011: Real Estate Investing in Canada | Mr. Prairie FIRE

Join Ryan, Chrissy, and Money Mechanic as they talk to Fred (aka Mr. Prairie FIRE). We cover how he found the FIRE movement, real estate investing, house hacking, and so much more!

These show notes were written by friend of the show, Shaidah Karim. Thanks Shaidah!

Background

Fred has been living in Saskatoon, Saskatchewan for the past 20 years. He is a father of 3, including a 4 month old. He works as a housing property analyst for the provincial government.  

The Trifecta

Fred started the journey a couple years ago after a ‘trifecta’ of financial hardships which led him to discover financial independence: 

  1. Fred’s family moved into their dream home in June 2016 with 2 kids. They fixed it up, then water started coming out of the bathroom light switch, ice was falling in the attic, and brown water started coming in from all different places. The repairs came to $15,000!
  2. Two months after the repairs, Fred’s employer was restructuring and his income dropped by 9%.
  3. Fred owns 2 rental properties. Due to heavy rains, his rentals started flooding and needed repair.

The Turning Point

These obstacles led Fred to researching personal finance and learning about the FIRE movement. He fell in love with the community, blogs, and Facebook groups.

Community

  • Fred blogs at Prairie FIRE Canada, which he uses as an outlet to express himself, connect with people, and as a reminder for why he is going through the financial independence journey.
  • People are isolated and desperate for community. It doesn’t matter where you are in your journey, it’s fun to be part of the community and learn from others.
  • He encourages people to get offline and have real conversations with people.

Real Estate

  • Fred’s primary residence was hit by a “tidal wave” and in spite of costly repairs, he still invested in long term buy & hold real estate.
  • He has an advantage as housing has been part of his family, and career.
  • His parents also bought rental real estate but didn’t really pass on that knowledge early on.  It was just another business that his parents had.  
  • When he graduated university, his dad encouraged him to buy a home and introduced him to property management. They shared in the costs and in the profits.
  • Fred also worked with nonprofits and managed affordable housing and is a housing property analyst for the provincial government.

Rentals

  • Fred and his wife own two rental houses, each with 2 units.
  • They use a property manager to manage one of the houses. The other house has an excellent tenant which helps with managing the property.

Mindset required for investing in real estate

At 14:20 in the interview, Fred says:

“You do have to understand it is a business, it’s nothing personal. It’s really about providing a home, serving a customer, and treating it like a business where you take care of a very important asset.

When you have a renter that pays $1000/month, you have a $12,000/year contract with them. You have to make sure that property is up-to-date and you treat it professionally.  And worse comes to worse, you get someone else to manage it if you can’t handle the ins and outs of the relationship if you aren’t a people person, that comes at a cost.

Overall, looking at it like a business, crunching the numbers, and realizing that every single rental property is like a mini business for yourself.”  

Time Management

  • When Mr. and Mrs. Prairie FIRE started their marriage, they made time for the rentals. Mrs. Prairie FIRE was also involved in the business. To manage time effectively, they:
    • selected good tenants;
    • purchased relatively well-maintained properties; and
    • developed a team of a good handyman, plumber, electrician, and contractor.

Homestays

  • Fred rents out one room to an international highschool student from Columbia who gets along great with the entire family. She’s returned to live with them for 3 years!
  • Hosting homestay students was Mrs. Prairie FIRE’s idea as she is also entrepreneurial. When they went down to one income, they had to think outside of the box and decided to host students.
  • Fred is very happy that Mrs. Prairie FIRE pushed him into the accepting homestay students as the experience has been wonderful.
  • Homestays pay about $800/month, but their student barely eats $200/month.
  • Fred and Mrs. Prairie FIRE use Canada Homestay, who finds and vets the students.
  • Chrissy also hosts homestay students, and has likewise enjoyed the experience immensely.

More real estate talk

  • Fred’s total portfolio value does not include income generated from rentals.
  • He was being too conservative at the time of writing Discover Your Financial Independence Number and wants to leave the properties as a legacy for children, or to pay university tuition for his children. 
  • Chrissy looked into real estate investing and ran the numbers and concluded that real estate investing doesn’t make sense in Canada when passive index investing provides a 7%-8% and is so easy. 
  • Fred likes real estate as it diversifies his portfolio. There is risk with equity and bonds but real estate can be more consistent and not as volatile. From a business perspective, he likes the active part of running the real estate business.
  • Fred agrees that you can reach FI sooner with real estate investing.

