Archives for April 2020

I was just on a call by a mentor of mine and the guest speaker was a very accomplished music producer, who worked with some of the best in the industry for years and still does to this day. There are skills in real estate and life that we must develop to be successful real estate entrepreneurs.

The phoenix group is on a mission to blend the “inner game” with the “outer game” – the problem with real estate training and education is that it is JUST real estate.  Now here is the dilemma: you have to pick something to be good at and teach.  That is the challenge with a lot of real estate and other success trainings out there is that they do not and frankly, cannot give you all the pieces of the puzzle.

That famous 80/20 rule holds true in a real estate business – the things you do to build a successful real estate company are the same things you need to do in ANY company and the 20% is industry specific.  There were many words of wisdom that I got from this call, and they can be applied to any business as well as other facets of our lives (after all we work to create the freedom so we can do what we want after all!) such as:

1. When you are already in a hole, stop diggin!

2. “I have not forgotten anything that I have discovered, but I have forgotten over half of what I have learned” A powerful reminder that we often learn best from experience, and being shown the path rather than being told where to go.

3. Ask what do I want? Then what can I control about this situation? (when faced with a challenge) Key reminder that worrying about things you can’t control uses up valuable bandwidth in your mind that could be used to get you closer to your goals rather than further from them.

When we thing of business often we get mired down in the strategy, tactics, marketing plans, sales techniques.  Business is really about people and the relationships between them – I encourage you to have a look at those fundamentals, continue to always grow your inner game in parallel with the tactics/strategy because they both affect your results equally.

To your success,

Tim Reid

-Respect The Hustle

There are many small towns in Canada that investors generally ignore because they are “not in my backyard” and having a property in other markets tends to be scary. While there are certain risks to consider in any market other than the one you live in, it is wise to consider the market where you will get the best returns in real estate.

We do recommend that investors get educated and learn the rules of the game from an expert in their local area to develop the skills of analysis, property management, renovations, financing, and structuring before venturing afar.  Learning the lessons will be more difficult in an auxiliary market, and each market has its own economic drivers, cycles, and factors to consider. One of the factors to consider is the CAP rate – which is a measure of the real estate property cash flow performance.

For example, a 1,000,000 building in Calgary that has an NOI (net operating income) of 60,000 after all costs would be calculated as follows: 60,000/1,000,000 = 6% CAP rate.  The guideline for  US properties is a minimum of 7% cap rate, here in Canada it would be more reasonable to expect 6% cap rates for fully optimized buildings.  Property in large “sexy” markets typically perform much below this mark, for example in Calgary at the time of this writing buildings trade around 4-4.5% cap rates for larger buildings and Edmonton Multi-Family rates at around 5%-5.5% cap rates. Industrial/commercial office is a sector that can have higher cap rates, however, these properties in Calgary and abroad have a much higher price tag!

Smaller centers such as those 1-2 hours from a major center will have lower taxes, cheaper land prices, lowering the total cost of the building allowing for an average of a higher CAP or cash flow performance.  These properties will require a solid management strategy or a great property management company – which are hard to find in my experience, I would recommend partnering with a local investor in the area you are interested in or get their recommendation on who the best service provider is in that marketplace.

Because of these factors, the cap rate will be higher and the rent typically a bit lower – however with good optimization the building costs can be lower giving you significant cash flow, also CMHC financing can be used to structure the financing for longer amortization and lower interest rates – you have to pay a premium and work with CMHC experts, but the extra legwork is worth it.  There are many small towns in Ontario within a few hours of major centers like Ottawa, Toronto, Thunder Bay, Windsor where you can get multi-family for significantly cheaper than markets like Alberta/BC – these areas have good jobs growth/industry driving demand for rental units.

Consider looking outside of your backyard for deals, the pioneers looking for gold had to trek across this continent looking for the hills to dig under to excavate those gold bars – you might have to as well to find the great real estate deals.

Respect the hustle

Tim Reid

Can you buy real estate No Money Down? Most Realtors will tell you no – typically 95% of realtors will tell you that.  Not their fault, they just aren’t taught that in realtor school – also most lawyers are never taught the creative strategies in real estate either.  Most sellers want top dollar for their house and they want to cash out their equity, and who can blame them?!

However, there are sellers that are in a bind and are MOTIVATED to sell their properties.  Motivation comes in many forms: death, divorce, taxes, job loss, downsizing, vacancies, partner troubles, moving due to job transfer, bad management, and many others.

When a seller is motivated you can educate them, and show them that if they have little equity in the property after all the selling costs (realtors, lawyers, holding costs) they will be at risk of having to pay out of pocket to get out of the property! For Example:

House in Calgary is worth 450K, they currently owe 430K – after holding the property for 3 months and paying all the holding costs they would be left with 10K if the property sold for list price – ouch! Not very great for the owner.  They are also in a position where they can no longer afford the payments, the investor could show the owner that they could pay them 5000.00 upfront and not take the risk on the market and they could be rid of the property right away for 430 (what is owed on the mortgage by way of assuming with qualification) pocket the 5K and be done with the headache. Investor “buys” 20K in equity for 5K which is like buying a 20$ bill for 5$ pretty good ROI.

You could even sweeten the deal (depending on your exit strategy) by giving them a 15K prom note for 6-8% for a 5-year term and 0 cash down which is almost giving them all the equity in the property and creating a great win-win for both parties.  Solve a problem crate a profit the tenant of all entrepreneurs!

Respect the hustle,

Tim Reid

With the current state of the world with the COVID-19 pandemic rocking the world, the equities market has taken some wild swings in the last few weeks. That said if you are a day-trader that could have made you a boatload of money! For most investors, however, that is passively invested in mutual funds in their RRSP, TFSA, 401K accounts…that market drop could have erased a lot of your returns that have been built up over the last decade or more.

I strongly believe there are 3 pillars of wealth:

1. Stocks
2. Business Investments
3. Real Estate

Naturally, one would think I tend toward real estate and have a bias for that, and you would be correct! The reason for that is that I understand real estate the best – and warren buffet teaches us that you should pick things you understand to invest in.  While real estate is IMO the most reliable way to generate wealth is also the slowest and takes a lot of management to do properly (which is why most people don’t do it).

Stocks are a great investment over time if managed, unfortunately, a lot of RRSP investors do not manage their portfolios – and now they could be staring down the barrel of a retirement that is no longer certain.  I was recently on a webinar with Kevin Harrington and he has some great advice for those worried about their retirement: “if you have got your investments wiped out in the market and you are close to retirement, start a business. You can’t earn that money back you will run out of time”  Brilliant advice, I think everyone should have category 2 investments.

Even if you are not the business type, you can partner with someone who is experienced in business and gain all the advantages of starting one yourself. Something to consider for sure, also this could be a time to look at your portfolio and re-balance for the longer-term into real assets such as real estate or others like precious metals.

To your success,

Tim Reid

Respect The Hustle