The Little Book of Real Estate Investing in Canada – Don Campbell

The Little Book of Real Estate Investing in Canada – Don Campbell

Treat real estate like a business, purchase properties in areas where the economic fundamentals support the greatest possibility for equity appreciation, and only by properties that produce monthly net cash flow.

I learned, very early on, to only take advice from someone who has been very successful in what I want to be successful at.  You will notice I did not just say relatively successful, and I am also not talking about someone who got lucky in a hot market.  I want to learn from, discover insights from and hear the good and the bad side of the investment world from someone who has seen it all and knows how to respond to all market conditions.

Residential properties located within 800 metres of light rail or rapid transit stations typically can charge rents that are 5 to 11 percent higher than the prevailing market.

National stats mean nothing to the sophisticated investor.  The fact that prices are up 5 percent across the country means nothing in a city where they have dropped 5 percent or have risen 8 percent.  Ignore national stats.  Focus on your chosen geographic zone.

The 10 Fundamentals of Successful Real Estate Investing.

  1. Mortgage Interest Rates.
  2. The disposable income effect.
  3. Increased Job Growth.
  4. The Real Estate Doppler Effect.
  5. Local Regional and Provincial climates.
  6. Critical Infrastructure Expansion.
  7. Areas in Transition.
  8. Creating Highest and Best Use.
  9. Buy Wholesale, Sell Retail.
  10. Quality Proactive Marketing.

The Pseudo-Fundamentals

  1. Renovation and Sweat Equity.
  2. Speculation.

I expanded our portfolio while staying true to the 3 most important principles of my system:

  • Cash flow is King.
  • Market Appreciation is a Bonus.
  • Following the economic data is the foundation to making great investment decisions.

Your job as an investor is to study the fundamental, analyze the actual property you are buying and then manage that property through all types of market conditions, not to out-guess the cycle.

The strategic investor knows that if he can’t find positive cash flow properties in his target market, the system is working, not broken.

I believe that sound investment advice, given by someone who is actually experienced and doesn’t profit if you buy a property, is available; just be careful of pretenders.  I only take advice from someone who meets the following criteria:

  1. They must be actively investing in Real Estate.
  2. They must have at least 10 years of personal experience investing in Real Estate, which ensures they have come through the ups and downs.
  3. They must have been successful over that time.  This point is critical because lots of unsuccessful investors turn to teaching rather than becoming better investors.

Over time I have learned to give myself a pat on the back every time I walk away from a property that would have wakened my portfolio because that is exactly what a sophisticated investor is supposed to do.  

Regardless of what is at the root of the problem with a property ( financial or economic fundamentals, access to renovators ), if my system tells me I can’t fix it within my parameters, I must move on.  The fundamentals may be telling me to buy, but I simply cannot justify borrowing money to invest in a property that can’t provide cash flow.

A strategic investor would wait until the project starts, then buy from the speculators who want to get out with their quick buck.  Because the investor’s decision is based on fundamentals, he gets the benefit of lower risk with long term profits.  In sum, the sophisticated investor might keep an eye on properties affected by a hot tip.  But they are unlikely to buy until the development proceeds.  Veteran investors sometimes joke that they make their money as settlers, not as pioneers.

You must always take responsibility for the bad results in your business if you also want to take credit for the good results.  Ignore this rule and you risk your reputation as a professional.

Rules of Engagement when communicating with team members:

  1. Set goals and write them down so everyone agrees on the expected volume.
  2. Have an agenda for every meeting and stick to it.  No rambling or tangents.
  3. Separate the person from the problem.  Come up with solutions, not blame.
  4. Discover the team member’s real motivations.  Often is not money, even if they say it is.
  5. Only respond to reason, not pressure.  ( Stick to your system! )
  6. Be willing to walk away before you saying something you will regret.

Credible Real Estate Investors:

  1. Show up on time for appointments.
  2. Do what they say they will do.
  3. Under promise and over deliver.
  4. Know they are judged on the reputation of the people they choose to do business with.
  5. Like knowing their record can speak for itself.

Riding a bicycle is one way to increase your physical fitness and improve your chances of living long and healthy life.  Of course, jumping on a bike for the first time in years and sprinting at an Olympic pace can have exactly the opposite effect, making you unwell to the point at which you require resuscitation.  That is why slow and steady progress over a few years ( giving you time to build up to Olympic levels ) is so critical.

Building your portfolio slowly and steadily, rather than pushing for explosive growth all at once, can lead to your achieving the equivalent of an Olympic level in a financial goal.  Building it fast and furiously can lead t catastrophic financial and emotional issues.

Real Estate investor Thomas Beyer of Prestigious Properties compares real estate to a satisfying dinner:

Real estate is like a three course meal.  The appetizer is the positive cash flow, always appreciated but nor required as break even is okay too.  The main course is the mortgage pay down and must be there moth after month.  You will get rich and fat just on the main course.  The dessert is the equity appreciation.  Like an appetizer it is always appreciated but not required for a meal or wealth creation.

Unfortunately beginning and inexperienced investors only focus on the dessert, and just like in real life, if that is all you eat you will die soon.

Top Reasons to Invest in Real Estate:

  1. It is a more tangible investment, one you can see, one you can improve to maximize return, and overall you are more in control of it.
  2. Tenants help pay the mortgage and expenses, and after 25 years of so, you will have a fully paid investment to help with your retirement.  We certainly can not count on Canada Pension Plan to fund our retirement.
  3. If you can’t get financing on a single family home, then a multiple family dwelling is a more affordable entry point into the real estate market, which will help you build your equity.
  4. Historically real estate has delivered strong returns.