Real Estate WINS - Prepare for NEW Markets 2023!

Real estate really very much is a cycle. So there are definitely going to be opportunities because unfortunately, there's going to be, you know, distressed investors and distressed sellers in the next year. So if you have capital, this is the time to look into some of the creative ways to access that capital and get yourself educated and positioned and be ready to buy, because those opportunities are definitely going to be there.

You've been investing in real estate for a while. You've built up some equity. Congratulations. Now you're waiting to harvest some of that equity so you can figure out what to do with it, or you're seeing the market change and shift. There's interest rates rising and there's all kinds of economic, you know, calamity that potentially is going on. And you're wondering, what should I be doing? Should I. Should I be selling my real estate? Should I go do this? Well, we're here to talk a little bit about that and thinking about what strategies and markets you might want to consider when it comes time to harvest some of your wins and move on to the next phase of your real estate career. I'm joined, of course, by my friend Elizabeth Kelly. She's a real estate coach, amazing individual. She's been on our podcast before, and we're going to talk a little bit about this in 2023, and what are the some of the things that you're seeing to the conversations you're having with real estate investors, and maybe even we'll kind of brainstorm some examples of where this may have happened for some individuals to see if, you know, that's something that is connected to the people that are listening here today. So, Elizabeth, thanks again for being with us today. Real estate investing, talking about wins, what would you say in the Canadian marketplace anyway, where people have been really experiencing some large wins, geographically speaking, in the country for the last number of years?

I'll be honest, I've been an investor for a long time, almost 20 years. And basically, if you bought anything before the last couple of years and sold it in 20, you know, early 2022, that's been a huge win pretty much anywhere in the country. That being said, there are definitely markets, B.C. and Ontario primarily, where there has been tremendous growth in terms of appreciation and higher valuations for people. And then, you know, it's interesting because I'm looking at Alberta and I'm watching what's going on there, and they don't even look like there's like any recession or inflation. Like, those words don't even seem to be in their vocabulary. So there's definitely still some pockets in Canada where the real estate is great, but if you sold in early 2022, then you, you definitely caught a windfall for sure.

Yeah, very interesting. Yeah. I mean, the, the Toronto marketplace I know for sure in the, in the GTA area has been a hot topic making, you know, news headlines all over the world. Really, certainly all over the Canadian marketplace. And I have a number of clients, of course, who are out in that area and, and real estate investors who've experienced a number of those wins. There are people as well though, who have maybe invested in that market and they've seen that rise, they've seen that ramp up of equity created because of whether it's a strategic purchase or, you know, blind luck that they thought, hey, this is my neighborhood, I'm going to go buy that, going to go buy that property down the street. They were able to experience that, that rapid rise and increase of that market condition kind of driving that real estate value up. But they're in a position where maybe they haven't sold anything yet or they haven't done anything to maybe harvest some of those wins. Being someone from Alberta myself, I no longer live there, of course now, but I mean, I'm kind of would vision myself as Alberta through and through. For the most part. We've experienced a number of, you know, real estate is very cyclical with its boom bust cycle, especially because of the oil industry. Now obviously there's a lot of energy going to try to change that. So it's not as hardcore focused on the oil price to determine the result of viability of an Alberta marketplace. But thinking back the last time, when we saw a real rapid increase in things happening in the Alberta market, there was a huge jump that started to happen in the 2005-2007 range. It was leading up, it was building up for a long time, going back to like 1999, and it was a progressive increase, a lot of that all driven by that economic engine of the oil industry and the build out of these huge oil plants, etc. I know from my personal experience being someone that worked on some of those oil plants and a lot of those commercial real estate projects in my past life as a recovering electrician, but seeing that rapid increase and then and experiencing some of the value increases myself as a real estate investor at that time, and then we hit a point where we landed at a peak which was roughly speaking around July of 2007. And then all of a sudden things started to kind of precipitously decline, actually at that point. But some of the rapid increases, I mean, from 2005 to 2007, we were talking like 30% year over year increases in home values, like dramatic increases. And I worked construction at that time while also investing in real estate before I do what I do today. And what was interesting is there was a lot of things happening with so much in migration, people moving to that economy, at least in the city of Edmonton. And I know it happened in other major centers as well. But you would be on a job, people would be on a job site building a home, and the same day they started, they would get a better offer across the road at a different development. They'd pack up their tools and walk off the site, not even tell anybody. Wow, that's how much jobs were available. And then so what also happened to some degree is there was some inferior home construction during that time frame. You know, you have people randomly leave a job site without completing the job. You don't always get a chance to see what got missed. You know, the extra nail going through a plumbing line or what, whatever. I know some of the realtors and stuff from that area will be maybe just mildly a little bit more mindful of homes built in with a certain start date on them and condominium projects as well. But think to some degree, maybe not so much on the construction side of things, but similar aspects have happened in, you know, maybe the GTA and in the Vancouver market with, you know, a huge increase in like condo projects and all these kinds of things. So there's still a lot of like market properties that are still coming online right now because of the build up. And you know, large condo project doesn't happen overnight. It could take three, four, five years maybe to build some of that stuff out. And so it'll be curious and interesting to see now that the rates are up and the market condition has shifted a little bit, what's going to happen with the absorption of some of those properties on the market as they begin to come online?

