Michael joined The REITE Club Podcast to talk about his insights, strategies and how he is living the Armchair Real Estate Millionaire life!
In this REITE episode you will learn about:
- Following the buy a property a year strategy
- Choosing between becoming a realtor or a real estate investor full time
- Structuring joint venture deals
- Identifying quality properties in quality neighborhoods
- Finding ideal tenants who will leave in 2-5 years
- Planning and preparing for market turmoil
- Living the best life after having three clients pass away
- Offering tenants the option to move out
Not being focused on building net worth
Are you still acquiring properties or did you stop at the time and that’s it? What does your portfolio look like now?
Yeah, I’ve got a dozen legal two unit dwellings currently, including some with joint ventures, some with just my wife and I. And we do have a nineplex that we are in a joint venture with as well. But yeah, some of the years I bought multiple properties. Paul but for the most part it was one or two properties a year. It was a slow and steady sort of approach. I wasn’t the type of guy that was looking to necessarily quit my full time job and focus full time on real estate. I was doing my full time job and then as a side hustle was adding a property every single year and that was my quest.
What made you decide to go that route in the joint venture way?
Well, I’m going to be honest with you. Back in 2013, 20 14, my real estate realtor career was really starting to take off and I had to make a real hard decision. Do I focus more on being a full time investor or do I focus more on being a full time realtor and a part time investor? And I don’t know, I could play the scenario 20 times in my head and I can go back and forth and make a good case for either way. I was very good as a real estate agent, and so I made that my focus. And then I felt that every time that I started to work with partners that maybe I had to spend too much time or even spending too much time on a project. It took away from my realtor career. And you could actually see the times where every time I was drawn away from being a realtor, my business failed or dropped anyway. So I just I made a conscious decision that I said, you know what, that’s my focus. I’m making more money doing it that way and I can still build a portfolio I wanted, just it might take me a little bit longer, so that’s what I chose to do.
I think there’s different ways that you can structure things. Walk us through how that was structured for you; like what kind of partner, what you were bringing to the table, what they were bringing the table and splits and what that looks like.
I was always willing to put money on the deal. I had the money, so that wasn’t as much of a challenge for me. So what I had to offer was a particular set of skills that I could find the property. That was something I was really good at, being a real estate agent and a good one. I felt not only through MLS, but even through private sources, I was able to find properties that many of my friends and colleagues were not able to find. And so that was something I brought to the table. And I’m sort of the person who brings in the contractors and brings in the people. I don’t necessarily want to do the ongoing management.
So who I historically have brought in are people that either are contractors themselves or people that are contractors at heart. And so as a result of that, they did a lot of nine to five work in the property or oversaw the actual renovation itself and they may have even helped qualify for the mortgage, although in some cases I may have done that as well. We both came in with equal amount of money for the most part and that’s pretty much how the rent this honestly is more of an old school approach to joint venturing.
Back in the old days when you get a couple of really smart people, hopefully and they put together and do a good deal and they both have equal knowledge. But it was one of those things where my chocolate and his peanut butter kind of went together and we made a really good product and that’s how we grew that way for the most part. I was using people who I was already had a relationship with, I was already friends with and that was just equally important to me as who I was partnering with. And my goal was again, always to find a quality property in a quality neighbourhood in a growing real estate market, attracting the best quality tenants we can get at a market rents and making quality profits. And even during COVID, we had a very good track record of not one tenant that didn’t pass rent through those years. So it’s pretty exciting.
What do you define as a quality product in a quality neighbourhood?
The most important thing that you want to focus on right off the top is finding that quality neighbourhood in my mind, and what a quality neighbourhood entails is something that’s in a growing market with a lot of the right market fundamentals.
