The State of Real Estate In Canada
In the first weekend of March 2018, the annual Real Estate Investment Network mega event, the ACRE conference took place in Toronto.
M: Hi, My name is Michael Dominguez, I’m with the Doors to Wealth Real Estate Group, and I’m absolutely thrilled to be able to meet and interview Don Campbell. He’s been my mentor for a number of years in Real Estate…
D: We’re not that old, man.. C’mon, not that many years!
M: And, so… Anyways.. I’m really happy that you’re here to talk to.
D: Me too! I’m looking forward to digging in.
M: So, I, what I want to do today is.. I wanna talk, I want to ask you some national questions, break it down to a couple of provincial questions, then I’m going to ask you some GTA area questions, and then finally finish of with the Durham region.
D: Where is the Durham region, is that around the GTA area?
M: I’ll walk you through.
D: Ok, ok..
Real Estate Investing In Canada
M: So, the first question I have is: the shining penny is always fun to look at. There’s lots of talk about the occasion rental around the world. And sometimes we need some sort of international perspective. How does the world see Canadian real Estate?
D: What we’re finding is that up until the last two years, it’s really been shown and felt like a safe haven. You’ve got lots of Middle Eastern money coming in, lots of Turkish money coming in. Everybody just says it’s all Chinese money, but that’s not true. We do have lots from Asia, but it’s all over; including American money… So we’re … as a Nation, considering ways where you can park capital and just forget about it. And then, the last couple of years, both Provincially and Federally, that seems to be on the radar, and they want for some reason to slow that down. And today they announce there is a dramatic drop in money coming here, now moving to the US ‘cause of the tax rules dropping there, and here we don’t have that advantage anymore. We’re still considered a safe haven, but NOT with great returns. So, that where we are right now.
M: So, mostly the attention nationally its on a new mortgage rules and the rising interest rates. How are these things affecting Canadians and their ability to qualify for mortgage?
D: What’s happening is that a lot of the politicians and legislative people are putting their super person capes on and flying in because the hottest topic right now is housing. So, the problem is, they’re not coordinating their efforts, so we’ve got OSFI tighten in the mortgage rules. So we saw lots of sales in December – as you would know – and then a slow down in January. Well, all that did was it just moved the sales over January to December and that’s why it looks so tightened in January and February. You will start to see the market come back up. Just read Secret of the Real Estate Cycle, chapter 5, it’ll explain the whole darn thing to you about Government influence. But, what it’s doing, is that actually starting to… You’ve got that and then you’ve got the national Housing Program, and you’ve got provincial rules – what are they calling it in Ontario, the fair housing act – and all of those are pilling on to start creating a nation of renters and that’s going to slow the sales down on the purchase side. That doesn’t mean that the prices are going to collapse, it’s just going to slow the tear that we’ve been on for quite a while and it’s going to start to create more renters. So, if you’re in the landlord business, if you’re buying investment properties, that’s a good thing. That means that you’re starting to think like strategic investor instead of as a consumer. If you would think as a consumer you would go “what are they doing, they’re going to collapse the market.” Who cares? As a matter of fact, If they do do that and the confidence goes down, your renters are going to stay longer. It depends on how you’re looking at the market. If the governments are coordinated, they could’ve done this really, really well, but unfortunately right now their just throwing lot of stuff against the wall.
Real Estate Investing In The Province of Ontario
M: So, now let’s break down into Ontario. We all now there’s an election year coming up, and we may see an eventual change on the landscape, but let’s deal with what we know right now.
D: By the way, when it comes to election time, don’t get me to guess who’s going to win because some of the things that have won across the country recently just…. It doesn’t make any sense, and we’re starting to experience the results of that, both federally and provincially. And I don’t care how politically you are, we have to look at the policies. So there’s an election year, lots of announcements are going to come that will never come to fruition and there are freak people out, and we’ll have even more renters.
M: Economically, Ontario is doing quite well, right now.. We’re at or above national averages and we’re seeing population growth as well. Do you see Ontario as a viable place to invest in Real Estate going forward?
D: No, I don’t think Ontario is a viable place to invest, but I do specifically know, that there are some specific cities and neighborhoods that are going to be amazing investments. So, we can’t take a big brush on Ontario and say you know the thing Wawa is not the same things about downtown Toronto. And so, Yes! The answer is there are some tremendous opportunities because of these new policies, because there are no new rentals being built because we’re bringing in 1 million immigrants to the country over the next 3 years, that’s 330,000 people moving in, and where do immigrants generally go to? They go to the larger centers. Largest centers are going to be supported very, very well. But you do have to make sure that you’re looking at the immigration, the emigration, and more importantly, the millennials and where they will gonna live because right now they’re in mum’s and dad’s basement. Not all of them, I know, but a lot of them. And they’re going to enter the market eventually too, either as renters or buyers. So there’s a big–visualize a dam that’s filling up behind all these potential buyers and renters who usually would be in the market by now, but have not. The pressure on that dam it’s pretty high, and they all vote. So, get ready for a lot of announcements during election time.
