Latest / Wealth On Main Street / 211. Wealth Creation Through Real Estate

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211. Wealth Creation Through Real Estate · Wealth On Main Street

• 0:00
  Speaker A: You are listening to the wealth without Bay street podcast, a canadian guide to building dependable wealth. Join your hosts, Richard Canfield and Jason Lowe, as they unlock the secrets to creating financial peace of mind in an uncertain world. Discover the strategies and mindsets to a financial future that you can bank on. Get our simple seven step guide to becoming your own banker. It's easy. Head over to Sevensteps CA and learn exactly the learning process required for you to implement this amazing strategy into your financial life. That's Sevensteps ca. So how exactly do you go from managing over multimillion dollar territories in the healthcare industry to now consulting with small business owners and consulting with real estate investors to make sure they can make the biggest impact to create the wealth that they want and deserve? Well, we're joined today by Megan Hubner, who is a consultant for real estate investors. And we had the pleasure to be introduced by another one of our favorites who was a guest on our show in the past, is Elizabeth Kelly. And Megan, I'm excited to talk to you today, and Jason and I to share a little bit about what are some of the trends and the things that you're seeing with the real estate investors that you work with on a consulting basis, and how does consulting versus coaching implement in the real estate sector and what should people be considering in there? So maybe to get us started, I'd love to hear walk us through the journey and the aspect of going from working in more of a corporate culture to transitioning to independent consulting. And what was kind of the catalyst for you in that? And then how did that take you into the real estate realm?
• 1:41
  Speaker B: Yeah, absolutely. I mean, I've always had a keen interest in real estate and I think I probably did what most people do, got to the max of four properties and thought, where do I go next? Not really too sure how to make that leap. And at that point in time, I was so focused in on my career that it didn't even dawn on me. And I'm always embarrassed to admit this, but it didn't even dawn on me that I could Google how to become a real estate investor and actually have my world open up, because I was just so focused in on the next promotion and I was focused in on getting to that management position. Know, I had this dream, this dream in my mind that I wanted to be a sales manager in a hospital setting and working in the or and things. And that's where I got and I think I did something that most people also do is they forget to recreate the goal. So once you get to that goal, what's next? And I kind of sat there thinking, and I thought, well, I don't know what's next. And so I said to my husband, would you move to London? He said, yeah, I'd try London for a couple of years. But then he realized I meant London, Ontario. And he was, no, no, we're not doing that as much as Ontario is great and it's got lots of good things happening for and stuff. We are BC based and we love it there. And so, yeah, there's a couple of catalyst big things that happened. Number one was they did actually have urgent open heart surgery in 2014. And people asked me at that moment in time, would you be doing anything different? Are you working the job that you would desire? What else is your dream? And at that point, I had my primary residence. I had a vacation property in Whistler. I was doing all the things I thought, no, I'm good. But then fast forward two years to birth my daughter. And I thought, wait a minute. Just lost the passion for the numbers on the spreadsheet. And I knew that I would get into consulting at one point, my degrees, entrepreneurship, if you're going to believe it. But I just got tracked into the corporate channel like a lot of people do. It was a great career. It was an amazing experience. And then when I kind of took a step back and thought, where do I really want to go and what do I want to accomplish? I realized I wanted to make a different impact. And so even though I was affecting change for thousands of people in the work that I did in the operating room, I feel more impactful now working with a small business owner to help them position their business for growth. And it just felt like I was going home when I drove back into entrepreneurship.
• 3:48
  Speaker C: That's incredible. And how's the journey been?
• 3:53
  Speaker B: It's been great. I mean, if any entrepreneur tells you it's been easy, I'm not going to sit here and say it's been easy. There's definitely moments in time where you are just soaring and you think that you're going to own this next year, and then something stumbling block comes in your way and you think, oh, my gosh, what am I doing? Is it time to get a job again? I'm on the, the right path, looking for signs in the universe, like, what's out there for me? But I think that as long as you are so committed and focused to the goal of what that looks like, here I am living in Mexico. My family is being looked after right now by our amazing nanny who loves our children and has for the last year and a bit, I'm living the dream that I'd set out for. And so I tell people is that you have to get so crystal clear on that vision of where you want to go that when the ups and the downs come, you got to reach out to your network who's doing it bigger and better than you. Where can you learn, where can you seek inspiration when it's not coming from the internal and then you look for.
