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do you want to know how to make money in
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Canadian real estate in 2023 let's not
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sugarcoat it here the Canadian real
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estate market is volatile especially
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over the last five to ten years we all
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feel like there's too much risk to make
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a sensible investment in the Canadian
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real estate market right now rates are
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way too high interest rates just went up
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at record paces and they're the highest
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they've been since the global financial
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crisis we're probably entering into a
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recession if we're not already in one
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you might be thinking I can't make money
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doing this and your right to be
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concerned about investing in real estate
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in Canada your friends probably think
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you're crazy for wanting to buy real
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estate in Canada in 2023. all of these
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fears are based on two things number one
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is culture and the other is emotion from
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a cultural perspective Canadians have
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been indoctrinated to think that real
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estate investment and income in real
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estate comes from capital appreciation
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the US and Canada have similar cultures
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but they view wealthy creation
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differently the American dream is
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business ownership and the Canadian
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dream is home ownership or wealth
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creation through real estate the way
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that that money is made is through
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capital appreciation and in Canada
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that's tax free but a lot of investors
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that I speak with and a lot of
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homeowners that I speak with who are
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counting on that wealth accumulation are
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asking me how do I make money in
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Canadian real estate now that that
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appreciation is gone
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have we returned to the long-term
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trajectory of growth in Canada where
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house prices grow at 6.11 historically
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since 1984 which is still a great rate
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of return by the way especially when you
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account for leverage what about emotions
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and the media there's no shortage of
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friends family and anecdotes in the
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media of people getting crushed by
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mortgage payments by increases in
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interest rate costs or by getting
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destroyed by values decreasing in a
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speculative investment position nobody
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wants to be house poor I'm here to show
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you the real facts this is real data
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that isn't based on the narrative or
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fear and to be honest I've been accused
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a number of times of being one of these
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people who is pandering or creating that
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fear in the market by having a more
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bearish Market Outlook but the reality
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is I've stuck to a very specific Market
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thesis or investment thesis throughout
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that period of time when I did have a
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bearish Market Outlook and I've done
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fine as a real estate investor if you
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can relate to these fears and you want
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to learn how I view the market then this
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video is for you I'm going to teach you
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how to make money in real estate in 2023
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and to be honest it was the same way
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that you could make money in 19 93 or
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1983 in Canadian real estate through
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this you'll be able to buy an asset that
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will appreciate in value just not in the
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way that Canadians have been
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indoctrinated to think it's investing
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not speculation so let's jump into it
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I'm going to divide this into three
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parts and in the third part I'm going to
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show you the tools that I use to advise
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investors on how to make good decisions
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regardless of the real estate market
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that we're operating in part one is the
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why the why is establishing a market
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thesis or an investment thesis in part
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two we're going to go through the where
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we're going to apply the investment
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thesis that we get in part one and try
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and find cities in which you can make
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this type of investment in Canada
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without needing a million dollar
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mortgage in part three we're going to
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cover the specific purchase in this part
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I'll explain exactly what type of
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properties to buy and the tools that I
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use to determine and analyze what is a
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good versus a bad investment part one
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the why Canada's real estate market is
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very much moving the housing economy
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into what I would call a renter's
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economy or a late stage capitalistic
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economy you can see this in countries
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that are much older than us that
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experience their big waves of
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immigration earlier than we have because
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Canada is just a very young country
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the United States is further along on
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this curve and their home ownership rate
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is lower than candidates places like
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Germany or Switzerland or much of the
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western world have experienced
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homeownership's rates in Decline and
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rates that are significantly lower than
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where Canada's home ownership rate is
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today data from statistics Canada shows
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that the homeownership rate in Canada is
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in decline in almost every single
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problem that is a trend that's expected
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to continue over the coming decades when
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you look at a low homeownership economy
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what ultimately comes is a world where a
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lot of housing Supply is owned by
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institutions or Investments and you
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often hear a lot of people talking about
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this and that you'll own nothing and be
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happy world economic Forum conspiracy
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stuff but the reality is there's