M: So, you already mention the fair housing act, and it’s receiving a ton of headlines, and some policies took place actually, that were fairly similar in British Columbia, six to twelve months before that. So, do you feel that these two policies were relatively similar? And if so, what are we seeing in British Columbia that we could perhaps be using as a forecast for what’s going to happen?
D: Very prescient, that tells me that you know what you’re doing in the market because governments follow governments because they don’t want to be first often, so they will see if another government takes a policy and throw it into the marketplace and everybody will watch. All the bureaucrats will watch, all the politicians will watch and see how it plays out. And then they will adjust and put it into theirs. And that’s what we saw Ontario do with foreign buyer tax and those kind of things that we’ve talked about. Now, British Columbia has raised the foreign buyer tax and expanded it. So, I don’t want to say it is bad policy as it is not written yet, but this speculator tax. So if you own a second property and it’s not rented full time, you’re going to have to pay a 2% of the value tax every single year into this big pot. You know what’s going to happen to that pot, it’s just going to dispersed everywhere. So, there’s a lot of pushback in British Columbia right now. But at the same time, the Ontario government it’s watching them. And if it has an effect, that becomes positive in the voters eyes in British Columbia, that puppy is coming here, there’s no question. It may not be written exactly the same. So, for instance, say you own a property up on Durham region, but you want to have a second property in Niagara, in wine region, just a small place to get away for your family. That second property, if it were in British Columbia, you’ll be taxed a 2% of the value every single year.
M: That’s if you’re a foreigner?
M: No, that’s for all.
D: Yes. Unless you can prove it’s fully rented for twelve months, and, and, and, and..
M: Right. So, how are they going to be following that up?
D: Yes, you ask them that. Because I think it’s… They’re taxing everybody, and then you have to negatively prove. So, everyone is getting taxed, and then you’ll going to have to show however they want you to show it, that is either fully rented twelve months a year or you’re living in it.
M: Interesting. We’ve been seeing a bit of improvement in British Columbia now. Are we not seeing their market starting to bounce back?
D: Yes, but that’s the Vancouver market. The Abbotsford market, like the Fraser Valley market where the ripple effect has been, there was no foreign buyer tax on there, so some of the money has moved out that way. But frankly, it’s just because it’s more affordable. Because Toronto is getting ridiculously out of control. So it is an affordability thing, and the interesting program, the interesting process that we see in British Columbia is that is coming back to exactly where it was supposed to be on the cycle, and that’s the cycle we talked about. Real Estate goes through a cycle, it’s economically and demographically driven, it always has, it always will, it’s my 26 year and I’ve been through enough of these ups and downs. But is when the influencers, such as interest rates, legislation, you know, we have 7 influencers that come into play and knock it off it’s cycle. But it works really hard to get back to its cycle, because, you know, because of the level water, and that’s what we’re starting to see in BC. It’s coming back.
Real Estate Investing In The Greater Toronto Area
M: All right, let’s bring it back to the GTA then. The Greater Toronto Area – it’s been a continual run of success, there’s really not been a downturn in a generation. Is there any reasonable reason to think why the housing and rental markets could see a prolonged downturn in the GTA?
D: Yes, because there could be. I don’t forecast it with the would would, but it could. Because we’re entering into an election year. Through policy, not through economics, not through demographics, and frankly not even through interest rates.. I just got a report today that says that this is the lowest percentage of people in arrears in their mortgages in Ontario in history. So, people are paying a mortgage. Canadians pay their mortgages, we’re not Americans, where we can mail the keys in. So, you’re going to see a slow down, the softening as they keep throwing these policies and trying to tighten it up; but that’s ok. It happens, The market has to breathe and what happened at Calgary and Edmonton is that we, as investors there, we’re getting used to increases of 20% a year. And that one year only went up like 2%, and we went “oh, this is ridiculous”. But that’s more reality, 3-5% it’s pretty good, right? It’s so funny how short of a memory that we can have.. As an investor I’m picking properties very specifically to understand that my customers, who are going to be millennials, renters and or cross-provincial migration. We have to pay close attention to where those people are going to live, where their jobs are, and where they can afford. You know, Vancouver came out… I’ve been pushing city of Vancouver to define the word affordable, because they throw it around like it’s nothing, right? I’ve been leaning into them hard.
