027: Online Meetup | Let’s Talk Real Estate

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Intro
Welcome, everybody to Explore FI Canada podcast—the future of personal finance in Canada.

My name is Ryan Myricks, and I’ll be hosting online meetups where we get to hear from you the listener talking about all things financial independence in Canada.

It’s not just voicemails or emails, you literally get to say exactly what’s on your mind and it will be released onto Explore FI Canada but remember, with great power comes great responsibility. So we do have a few ground rules.

Number one, we’re in the business of breaking only one taboo today talking about money. As such, please do not bring up sex, politics or religion nobody wants to know.

Number two, please refrain from swearing or being a jerk. All criticism of each other or other Canadians or content creators should be constructive. It is very unhelpful to call somebody stupid and leave it at that explain your frustration, so everybody else can learn.

Three, please only use the first names of anybody you mention. We want to keep everybody anonymous for the very obvious reason that we are talking about money. It’s okay to use the full name of content creators such as Ben Felix or Paula Pant.

Four, and finally the last rule (it’s just for me). I’m going to keep this entire meetup unedited unless somebody breaks a rule. There’s no point in recording a meetup if I start to chop it up and paint a picture that makes me or the podcast look good. So my promise to you, the listener, is an authentic recording as-is.

A couple of disclaimers. All opinions of the participants are their own and do not represent Explore FI Canada or its affiliates. All advice you hear are opinions only. So please—don’t let this be your only source of information.

Do your own research and seek an accredited professional if needed. And now, onto the meetup. Let’s introduce today’s participants…

Ryan 2:29
Welcome guys to [bleep] show that is Explore FI Canada podcast. Can we say that or no?

Chrissy 2:43
Bleep it out!

Fred 2:45
Nah, keep it in.

Shaidah 2:47
Keep it in, yeah!

Ryan 2:50
All right, so joining us is my very own co host Chrissy from Vancouver, BC. Hey!

Chrissy 2:58
Hey Ryan. How are you doing?

Ryan 3:01
I am fantastic. I love the technical side of recording a podcast. Nothing makes me happier than taking half an hour to set up a Skype call.

Chrissy 3:11
Oh boy… not been fun!

Ryan 3:15
Nope, no. All right. Joining us from Victoria, BC and from Episode Four. Oh, gosh, I usually have my notes for this. And I totally didn’t do that this time. I’m pretty sure it’s Episode Four on the Smith Manoeuvre is Megan. Hey, Megan.

Megan 3:30
Hey, yes, it was Episode Four. Clearly my favorite.

Ryan 3:34
You know, like, clearly everybody’s favorite because that’s why you have the most downloaded episode. I don’t want to make anybody else feel bad, but you definitely have the biggest one because people are really interested in this manoeuvre.

Megan 3:48
Well, I like to think I’m the Smith Manoeuvre’s biggest fan, so that is great to hear!

Ryan 3:54
Yep. Joining us from Saskatoon, Saskatchewan. Tell me that’s right, Fred.

Fred 4:00
That’s correct.

Ryan 4:02
Excellent. I haven’t forgot you yet. And who was on Episode 11, Real Estate Investing with Mr. Prairie FIRE is Mr. Prairie FIRE himself, Fred. How’s it going, buddy?

Fred 4:12
I’m doing great. I’m excited to be back on the show and looking forward to the talk.

Ryan 4:17
Yeah, definitely. We’re excited to have you back as well. And joining us for the first time ever on the podcast is Shaidah from Richmond, BC. Hey!

Shaidah 4:26
Hi guys.

Ryan 4:28
How are you?

Shaidah 4:30
I am doing wonderful. Thanks for having me.

Ryan 4:33
Well we’re really excited to have you on because you are probably the most vocal person on the ChooseFI Canada Facebook group. And probably the most helpful by far. I would put you at a 98 out of 100 and I think the closest runner up I don’t know but they’re probably below 70.

Shaidah 4:52
Why did I lose two points there?

Chrissy 4:55
Cuz it’s Ryan.

Ryan 4:59
I’ve heard enough of those bees. I don’t hear any more about bees.

Shaidah 5:02
Oh, come on.

Ryan 5:05
I’m kidding. I want some honey. All right, we want to do a real estate episode for everybody. And that’s why we got to bring back Megan and Fred, who are clearly experts in the field, at least to the FIRE perspective, for sure. And both had very, very widely downloaded episodes.

Ryan 5:23
But I want to get everybody to know your voices a little bit. So I’d like to start off each online meetup with just a question. So I would definitely want to start with let’s say Shaidah because you’re the brand new voice to the podcast. So just go ahead and tell us how many units do you own and what locations if you don’t mind sharing,

Shaidah 5:46
I don’t mind sharing We own a townhouse in Surrey, BC, and a house with two units in Sechelt. Two single family homes in Nanaimo and one in Campbell River. So that’s total six doors?

Ryan 6:01
Very nice.

Shaidah 6:01
I six. Yes, six doors.

Ryan 6:04
Yeah. And you call them doors. So that’s how I know you’re serious.

Shaidah 6:07
Oh, yes. Of course!

Ryan 6:10
Cool. All right, well, I’ll pass the microphone on to Fred. Fred. How many doors Do you own and where?

Fred 6:17
So I own two buildings and they each have two doors each so total four doors. And I’ve been doing real estate for the past five years.

Ryan 6:28
Very cool. And Megan?

Megan 6:32
I have two buildings as well, one with two suites in it that we rent out and then the other that we live in and rent out a suite in that as well. So three doors total. All in the very high cost of living Victoria, BC.

Ryan 6:49
So jealous of you guys. Chrissy, how many doors do you have?

Chrissy 6:53
I guess I would have to say zero.

Shaidah 6:56
Well, you have a suite, don’t you?

Chrissy 6:58
I do, but I don’t rent it out. I have students but I don’t think that really counts.

Fred 7:03
Oh, that counts.

Ryan 7:05
I think it counts it.

Chrissy 7:07
Okay.

Shaidah 7:08
Yeah you’re like a landlord in training.

Chrissy 7:11
I guess I have one door then.