• 4:46
  Speaker A: The external factors, that makes less sense. I suspect that you're going into the consulting realm to help small businesses and getting that drive and that passion kind of reignited in that environment. Somehow there was a natural transition or connection between your own experience as a real estate investor that kind of started to circle. It was like a Venn diagram of circles overlapping where the real estate investment community and small businesses and consulting seemed to intersect. So walk us through how that kind of started to really show up for you in your life.
• 5:19
  Speaker B: Yeah, that's a great question. When I started consulting, I was doing high end golf apparel, period underwear, health and fitness, pre and postnatal programs, like lots of different industries. My consulting background from my 20s is in cosmetics and aesthetics. So lots of different industries that I've been working with, but I started to have one referral leads to another referral, and all of a sudden you see what's happening in the real estate industry and you think, okay, wait a minute, I think I should start really focusing in and niching in on this one specific area that's struggling right now. Right. Cash flow has been tough for people. Promissory notes have been tough for people. There has been a lot of ups and downs in the real estate industry as far as, like equity and what you can pull and lots of different things. Right. And the other thing that happens that is very unique to the real estate industry is that businesses grow fast. I have not worked with another industry that has a business that grows that fast. You can buy one property and have ten doors, you can buy five properties and have 55 doors. Right? So all of a sudden, you're not just doing a weekend job, you're running an actual business. And people grow so fast because once they start opening up and once you start finding investors, they're going to work with you. And joint venture partnerships, you can scale very quickly. But if you don't put the solid business foundation in place, that's when things crumble. And that's what we're seeing these days.
• 6:35
  Speaker C: And that in every real estate cycle where people find themselves in a position where they're over levered, they don't have that foundation of running it like an actual business. Many people find themselves in a really bad situation, and then you have real estate investors who have been through several of these cycles, and they recognize that there's going to be a lot of high caliber opportunities that they can pick up because they have that strong foundation. They've been running it like a business. They have ready access capital. They're not over levered. Then they swoop in and take advantage of these opportunities. And this will repeat again. This will happen again. And rich and I not being consultative in the real estate space or coaching in the real estate space, but dealing with real estate investors on an ongoing basis. When times are really great and things are booming, that message falls on deaf ears. I've got access to all the capital I need. People are lining up from here to the mountaintops to invest money with me because they have this notion of get rich quick in real estate. But nobody talks to you about what happens when the interest rate lever goes in the other direction. There's even great deals at low interest rates where investors are running into problems. There's a lot of great deals out there at two and a half, 3% interest rates on the debt. But the investors over levered.
• 8:19
  Speaker B: Yes. And we're seeing that time and time again. Preventable, heartbreaking. It's heartbreaking. It's preventable. It's heartbreaking. A lot of the times when I start with someone, I say, okay, well, let's take a look at where your net worth is. How much do you owe? Where's your business at? Right. A lot of people aren't even recognizing the hard costs of their business, the fixed costs versus the variable costs. And I'm not just talking about property costs, I'm talking about the cost of actually running your business by the time you add corporation fees and accounting fees and all your subscriptions that you are clicking on every single month to help run your business. The other thing that I see happen often is that when you are implementing new systems into your business, it requires a change of habits. And we all know that changing habits is hard.
• 8:59
  Speaker C: Yeah.
• 9:00
  Speaker B: And it'll go great for a couple of weeks, and we'll implement new things and we feel really good. And then it gets, falls off in the wayside and the list grows to 101 items and nothing has been moved ahead. People are overwhelmed. And so I always say, come to me when you've got four or five properties and you want to build a solid foundation. Don't come to me when you have 45 properties, because it's a lot to clean up.
• 9:20
  Speaker A: Yeah.
• 9:21
  Speaker C: And it takes a lot of resource and time and energy and sometimes shrink contracting, contracting the portfolio. I think this episode is so important for our listeners, whether you're actively involved in real estate or you're contemplating it, because, again, that's always all of the rage. The only way to build wealth is through real estate, which isn't accurate, even remotely accurate. But if you're going to get involved in this, you need to treat it like a business. Make no mistake about. Yeah.