M: And you just posted a number, you said was a huge number …
D: That’s right. Vancouver finally came out, right after the podcast, and this is kind of funny, and they said, “yeah, if you’re going to be involved in our policy around affordable housing, a 2 bedroom unit affordable suite is a 680 sq ft two bedroom property that it’s $2500/month.” How is that affordable? They’ve been talking to their hat. Because people hear the word affordable, and the word affordable is affordable. The government got one of the policies that they promised, was a $400/year rental rebate. So, what is that, $36/month? And people went crazy because they only heard $400. Well how are $36/month off of a $2500/month rent going to help anybody? I think the hypocrisy is getting a little heavy and the policy right now is just a way of getting votes but it making a difference.
M: We’re going to give you a retro style analogy, I know you like those things. We’re going to take a delorean time machine into the future here. We’re taking it 20 years to the future. What is GTA looking like and what is the housing and the rental markets going to look like?
D: We have to densify – the 2006 places to grow act in Ontario. It’s causing part of this problem but I believe in the act because we want to protect green spaces. You can believe in something but still want to have an effect, so you’re going to see densification. Densification farther out into the Durham region. They’re going to have to change their policies. They’re going to have to densify even more. You’re going to find farmland like in Bradford, it’s becoming even more expensive because that green space that can grow food is going to be more important. By then, the effect of Trump should be over, unless they’ve been able to put it on a jar, like in Futurama. Let’s be realistic, policies and politics are going to play a role, we can’t predict what they’re going to do. We can predict demographic, people moving here in Ontario. You’re going to need to expand in Durham Region and others. You’re going to need to expand ways for which people can get around. People are going to fight. It’s amazing, I’ve seen so many LRTs and things built all around the world, except in Toronto and Ottawa. It’s taking so many years for anybody just to decide where to put them. Governments have to lead, not by populis, but they need to lead. They need to say, ‘we’re going to put this darn thing here.’ Once that happens then you densify around the stations, therefore environmentally friendly, you’re bringing more affordable housing, no single family homes, it’s going to look more like New York. Because a single family home in New York does really frankly doesn’t exist. That densification has to happen because of the populations coming here. Government is bringing people in from all over the world. You have to put them in a house.
M: So, within the GTA – we’re introducing our top ten towns tomorrow. Are there going to be any GTA area towns that are in the top ten? And if so, how many?
D: Yes, the answer is yes.
Real Estate Investing In The Durham Region
M: Fair enough. So we are going to break it into the Durham Region.
D: Yes, there are more people who live in the GTA than live in the province of Alberta. So we have to understand, the GTA is in of itself, its own economy and its own profits. Ottawa doesn’t dig away GTA. GTA doesn’t dig away Ottawa. It’s its own vibrant thing. So maybe – you’ve just given me this idea – maybe what we should do is the top ten neighborhoods in the GTA as it’s own stand alone report, because it’s so big and there’s a lot of population.
M: The biggest challenge we have -as a long time student of real estate investor network- there’s REIN score and, unfortunately, in the GTA… there really isn’t an opportunity to get into the REIN score to make it work. The Durham region has been in my experience the best of terms of REIN score.
D: Especially with secondary suites
M: But, despite the fact, none of them are hitting the REIN score, we have these top ten towns, so how does that contradiction work?
D: It’s not a contradiction. We’re looking at the top 10 towns as towns that are going to outperform the rest of the province. So, if the rest of the province is 0, you’re only looking for the towns that will outperform that 0. And if the rest of provinces are expected to go down, these ones are the least risky and therefore will go down the less. But I’m not going to say, hey, by the way, if you buy in these towns is going to go up by 10%. And that’s the difference between the REIN score and what this report is going to do. This report is taking 3 months, lots of arguing, as Jen and I would explain tomorrow. It’s debating, it’s not arguing as she will try to explain. About where each town should sit and what’s going to provide the best opportunity given the demographics and the economics for somebody in Ontario, who wants to help create their dreams and put their kids through university – through investing in Real Estate or owning Real Estate. And these towns that we’re going to talk about … or these Regions, there are a couple of regions in there, are going to be the ones that are going to help them.
M: So, what do you like, and what might concern you in going forward with the Durham region specifically?
D: Durham Region. What’s interesting in the Durham Region … and we spent a lot of time studying the Durham Region. In Durham Region, each town, each city has its own dynamic. It’s funny to watch Oshawa coming out of its kind of “OMG what if GM closes”. It’s interesting to watch 407 and how people are ignoring the 407, but the 407, if I’m an investor, I’m focusing on that extension and expansion because that’s where the people, the demographics and the economics, that’s where the people are going to go. You’re starting to see…
I’m less concerned about policy now than I was a few years ago in the Durham region for secondary suites and densification, and at least the conversations being had. And there are obviously some opportunities as we talked before. But the population is going to be pushed out in that direction, the Go train is to be longer, more frequent. It’s going to have to. Because the freeway, as you know, once you’re on the highway you can’t get anywhere when everyone wants to get somewhere. So, my concern is that the infrastructure will not keep up with the demand. The demand is going to be there.