Megan 7:14
A lot more work than tenants are… good tenants anyway!

Chrissy 7:17
Yes, they can be.

Ryan 7:19
We’ll give you half a door for that one. It’s already inside your home, right? And it’s not like you have like a separate entrance or anything. At least I don’t think you do. Do you have it? No, you don’t. Right?

Chrissy 7:29
I do. But they don’t use it. They come in the main door just like us.

Ryan 7:32
Wait, why? Why if you have it, why don’t they use it?

Chrissy 7:36
Cuz they’re students. They’re like, they’re like our kid

Shaidah 7:38
Part of the family.

Chrissy 7:39
They are.

Ryan 7:40
Oh, okay. I guess I’m just a cold and indifferent landlord.

Shaidah 7:50
How many doors do you have, Ryan?

Ryan 7:54
I have one that leads to the front of my home that I use to access. But I actually don’t really use it. I go in and out to the garage mostly.

Shaidah 8:04
And you don’t have a suite?

Ryan 8:05
Exciting podcasting stuff. No, I don’t have I don’t have any you know what? But I talked about this with my wife. And I thought maybe we should be doing some sort of real estate investing because all the cool kids, they’re doing it. But at the end of the day, she couldn’t even get me off my [bleep] to help paint.

Ryan 8:23
And I feel like if you’re not willing to paint your own home, and you’re probably not willing to roll up your sleeves and do some of the harder work that comes with real estate investing, because a lot of it is DIY, and I’m sure each of you have really put in the kind of blood sweat and tears that comes into making sure your doors are painted and nice looking.

Shaidah 8:46
I know I definitely have.

Chrissy 8:48
So I see I see our friend has joined us.

Money Mechanic 8:51
Hi guys.

Chrissy 8:52
Are you there?

Ryan 8:55
Who’s that?

Money Mechanic 8:56
Who’s that? I just thought I’d lurk in the background until somebody till somebody acknowledged me. The Money Mechanic with you! Yay!

Chrissy 9:05
Yay!

Ryan 9:08
Okay, Money Mechanic, we’re all just going through our own real estate investment portfolios. How many doors do you have, buddy?

Money Mechanic 9:14
That’s a good question I gathered there was a bit of a door discussion and I unfortunately am still at one door, but I am definitely I’ve spent a lot of time looking. And my real my only excuse for that was that the money was going into paper assets and I wasn’t ready to take out a bunch of equity from our house to to buy a door.

Money Mechanic 9:35
And I think like a lot of people, it was my fear and my lack of knowledge in real estate investing. So even though I don’t have any other doors, I have made some recent other real estate investments and I’m going to a meeting tomorrow night which I’m super excited about, about real estate investing in on the Island. So yeah, hopefully it’s gonna happen soon.

Ryan 9:55
Is it a meeting or a seminar?

Money Mechanic 9:58
Good question. No it’s the real estate investors network that is here in Victoria. And I think Megan can speak to that because she’s been there more times than I have. But there’s a guest speaker tomorrow night. And I think it’s going to be super interesting. So yeah, it’s all about education for me at this point. So just learning as much as I can.

Megan 10:17
That meeting is really great. And I highly recommend anybody in the Victoria area go to it. It’s just filled with knowledge. They do have the guest speakers but there’s a lot of mingling and people are sharing their their own personal opinions and networking and it works out really great. I’ve met a lot of ton of a lot of a lot of great people there.

Shaidah 10:36
Is it actually put on by REIN?

Megan 10:38
No, it’s by a group called the Real Estate Investors or RE Investors.

Shaidah 10:45
RE Investors. Okay.

Megan 10:46
Yeah, they’re they’re really great. They have like a Facebook group and they do this networking and they do put on seminars as well the paid seminars, but this they do on the third Tuesday of every month where they bring in these guests speakers.

Megan 11:00
And I think it’s like five bucks or something to get you in the door and they’ve got snacks that make that worth it. And it’s, it’s great. I really do. I like it. Yeah. And Robinson Smith is there all the time. So if you have Smith Manoeuvre questions, and he’s just so great and will help you out with those kind of things. So yeah, highly recommend it.

Chrissy 11:21
That’s amazing. When I looked into real estate investing, one of the things that everyone kept repeating was to find mentors, find groups that you can learn from and and meet people that was so key to most people’s success in real estate investing.

Ryan 11:36
Well, can we debate the merits of that then because I know we want to get to a checklist that’s going to help a lot of our listeners out for starting in real estate investing, but I think this is actually one of the key moments of everyone’s investing timeline is finding the information because I know there’s no shortage of Facebook ads for seminars to 1500 dollar like real estate and investing courses.

Ryan 12:00
Or, or groups or something like that you can just buy these courses and just go in and and hopefully learn everything, So, Shaidah, I want to turn it over to you right away because I think we’ve had a conversation similar to this on Facebook before.

Ryan 12:12
So what are what are the merits to signing up for a course like that? Is it is it really just buyer beware and choose the right one or is there a free way of doing this that you would recommend?

Shaidah 12:23
Okay, I have not done a course before. But I have listened to probably at least 300 hours of podcasts with Bigger Pockets. I stopped listening at episode 300 where I decided I don’t want to buy any more property for now. And every time when I get into listening to them, I get inspired to buy more property.

Shaidah 12:41
So I had to put that on hold. So that’s a free way of doing it. So you can spend 300 hours and listening or if you want to find a good course that is valuable to you. Then find something and you can learn all that information in a weekend. I wouldn’t say not to do it. I would just do your research and make sure you know what you’re paying for.

Ryan 13:00
Megan, do you have anything to input?

Megan 13:03
Yeah, I would actually completely agree with that. Um, I find that getting to know the speakers is really helpful before you’ve booked the course. So if you’re going out and meeting these people at networking events, and you’re getting the feeling that they really know what they’re talking about, and they’re not going to try and hard sell you on something, then I would be willing to go to those type of courses.

Megan 13:25
But, you know, sometimes you meet the people at the meetup and they just feel a little skeezy kind of used car salesman-ish. I would say don’t spend the money on those courses, because they’ll just be trying to sell you things.