So let’s use for those that are we’re all in the greater Toronto area and so I’m going to use Toronto as an example, and sometimes we’re a little our approach to Toronto is we don’t realise the growth that’s happening here is unlike anything else in North America. And sometimes it takes going around to other parts of the country and the world to realise what kind of growth we’re having here. It’s quite phenomenal. And so using Durham region as an example, or for that matter, Hamilton or Barry or what have you, we’re talking about growing population, we’re seeing growing GDP, and with that growing population, we’re seeing more and more need for rentals, and so I’m basically filling that need.
And so I’m not necessarily going with the high end condos that are hard to cash flow and have a very niche population of people who are going to be looking for it.
I’m looking more for the couple that’s maybe got a 700 credit score with really solid income and has an aspiration to buy a home within two to five years. That’s my dream tenant. They’re going to treat the home with respect and maybe they work in the area, maybe they have family in the area, maybe they’ve got a child who’s going to school in the area.
And so by finding a great location within that community where my tenants are going to want to live, that’s the kind of property I want to own.
Can I ask, I mean, obviously the goal is the freedom and all that good stuff, I’m sure for many people. What about your JV? Like, have you done multiple deals with specific ones and have they been able to see a lifestyle difference for themselves?
Yeah, it also helps when you pick your joint venture partners that they’re in a very similar, have very similar goal structure in mind. And most of my joint venture partners are either in their 40s or fifty s and they’re either at or near retiring in themselves. And why I bring that up is because there are two objectives I find with real estate. And it’s funny when you talk in these real estate conferences, they say you can have net worth growth and you can have cash flow. And they talk about that over and over again and you say, get both, get both. The reality is that when you’re growing your portfolio and truly using your own money and recycling your money, you’re often refinancing your properties, which is killing your cash flow, but it’s helping you grow your net worth. It’s a real weird feeling to not be focused on growing my net worth because I’ve been so focused. Singularly focused on improving my net worth for 20 to 30 years to all of a sudden say. You know what. It’s okay if my net worth never grows again. But if I can make 20 to 25 or even more month every month for the rest of my life.
I’m okay with that. And if my net worth stays the same, that’s okay too. I went in with my joint venture partners with that mindset and I talked to them and they all agree that’s what their goals are too, is to increase their cash flow. And that’s really what our focus is at this point. We’re actually going back and speaking to some of our existing tenants right now, and we are offering them buyouts if they’re interested. We approach it a very different way. We aren’t coming in as the big bad landlord. We are offering them opportunities. The one thing that I like to share with people is that the kind of tenant profile that I was looking for, it wasn’t necessarily the type of person that was going to live there for 510, 15 years. So the fact that they have been there for five years, there’s a good chance that many of these things and we’ve actually seen it there’s too many adults living in a house. Maybe there’s too few adults living in a house because the children have moved out. Maybe they’ve got a boyfriend or girlfriend in a different city or a job in a different city, but yet they’re stuck in their existing home because they’re kind of landlocked, because all the rents around them have gone up so much.
So we’ve actually gone out and approached we’ve had two tenants thus far that we’ve offered them $5,000 buy out and say, hey, if you guys are interested, great. We want to help you guys make it to the next to move on to your next place. And if we can pay your first and last month’s rent and a little bit of moving costs, then great. But if they want to stay, then we’re okay with that too. Cash flow is important to me, but I want to be fair to my tenants as well because I treat them like clients and I respect them as such.
Is that strategy and that approach something that you’ve outlined in your book that you mentioned a little bit?
I would have to say that the bio approach has kind of evolved even in the last twelve months. Especially as Sarah’s mentioned. The rent surge that we’ve seen in the GTA has been so historic. Where before I might have been behind by 10% or 15% in rent. Where now I might be behind by 25%. Just simply because of the markets going up at such a rapid rate. So it becomes more advantageous as the spread keeps going. And again, if somebody’s happy in my home, in the house I own, and they don’t have an interest in moving, I’m not going to force. So I’m not going to make life difficult for them to move. I’m just offering them an opportunity. If they are thinking about moving, the house no longer fits their needs, I want to help them move on to the next thing and make it a win-win.
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