Living in Saskatoon

  • Fred loves Saskatoon. It is affordable to live, there is so much diversity, culture, food, beer. Summers are amazing. He hopes to live in Saskatoon for a very long time.
  • For the downsides, the winters are long and cold but that’s where community comes in to save your life!

Signature questions

  • Team FI or Team FIRE?
    • Team FI, Fred enjoys working but doesn’t want to work for money.
  • DIY anything?
    • Fred is getting better at tackling DIY projects. He is proud to have completed two platforms for his rain barrels.
  • Tim Hortons order?
    • Fred is a coffee snob, he will order a double double and Timbits for his coworkers.

Stuff that didn’t make it!

This is where we include useful or interesting info about our guests… that didn’t make it into the show:

  • Fred’s parents immigrated from Malawi, Africa to small town Saskatchewan (and still live there).
  • His children are aged 4 months, 3 years and 5 years.
  • Fred’s main investment lever is real estate—he has two rental properties and is looking to expand. He has been geeking out like crazy on how to run his rentals like a business and how to analyze good deals (e.g. the 1% rule)
    • He also invests in index fund through a private wealth firm.

Get in touch with Fred

Episode links

Help us grow by sharing, subscribing, commenting and leaving a review!

9 Replies to “011: Real Estate Investing in Canada | Mr. Prairie FIRE”

  1. All hail Chrissy, the bringer of sanity to discussions on investing in rental properties!

    Run the math and the really consider the extra effort (or expense of paying someone) of real estate investing. Then compare you expected return vs that of an equivalent (leveraged) portfolio.

    I appreciate that in his response to Chrissy Mr. Prairie FiER’s admitted that average investors probably can’t make real-estate investing work but professions might be able to.

    The idea that real-estate is not volatile is really misplaced. Look at the real estate market in Toronto and Vancouver over the last 4 years. Or the history lesson from Toronto in the 80’s. It took them 22 years to recover from the crash when taking inflation into consideration!

    https://betterdwelling.com/city/toronto/it-took-22-years-for-prices-to-recover-from-the-last-toronto-real-estate-crash/

    Also not mentioned:
    – idiosyncratic risk of owning individual properties in individual cities / province

    Most people would not be comfortable with a 100% equity leveraged portfolio. Yet a riskier leveraged investment in real estate to rent doesn’t get the same treatment.

    1. Hey TW some excellent observations and comments. Really appreciate your feedback and insights. Being a landlord is definitely not for everyone and the ability to best manage and run a rental business takes a lot of thought, time and effort. Done well, you can make some great returns. I am still at the learning and development stage (I only own 4 units after all). But I do not treat real estate investing like a passive investment and it takes a lot of effort.

      I wanted to address your points directly below:

      The Effort of Real Estate: You are so right that being a real estate investor takes a lot of effort. Especially at the beginning. It is not easy, but if you like to work with people, coordinate tasks and try your hand at fixing basic things, real estate might just be for you. As you get more involved you learn, increase efficiency and start thinking strategically. At least that has been my experience. If anyone says REI is passive, they are fooling you. It is like any start-up business, but over time as you grow it becomes more passive over time. But you need scale and experience to get there.

      Volatility of Real Estate: I want to push back a little bit regarding volatility compared to stocks/equities. Regarding your comparison of the performance of equities to real estate investment in Vancouver and Toronto housing market, I do not think it is a fair comparison. The reason being that you are picking and choosing the worst time periods and some of the most volatile housing markets to evaluate an asset class’ performance. One could do the exact opposite in order to paint a rosy picture to show how it can beat equities.

      I would argue that stocks are much more volatile compared to real estate prices. But the great thing about stocks over long stretches of time (e.g. 25-30-100 years) is that the trend is upwards when it comes to price appreciation and dividends. That’s why it is great to take a long view when it comes to stocks and not pay attention to short-term fluctuations.

      Real estate on the other hand is less volatile and does not rise and fall like equities. House prices usually rise with inflation. They key is the immediate cash flows from the rents and the pay down of debt (adding equity) that is the true source of the returns. But if real estate prices go up 10%, then that is gravy. My approach to rentals is to invest based on cash flow as a form of passive income. The numbers just have to work. I do not bank on appreciation, but expect the value of my properties to keep up with inflation (3% increase per year max). To do otherwise is to speculate and that is very risky. I am very risk averse that way.