Ryan 13:38
Fred, what’s your opinion on this?

Fred 13:41
Yeah, I think for myself, I’m very much a self learner specifically in the area of real estate. So one of the big things similar to what Shaidah said is, is Bigger Pockets. I think that particular brand has a lot of information, not just for the podcast, but also their website.

Fred 14:00
It’s a platform for real estate investors that they provide a lot of free resources, being blog posts, calculators, the podcast, but they also have books. And those books are actually quite informative there. They range from basics of real estate, all the way to long distance real estate investing.

Fred 14:19
So I think for for the evolution of someone who’s just starting out, you know, check out all the free stuff, spend some good quality dollars at your, you know, local bookstore or go to the library and read check out a book.

Fred 14:33
And then I’ve never done a course. A lot of the information I think you can gather on your own, but if you don’t have the time, then a course might be it. But I would always encourage taking that that free route and also it was mentioned before connecting with community of other real estate investors.

Ryan 14:51
Mm hmm. You know what, I’m actually glad that I asked this question first because I think it paints a really nice segue into the first item on my checklist that I wanted to be for any new real estate investor out there because in my opinion, if you want to be a real estate investor, you need to be able to have a very firm grasp of the money coming in and out of your own budget, your own personal budget, just just the business that is you right?

Ryan 15:17
Because if you’re going to start investing into other businesses, such as rental, you know, doors and all of that you need to have a very firm grasp on what’s coming in and out of your pocket like you have to know, right? Money Mechanic, wouldn’t you agree like before you started going into anything, any type of investment that you had to have your financial [bleep] together to lack of a better word?

Money Mechanic 15:41
No hundred percent I you couldn’t, you couldn’t underestimate that value moving forward. And I really like we’ve probably all read or heard about running our own personal finances as a business and that’s probably a great way to start getting your head in the right mind frame.

Money Mechanic 15:56
So that when you are ready to take you know, when you, those next steps, then you’ve already built that framework and you’ve got your discipline down and you’re you’re comfortable with some spreadsheets and some cash flow, then yeah, I absolutely have to get on top of that first.

Money Mechanic 16:12
And I think for me and this is maybe why I am not already in real estate is because like you said is I need to get it I need to get all that stuff in order and, and make sure everything was on the right path with investing and a good saving space and things like that before I’m ready to take that next step and do all the learning about real estate because it’s you right? It’s having that foundation to work with.

Ryan 16:33
Chrissy, do you have anything to weigh in on this?

Chrissy 16:36
Um, I would like to ask how long it took each of you to learn and about real estate before you dove in.

Megan 16:45
I for myself, I did it a little bit backwards and had no idea what I was doing and bought a house with a suite and figured it out as I went. There were a lot of mistakes along the way. But I tend to be prone to analysis paralysis where I get started reading and then there’s this other book and oh, now there’s this blog. And oh, I should probably talk to this expert over here.

Megan 17:13
And I think, if I hadn’t have dove in, without having any idea what I was doing, I think that I would have just still been researching 10 years later, you know it. So I mean, I, I do see what you’re saying you should know what you’re doing and things should be on lockdown.

Megan 17:30
And I think in the perfect world, that is probably a great idea. But there should be a little bit of a balance maybe where you have friends who are landlords, or you have someone you can lean on to ask questions, and you have kind of a basic idea.

Megan 17:44
But I don’t think it needs to be absolutely perfect with you know, your spreadsheets are already set up and just waiting for the exact numbers kind of thing, you know, find that balance.

Chrissy 17:54
And Fred, how about you?

Fred 17:56
Yeah, I took a similar path to Megan where nothing was aligned perfectly to jump into it. And I sort of learned from my, my parents, I was fortunate enough that my dad and my mom were into real estate as well as part of their plan to financial independence.

Fred 18:15
So I sort of just copied what they did wasn’t perfect. Made, I’ve made tons of mistakes, like if people are not ready to make mistakes, then real estate investment might not be for you. And I think for me, being able to have your financial house in order is great.

Fred 18:33
But there’s also opportunities you don’t necessarily want to miss if you know the basics, and you’re ready to move forward. As long as you have some clear goals of what you want to accomplish and being able to be like, like Money Mechanic said, having that discipline over time, so just yet, the sort of things can happen in parallel at the same time as well. That’s what I’m trying to say.

Chrissy 18:58
Well, that’s good. It sounds like you had a good balance of being prepared but just getting started because a lot of it you don’t learn until you’re actually getting the ball rolling

Unknown Speaker 19:07
Very much so. It’s it’s you have to be willing to experiment and take a little risk, but also be accountable to yourself and just learn as you go along as well.

Chrissy 19:16
And Shaidah, did you listen to all 300 episodes of Bigger Pockets podcast before you jumped in? Or did you do that midway?

Shaidah 19:25
Okay, so I only started tracking my spending last year. So it’s not like this is like Ryan says, Oh, we need to track it. So from my experience, you got to do what works for you and I we have no idea what we’re spending as long as we were saving money we were doing okay.

Shaidah 19:39
But as for the Bigger Pockets, podcasts when we bought our first rental in 2010 that didn’t exist, the resources out there, the blogs, all the information that wasn’t around back in 2010 when we bought our first rental, so we said hey, we have some money saved up, and the stock market investing in the stock market or in the market totally scares me and still does.

Shaidah 19:58
So I wouldn’t do that at that time. You know, I’m doing it now and it’s still kind of I’m tiptoeing in. And at that time, we thought, Okay, well, why don’t we just buy a rental and see how that goes. And so we did that and just talk to real estate agents and mortgage brokers and a few other people who had rentals, but it was more of, let’s get our feet wet and figure it out as we go.

Chrissy 20:20
Sounds great. So, Ryan, I don’t know if we want to start diving into some more actionable stuff.

Ryan 20:28
I think we definitely should. So I’d like to actually go around the table to the real estate investors that we have and ask them, do you guys like do we have to save up to 20% in order to get a loan to buy a rental property?

Ryan 20:41
Or did you pull equity from your home to make up the 20%? Like, how did you actually go about buying your first rental property? How did you get the money? Did you just save it? Fred, I’d like to start with you.