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probably an element of Truth to a lot of
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that and the question is if you want to
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become a real estate investor do you
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want to fall within that category of
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investor or institutional owners that
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are in possession of housing in the
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future if you want to make money I I say
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yes as a consequence of this secular
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shift that we're seeing in Canadian
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housing rents are up in the double
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digits in most provinces year over year
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in Canada according to data from
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rentpanda.ca we're also seeing the
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tightest vacancy rate that we've seen in
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Canadian real estate in two decades
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since the early 2000s the national
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vacancy rate of under two percent and
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vacancy under one percent in some
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markets in Canada this means that the
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rental market is massively
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oversubscribed you always hear about how
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we're seeing record immigration and it
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means that there are more people than
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houses for those people who live in but
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where you really really feel that is in
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the rental market and it shows up in the
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data at the same time that we're seeing
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rents increasing we're seeing prices
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decreasing in the double digits prices
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in most major markets in Canada have
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seen significant decline since the peak
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of the housing market in February of
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2022. price is going down but the income
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is going up on properties this means
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that they yield or or the cap rate which
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is a way of valuing a property based on
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its potential income is increasing cap
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rate or capitalization rate formula is
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net operating income divided by the
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market value of a property so the next
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part is figuring out where we can find
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Investments that make sense from a cap
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rate perspective as a rule because
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interest rates have climbed so much you
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need the cap rate of the property
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typically to be higher than the interest
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rate that you're using to purchase an
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investment property so let's say you
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have a down payment of a hundred
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thousand dollars I would say you could
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conservatively estimate to buy an
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investment property with about 70
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percent down for simplicity's sake I
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would typically advise people to have
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about one-third of the property's value
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in cash when they're trying to make an
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acquisition so a hundred thousand dollar
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down payment would enable you to buy
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something like a three hundred thousand
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dollar investment property so this is to
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cover your down payment closing costs
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land transfer as well as a little bit of
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a reserve to make sure mitigating
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downside risk on the acquisition of the
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property I'm all about mitigating
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downside risk which is why I'm making
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this video for you today so I put
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together this research for a company
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called landlord which analyzes cap rates
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across different cities in Canada and it
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provides a spread of what expectation
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you might be able to find a cap rate in
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each of those cities on the chart it
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shows a red line that shows the GIC rate
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or the risk-free rate that's available
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in the market right now and that is
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somewhere around what your mortgage rate
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is going to be so typically you only
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want to be seeking Investments that are
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in the markets that are above this line
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if you are a non-traditional income
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earner or for some reason you're not
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able to get credit from an A lender in
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the five percent range you might be
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using a mortgage of six and a half
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percent with a B lender and B lenders
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have great programs for investment
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properties if you're buying with a six
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and a half percent interest rate then
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you need to adjust your cap rate
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expectation to be above the seven
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percent when you get into looking for or
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cap rates above seven percent it does
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become harder to find them and this is
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where you really got to understand what
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cities in Canada you can find
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Investments within what category and
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instead of breaking out a spreadsheet
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you want to be able to use tools that
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allow you to calculate this
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exceptionally quickly because agility
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and exposure to a lot of deals is what's
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going to make you refined and successful
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as a real estate investor from my
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perspective
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it is literally like one in a hundred
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deals is a great deal so statistically
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you got to say no to a lot of
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opportunities so you have to have a
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system to underwrite properties quickly
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so now let's cover the purchase as a
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general rule there are three things that
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I would say make a deal good number one
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is you want it to be cash flowing so you
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wanted to pay more than its monthly
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mortgage payment number two is you want
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to have add value potential and this
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becomes especially possible with Bill 23
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that's coming in in Canada and number
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three is you want to buy a property that
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you can purchase below its replacement
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cost when a bank goes and appraises your
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property and determines what they're
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going to lend against the value of your
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home conducted by an appraiser who has a
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duty of care to provide an unbiased
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Market evaluation of what that property
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should be worth and it uses three