Yeah, and I can speak to that a little bit. I have coaching clients right now who add an offer in on new construction. They are buying it for, let's give some round numbers. But they're buying it for 670 and the appraisal was just done and it came in at 610. So they are just one buyer of a potential, you know, 30, 40, 50 buyers out there. And it's one thing if you were intending for it to be owner occupied. It's another thing altogether if you were intending to wholesale or Flip, you know, new construction like that, or even if you were intending to close on it. But of course, I'm sure most of us realize that you're going to get 20% of the appraised value. So when you have an appraisal come in $50,000 less than what you're buying for, you're the one who has to come up with that $50,000. So there are definitely some people right now who unfortunately are being squeezed because of the investment strategy they chose when the market was doing really well. So, you know, you never want to see an investor in trouble. Unfortunately. I look at the situation and having been through 2008 and seeing a lot of what happened at that point, real estate really very much is a cycle. So there are definitely going to be opportunities because unfortunately, there's going to be distressed investors and distressed sellers in the next years. If you have capital, this is the time to look into some of the creative ways to access that capital and get yourself educated and positioned and be ready to buy. Because those opportunities are definitely going to be there. Not as much in Alberta, because they haven't slowed, but certainly in Ontario where the mortgage default rates are going up and, and you can see people, you know, unfortunately, they can't afford the hikes and the insurance and the utilities and the other things. It's been tough for people.

Yeah, I mean, very well said. All those bullet points are critical to thinking because if you're a new investor or maybe you, you know, you're kind of in, you're in your fourth or fifth year of going down this track of the excitement of real estate investing, you're now experiencing some wins or you've, you've experienced some momentum and now you might be getting crushed by the momentum that's swinging or the pendulum swinging the other direction. So the, the key takeaways that I hear there again is that real estate fundamentally is fantastic. We all know that everyone needs a roof over their head. That's one of the fundamental basic human needs. So that's one of the reasons why it's always been a bit of a store of value. And it's always known as a, as a wealth holding and creation tool. The thing is, there is a vast multitude of methods of strategies by which you can create value and wealth and income in real estate. Sometimes it's by the appreciation aspects. We're talking a lot about equity and appreciation and growing markets. Other aspects are cash flow and then the different ways that you can create cash flow creatively. So that's where you get into some advanced level type strategies. But the premise of why you would want to own real estate, it's going to be fundamentally sound regardless where you are. Now, does that mean that everybody knocks it out of the park all the time? Absolutely not. Happy to put my hand about being crushed on a number of deals that didn't exactly go my way. I still have a few of them today. That is the nature of the beast. We don't get all wins all the time. But what you really want to get clear on is how can you mitigate some of those losses? And one of the ways that you do that is you have to take some of the wins. So if you've got a big win that's sitting there of equity or something else and you don't harvest it, it doesn't mean that you have to harvest them all. But you might want to pull some money off the table. Just like if you were investing in the stock market and you had some big wins when everything ramped up, if you didn't take some of that money off the table and everything comes precipitously down, well, that money was never really yours to begin with. Right? You have to realize a win. Once you do that, you're as you identified, you're well capitalized, you have access to money that you, you're now sitting on. Okay, great, another opportunity is going to cross your desk. And now you've got some experience under your belt. With the experience and good coaching comes the ability to recognize the caliber of a deal. You have this like you're fine tuning a radar. And that radar is, you know, just like if you were on a boat and you're looking for submarines in the ocean and you've got a radar and it's going to ping things. Well, you're looking to see if you're on target. Well, you have an internal radar that you begin to build and develop as you go deeper down your real estate investing career. So the more that you fine tune that radar, the deals that pass your desk, they start to elevate off the table a little bit more where you can see them for what they are. And just like, boom, you can just pounce on those things when you're ready with the right capital access. You know, the key takeaway I'm hoping that, you know, you get from this video is to recognize that it's okay to harvest a win. And when you do that, another deal is right around the corner. You don't have to jump on the very next deal because right around the corner from that Deal is another deal. And deal flow isn't really all that difficult to get in front of if you know how to look for it.

