Calling All Canadian Investors!

15 Replies

Hey BP! I am very intrigued by the BRRRR strategy and have recognized there are many distinctions between what is and is not possible in Canada compared to the US. Is the BRRRR strategy something that works in Canada? May sound like a dumb question, but if I am going to narrow down an exact strategy moving forward I need to know it is worth pursuing.

Thanks for any replies!

@Graeme Ford

The concept of purchasing a run-down, under-performing property (business) and forcing appreciation through modernization & revitalisation has been around longer than Branden and Josh's catchy acronym.   

It has been at the core of our approach for several years - as time goes on, we find ourselves acquiring properties (sometimes vacant) in greater distress - they require more capital, but provide greater opportunity. This past year we have bought a couple of rather derelict properties whose rehab will exceed the acquisition costs considerably, but our total costs will still be 60-70% of ARV by the time we are finished and well will have an efficient, updated building that fetches top-of-the-market rent.

Naturally, will be easier and more effective in markets with sufficient inventory and depressed, but rising, property prices.  In hot markets, like Vancouver and the GTA, where folks are paying top dollar for land (and demoing the existing structure), it's not likely going to be a rewarding venture.

BRRRR works for me. I’ve gotten several properties over the past two years below market and fairly bad shape. Then, updated, put tenants in and refinanced. For me the value is in getting positive cash flow. I can’t do it if I get a top shape property in GTA.

I’ve been thinking of potentially investing in US, can you pls share what distinctions you’ve come across?

@Anna Belov there are just many things that are more difficult to do or are not even a thing in Canada. 

For example the podcasts always seem to discuss yellow letters and direct mail for lead acquisition, but in Canada we are very stringent on our release of information. I had asked about direct mail in Canada and getting lists to mail to and was informed its actually illegal for companies to produce and sell these lists as it is protected information. 

Another example relates to LLCs. They aren't even a thing in Canada so when you are looking at asset protection avenues that isn't even an option. I think the difference here is related to in Canada people don't just sue anyone for anything. Now that is just my opinion and that may be my own personal bias in play as I do not have any statistics on it. Just seems like you would be a lot more likely to be sued in the US versus Canada, but what do I know. 

We also have some differences in residential versus commercial loan acquisition. I think it was Roy N. who had mentioned that if you were to go to the Big-5 in Canada (RBC, CIBC etc.) they may consider a residential loan on a 5 or even a 6 unit building. Where in the states the cut off is at 4 for residential loans and 5-up for commercial. 

The US also has 1031 exchanges for tax deferral, which is yet another non-option for Canadians. You will always have to pay your capital gains tax when selling an investment property you don't live in. This definitely can alter your strategy in terms of when you want to sell and if you want to sell. 

Lastly, mortgages are structured very differently in Canada, which I am sure you are aware of. In the US it is pretty standard to see 30 year fixed mortgages. Man I would love to get in on that action. In Canada we get 5 year fixed then the remainder is variable so you must really take into account interest rates and they are on the rise. This is all I can think of off the top of my head as I don't have my notes in front of me right now. 

There is definitely more in favor for US REIs, but there are successful people in Canada just need to be more stringent on your own end of things and on the upside we do have a relatively stable real estate economy. 

Hope this is what you were looking for. 

Originally posted by @Graeme Ford:
...

Lastly, mortgages are structured very differently in Canada, which I am sure you are aware of. In the US it is pretty standard to see 30 year fixed mortgages. Man I would love to get in on that action. In Canada we get 5 year fixed then the remainder is variable so you must really take into account interest rates and they are on the rise. This is all I can think of off the top of my head as I don't have my notes in front of me right now. 

The mortgage term = amortization appears to be a unique phenomenon of U.S.A. residential mortgage lending.   While you will not be able to place a 25 or 30 year term mortgage with a public lender here in Canada, there are plenty of options from terms as short as 6-months to as long as 10-years for fixed rate and 3 - 5 year terms for closed variable rate (my personal favourite).

@Anna Belov another difference is the difficulty in checking criminal history in Canada as it is not just public record. I think only BC and Quebec have online databases to try and look up criminal history. 

http://www.cbc.ca/news/canada/hard-to-check-crimin...

you can check out this link, I know its from 2012, but as far as I have found this still stands. 