• 9:59
  Speaker A: Here's something I see happening, Jay, and I'm curious, Megan, how you've seen this appear for you, but you have people like yourself. You are working in a corporate world and starting to invest in real estate. You got the real estate bug somewhere. Maybe it came from family. Maybe you were just inspired and you wanted to go and take on that. And you had some business experience in the background. You had some training around entrepreneurship. But most people who are in that scenario, they are in whatever their t four job or their w two job is. They're going about life, and they have a career and a career path and a family. And so their time is very focused on that. And then they start real estate investing on the side as this desire to create a long term income stream of cash flow for their future. And then it starts to build and grow and their attention starts to go more on it. But they don't recognize, because we're going to say, oh, I'm a real estate investor. Well, no, you're actually a business owner. You're an entrepreneur who just so happens to have a business in real estate. So I think that the marketing and the real estate investor community has actually done people a disservice that I see two different things happening. And I meet with a lot of people where people who work for someone else, which is great, they start real estate investing, and they build up. And they build up. They hit a ceiling of complexity around the amount of doors they can qualify for and the down payment resources they have before they need to start finding joint venture partners. So that's very common. And it's right around that point in time where they really start to recognize, whoa, whoa, wait a second. I'm not a real estate investor. I actually am a business owner, but I don't know anything about running a business. So they kind of do cart before the horse a little bit. And so if there was more training on the beginning front instead of hey, here's how you analyze a deal and how you make an offer and how you go acquire a deal. Here's how you look at a business around real estate investment, and this is what the fundamentals of that business look like. And I see this the other direction, too. Sometimes we have business owners. They have great cash flow. They're really good at putting money aside. Their business is going well. And business owners are, like, right in their business. They're in or on it, but they're involved in activities that center around their business as kind of their baby. Right. And then because they have capital that's building up, then they start investing money in real estate. But they look at this as this passive thing where it's not a business and not treated like a business because their business is their business. So it's kind of like, okay, the employed person buying real estate doesn't know about business, and then the business owner who knows about business doesn't treat their real estate like a business. Does this sound like something you've seen before?
• 12:24
  Speaker B: Yeah, absolutely. You're exactly right. Both scenarios are right on, without a doubt. And so what I actually do is, when I start working with someone, is we actually take a look at the four main business areas. And so we always start with accounting finances, and I meet the business owner where they're at. That could be anything as simple as are your payments and your rents coming into the right bank accounts? Are they being routed out of the right bank accounts? Do you have enough bank accounts set up? Are they being lumped together? Where is the flow of money actually going and coming from? Do you know what the fixed costs are on each of these properties? What's the carrying costs in these properties? Right. Where's your equity sitting? Where's your net worth sitting? Do you have a corporate credit card? Are you still only using your personal credit card and trying to separate things out? Like, do you have an accounting software system in place? Are you using Quickbooks online? So we start with the very basic fundamentals, and wherever you're at is where we start. And then from there, we take a look at, okay, now that we know how much money is coming into the business, how much money is going out of the business, what is your sales and marketing efforts? Right? Do you have a brand? Do you have brand messaging? Do you have a website? Is there an easy way for people to reach you? How much do you need to sell each month? Or what's your marketing goal? Are you looking for joint venture partners? Are you looking for equity partners, et cetera and then from there we understand what the marketing initiatives and drivers are, and we say, okay, let's look at the human resources component. Who's going to help you execute this? Is it time to hire someone? Do you need to bring in a va? Is your spouse willing to work in the business with you? Do you have standard operating procedures on how things need to be done? Do you have key performance indicators? Do you do performance reviews or employee reviews? Are you working with contract workers or do you want to bring someone in full time? And then from there we say, okay, now let's take a look at the operations, right? How is your product or service getting to the end user? Is there standardization? Do we have a standard way of you naming all of your files and your documents? Are you using Google Drive? Are you using five different types of drives? Are you using a project management software? Do you have a CRM database started that you can actually scroll through and find all of your contractors in Edmonton or all of your lawyers in Ontario? How is all of this information and who's helping you with it? And so we take a look at the operations, the heavy side of the business. The other things are all the supporting documents, but the operations is really where that streamlining and things needs to be done.