Yes, I agree completely with that. And I think the interesting thing is what deals look like right now is very different than what they look like 6, 8, 10, 12 months ago. You know, when I used to look at deals In January of 2022, you know, virtually nothing made sense. The prices were so inflated that unless you were, you know, magically taking a single family home and turning it into a fourplex, you weren't going to see cash flow. All you might hope for in the long term was some appreciation to be able to refinance and pay yourself back out from rentals. But what we see a lot more now is you, some of the markets in Ontario, like Wealth and Kitchener and Waterloo, you know, doing the BRRRR strategy to buying a single family home, converting it to a duplex. That stopped making sense about two years ago. Hey, guess what? As the prices are going down, those numbers are starting to look a little more appealing. And now we're able to do coach houses too. So add a third unit. So some of these are turning properties that you might already own, and maybe that's the way that you want to harvest some of your wins, is to take an existing property and figure out what is the highest and best use. How do I repurpose this? How can I increase my cash flow or my wealth on what I already own?

It's kind of like Monopoly where you're just turning the greenhouses into the red hotels. I think that's what the colors are, you know, but being able to use the same greenhouse that you already had essentially to do that. And I love that, that, that's, that's such a key point because you're activating the same resource. You can activate it by selling it, you can activate it by pulling out some equity. It's getting more difficult to do that because of the appraisals and be the lending requirements. And so you may not want to do that way. But you know, another thing that I found because I, you know, we meet with real estate investors all over the map and I mean, you know, people love their real estate, of course, and, and so do I, but we're seeing, you know, I'm hearing from a lot of people that they're looking at new markets, they're looking at moving from. If they were investing, let's say they're in a based in Ontario and they were investing in their backyard, they're now looking at Things, let's say south of the border. Or they're also looking at maybe pivoting strategies. They're trying to say, okay, I'm going to harvest a bunch of my single families and now I'm going to go look for a quality older multifamily unit that's maybe eight to 12 doors and see about maybe putting some energy into that where I can hire a manager and I can maybe do some mild renos to increase over a 12 or 14 month time frame, my rent roll where I can then increase the value of that building. So we're seeing some different, you know, people transitioning to new types of strategies. I'm hearing a lot of stuff about different, you know, people getting into again, the vacation market and Airbnb. It's so fascinating to. I love this. You have an organization that doesn't own any real estate becoming the largest real estate management company on the planet. And the value of the technology allowing that to happen, but that opportunity basically allowing whole new strategies to be leveled up all across the map. From a, from a real estate investor perspective. Now some people have their whole bread and butter built into that. We have people who, they're leasing properties and not even owning them, setting them up as Airbnb and then, you know, and then creating cash flow, which is a real estate business, without actually owning the real estate. It still has risks, it still needs to be managed. But there's many different strategies within just the vacation home vertical that allows you to do multiple different things with real estate. So I'm really curious, being a coach and seeing a lot of the different strategies that people come about, how are you finding that other than maybe just the different markets, how are you seeing people in the conversations you're having with them now on strategies? Maybe what they were doing and, and a pivot. What's coming up in the conversations that you're. Or the water cooler talk, I guess.