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different components so the first one is
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an income approach so what the property
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would be valued based on the income that
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it could earn as a rental property
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the second is a comparative market
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analysis approach so they compare the
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property to other sold properties that
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are similar to establish a value based
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on the average of those properties
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and then the third is what's called a
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cost approach or replacement cost new
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to do this they basically extract what
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the land value of the property might be
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and then they take the value of the
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structure sitting on the land or the
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house sitting on the land and they'll
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usually depreciate the value of that
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house based on a assumed economic life
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of a hundred years so a house is an
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asset that would last 100 years so if it
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was a car it would be a car that you
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could drive for 100 years and if the
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house is 50 years old then they would
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depreciate it by 50 to rebuild that
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house today it might cost
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300 per square foot so it's a 1 000
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square foot house
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it would cost 300 000 to rebuild that
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home you want to buy a house that you
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can purchase below what it would cost to
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rebuild even after depreciation this
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gives you a hedge that you're basically
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buying the land value which is the true
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intrinsic value of real estate for a
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cost that is below zero let's return to
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the very beginning of this video where
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we talked about appreciation and I said
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that I was going to show you an asset
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that would appreciate in value
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predictably and probably in line with
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the way that other assets appreciate
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without any speculative headaches
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associated with during real estate
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cycles and especially during bull runs
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when you see the value of all properties
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going up and interest rates often coming
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down what you'll see is a phenomenon
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called the cap rate compression cap rate
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compression refers to the rising market
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prices of investments in relation to the
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income that they earn and you can see on
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this chart over time that cap rates
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typically drop during periods when house
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prices are going up and then they cap
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rates go up during periods when house
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prices are coming down so what this is
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telling you is you can get better rates
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of return as property values are coming
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down and then if you hold the asset
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through the cycle and into a period of
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appreciation the property will not only
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be earning you income but it'll also be
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appreciating
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the same way that a speculative asset
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like a house or a pre-construction condo
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contract would the bonus is that you
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have a cash flow positive asset that's
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paying you money every month it almost
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sounds like it's so simple and probably
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too good to be true but the reality is
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so many people in Canada aren't
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investing in real estate this way a big
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portion of this comes from the fact that
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since basically the 1990s interest rates
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have been coming down and house prices
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have been going up and people were able
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to get on board of that rocket ship and
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ride that capital appreciation to make
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good returns the problem is this is akin
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to basically stock trading and you have
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to sell the asset or refinance the asset
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or take on more leverage to make that
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investment viable or sensible and it's
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not actually an investment it's a
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speculation so this is a lot to think
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about as a potential real estate
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investor the first place that I would
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say that you should start is finding a
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city in which you see the rates of
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return that are cash flow positive for
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you and provide a cap rate that you
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consider to be safe and sensible and a
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good investment the easiest way to do
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that quickly is using data from reports
00:12:45
like rentpana.ca's reports or using
00:12:48
tools like landlord.io's deal analyzer
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tool where you can very quickly go
00:12:54
through a lot of properties and get an
00:12:57
idea for what cash on cash return you
00:12:59
should expect from them whether or not
00:13:00
they're cash flow positive and what cap
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rate you might earn on them and you
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might have to look at different
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investments in cities across Canada
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cities in Saskatchewan as an example are
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places that you might be able to find in
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six or seven plus percent cap rate there
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are even cities in Ontario like Northern
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Ontario Sault Ste Marie or Cornwall
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Ontario as an example where you can get
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cap rates upwards of six percent if
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you're willing to make investments in
00:13:26
probably rougher properties the DL
00:13:28
analyzer tool is completely free and I
00:13:30
recommend it because it saves me tons of
00:13:32
time I can underwrite a deal in a matter
00:13:34
of seconds rather than a matter of
00:13:35
minutes that it would take me before or
00:13:38
even hours that it would take me before
00:13:39
to underwrite the next piece is finding
00:13:42
a local expert in one of these markets
00:13:44
that you trust and this has been one of
00:13:48
the challenges that I've found difficult
00:13:49
as a long distance real estate investor
00:13:51
and I'm probably going to do a video on
00:13:53
how to find professionals like that but
00:13:56
if you'd like to be introduced to
00:13:57
somebody who specializes in investment
00:13:59
as a host of Canada's biggest real
00:14:02
estate investment podcast I have a
00:14:04
pretty solid network of investor-focused
00:14:06
realtors in cities across Canada we do
00:14:08
meetups in different cities across
00:14:10
Canada with Real Estate Investors and so
00:14:12
I love to connect you with somebody who
00:14:14
can help you on your investment Journey
00:14:15
thanks again for joining me if you
00:14:17
haven't already please subscribe to the
00:14:18
channel this will help make sure that
00:14:20
you don't miss any developments
00:14:21
happening in Canadian real estate please
00:14:23
like this video If it provides value for
00:14:25
you and as always leave some feedback in
00:14:27
the comment section comments always
00:14:28
provide thoughtful and Lively debate and
00:14:31
discussion and that's one of the big
00:14:32
reasons I come here that's all for me
00:14:34
today and I'll see you next time