Fred 20:53
Sure, with the rentals that we currently have, we went in together with my dad. So we put down the 20% that was that was basically the only way we could get a traditional, traditional loan. So for us that 20% was something we saved up for.

Ryan 21:10
Megan, I’ll turn it over to you.

Megan 21:13
So in my case, with our our rental property, I, when I bought it, I intended to live in it in the upstairs suite and then rent out the basement suite. So when I bought it because it was going to be my primary residence, we were not required to have the 20% like you are with a buying a second kind of rental property.

Megan 21:32
So at that time, we just put down 5% and built the equity pretty quickly, mostly based on just how hot the Victoria market is. And then when we hit the right amount of equity, we pulled out for a down payment on the property that we now live in.

Megan 21:53
So we’ve got 20% Well, more than 20% in both properties now, but we didn’t start out that way. I think especially in really hot markets, people aim to save the 20% because they want to save that CMHC fee. But the problem is that sometimes the market just shows up way more than any reasonable person could possibly save in that year or two years that they’re working towards it.

Megan 22:18
So sometimes depending on the market, I recommend to friends you know, just get get in and worry about that CMHC fee some other time like just get in start paying it down. If you’re buying a place with a sweet inside of it. Oftentimes you pay less for your living costs than you would if you are renting a place by yourself.

Megan 22:44
I know living in our current house and we have a basement suite in it. We pay a lot less monthly than we would if we were just renting like a one bedroom apartment but we have a full size house to live in with our with because of that suite balancing out the costs, so I don’t know, I wouldn’t say necessarily save for the 20% unless you’re in a fairly static or even declining market in which case that would probably make sense.

Ryan 23:13
Shaidah, how did you go about getting all of your rentals? Did you have to have 20% for each one?

Shaidah 23:19
For the first one, we saved about 20k, and we were looking at either buying something in Chilliwack, so around 100,000 and Chilliwack, which is about an hour and a half away from Metro Vancouver area, or going in on it with a partner.

Shaidah 23:35
And so that we decided to go in on a townhouse with a partner so my husband’s brother in Surrey. So we bought something for just under 200 and we each chipped in 20k. Through our other rentals, we decided to use savings the money that we had saved up along with pulling out money from our HELOC.

Ryan 23:52
Well, you’ve touched on our favorite conversation piece, the Smith Manoeuvre now, right? Isn’t that really what we’re talking about?

Shaidah 23:59
I had no idea that was a thing, as the Smith Manoeuvre. I learned about it recently, because I heard about on Bigger Pockets where they said, Oh, you can borrow money from your home equity and then claim all the interest on your taxes.

Shaidah 24:10
And I’m like what? And I learned, I looked it up and I talked to my mortgage broker and said, Yeah, get a HELOC. So refinanced my primary residence and got that in place right away.

Money Mechanic 24:19
I just want to interject a little bit here because I think we throw around the term Smith Manoeuvre a little too loosely. Borrowing from your equity to invest is not the Smith Manoeuvre, having a readvancable mortgage that you continuously use your principal for investments is the Smith Manoeuvre.

Money Mechanic 24:34
Otherwise, you’re just using leveraged investing from your home equity. Just to clarify it from a technical standpoint, because we’re throwing it out there. But that’s not really the traditional maneuver.

Ryan 24:45
Yeah, I mean, I guess I’m a little more loosey goosey with the term simply because I think the majority of people who are borrowing from their equity still have not paid off their mortgage. So it is like essentially just a way of doing it. Even if it’s not technical kind of by the book way of doing it. I don’t know. Chrissy, what are your thoughts on that?

Chrissy 25:06
No, I think that’s right. I I’m not like Megan who is a Smith Manoeuvre expert. But I think that both of you make good points where there is a gray area where you could call it the Smith Manoeuvre, but it’s not exactly what you would say it is if you went down into the nitty gritty details, so.

Chrissy 25:28
And there are many different versions of the Smith Manoeuvre too. So that’s why we would like to speak to Robinson and learn more about it.

Megan 25:37
Yeah, in the in the original Smith Manoeuvre book. And now in the updated book, they mainly talk about investing with their with the readvancable mortgage and you know, buying things kind of each month usually stocks.

Megan 25:51
But they do both still talk about you can do other things, you know, large withdrawals from that HELOC to buy rental houses or to buy businesses or really anything that’s supposed to be you have a reasonable assumption of generating income. So yeah, it is a it is a little bit loosey goosey to call it all the Smith Manoeuvre but I mean that’s kind of the general intent of it is you know, using your equity and making investment with it.

Ryan 26:21
You know, I’m not very inclusive when it comes to the FIRE movement, but I’m very inclusive when it comes to the Smith Manoeuvre. More the merrier. As that’s pretty good, huh? Okay, Money Mechanic, I want to turn it back over to you then because I know you’ve been doing a ton of research on the Smith Manoeuvre as of late because you’ve been wanting to pull equity from your line of credit.

Ryan 26:45
Basically, what I want to know is that, okay, so if we have an investor, such as yourself that has a lot of equity in your home and you’re like, oh, maybe I should be using this, and then you could buy rental properties with it.

Ryan 26:57
You know, do you just pull the money out and then just like 20% of a rental property like at the requirements and then go from there and then use the equity like say for example, your cash flowing positive.

Ryan 27:07
And then you’re sinking more money into paying off that mortgage to the point where you can borrow 20% from that mortgage and buy another, another not not born from that mortgage, we don’t mean borrowing from the equity that’s now unlocked in that home and and buying another one. Right. Like, is that something that you were considering doing?

Money Mechanic 27:24
Well, I think that’s actually a question that is better directed at probably Shaidah cuz she’s can definitely speak to that from experience. From my personal point of view, that’s way too far ahead of where I’m at, to be perfectly honest.

Money Mechanic 27:37
And I did borrow recently from equity. And it was for a private REIT, which is is real estate investment. It just means that I technically have a small piece of 122 doors instead of a big piece of one door. And I just felt at this time with, with what my knowledge level was of the communities that I was interested in investing in it was a better use of those funds.