As it were, there's some strategies that had stopped working for a while, like the BRRRR strategy. So people had moved away from those because you can't get the value on the refinance that you need. But if you don't need to pull your capital out, you know, the prices that you can buy at now might make sense. Definitely vacation rentals, particularly in Ontario, around the Great Lakes, anywhere where there's water, huge demand for vacation rentals. But what's happened in the last three months? So we're in January of 2023 and the demand for those has dropped. And I think it's reflective of the economy where people might not feel like they can count on having that disposable income, so they're not willing to make those commitments to the properties in advance. And then you kind of pair that a little bit with some of the weather issues. I don't know about you, but we don't have any snow here in Ontario. So our snow resorts aren't open. Our ski lifts and everything are not, they're just not running. So that kind of, you know, for people who are counting on that winter traffic, if there's no snow, there's no skiers or snowshoers or snowmobilers or anything else. I think that you really highlighted the most important point, which is making sure that anytime you buy a property that there's multiple uses. So a lot of people right now are converting from short term rental. They're looking at mid term furnished rentals. So instead of renting, you know, by the night or by the weekend, maybe by the week, you've now got people renting, you know, by the month or, or over for a couple of months. You've definitely got people looking more at the buy, rent and hold strategy. Because only at the beginning of the market where you can make money in the buy. So any strategy where making money in the buy is important, this is a really critical time to be buying. Personally, what I'm actually doing is I'm focusing a lot on private lending. Because when you can do private lending with cash, the interest rates that are being paid out by prospective borrowers, of course have increased significantly. So a year ago I might have lent my money out at 8%, but now I'm lending it out at 12 to 14%. So private lending, you always want to keep your end result in mind. But if you're looking for some kind of lower risk, I don't want to go through the expense of buying property. It's challenging to qualify for mortgages, but I have a couple of hundred thousand in capital. Then private lending can be a fantastic strategy. Strategy right now. And then you bide your time, you educate yourself, make sure you're at the top of your game, you're well positioned and you're looking for opportunities and deals to be able to close on kind of in the next six to 12 months. The reality is, as much as there's doom and gloom and everything else, the market will come back. It always comes back. And people are like, oh, how come you don't go for stocks? And I'm like, well, the stock market can crash 40% overnight. I have Never seen the Canadian real estate market crash by 40% overnight. So we might be down 5, 10, 15%, but we're going to come back and it'll be a steady incline as soon as the interest rates, you know, peak and then start to come down the other side. Definitely some different strategies, but when you're looking at this, at real estate as a long term investment overall, and when you make sure, when you're looking and running your numbers at the beginning, that you make sure, you know, can I hold this short term, Can I hold this long term? Do I have multiple ways to pivot, change my strategy and monetize the property? Then you're setting yourself up for success. And it doesn't matter whether you look at harvesting in one year, five year, 10 years, whatever your situation is, the long term is really what you should be focused on in real estate.

That's very good. It's interesting that you, things like you and the ski lifts not working and how that affects again, that vacation rental market and then people looking at some of the increased inflationary costs, et cetera, borrowing costs, how are those things impacting now? Again, the further outreach of bookings for vacation homes. Right. And it's funny, I have a colleague who manages a bunch of Airbnb units down in like the Seattle area and he had everything, he was like 100% occupied in the December corridor because of all the travel problems and cancellations of flights and everything. He went into crisis control mode and lost like 50% of those units because of all the issues with the weather. So that was a very unexpected thing. It had a huge impact on his personal cash flow. Again, uncontrollable event. I was caught up in that, in that our family had to spend four and a half extra days in glorious Edmonton where it was a little bit about 20 degrees colder than here. Nothing wrong with that. Happy to spend extra time with my family and friends in Edmonton, but we were very happy to get home, I can tell you that. So, and what's interesting, you talked about, again, private lending and that's being a strategy that you yourself are more, you know, focused on right now. Yes, the increased lending rate, very important. But more importantly is just from a context perspective, private lending on itself is pretty simple. However, if you're putting capital to work, you also want to match your private lending strategy. You need a strategy that works for you with the strategy or the exit plan of the property too. So when you're looking at, you know, qualifying borrowers or if you have some people that have a good track record of if they're real estate investors and they need capital, you want to try to match your timing of both payment stream and exit of capital with the strategy that they have so that you have a cohesive kind of unit. Because private lending is fantastic. But like any other strategy, there's always risk in there. So you need to get clear on measuring what that risk is. Now, one of the things that people think about when they're buying real estate courses, where's the capital going to come from? So to learn a new way to find more joint venture capital, go ahead and click this video right here.