• 14:39
  Speaker A: You identified all these things because this is where any of our listeners can really see the true distinction between consulting and the coaching side of things, where it's okay, how do we grow? How do we work on your mindset to grow these things? You're talking about very tactile oriented stuff around the fundamentals. And then from there you can expand on a lot of things. And I think that's really important to identify and giving some perspective. In the past, I've coached and worked with other advisors who are learning to implement a process that we teach on becoming your own banker, which I think you're familiar with. And Jason, we do a really good job of that now. But in the past, of course, there's things that you learn as you go. And we know from our colleagues, even down in the state, et cetera, that there's always challenges with that. And what I found with a lot of times with people is that they really want to go and implement this process and learn how to do it. Similar to like, I really want to invest and grow my real estate portfolio. And they kind of know there are certain things they need to do, but they're focused on the wrong things. It's like, wait a second, we can't teach you how to do this if you don't have anyone to talk to.
• 15:46
  Speaker B: Right.
• 15:48
  Speaker A: You can't go buy more real estate if you don't have a way to go buy it. You can't get more tenants to fill your vacancies if you're not marketing for them. So it's very cart before the horse and how a person thinks and they need to go. So what I like what you're talking about is getting back to, okay, what are the basic components that we need? What's that foundational level of understanding? And then you're creating some efficiencies once you have that understanding so that you can operate at a measure of speed out of the gate, which I think is really interesting and important for our listeners to take heed of.
• 16:18
  Speaker B: Yeah, absolutely. The more times you can standardize things in your business, the better it know, even just with clients. This morning we were taking a look at what does an Excel spreadsheet look like versus the workflow that you've created for that project within Asana. Both of those should look exactly the same because the more you have to toggle around and look for where the drywalling line is and look for where the electrical is going to be done, the more brain power it takes. And if you want to grow and scale, we want to have those repeatable tasks duplicatable really easily.
• 16:47
  Speaker C: Absolutely. Especially if you're going to build a pretty remarkable portfolio of real estate. There's a lot of enterprise value in having systems in place, especially when you get to a stage that certain real estate investors will get to where somebody just wants to buy the whole enchilada.
• 17:07
  Speaker B: Yeah.
• 17:08
  Speaker C: You've got a system, you've got people, you've got a process of running the business. We're cash flow confident in the portfolio. You're not over levered and stable. How much for the whole lot then?
• 17:25
  Speaker A: You're not selling individual properties or the equity, you're selling the business that runs an.
• 17:32
  Speaker C: Yeah, yeah. And so what would you say, Megan? Right. What, based on the consultative sessions that you're.
• 17:41
  Speaker B: Yep.
• 17:41
  Speaker C: What are some of these real estate investors experiencing difficulty with? Especially know folks who have mortgages that are going to reset at higher rates. And what are they worried about?
• 17:57
  Speaker B: A lot of them are worried about, obviously, the higher rates and the decrease in cash flow, which is absolutely huge. And that has really affected a lot of people. They are concerned about just the overall landscape of what's happening in real estate right now. And a lot of times, like I said, they're just overwhelmed. They've got so many moving pieces within their business, which is now a robust business that they just don't know where to start. And so that's why we break it down into those four simplified areas to really start getting some clarity around the business. How is it performing as a business? Right. Not just a couple handful of properties and things. And then really, where do you want to go? So I always say that your real estate coach will help you to understand when to buy, sell, hold, flip a property. I'll never tell you when to do that. I will tell you how to understand your business as a whole so that you can make strategic decisions to say, yeah, this is now a time to.
• 18:45
  Speaker A: Buy, sell or flip, become your own banker and take back control over your financial life. Hey, is this even possible? You may be asking, can I even do this? Well, you better believe it. In fact, it's easy to get going. So easy that we put together a free report. Seven simple steps to becoming your own banker. Download it right now. Go to Sevensteps ca. That's seven steps ca. Now let's get back to the episode.
• 19:17
  Speaker C: And what would an ideal consulting client look like in terms of who do you most love to serve?