      Idiosyncratic Risk (i.e. the risk of having a portfolio of properties in one city/province): This is a very good point that I have been thinking about the past 2 years. I am currently in this situation and looking to purchase properties in other markets across Canada. The key to address this risk is to diversify. My goal is to have 5 properties with different characteristics (residential multi-units, commercial, etc) and locations in my portfolio and use the cash flow to build up my investments in equities and bonds. Hopefully over time the ratio between all my asset classes will be diversified enough to manage any future downturns and volatility. From what I understand there is little to no correlation between real estate and equities.

      Thanks again TM and I hope what I’ve said is clear. It’s late where I am, so if anything sounds off or wrong, feel free to point it out.

      All the best,

      Mr. Prairie FIRE

      1. Hi Fred,

        This was a very fair, thoughtful, and honest response to TW’s comment. It’s clear that you are one of the ‘right’ kinds of RE investors. You’re well-educated and have a good plan in place. Thank you for taking the time to reply in such detail and for sharing your knowledge with our audience.

    2. Hi TW,

      Thanks for taking the time to leave a comment and open an interesting discussion. You bring up some excellent points—the REI risks you’ve outlined do need to be considered.

      Your comment just goes to show that all of us need to educate ourselves and go into every investment with our eyes wide open. I’ve found that many people don’t understand what they’re investing in (whether it’s stocks or real estate). They don’t take the time to learn the ropes and do the math BEFORE committing to an investment. It’s easy to get excited and dazzled by the stories of others. But often, the math tells a different story!

      Thank you for listening and getting engaged with our content. It’s great to hear different opinions.

  2. I struggled with some of the information in this episode such as the 1% rule which I am not aware of. I would have appreciated a more detailed explanation of this, but maybe that’s just me. I would have welcomed more information about how Mr Prairie FIRE accumulated enough money to buy his properties. We started at the beginning with him being in debt due problems with his own house and moved swiftly to him owning another two properties. It’s always useful to hear about people’s journey and not just the end result, which seems a long way from where many of us are.

    1. We love comments like this, Sam! We often wrongly assume that our listeners already know what we know. Clearly, this isn’t always the case! Thanks for pointing out our oversight.

      We plan to cover more about real estate in future interviews and in our FI School series. As well, we’d love to have Mr. Prairie FIRE back on so we can tackle some of the questions you’ve left here.

      Thanks for taking the time to listen and comment!

    2. Hi Sam! Your critique is spot on. I went back and had a listen and you’re completely right, we didn’t take the time to let Fred tell his story more thoroughly. Jumping from failure to success in a matter of minutes paints an unrealistic picture of how financial success stories are made. For all we know he won the lottery! Will definitely have your critique in mind for future episodes.

    3. Sam, I totally understand where you are coming from and a lot of the terms such as the 1% rule can be confusing. If you want to talk more about this and any other concept, I’d be more than happy to discuss and provide resources.

      As for my story, below is the Cole’s notes:
      – Have been involved in real estate investing for some time (all the way back in 2003).
      – My first real estate investment was with my dad where he hired me on to manage a property where I lived upstairs and rented out the basement. The deal was that I would pay for taxes/utilities/insurance and I’d be paid 10% of the rent as a reward for finding tenants and dealing with maintenance/repairs. I saved that money to pay for school to do my MBA.My dad sold soon after I moved away for school in 2007.
      – My dad, wife, and I went in on two more properties after I graduated and got married in 2012. We go caught up in the real estate craze and looking back, there are many things I would have done differently.
      – Our financial worries started in February 2017 when we hit three financial major financial hurdles as a family (this is where the podcast starts in my journey).

      I’ve been more fortunate than most when it comes to finances. I had no student loans (thanks to my parents), was frugal with my money (no consumer debt and saved like crazy) and was able to partner with my parents in real estate. Nonetheless, I still faced financial headwinds, because I just did not know what I was doing from an investment standpoint. Luckily I stumbled upon the FI/RE movement and have been set straight.

      I hope that provides a little bit of backgrounder when it comes to my story. Everyone’s path to FI/RE is different and I would enjoy hearing your story. Feel free to reach out to me any time.

      Mr. Prairie FIRE

Leave a Reply