Seeking Advice On How To Achieve My REI Goal
Hi everyone!
I'd love to contribute to the community here but I'm a real estate investor noob so maybe I can help in other areas of interest. I work as a web3 product manager. Product manager meaning, I help businesses create/sell/market apps, websites and tech products. Web3 meaning crypto, blockchain and NFT related products. A lot of what that technology enables is around community so I would not be surprised to see this community eventually get it's own cryptocurrency and NFT…
Again, if there are ways I can help members of the community please reach out.
I'm in Toronto, Canada looking to invest in Real Estate. I came into this investment with the mindset of sticking to Toronto and only freehold as I didn't want maintenance fees. Local property prices and the inability to be cash flow positive or break even has opened me up to long distance investing. First I began to look elsewhere in my province and then other provinces in Canada, but haven't looked into foreign properties yet.
I’m currently reading The Book on Rental Property Investing: How to Create Wealth with Intelligent Buy and Hold Real Estate Investing.
There are so many rabbit holes I can go down and spend time researching…Should I reconsider condos and townhouses? Is it better to stay in Toronto for the appreciation? How do you even answer that?
My goal is to allocate the capital I have into real estate. I want to rent it out and potentially BRRRR into more properties. I'm not looking to flip. And I do have enough income to supplement a negative cash flow property, up to a certain degree.
My next task for myself is to research where are the most cash flow positive places in Canada.
TL;DR
My goal is to invest for the long term (not flip), rent it out (long term? short term?), be somewhat passive (property manager) and eventually grow my # of units. I would appreciate advice on how to narrow my search given my goals.
Thank you!
Quote from @Anthony Therrien-Bernard:
Quote from @Khai Hong:
Hi again @Jason Yong, I grew up in Calgary, yet I would recommend you consider a few other things before committing to investing there. Keeping in mind that the fed gov't has set an immigration target of 1.5 million over the next 3 years, the demand for rentals will be high pretty much everywhere for at least the next decade, and supply likely won't be able to keep up. That's on top of the 1M since 2020, so 2.5M total, which is about a 7% overall increase in just 5 years. Almost all will be renters. So you should be successful almost anywhere, as long as you have good execution (choose a good neighborhood, screen tenants carefully, find good contractors, etc). However, having said that, some regions will produce higher returns on your investment than others.
I hadn't heard of the ACRE system before, but it looks like it's mixing strategy (where) with execution (how). Of the 12 factors, only 2, 3, 5 & 12 would help you decide where to invest. All the other factors are applicable in every city, so they don't help you to differentiate. David Greene has a better framework for choosing where to invest: look for areas with steady/increasing population, diversified jobs growth, and limited land.
In the case of AB, the elephant in the room is that oil & gas make up 25% of GDP, Is it true that oil and gas is Alberta’s largest industry? (albertaworker.ca). That's not taking into account the ripple effects, like how many fewer restaurants would there be without all the O&G jobs, or how much less construction for their homes, etc.
I did a bit of deep dive into the four big Canadian metros here Investing in Calgary (biggerpockets.com), and found out that AB is the only province where unemployment is trending up - which seems to follow the declining oil and gas industry. O&G demand will, I think, in fact go up for the next 10 or 20 years as it is needed to build out the renewables infrastructure (ironically, enthusiastically digging its own grave, as it were), but its decline is inevitable. It's not just EV's, the world is taking sustainability more seriously, especially in light of recent macro events. These types of macro trends tend to be exponential; slowly at first, then accelerating very quickly (charts below). Even using today's tech, 100 square miles of electric panels in the middle of the US could power the entire country. And the tech just keeps getting better.The AB gov't is trying to encourage a more diversified employment landscape, but so is every other gov't, all around the developed world, in fact. And despite their best efforts, unemployment has been trending up in AB for the past 15 years, whereas it has been trending down elsewhere.