• 19:26
  Speaker B: Yeah, I love to serve anyone who is looking, A, to grow B who has a business already and they are ready to recognize it as a business. It's not without work, I'll be honest with you. Right. You're going to go away each week with homework to get things done, to move the dial, to turn things forward. But I do always say too, it's your own entrepreneur journey. We move as fast or as slow as you can go. If you've got a nine to five and five kids, then you're going to move slower than someone who is single with no kids. It depends on how fast they go. But I really would love to catch people before they get to 45 properties. Come to me when you know that you want to continue to grow, you want to stabilize, and you really want to understand your business so that we can build that solid foundation for you. Because when you come to me too late, it's pretty hard to recover.
• 20:10
  Speaker C: Yeah, that's a good point. And is that first step in the process just an exploratory conversation to sort of get acquainted and see if there's a good.
• 20:19
  Speaker B: Yeah, I do a 45 minutes consultation. You can book it on my website. We dive into your business. There's a few pre work questions and things to do. First, we dive into your business, and then I'll prepare a proposal for you, depending on how big your team is depending on your goals, how fast you want to move, et cetera. And then I'll put together a one to one package. I only do one to one work because it's just too vulnerable to work in any type of group setting.
• 20:41
  Speaker A: Yeah. You're getting into a lot of the specifics and some of the unique goals and stuff that people have. Yeah. Earlier at the beginning, you indicated promissory notes and how that's also showing up for a lot of people. What have you been seeing kind of around that and trend wise, in the last, say, six months to a year, as you're speaking to clients and people that you meet with?
• 21:06
  Speaker B: Yeah. This trend is to be moving away from more promissory notes, to be adding something like equity in the portfolio, in the property, to just making sure that people are a little bit more guaranteed, making sure that you are doing due diligence on the people that you are investing with, and you've got confidence that they've got a track record, that they're doing the work to begin with. There's a lot of real estate investors who are out there that have been through cycles before, and so lean into learning from the people who have been through the cycles is really what I would say.
• 21:38
  Speaker C: Yeah. Another tip that I would add to what Megan shared is like, for example, most recently, I was introduced to a fellow who's been in the real estate business for some time, and he raises capital and obviously pays a return on that capital rate from inception. So there's no deferred or delayed benefit of investing. And I let him know that I was going to need a few weeks to do my due diligence. And he said, oh, well, here's all the information on where we invest, how we invest. I said, no, you don't understand. I'm talking about the credit check, the criminal record check, the background check. And so I personally invested money out of pocket to do that. I will never go into business with anybody ever again without doing a head to toe complete check from A to Z. And if there are any red flags, I'm out. And so many people. And in this particular case, it worked out just fine. No concerns there whatsoever. But he said to me, because I asked him, I said, well, how often do you encounter that? And he goes, this is the first time anybody's ever mentioned something like that to me.
• 22:56
  Speaker B: Wow.
• 22:57
  Speaker C: I was shocked. Absolutely shocked. Yeah. Worth every penny. To do that due diligence cost me a couple of $1,000, but that's just one element of peaceful, stress free approach. To it because you're not wondering, because you don't know the person. And I don't need to hear any more horror stories of somebody waking up one morning going, I just invested with somebody who's been arrested 14 times for defrauding people. And now it's happened again. It's like, well, why didn't you do your due diligence on the individual? Not the opportunity, only do your due diligence on the individual.
• 23:40
  Speaker B: Yeah, I've invested in the past, too, and I've had great success, and it's always been a good news story for us. And so that's been obviously fantastic, ideally what you want every single time. But yeah, it's a due diligence period that you need to go through. And everything in this is a learning.