Money Mechanic 28:03
So to speak to your your bigger question of what I borrow to buy one and then refinance that one to buy another one. I think Shaidah can answer that better than I can definitely. And that’s getting pretty advanced.

Money Mechanic 28:16
I I’m a little bit more conservative on the debt side, I would have probably been happy to have, you know, a single door that I could maybe that I think one of the struggles is it’s hard to be cashflow positive in British Columbia or definitely the Lower Mainland area.

Money Mechanic 28:32
And so then I have to start learning about whether I’m doing it for mortgage pay down as a part of making money and in that investment, or whether I’m strictly looking at appreciation. You can look at what your objective is and with my trajectory to FI I wasn’t sure which one of those was going to fit the best. So that’s why I haven’t made that initial start yet. I’m still on the sidelines waiting for the right decision.

Shaidah 28:57
Well, I have only borrowed from my primary residence I haven’t borrowed from any of my rentals. And when I’ve refinanced my rentals, I haven’t taken any money out from them either because our goal is to have paid down rentals and have them full on cash flowing when they are paid down.

Money Mechanic 29:15
Right. So you’re not I have heard of quite a few podcasts where that is the strategy is to as soon as there’s some equity built up in a rental, you pull it out of there, so it’s not sort of sitting accumulating, you’re putting it to work and another one and another one and another one.

Megan 29:30
Shaidah, I’m, I’m curious about that strategy. So usually, what when I’ve met investors that are kind of pulling equity to buy more properties, usually they want the their primary residence paid down to nothing, because that’s not deductible debt.

Megan 29:48
And then they want their rentals to be maxed out, you know, leave no unnecessary equity in the house because equity is basically just doing nothing for you and those houses so they try and keep it as close to that minimum 20% equity as they can get it for their rentals and then aim to pay off their primaries altogether. But you are doing that opposite. Can I ask your reasons for that?

Shaidah 30:15
Well, my primary is paid off except for the HELOC. Okay, but so just trying to get those rent now that our primary is paid off, we want to get those rentals eventually paid off. So we have that cash flow coming in. So any extra cash flow that we have we were trying to put a little bit extra on each of the properties trying to work at getting that chipping away at those.

Megan 30:36
Gotcha. Yeah, yeah, that makes sense. And your primary residence HELOC would be a write-off because it was used by the rentals. So I see where you’re going with that. Okay.

Shaidah 30:45
Yes, yeah.

Money Mechanic 30:48
Well, Ryan, I’m sure you have more questions because you’re organized but if we if there is a topic of discussion that I would like to direct it for everybody is just out-of-province investing. And Fred I think can speak to that because a lot of us In the FI space across Canada, maybe live in a high cost of living area where real estate investment isn’t the first option there.

Fred 31:08
Yeah, like, is there something specific or just in general that you’re you have questions about?

Money Mechanic 31:14
Well, I think if I was a, I want to be a real estate investor. But I live in Vancouver, Toronto, how what are the first steps? Or how do I go about looking at other markets and trying to determine value and and who do I use in those markets as far as brokers or real estate agents or property managers?

Fred 31:30
So really good question. I think when you’re first setting out for any sort of real estate investment is that my philosophy is that you’re you’re buying the city, the neighborhood, and then the property. Right. So when you’re doing your research in general, even when you’re investing locally, you should really understand economic conditions that are sort of setting yourself up for success to put the probabilities in your favor.

Fred 31:55
So you want a growing population. You want incomes, to be rising. You want a diversified economy for that particular region or city or town. And then that sort of narrows your focus to find those pockets with either within where you live, or anywhere else within the country to identify where there’s opportunity, and then from there really understanding the price to rent ratio.

Fred 32:22
And so I believe in the previous podcast, we talked about the 1% rule, right? And, and being able to use that as an indicator of where the opportunity is. And 1% rule is when the actual property that you are wanting to possibly purchase rents out at 1% of the all in price that you paid for that particular property, so includes purchase price, any sort of transaction costs, real estate fees, all that stuff.

Fred 32:50
And so when you narrow it down, you’ve identified perhaps a city, and then you have to look at the neighborhood you want to invest in. One thing will determine probably your price and then maybe also you want to buy a neighborhood where you know, there is a chance to have appreciation or attracts a lot of people close to a lot of amenities.

Fred 33:08
And so you develop this checklist and then over time, you’ll be able to identify place. So you think they’re great. And so I’m in currently in the process of looking at two or three different areas that sort of fit my criteria. Growing population, incomes are steady, and a diversified economy, where the prices are reasonable when it comes to the price compared to rent.

Fred 33:32
And so there’s a variety of different resources you can tap into. Bigger Pockets has a long distance real estate book that really provides the nitty gritty from engaging with that community, finding a realtor, you can trust, developing a team. There’s a lot of effort that goes into it, but there’s lots of opportunity to get a great return on your investment.

Money Mechanic 33:53
That’s a great answer.

Ryan 33:56
All right, guys, I think we need to take a quick break and we’ll be right back right after this.

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Ryan 35:00
Okay, guys, welcome back.

Money Mechanic 35:03
All right. Well, we heard we heard from Fred about out-of-province investing. And I think the important question there that needs to come up is, the cost is involved in that. And I’m not sure if Shaidah invests out of province. But Megan, when we’ve discussed before you’re, you’re in Victoria and property management comes down to be a big issue in for you is, as far as costs involved. Can you tell us about that?

Megan 35:25
Yeah, that’s right. So I have in the past looked into property management in Victoria, and it takes up a pretty big chunk of the rental revenue. When I was looking into it years ago, it was around 10% of the monthly rent.

Megan 35:40
And I kind of think, you know, I only really talk to my tenants, maybe twice a year when they need something or we’re trying to work something out. And 10% of the rent is a really big dent into my five number right. So if you were to buy a property out of province and then you’re having to hire a property manager.

Megan 36:01
And there may be not taking as good of care of it as you would you know, with your own money on the line. It seems like there’s a kind of imbalance in that risk reward. Even though you’re saving the money by buying in a lower cost of living city, it may be getting a bigger spread on the rent versus the mortgage.

