One weekend in May, we were playing in the backyard with temperatures in the high 20s, then we had some snow a few days later, then a pouring rain a few days later and temperatures struggling to get to six degrees. Ahh, life on the prairies is never boring.

We are also one year after the initial restrictions were placed for COVID-19. This leads us to statistics that are somewhat skewed when comparing last year’s real estate market to this year.

I will use some statistics that compare where we are to the 10-year average to help smooth things out.

We are still in a very brisk sellers’ market in Saskatoon. Sales volume is up over 50 per cent above the 10-year average. The number of sales is up over 46 per cent above the 10-year average. The average house price in the Saskatoon is up over 10 per cent from last year, going from $290,200 to $321,000.

There are a few factors that are contributing to such a busy sellers’ market.

Over the last year, many people have had to figure out a way to work from home and to teach their kids from home.

This has led to people becoming aware of the need for more, or different, space in which to live and work. People are looking for bigger homes, with space where they can do the work they need to and still have space for their children to do the things they need to do.

Another reason is that the mortgage stress test rules are changing as of June 1.

Whether a buyer is making purchase with an insured mortgage or an uninsured mortgage, borrowers will need to prove they can afford payments, based on a higher contract rate. This is the rate quoted from their bank or mortgage broker, plus two per cent, or a new floor rate of 5.25 per cent, up from the current 4.79 per cent.

This will make it harder for people who are on the bubble of qualifying for a mortgage to get the financing they need.

Last month, I mentioned that real estate is a very regional endeavour. This stress test will not discriminate what market a buyer is in and will make it harder for a new buyer on the prairies to purchase a home.

I suggest that you speak with an independent mortgage broker if you have specific financing-related questions.

I said last month that I would discuss a couple of ways to analyze a bigger deal.

This is about using the cap rate and the income of the property to determine the value of the property.

In order to do this calculation, you will need to determine the Net Operating Income of a property. You get this by taking all the money that is collected from a property (called the Scheduled Gross Income) and subtracting all the expense that it takes to run the property, not including debt service.

Let’s say that an apartment building collects rents that total $100,000 for the year, and your expenses for taxes, insurance, maintenance, and management total $30,000. Your Net Operating Income, or NOI, would be $100,000 — $30,000 or $70,000.

The next thing you need to know is the cap rate for the area that you are looking at. It is a good idea to speak to a commercial Realtor for some help on determining cap rates in a certain area, because they can change significantly in different parts of the province.

Cap rate is a little bit like a rate of return, and it is expressed as a percentage. Generally speaking, cap rates in bigger cities will be lower and cap rates in smaller towns will higher.

If you are looking at a 12-unit apartment building in Saskatoon, you would have a cap rate of between five to six per cent. So, we take our NOI of $70,000 and divide it by.06 (6 per cent), you end up with a value for the building of $1,166,666. This may or may not be the price that they building is being sold for, so it is good to know the value before you start negotiating.

Don’t get too caught up in the numbers right now; just remember that value for the property is determined by how much money it makes and the cap rate for the area that the building is in.

Next month, we will discuss more ways to look at multi-family investing, and how to purchase your first multi-family building. It is easier than you think.

Have a great month!

(Brad Chisholm is a Realtor and real estate investor based in Saskatoon. You can find him at bradleychisholm.exprealty. com or email him at brad.chisholm@ exprealty.com.)

-Brad Chisholm