• 23:57
  Speaker A: Process as, and, you know, piggybacking on what you said, circling back to promise. One of the reasons I was curious about that, Megan, is because just really in the last probably three months or so, and certainly over the last year, but more so in the last three months, I've had probably at least five to $600,000 worth of promissory money from individuals, real estate investors who have their own properties, but have also invested other things because they're trying to transition to getting to a more passive category versus an active category of the business. And there's that much capital just with about three people, where they're not going to be getting the promissory notes back. And interestingly enough, it's not necessarily that the person who they got the promissory, gave the promissory note to was a bad person or that there was no intention. And it's not even that the deal was a bad deal. It's that the economic factors surrounding the deal or the timing that it was going to take that deal to get completed have completely shifted. So something that in an Ontario marketplace, for example, you being in the BC area and Ontario, there's been a lot of, at least in Canada, we definitely know that we've seen some real estate changes there. And so as the winds of change shift, as interest rates go up, the different levers of economic factors are now putting a lot of pressure on deals where maybe they were a one, two, three year project and the time of acquisition versus the time of the rate change just didn't line up. And so people are sitting there holding their pockets out with no money coming into it, wondering when they're going to get it back. And the reality is a lot of people aren't going to get it back. And so the reason I bring it up is similar to Jason's point. I've seen and I've heard from many individuals, because we work a lot, one on ones with real estate investors, where maybe they're engaged in coaching and there's amazing coaches out there. But sometimes you're engaged with someone who's coaching you, maybe even from another country, and you might be doing deals or doing promissory notes. But if the coach's job is to help you understand how to protect your money and how to manage deals, if you're putting promissory notes with that person, and that person isn't showing you how to take security on the property, that seems a little bit a mismatch of value to me there. Right? Because if it's property oriented, you can take security. So if there is no security, you got to wonder, how are you being secure if there's no security? That's a fundamental question I think people need to start asking, and they don't really. And I circle back to earlier on in my journey in real estate, member of the rain group for many years. Love that organization. Shout out Don Campbell. Amazing guy. And going back to learning the importance of how you could take security. I remember learning how I could invest or lend money. I shouldn't say invest, I mean lend money on private secured mortgages, whether it's registered or non registered money. And I did that early on in my youth, and I've done it a number of times, as I know Jason has. But there is security. However, there's no guarantee. But a lot of people at that time were talking about how it's guaranteed. Like, no, it's not guaranteed. It's secured because if the deal goes sideways, which has also happened to me, and I had second mortgage capital at risk because no one taught me or showed me how I can actually exercise my own foreclosure process or bring a first mortgage that was going to foreclosure back into good standing. No one told me how that works, and there's actually a huge legal nightmare around it. So if you don't understand how to protect the capital, just because it's secure doesn't mean you can get it back.
• 27:21
  Speaker B: Yeah. And we actually had a conversation this morning about not using the word guarantee and just eating up with the verbiage that you are putting out there when you're having a casual conversation with someone. Right. It affects all areas of our business, but, yeah, just really making sure that you are doing your due diligence on the person, their ethics, the way they operate. All of those things are so important.
• 27:43
  Speaker C: And as part of your consultative process, do you provide access to resources for investors?
• 27:50
  Speaker B: I have a referral list, yeah. Of experts in the field that I recommend people to. Without a doubt that I've kind of vetted as far as, again, all back to the four buckets. So I've got tax experts, fractional CFO, I've got sales and marketing specialists, operations, et cetera. So, yeah, I do recommend and outsource those sections as well.
• 28:08
  Speaker C: That's terrific. Excellent.
• 28:11
  Speaker A: Now, recently you had done a program where you had a group of people come through, I think it was about a six or an eight week process, where they were going through some deals and working through their businesses a little bit more in a group format, which I know is not your preferred method. You're more of a one to one person. But that was a fairly recent experience. And being that it was recent, I'm curious, what were some of the themes, the trends that you identified going through that platform? I think you did that with Elizabeth together as kind of a tag team model. So maybe expand for our listeners. What are some of the things that you're seeing out there in the deal flow and in the way that people are set up that they need to really start taking some good look at their business a little bit more in depth?