Megan 36:22
Are you really taking home that much extra once you’ve paid those property management and maybe they can see these with your property managers not staying on top of it as they should? These are questions that I asked myself a lot of the time. I’ve never actually invested out of province, but I think about it a lot. So I’m here to learn too.

Money Mechanic 36:44
Shaidah, all your investments are within British Columbia too. Is that correct?

Shaidah 36:48
That is correct. So I haven’t done any out-of-province investing. And I also agree with Megan with the 10% for the property management fee and that’s quite a bit when again like Megan, only dealing with my tenants twice a year doing an inspection here and there, making sure everything’s okay.

Shaidah 37:04
So we are more hands-on than a property manager. And because of that, we have had zero vacancy because we are able to turn over a unit very quickly. Even if the tenant says they’re out by the end of the month, they’re usually out a few days earlier because they want to move into the next place. And we are in there turning it over and having it rented for the first of the month, we have had zero vacancy.

Money Mechanic 37:27
Well, we got to we got two anti-managers and one manager. I think Fred wants to weigh in on this one.

Fred 37:33
Yeah, like I think what you guys bring up is is a really good point in regards to I think what you’re really trying to talk about is risk, right, the risk of in trusting someone else to take care of your property. And so from a…

Megan 37:47
Well, risk and cost.

Fred 37:48
And and well, there’s the risk that they won’t take care of your property you you stated. And then the risk of not making money, right, like that’s the ultimate risk is that you actually lose money that way and so One of the things that I’ve sort of I have similar reservations in regards to the 10% of the rent perspective.

Fred 38:08
But there’s there’s other factors to take into consideration when you’re looking to invest in general, one of the mistakes I made is that I bought properties without really thinking about building in the cost of someone taking care of it, so taking that 10% and so my cash flow is just didn’t allow for that to come into play.

Fred 38:30
So that put me in a disadvantage. So any new property I sort of go to possibly purchase, I make sure it cash flows to include that 10% is still get the targeted returns that I want. And so that influences the how much you’re willing to pay for a property right.

Fred 38:48
So you have to buy well you have to take care of the property and you also have to sell well, right? And all different aspects of, of the of being a property owner and and being able to get a good return. And so one of the risks actually was was actually brought up in the, in the comments and in the podcast that I did with with with with you guys is that someone said there’s what’s called idiosyncratic risk.

Fred 39:13
So making having all your investments in one particular area from a real estate perspective. And that’s something that’s been on my mind for the past couple of years is that all my investments are in this one market. And if this particular market goes sideways, or even goes down, then there’s additional risk.

Fred 39:31
And so it’s important as a real estate investor to look at all the risks and find ways to limit them. There’s always going to be risk, but being able to put in the effort to explore beyond your own market to see what else what other opportunities are, your returns might be higher, but it might be cost more from your operational side.

Fred 39:50
But if you can get more cash flow over the long term, you have to take that into consideration. And so I think you guys make some really good points of being able to make sure that Very professional property managers. I’m testing one out right now with one of my properties here, as a way of me monitoring and understanding how they work.

Fred 40:09
And then I’m also creating my own policy and procedures that they have to follow. And we meet on a quarterly basis to understand what’s being done and how they do business. So it does take more work. But if you’re looking to expand and diversify, and I think that’s very FI, financial independence perspective to look at, is to be able to diversify your real estate exposure as well.

Ryan 40:33
I want to weigh in here just for a second because I think that when people want to get into real estate investing, they kind of want to have a more hands-off approach. And they like the idea of a property manager taking care of everything, and then just reaping all the benefits.

Ryan 40:49
But it seems that I think there’s just a cautionary tale to that because the more and more you outsource, particularly with a property manager or what have you, because owning a home in a rental property comes with a multitude of expenses is that you’ll end up being either cash flow neutral or even negative, and then you’re just riding on speculation.

Ryan 41:09
Like that’s literally what the bed is., right? And that to me just makes me squirm completely. Like I think cash flow positive is the only realistic answer. And perhaps, Fred, but as you were just saying is that you should have built property management into that. And now you should still be cash flow positive. Would you agree with that?

Fred 41:29
Yeah, I think that’s that’s the proper practice of going about evaluating the properties. You take into all the expenses, even the work that you’re doing. You should be able to make money if you were to outsource that, because you never know you could get sick.

Fred 41:43
You could, you know, you could move and so you need to have that flexibility built in. Even if you’re owning a property that’s close to you.

Ryan 41:51
Shaidah, what’s your take on that for cash flow positive?

Shaidah 41:55
I’m thinking…

Money Mechanic 41:56
Okay, I’ll jump in while she’s thinking quick. Just quickly. Just quickly, I just have a quick response to what you said that Ryan and you just to make a comment that you also going to be having mortgage pay down as part of that equation.

Money Mechanic 42:08
So yes, there’s speculation that the market is going to appreciate. And yes, you may not be hit cashflow positive, but you are getting mortgage pay down on the principal. So that needs to be factored into that the overall holistic picture of the investment. Shaidah, you ready now?

Shaidah 42:24
Okay, so I’m trying to think back to what the question was. And I know what Fred said. And I do agree that you need to account for property management if you move or if you are sick. So I do agree with that. Yeah, I’m kind of trying to remember what the question was.

Ryan 42:45
So basically, what I want to know is that like your opinion on people who are trying to essentially just ride speculation only, so they may not be cashflow positive, like they might take on a rental property that actually doesn’t bring them any income.

Ryan 42:59
It just just that the property is managing itself and paying for itself slowly over time, so they’re not actually making any money from it except for the fact that they’re getting principal payments by the tenants. So they’re kind of like increasing their net worth that way.

Shaidah 43:13
Oh, I think that’s okay. That’s kind of, it’s not what we’re doing. But we are taking any cash flow and putting it back into the property. So we’re not taking any cash flow out and pocketing it, we’re putting paying down the mortgage faster, so you’re still getting that equity.

Shaidah 43:27
So you come out with a mortgage paid by your tenants in 25. Or if you can do it faster, 18, 15 years.