M: And that will limit the long-term growth potential.
D: It will slow the long-term growth potential. Because people go I’ll go to Barry, because Go Train will be expanding here and there. And that’s the thing, we as leaders and politicians as leaders need to pay really close attention to the fact that people have a choice, and people don’t mind moving now. If it’s going to suite their lifestyle. People live in the Durham region because it’s an awesome place to live, and it’s not because it’s close to GTA, it’s because there are good jobs in Pickering and those kinds of areas, there’s a 20 year project to expand the area. You have to have a good realtor on the ground. You can’t be sitting on MLS, it’s just too late. You can’t be sitting in your basement, saying I can’t find no deals. If you don’t have a team looking for properties for you in the Durham region, you’re going to miss out. You can’t do it alone, especially on a market like that, because it’s tougher, you have to be creative, you have to find deals that may never hit MLS. But at the end of the day, without a team you’re going to miss out.
M: Peterborough and Lindsey, Do you have any particular thoughts in those areas?
D: I really hoped that Peterborough was going to hit the top 10 – I had it on my secret list – but there’s something you should know. We don’t make a list and then do the research to support it, we do the research and go “Ugh, I guess I’m wrong on that one”. I really thought that Peterborough could and I still think is an interesting spot if you become a geographic specialist there and make sure that you know exactly that market and what jobs are coming in, which ones are closing. But you’re going to see with the 407 going a little bit farther out, the GO train going a little bit farther out. Not until 2024 but you know, I’ll be 105 by then.
M: The 407 will be, for sure, by 2024 at the 115. So you’ll be able to go from downtown Peterborough to downtown Markham in 75 minutes.
D: Exactly and lots of jobs in the Markham area, so that’s perfect. And it is more affordable in Peterborough. So if you are long term X holder and believe the government, and you believe that Bombardier is going to make enough train cars for the project to work… and, and, and… I would take a flier on it but I would not put my whole portfolio in that town.
M: So we talked about two units dwellings or secondary suites, that sort of thing. That is a large percentage of my portfolio.
D: You pretty much have to.
M: Many of my clients are doing the same thing.Do you have any secondary suites in your portfolio? Do you believe in that?
D: Yes. Yes, I do because I also own dirt. I own lots of condos, light industrial, some farmland, single-family homes. They have that bonus of, being not as volatile. Simply because you get the dirt and the dirt holds some cache and some value. When you think about it from a demographic point of view, we have lots of millennials who are starting to have babies and if you could find a way to show them there’s a place where their kids can run around it’s going to be … The demand for that is going to be up, whether it’s affordable to them or not it’s a different story, and that’s what secondary suites, basement suites, or garage suites are vital. These are also great for grandmas and grandpas. They don’t sell the house, they build a phenomenal secondary suite out in the backyard and then their kids move into the house in the front.
M: It seems like these are the communities in Ontario and across Canada are embracing the densification.
D: Finally! Well in Ontario you have to as it was mandated in 2006 with the Place to Grow Act. It’s taken some of the city councils forever to wake up to the fact that maybe this might be a solution. And then we don’t have to keep going out and adding new sewers and new water, we can bring that same populous into town, figure out parking, and go from there. Parking is always the wild card.
M: We’re looking specifically at the Durham region and how would you best position yourself, so that we’re looking very good in the future?
D: Single family homes with secondary suites, if there are any areas that allow you to care suites that are not attached, awesome. They’re going to be huge. And then, I will start looking at buying, I know that the demand will be in densification, the demand will be in the condo market because the young families are going to move out in that direction and they’re going to want two bedroom or bigger. I would not buy a one bedroom nor would I buy a micro-suite. But that’s just me, you can do whatever you want.
The gig economy is happening, people need the offi s, because millenials are working at home. Especially if they don’t have a shared workspace to work at.. If I have to position myself in my Delorian and coming back 10 years, I’ll buy a lot more units with basement suites or secondary suites and I would buy more 2 bedroom condos.
M: And even if the cash flow isn’t great in year one, you’re still ok with that?
D: Yes as long as I’m not feeding it. I refuse to buy a property that I’m feeding every month. Because we can’t all justify $100-200/month. I’ll try to finance future properties and how frustrating it is that you spent $2,400 in it, and that’s great if it goes up $24,000 or more – that’s not a bad ROI. But when the market flattens out, and it always does and always will, you will be feeding it. Either it’s flattened or gone down and I’m feeding it? How is that getting you any closer to financial freedom? Well, it’s not.
M: I want to thank you for sitting down with me, this was fantastic, I really appreciate and, yes, thank you again.
D: Top ten towns is coming up!
M: Yes, I’m looking forward to it.