• 28:52
  Speaker B: Yeah, it was a case analysis course that we did. It was about an eight, six week process, actually. And we took people through kind of going into all those four main business buckets again, so that everyone brought in their own deal or their property that they were either evaluating or they currently had, and they were encouraged to just kind of get the background support as far as what does it actually look to do a full SWOT analysis, case analysis of this deal? The common theme for pretty much everyone was that they were a little bit thought, you know, I've got this property. It's either underperforming or it's status quo, or I don't really know what to do with it next. I need some creative ideas. And so just with the gelling of actually having everyone in the room together, there was some great expertise even above Elizabeth and I, expertise in storage, expertise in the aging population. And so there was some good dialect within the group, but it was really like, okay, I'm scratching my head here thinking, what am I going to do with this property and where should I go next? And so it was really the collaboration of ideas, the timeline to actually start executing and implementing. And then, of course, as we know, it's the action. Right. And so we had weekly accountable things to keep people on track of moving ahead or crunching the numbers or running a different strategy. And so those action key pieces are so critical when you're trying to turn the dial in your business. It was a really good experience, and it wasn't specific enough that I was diving in and tearing apart finances for people that they were vulnerable to say, hey, you know what? I didn't realize that my bill had gone up by $70 on Internet costs, and therefore I'm running negative cash flow now. How can I squeeze? What can I do next? And so it was a little bit easier to do in a group setting because it was just that one specific case.
• 30:28
  Speaker C: I couldn't imagine personally investing in real estate that way ever again, where the cash flow is just either so minimal or, God forbid, negative. I just couldn't imagine doing that again.
• 30:48
  Speaker B: I feel like my perspective is a little bit different because I come from BC and BC is known for appreciation. And so I did. I'll be honest, I had a cash flowing and negatively cash flowing property for the first, oh, my gosh, I think it was four years or something like that. But then on the sale of that deal, it negated any negative cash flow that I carried for the last four years. Right. Because it's in BC and appreciated quite a bit and was able to absorb all of that. But, yeah, I can't imagine buying on day one and having negative cash flow.
• 31:20
  Speaker A: Yeah.
• 31:21
  Speaker B: Property we bought in Saskatchewan recently, it was cash flowing on day one. And.
• 31:26
  Speaker C: That'S incredible. And it's important for any investor, I think, too, just to have their. To establish what their criteria is, because I think that so many people, they get involved in real estate investment, but they have no clarity on their own criteria. It's like, well, what would be a non starter for you? Well, for me, if I'm not receiving a check every month from month one, I don't care. You could promise me the moon, the stars and everything in between. I have zero interest in that deal. Zero. And the opportunities that do cash flow, they cash flow really well, because you're dealing again. What is your criteria? Are you going to deal with an experienced investor, a brand new investor? What's the loan to value ratio? That's your cut off point. All of these things that so many people just may not even be aware that there's an advantage to thinking through that stuff.
• 32:28
  Speaker B: Absolutely. For me, my Airbnb properties, I won't buy a property that isn't cash flow. Right. I want to have a, b and c strategies on it. I want to have it to be a long term rental in case the market comes flat or the Airbnb rules have changed again. I want to have it cash flowing as an Airbnb and then as a midterm rental as.
• 32:45
  Speaker A: So, yeah, that's important. I'm glad you the. The rule changes, and I think that's maybe something to touch on in a moment, but I'm going to reflect on a time period. So, as an example, I have a property in Fort McMurray. That property was acquired roughly in 2002, 2003, somewhere in that range. And it's a one bedroom unit in an older building in Fort McMurray. It's nothing fancy to speak of. It's in fact, the exact opposite of that. So I have that property now for 20 years, and when we bought it, the original purchase price of the property was about 78, $79,000. Put 25% down. Well, the whole idea was it was at a condo conversion, rental management. It was on site management, rental pool. So you're sharing expenses. Never have to see a tenant, never have to deal with a vacancy. All those things might not have the greatest cash flow, but over a long time frame it would be paid for and all these magical things would kind of happen. So shoot forward to the peak of the market, and we had that property appraised and it appraised at about 225,000. So pretty big, pretty big impact. It was great. Turns out we did an equity takeout that time because we had some other real estate deals that needed some capital. Special assessment on one. We had some other needs at that point, so we actually pulled out more capital than the original purchase price. So we had our money back. So I kind of look at it as a free property, but shoot forward to today. So now we're about another ten years later, roughly speaking. And that property now, if I wanted to sell it today, I probably could get less than 40,000 for it.
• 34:20
  Speaker C: Wow.