Ryan 43:36
Okay, so would you take a property that returned, no cash flow to you at all? Like you knew that every single time they paid rent, that it had to go into the mortgage and there is nothing left over for you?

Shaidah 43:45
As long as it covered all expenses of property taxes, everything and rental repair, so there’s enough for rental repairs, it’s paying down the mortgage and maybe for the first two years I would do that and then after that rent does go up, I have been able to increase rent and increase returns that way.

Ryan 44:06
Very interesting. Megan, what’s your take on this? Would you take that deal? Or if something is completely cash flow neutral? Yeah?

Megan 44:13
Yeah, that’s sometimes how it has to work in some markets is knowing that, you know, it might just be paying for itself right now. But as the rent goes up over time, as long as you’ve been really careful with the city that you’re, you’re bought in, right.

Megan 44:27
And those rental rates, they go up, they appreciate over the years when we first bought that house, you know, 10 years ago, it was just paying for itself. And we were really happy with even just that knowing that the mortgage was getting paid down. But now 10 years later, we’re making quite quite great cash flow on it. So yeah, I definitely would buying something knowing that it’s going to cover itself and all of the costs are built into it and you’re even just getting the mortgage pay down for now. I still think that’s good.

Shaidah 44:58
Can I just add to that? Our house in Sechelt when we bought it in 2015, it was breaking even with everything covered. And then after two years when the tenants both left now, it’s after two years, both tenants left and currently it’s making $1,000 a month cash flow.

Chrissy 45:16
Wow, so…

Shaidah 45:18
Yeah, so the first two years it was breakeven.

Money Mechanic 45:22
It’s not one of the ones sliding off the cliff up there?

Shaidah 45:24
No, no! Not sliding into the hole!

Chrissy 45:28
I want to ask then, how do you do the math on that? The that’s not the 1% rule then so how do you know what kind of return you’re getting on the money you actually put in?

Shaidah 45:40
You kind of just cross your fingers and hope for the best.

Chrissy 45:43
Don’t say that!

Ryan 45:45
I’m already uncomfortable.

Shaidah 45:53
Well, you run the numbers and you know what market rent is, and when we bought the house, the the owner, the seller rented back from us but he negotiated as part of the sale he negotiated a low rent, including utilities with the plan to only stay for two months until he bought a place.

Shaidah 46:11
He ended up staying for a year and a half. And as soon as we could we increased rent. But we ran the numbers based on market rent and utilities paid to the utilities being paid by the tenants. So we knew as soon as we could, rents would be up at market, and we would be making money on that.

Chrissy 46:32
Interesting. So if you were to work out an annual return on your investment, would you be able to do that with this method?

Shaidah 46:40
Ah, well, there is the return on the equity. So the tenants are building equity in the property. So paying the full mortgage down so yeah, you can calculate that. I don’t have my spreadsheets in front of me. So I can’t give you that annual return at this time.

Chrissy 47:00
I’m just curious because they say the stock market, for instance, returns about 8%. And with real estate the way it is, with appreciation, they say it normally keeps up with inflation. Of course, in Vancouver, the bigger Canadian cities, it’s been more than that, but that they say is is not typical. So what would you say the range is that your return the return that you’re getting?

Shaidah 47:26
Well, looking at cap rates, we always aim for at least four to 5% cap rate. So we’re always looking at that now that place in Sechelt may have been slightly less because we were expecting the owner, the seller to leave sooner than two months and you can’t really kick out a tenant.

Shaidah 47:46
So we like it may have been 3% return. But then after that it was the return at over 1000 I think we’re at 1100 a month. Cash Flow that return is more than that four or 5% cash freedom. I’ve calculated that recently.

Shaidah 48:02
But then again, I want to challenge you, Chrissy, where can you guarantee me an 8% return in the stock market? There is no guarantee there is no guarantee No. Right? And that’s one of the reasons why I stayed away from the stock market because people would say, yeah, you can get at least 8%.

Shaidah 48:16
And I’d be like, show me where you can guarantee me 8% there is no guarantee in the stock market, at least with real estate, you control your investment, you control the tenant going in, you control how much the rent is, you can increase the rent by doing some forced appreciation by upgrading the property upgrading it increasing rents that way, so there is so much more control in and potential to make more with real estate than there is through the stock market.

Chrissy 48:45
I think that’s great answer and I’d like to hear from Fred because we got into this a little bit in his interview and I’d like to see what you have to say about the return on investment for your real estate.

Fred 48:57
Yeah, like for like, I can give you an example for one of my properties, and this is where it depends on your perspective, I like to value a property by property rather than, like a whole portfolio. So I’m still working on my numbers for 2000 for 2020, but I can give you some for 20 when I had 2019.

Fred 49:19
And so with that, with this is a, I guess, a bungalow with a basement suite, and the monthly income before a mortgage was about 1700 bucks. And then with minus the mortgage, he was coming to about $533. And so when it came to the actual like, return on investment, it was about 17% because it’s a leveraged investment.

Fred 49:45
So it’s a bit different than you’re comparing to say, stocks, which if you don’t use leverage, I don’t know if it’s a fair comparison. So with what my perspective is more big picture in regards to what do you want To accomplish, but also how do you diversify your portfolio? So I do both.

Fred 50:05
I think it’s really important that you do both from a risk perspective. And so real estate is just one part of my portfolio that I want to make sure is performing well, but also diversified as a whole. And I find that similar to what she has said is that being able to have that state stability, guaranteed return as close as possible over time is really important from a stability perspective.

Fred 50:30
But the great thing about a diversified portfolio is that you can also invest in things a bit more riskier, that have more volatility like stocks. And so I think you had mentioned a number specifically on a return. I think 17% is pretty good for that one particular property when it comes to return on the actual investment I’ve made with and that’s a combination myself and my partner, which is my dad.

Fred 50:54
And so that’s sort of my perspective of being able to understand what you want to do as an investor. Not just you know, I’m I love real estate. I’m totally biased towards this. But if people don’t feel comfortable you can you can, you can go the way of investing and reads and exposing yourself to real estate because real estate doesn’t have a direct correlation with stocks. So from a diversification perspective, there is the ability to have both you don’t have to do either.