As shown below, prices in AB have been pretty much flat since 2008, despite steadily increasing populations. So are you only looking for rental income for the next 10 or 15 years? Because after that, I think things will noticeably go downhill from there.
.
Again, I don't think you can go wrong anywhere in Canada, as long as you execute well. But if you want to maximize your returns, then it pays to be more selective of where you invest. As David Greene often says on the BP podcast, cashflow and appreciation are a continuum, and appreciation is where the real long-term wealth is made. I would suggest you look at markets where there's reasonable cashflow with a good chance of appreciation. Halifax has been another hot market recently, and there I think it's justified. Prices have kept up with population growth, and unemployment is steady. Also, as mentioned by @Jeremie Rochon, northern ON is another hot market. The dominant industry there is mining, which has a brighter future than O&G, Four new mines coming to Canada - Canadian Mining Journal. As the world pivots away from China and Russia, clean and ethical producers like Canada will be the beneficiaries.
As always, I welcome any feedback..
Great post Khai!
I think there are a few things missing or out of context here, however. Yes, it is true that Canada has an immigration target of 1.5M people over the next 3 years but those people won't be spread equally throughout the country.
Yes oil and gas make a huge part of our GDP, in fact, the last data I've seen suggests it might be even higher than 25% (29%) and this is a major point of concern for me, this causes our market to be much more cyclical, however, look at the diversification that has been happening in the chart below and this continues to trend in the same direction, we still have good years of oil (and especially natural gas) demand ahead, I would be much more concern if we were not diversifying but we are, especially over the last few past years.
Regarding the unemployment rate it has not been trending up for 15 years, before the oil downturn it was the lowest in the country, then it went up in the downturn and has been trending down since. The unemployment rate also doesn't tell the whole picture as the labour force participation rate for example is at 69.7%, the highest in the country.
I'm not sure where you see flat price growth since 2008. The Calgary housing market is very evidently cyclical, however, I think the flat prices from 2014-2020 (those were actually flat) are actually a good thing. This is part of the reason why the affordability here is so good and why we are seeing the lowest drop in prices right now, I honestly think that real estate in Calgary is underpriced by at least 25-30% (my opinion).
Now I think there are a few other things that you did not mention that make Calgary a very attractive place to invest.
- Last quarter Alberta has received the largest interprovincial net migration on record and the largest in the country, Ontario losing the most resident, it's also worth noting that some of those people moving from Ontario to Alberta first immigrated from outside of Canada.
- Alberta has a VERY landlord-friendly legal environment, with no rent control and much better tenancy laws.
- Calgary has the highest average income of large cities in Canada along with the highest GDP per capita, which also translate to a capacity to pay much higher rents (once the supply is constrained which we are starting to see now)
- Calgary also has very good affordability
Cashflow is king in my opinion as it is what will save you in a down market, however you do need appreciation as well as it makes up a larger part of your ROI. Calgary ticks all those boxes in my book as we are still able to get decent net positive cashflow TODAY (how many large markets can you think of that can achieve this TODAY?) while still appreciating over the long term. What Calgary is not however is a great place to invest short term due to the cyclical nature. I also agree it usually makes sense to invest in markets with limited land, however, these markets provide no or negative cashflow, have horrible tenancy laws, and have become so speculative, expensive/unaffordable that I find them to be much more at risk of a severe correction.
Now, I also see some potential for things to go bad over the medium/long term in Calgary if Alberta tries to resist the move to sustainable/renewable energy through political stubbornness. On the flip side, Alberta has the opportunity to become a leader in renewable/sustainable energy and it looks like natural gas demand will continue to go up while the transition happens. Given what we have seen in recent years I think this latter scenario is more likely to happen.
I'm sorry if my response is much more scattered than yours
Shhhhhh, Anthony you are spilling the beans!