• 34:21
  Speaker A: So we have a market change and shift in economic factors that have driven and changed the outlook of that property drastically for several reasons. The reason I want to share the story is there's a multiple overlap of things here. So, as an example, in the peak boom years, I don't know if you know this or not, but in Fort McMurray, labor costs and material costs are a little bit more than other places because there's a lot going on there. You have to pay a premium for labor in that marketplace. Well, there was a large condo project that needed to be done on the exteriors on windows, a lot of things. And although some of it could have done piecemeal, which is how the reserve fund projections go, when you're in a hot marketplace where you can't get labor, no one will touch a small project. So the only way you can actually do the project is to do the whole project. Unexpectedly large expense, not in the chart of values of the reserve fund, means a special assessment. Special assessment was $29,000, by the way, payable over two years to do all that work. And then you did all that work. And at the same time that you did that work, you hired it out and made the decision at peak pricing. Immediately after you sign those documents, the price of oil goes down like a rocket ship turns into a ghost town. So your rental market goes down and it still hasn't properly recovered. Then a few years later, you have a big fire that leaves everyone from town. So all the people leave town, but the cockroaches come in. I don't know if you know, that's a problem in form. Mcmurray. And then after that happens another year later in the frozen period, right around this time of year, there's a big flood that also impacts the town. Meanwhile, it's still trying to rebound from all this other economic challenges. So it's ten years of rebuild that hasn't rebuilt yet. Does that kind of make sense? So no one on planet Earth, I think, could properly have predicted that. I know I couldn't have, and I wouldn't have even imagined that those things can happen. So the good news is I've experienced them, so now I know that it can happen. And all that being said, because we did an equity takeout when the price was high, technically, I couldn't sell that property for what it's worth today and to get out from under that loan. And it does negative cash flow. In fact, it was positive cash flow for the bulk of its life until the last five or six years. And that's a lot because of some mismanagement at the property management level, because there's been some issues there. So how do we solve that problem? I'll tell you what I did is I put up a one page lead page, and I paid a virtual assistant to go and collect land titles, about 150 land titles, and track people down and try to contact them to get their proxy vote so we could do a hostile takeover of the condominium board and then the rental pool board. That was a three year process. A lot of my energy and effort, which I don't get my time back for. But now we finally got that property rebounding in a direction where it can go up when the market goes up. So why do I share that story? Because if you're looking into real estate, everything looks really good on a performer, and everything looks good on a performer relative to today's market. But it's generally not tested for future markets. So recognize cycles and also recognize what are certain economic impacts that unique areas and zones have. For McMurray's example, highly impacted by oil. That's one area to be aware of. Now, we could have got out of that property. We just didn't do it. So all that goes on us, the result is it's still kind of a free property. We got more out than what the negative cash flow has built up, and I could hold it at negative cash flow for another ten years to equalize the difference of what I have to pay to get out of it. Does that kind of make sense? And over the next ten years, it'll probably rebound. So I'm in it for the long haul, but it doesn't mean it's been a great experience. The experience of learning, though, has been absolutely on fire. I mean, amazing. You can't experience this many things to not be able to have a lot of takeaways. So I think I've been given these wonderful gifts so that I can share them to other people. And I've had these conversations and stories with real estate investors, and I can say, hey, look, I know what it feels like to get kicked really hard in the nuts several times. Also had the two by four hit me in the face and still be able to move through and transition on. And recently we had another gentleman on. Russell Westcott was on with us to share some of his experience where he's also had some of the market ups and market downs. And so my only thing I would say is, if you're new to real estate investing, pay good attention to what Megan is sharing with you about running a business and getting really clear on your business model and what you're looking for and what your non negotiables are. It'll mean you do a lot less deals, but it'll also mean that the deals you do are of higher caliber and that you can make your peace with the result of the deal, one direction or another, for sure.
• 38:58
  Speaker B: Absolutely. I think your story is a great one. I mean, unfortunately, you have lots of ups and downs, and it's taken a lot of bandwidth for you to work through that. But I think the important message, too, is that it was one property. It's not ten or 15 properties of that same caliber. And if it was ten or 15 properties, that's a lot harder to recover from. It's a lot harder carrier as far as the negative cash flow goes, investing in a smaller area, a little bit more risky because it's tertiary, even a four times market. I think that the message is to really understand the strategy and the long term. