial real estate in Canada even if they are not residents, but are generally required to put down 35% as a down payment. Commercial lending is based more on the asset and cap rate. Expect to pay 30% or more as a down payment. It is possible to get creative with Vendor Take-Back, a type of financing term that allows the seller of a property to carry back a portion of the mortgage in the form of a small loan.

Find a niche

Are you focusing on land, residential, commercial or recreational property? It is smart to invest in a niche that you really understand. In the current market, I specialize in residential rental properties and small multi-family apartment buildings. They are easier to understand and resell.

Crystallize the method you want to use to invest

There are many options to use to invest in real estate. Some points to consider are time and distance. If you are living locally and you have the time and expertise needed to make your deals successful, you can get out there and do it yourself. Your next step would be to contact a Realtor and define your ideal property profile. If you lack the time and expertise or are concerned about the distance, no need to worry. There are many great options available for you, such as Joint Venture Partnerships (JVs), land banking, managed investment pools and REITs.

Choosing your team

Look at the track record of your potential team members. If you are investing from outside of Canada make sure that your lawyer, Realtor and accountant have experience working with international investors. Many countries have tax treaty laws which can lower your taxes. If you are working with a Joint Venture partner (JV), find out how long they have been in the business, how much they truly know about it and ask if they have referrals from other satisfied partners. The same applies to land banking or rental pools; check the history of the company and get referrals. In an up market everything looks rosy. You should align yourself with folks that have weathered the storms and have at least 5 years of history behind them.

Go for the long-term

Real estate is cyclical and you should be prepared to stick it out. Investing in Alberta can be very profitable when you do it right. Look to hold for a 5 to 7 year cycle. That's not to say that you can't cash out earlier. However, understand that to invest successfully the game is best played over the long-term. Currently, Edmonton presents an excellent buying opportunity as it has just entered into its second plateau. Unfortunately, there are many inexperienced speculators who got caught trying to flip in this plateau. Investors can expect to see the next upswing towards the end of 2009 into 2010.