@Roy N. what would you recommend for having adequate background checks for tenant screening? equifax? Naborly (I think equifax bought them)? TVS? 

Originally posted by @Graeme Ford :

@Roy N. what would you recommend for having adequate background checks for tenant screening? equifax? Naborly (I think equifax bought them)? TVS? 

 Graeme:

We perform our own tenant screening.  For credit histories, we use either RentCheck or TVS.   We contact employer, landlord and personal references and perform social media and public data searches.     As you alluded above, Landlords - an all third-parties with the exception of a few agencies - cannot pull an applicant's criminal history without the involvement of the applicant themselves - the individual must submit the request for a criminal background search and authorize the authorities to disclose the results with the landlord.

@Roy N. thank you for your reply! So the checkpoint if you will, is if the prospective tenant is willing to submit to the background search in the first place and don't accept anyone who is unwilling. So the prospective tenant goes into the police station and requests a background check, pays the fee and then submits it to landlord? 

Thanks @Graeme Ford ! This is very helpful. For mailing campaigns, I used www.infocanada.ca I was able to get a good list of addresses (about 10% returned) from them. I received 6 call backs from 450 letters.  Some of the call backs were not happy and asked me to take them off my list, but there were some promising ones as well. For tenant screening, what works best for me is checking tenants' bank references. I ask them for last three months of their bank account statements. I also call and talk to work, guarantor, and personal references and check all phone numbers and names in social media. 

Thank you @Roy N. for clarifying about mortgages.

Originally posted by @Graeme Ford :

@Roy N. thank you for your reply! So the checkpoint if you will, is if the prospective tenant is willing to submit to the background search in the first place and don't accept anyone who is unwilling. So the prospective tenant goes into the police station and requests a background check, pays the fee and then submits it to landlord? 

In our application process we reserve the right to request a criminal background check.  In reality, we've only requested one on three occasions and in two instances the applicant recused himself.

When the applicant requests a criminal background check and authorizes the results to be disclosed to the landlord, you are not going to get a copy of the search results ... most probably, you will receive a call from the police agency who will vaguely tell you whether the individual has a criminal record; whether there are open matters and perhaps the general nature of the offences (theft, capital, misdemeanour, etc).  It is unlikely they will share details.

@Anna Belov thanks for the tip on the infocanada that is something that I will definitely have to look into. Those are pretty decent numbers for your mailing now just to see how those leads turn out. 

@Roy N. thanks for the information much appreciated!

@Roy N. do you have any recommendations for direct mailing lists in Canada? How do you source properties for BRRRR in Canada? Anna had mentioned Infocanada for lists and seems to have had some decent numbers. Any insight is greatly appreciated.

@Graeme Ford

I was not familiar with InfoCanada and took a brief look at their website last night.   They claim to operate within the law (PIPEDA and provincial privacy laws), but I will need to do a little more investigation (information security and privacy is my "other" profession) before deciding how legitimate they are.  There  is also is some indication they may be a subsidiary/affiliate of InfoGroup Inc. out of Nebraska.

If they are producing lists of consumers in compliance with privacy laws, folks on the list would have either opted-in, or the lists are anonymous - simply a list of street addresses in a community or postal code.  If it is the first, the list will be short and skewed.  If the latter, you can get the same service from Canada Post.

When it comes to sourcing properties, we maintain a database of properties of interest in neighbourhoods in which we {wish to} operate.  In this database we record all the information we learn about each property - tax assessments, owners, listings and sales, building permits, etc.  It is from this database that we find our candidate properties.

@Roy N. I would be very interested to see if infocanada is legitimate, but you are right the people must have opted in. That is very handy that information security and privacy is your "other" profession! 

So it must be a lot of ground work like driving for dollars to locate these distressed properties with motivated sellers and move on them that way as an alternative. Very smart to keep a database with properties of interest. Networking must be key as well. 

Can you let me know what information you are able to find on infocanada if you do look further into it? It would be greatly appreciated.

Wow, this is great info! Would also be very interested in what your research turns up @Roy N.

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