Chrissy 51:22
I like it. Good answer. Thank you, Fred.

Fred 51:25
You’re welcome.

Ryan 51:27
All right. So you’re all real estate investors. You have your ears and eyes out on the market at all times. Where is the hottest market in Canada to invest? Megan, you go first.

Megan 51:40
Oh, hottest market in Canada. That’s tricky. Um, I I couldn’t say it with complete confidence because I haven’t really ventured out but I would say in BC at least the best market where I’m really keeping my eye on is Sooke which is like, within great Victoria but definitely on the outskirts.

Megan 52:02
And it used to be just kind of a backwoods, only forested, you know, occasionally a farm kind of city but it’s really exploding with growth right now and they seem to be very development and community friendly and wanting to bring in a lot of young families so because it is kind of the last affordable place on the south Vancouver Island a lot of people are flocking there and I think it’s a good place to look.

Ryan 52:34
I’m taking notes thank you very much. Okay, well it’s time to turn it over to Shaidah. Shaidah, where is the sexiest market in Canada?

Shaidah 52:43
Well actually to add to Megan’s I looked at places in Sooke back when we were starting to invest and I was gonna, we were planning to buy there but we just decided Nanaimo would be better for our next rental at that time, but we really liked that area for investments.

Shaidah 52:59
I get deals emailed to me from various agents throughout BC and right now Port Alberni is looking really good, maybe not the best quality of tenants there, but there are nice areas, but you can get a house with a sweet for around 200 to 250 and I just got that email to me a couple days ago so the numbers would probably work out really well on some on something like that.

Shaidah 53:31
I also like Ladysmith and Crofton so on the east coast of Vancouver Island and just south of Nanaimo, north of Victoria. So anywhere on the island is still really nice. And that’s somewhere that you know, my husband and I plan to move and retired to so that’s where we try to focus.

Shaidah 53:50
But also if you’re asking for Canada, I’ve heard that Edmonton will be one of the top places to be investing. My husband was just saying he knew a co worker who bought in Edmonton recently.

Ryan 54:02
All right, good answer. Good answer, Fred. It’s late at night. You’re on realtor.ca. What city do you type into the search engine?

Fred 54:10
That is such a good question. I think boring is the new hot. And so I am going to go with the province of Manitoba, specifically in Winnipeg. And the reason they say that is that very little speculation, very reasonable prices, similar price range that Shaidah was talking about. And population that stable, diversified economy doesn’t go up or down. And so you have that stability. And so not exciting, but the returns are sexy.

Ryan 54:46
I have it on good authority that The Accountant from FI Garage would not agree with you.

Money Mechanic 54:52
Yeah, yeah, there’s there there are some issues there. That’s a whole nother discussion, that’s for sure.

Ryan 54:57
Money Mechanic. I actually want you to add to this because you are dipping your toe into the real estate market. So did you have a preference for where you wanted to buy?

Money Mechanic 55:06
Yeah, well, interesting question that first of all, just want to say the Island is not all it’s cut out to be so all the rest of Canada, listen to this. Don’t start flocking over here because I haven’t been able to buy a rental.

Megan 55:16
The Island is amazing! I will shout it from the rooftops. I could never live anywhere else.

Money Mechanic 55:21
It is! I know it. It’s amazing. No, I also have family up in in Edmonton as well. And listening to Maria’s episode recently, and I’m doing a little bit of research up there, that would probably be the place I looked. But that’s mainly because I have some some contacts there.

Money Mechanic 55:38
And I have a younger sibling that will be looking for real estate. So it would be somebody I could partner up with. And so there’s some multiple advantages. And yeah, I I, you know, Saskatchewan’s a little bit interesting, too.

Money Mechanic 55:50
And I’m frankly, I don’t want to get into a whole nother discussion about that. But, you know, when markets are low, that’s an opportunity, right? So yeah, I guess I’ll just go with anywhere on the Island but that’s why I went into the private REIT on the Island instead of buying a place. And yeah, Edmonton probably.

Ryan 56:06
All right, Chrissy, you’re up, I’m going to make you answer this question. You have lost your mind and you decided that the stock market is no longer for you. You want to invest somewhere in Canada, which market are you going after?

Chrissy 56:21
That’s a hard one. I’d be so scared to invest at a distance. But when I was researching real estate, I was listening to a lot of the info from back east and I’ve heard about any area that is near the Go Train is a great area.

Shaidah 56:39
Yes, Hamilton. Yeah.

Chrissy 56:40
So so I’ve heard that anywhere there’s… especially if they’re opening new stations, that’s where you want to be before they break ground.

Ryan 56:48
A very interesting. There’s a Go Station, maybe 10 minutes from my home in Kitchener. So and it goes all the way downtown Toronto.

Shaidah 57:01
So is Kitchener good place?

Ryan 57:04
I have no idea you’re asking the wrong guy. I like living here. No idea if it’s good for, for rentals, I had no idea. I heard somewhere on Facebook that North Bay Ontario is a fantastic place to well surpassed the 1% rule.

Shaidah 57:22
I posted that.

Ryan 57:24
Was that you that did that?

Shaidah 57:26
Yeah, it was a podcast by the Vancouver Real Estate podcast, the Scalena brothers did an episode where they interviewed I think it was a couple from North Bay who invested North Bay and they were talking about how great their returns were there and I shared that to the to our Facebook group.

Ryan 57:45
Yeah, so being in Onterrible isn’t all that bad then so I’m going to definitely explore the North Bay area for the rentals I’ll never buy. But that’ll be my answer.

Ryan 57:53
Okay, guys, that’s all we have for today. I hope you the listener enjoyed the discussion and I’d like to thank our participants, Megan, Shaidah and Fred for stopping by the round table to talk about their real estate holdings in Canada.

Ryan 58:04
They’re all super knowledgeable and will very likely respond to comments on our site exploreficanada.ca with any questions you might have, give them a shout. Guys, thanks so much for being here and have a great day.

Chrissy 58:17
Bye.

Megan 58:18
Bye!

Fred 58:18
See you guys next time. Thanks, guys.

Transcribed by Otter.ai

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