Jokes aside though, I'm also in Calgary and I have a bit of a different perspective. As an immigrant myself I think there's a key factor that drives the decision where to settle down. It's all about $$$. Unfortunately areas like Ontario and BC are getting out of reaching for a lot of folks. The income vs expenses (aka. disposable income) is out of wack in some of the big metro centers in Canada. I'm a CPA and CPA Canada just posted some data on salary (disclaimer: this data is for CPA's, but I think it is not too far from rest of the professions).
I have no doubt most immigration will be in Ontario and BC initially, but I think a good chunk will end up in Alberta. Once immigrants realize they can't afford to save for their future they'll move. 🙂
Quote from @Stevo Sun:
Quote from @Anthony Therrien-Bernard:
Quote from @Khai Hong:
Hi again @Jason Yong, I grew up in Calgary, yet I would recommend you consider a few other things before committing to investing there. Keeping in mind that the fed gov't has set an immigration target of 1.5 million over the next 3 years, the demand for rentals will be high pretty much everywhere for at least the next decade, and supply likely won't be able to keep up. That's on top of the 1M since 2020, so 2.5M total, which is about a 7% overall increase in just 5 years. Almost all will be renters. So you should be successful almost anywhere, as long as you have good execution (choose a good neighborhood, screen tenants carefully, find good contractors, etc). However, having said that, some regions will produce higher returns on your investment than others.
I hadn't heard of the ACRE system before, but it looks like it's mixing strategy (where) with execution (how). Of the 12 factors, only 2, 3, 5 & 12 would help you decide where to invest. All the other factors are applicable in every city, so they don't help you to differentiate. David Greene has a better framework for choosing where to invest: look for areas with steady/increasing population, diversified jobs growth, and limited land.
In the case of AB, the elephant in the room is that oil & gas make up 25% of GDP, Is it true that oil and gas is Alberta’s largest industry? (albertaworker.ca). That's not taking into account the ripple effects, like how many fewer restaurants would there be without all the O&G jobs, or how much less construction for their homes, etc.
I did a bit of deep dive into the four big Canadian metros here Investing in Calgary (biggerpockets.com), and found out that AB is the only province where unemployment is trending up - which seems to follow the declining oil and gas industry. O&G demand will, I think, in fact go up for the next 10 or 20 years as it is needed to build out the renewables infrastructure (ironically, enthusiastically digging its own grave, as it were), but its decline is inevitable. It's not just EV's, the world is taking sustainability more seriously, especially in light of recent macro events. These types of macro trends tend to be exponential; slowly at first, then accelerating very quickly (charts below). Even using today's tech, 100 square miles of electric panels in the middle of the US could power the entire country. And the tech just keeps getting better.The AB gov't is trying to encourage a more diversified employment landscape, but so is every other gov't, all around the developed world, in fact. And despite their best efforts, unemployment has been trending up in AB for the past 15 years, whereas it has been trending down elsewhere.
As shown below, prices in AB have been pretty much flat since 2008, despite steadily increasing populations. So are you only looking for rental income for the next 10 or 15 years? Because after that, I think things will noticeably go downhill from there.
.
Again, I don't think you can go wrong anywhere in Canada, as long as you execute well. But if you want to maximize your returns, then it pays to be more selective of where you invest. As David Greene often says on the BP podcast, cashflow and appreciation are a continuum, and appreciation is where the real long-term wealth is made. I would suggest you look at markets where there's reasonable cashflow with a good chance of appreciation. Halifax has been another hot market recently, and there I think it's justified. Prices have kept up with population growth, and unemployment is steady. Also, as mentioned by @Jeremie Rochon, northern ON is another hot market. The dominant industry there is mining, which has a brighter future than O&G, Four new mines coming to Canada - Canadian Mining Journal. As the world pivots away from China and Russia, clean and ethical producers like Canada will be the beneficiaries.
As always, I welcome any feedback..
Great post Khai!
I think there are a few things missing or out of context here, however. Yes, it is true that Canada has an immigration target of 1.5M people over the next 3 years but those people won't be spread equally throughout the country.
Yes oil and gas make a huge part of our GDP, in fact, the last data I've seen suggests it might be even higher than 25% (29%) and this is a major point of concern for me, this causes our market to be much more cyclical, however, look at the diversification that has been happening in the chart below and this continues to trend in the same direction, we still have good years of oil (and especially natural gas) demand ahead, I would be much more concern if we were not diversifying but we are, especially over the last few past years.
Regarding the unemployment rate it has not been trending up for 15 years, before the oil downturn it was the lowest in the country, then it went up in the downturn and has been trending down since. The unemployment rate also doesn't tell the whole picture as the labour force participation rate for example is at 69.7%, the highest in the country.
I'm not sure where you see flat price growth since 2008. The Calgary housing market is very evidently cyclical, however, I think the flat prices from 2014-2020 (those were actually flat) are actually a good thing. This is part of the reason why the affordability here is so good and why we are seeing the lowest drop in prices right now, I honestly think that real estate in Calgary is underpriced by at least 25-30% (my opinion).
Now I think there are a few other things that you did not mention that make Calgary a very attractive place to invest.
- Last quarter Alberta has received the largest interprovincial net migration on record and the largest in the country, Ontario losing the most resident, it's also worth noting that some of those people moving from Ontario to Alberta first immigrated from outside of Canada.
- Alberta has a VERY landlord-friendly legal environment, with no rent control and much better tenancy laws.
- Calgary has the highest average income of large cities in Canada along with the highest GDP per capita, which also translate to a capacity to pay much higher rents (once the supply is constrained which we are starting to see now)
- Calgary also has very good affordability
Cashflow is king in my opinion as it is what will save you in a down market, however you do need appreciation as well as it makes up a larger part of your ROI. Calgary ticks all those boxes in my book as we are still able to get decent net positive cashflow TODAY (how many large markets can you think of that can achieve this TODAY?) while still appreciating over the long term. What Calgary is not however is a great place to invest short term due to the cyclical nature. I also agree it usually makes sense to invest in markets with limited land, however, these markets provide no or negative cashflow, have horrible tenancy laws, and have become so speculative, expensive/unaffordable that I find them to be much more at risk of a severe correction.
Now, I also see some potential for things to go bad over the medium/long term in Calgary if Alberta tries to resist the move to sustainable/renewable energy through political stubbornness. On the flip side, Alberta has the opportunity to become a leader in renewable/sustainable energy and it looks like natural gas demand will continue to go up while the transition happens. Given what we have seen in recent years I think this latter scenario is more likely to happen.
I'm sorry if my response is much more scattered than yours
Shhhhhh, Anthony you are spilling the beans!
Jokes aside though, I'm also in Calgary and I have a bit of a different perspective. As an immigrant myself I think there's a key factor that drives the decision where to settle down. It's all about $$$. Unfortunately areas like Ontario and BC are getting out of reaching for a lot of folks. The income vs expenses (aka. disposable income) is out of wack in some of the big metro centers in Canada. I'm a CPA and CPA Canada just posted some data on salary (disclaimer: this data is for CPA's, but I think it is not too far from rest of the professions).
I have no doubt most immigration will be in Ontario and BC initially, but I think a good chunk will end up in Alberta. Once immigrants realize they can't afford to save for their future they'll move. 🙂
It wouldn't be the first time this happens
I’m new to the forum and to real estate investing. I’ve been a home owner since 2005, but recently got into real estate investing as my wife is an agent and I’m a licensed mortgage broker. I’m located in Barrie area, but looking to Sudbury and Windsor areas to invest. If you need any financing please let me know.
Wow! Thank you so much for that insight @Anthony Therrien-Bernard.
I think my next step (big step) is to do a high-level comparison of Calgary, Edmonton and Halifax. Then decide if I should open up to the US. A little overwhelming, but I'm up for the challenge. Grateful to be part of such a helpful and knowledgable community here though 💪🏼🙌🏽
THanks @Gregory Grant, I'll let you know.
Quote from @Jason Yong:
@Khai Hong Thank you so much for an informative response. I really appreciate your input and effort. I will look into Halifax. Interestingly, I don't see any rentals on Zillow, but quickly found rentals.ca showing some.
I hope that I don't fall into analysis paralysis. Now that I'm into long distance investing and considering the US market, it's just hard to figure out where to start. One question I have is, I see you screenshotted an MLS report. What sites/tools/sources do you use for things like areas with steady/increasing population, diversified jobs growth, and limited land. I'm pretty confident in my ability to Google, but I'm sure you and this community can point me in the right direction.
Thanks again!
The MLS tool is super valuable, CREA | Try the MLS® HPI Tool, because at the end of the day, prices don't lie. Prices are the net result of positive and negative factors, and are a good indication of future prices (unexpected spikes and dips eventually normalize back to trend). If you only use one tool to start with, then this should be it. After you find a trend that suits your goals, you can dig deeper into other data. Think of the price incline as an indicator of the cashflow vs appreciation continuum - the sharper the curve, the faster the appreciation, and the lower the cashflow. Flat means good cashflow, and declines should be avoided.
All of my population & unemployment data came from the statcan.gc.ca site. The site has changed a lot since I used it a few months ago, and is much harder to find stuff, unfortunately. Lucky for me, I downloaded a copy of it all in order to generate graphs. I use unemployment as an inverse proxy for jobs growth. 'Limited land' really only applies to metro-Vancouver and southern Ontario, which is a big factor in their outsized price gains. Even then, the limits only really exist because of zoning and lack of infrastructure. Ironically, Calgary's sprawl is well planned and actually contributes to flat prices, because they can just keep building outwards.
One of the many nice things about living in Canada is that there's lots of granular detail at the provincial and city levels. All provinces and most cities have their own stats, and all that data can be daunting, so you'll have to practice up on your Google-fu to get what's useful to you :) As a tech project manager, you shouldn't have any problems interpreting the data. The challenge, however, is choosing which "facts" are important to you. The same info can mean different things to different people, as you can see from the debate between me and Anthony. Cudos to Anthony, btw, for his very reasonable counter-facts. Most people just say 'I disagree' without anything to back it up.
I'm going to do a few separate deep dives into Halifax and some other places for my own understanding, and I'll post the results in separate threads. Please let me know what you find from your own analyses. I'd encourage you to adopt an abundance mindset, there's enough to go around, and what doesn't work for you might work for someone else. In theory, REI is a zero sum game, because if everyone is a landlord, then there'd be no renters. But in reality, very few people have the ability and/or the inclination to succeed at REI - just look at how much thought you have to put into just deciding where to start investing. It's not rocket science, but there is a lot of thought and work involved.
Every new investor goes through the shiny-object-syndrome phase, where each new strategy or market they hear about seems worth pursuing. And from listening to the podcasts, even the experienced investors have to keep it in check. Just be aware that the start of anything is a bit overwhelming, but you'll eventually lean into one or two strategies and markets that suit your personality.
@Anthony Therrien-Bernard, thanks for the great rebuttal. If everyone could be so reasonable when they disagree with another's opinion, this world would be a much better place :)
One of the main reasons for me to post anything on these forums, besides hoping to add value to the community, is to also educate and/or clarify something for myself in the process of doing so. Your reply was very informative, and I was able to reconcile your info with my own analyses, and for me the conclusion remains unchanged. I won't bore you with the details.
In fact, I'd like to add that I do hope AB (and Canada in general) is able to capitalize on the changing macro trends. For example, I saw a very convincing TED talk about leverage existing O&G tech and experience to build new geothermal energy infrastructure. That seems like it'd be such an easy win, and I really, really hope AB can get in on that sooner rather than later. It'd be to everyone's benefit, and I'd happily jump into the RE market there if it does start to happen.
P.S. I think our debate in this thread could be the gold-standard for all discussions on BP :)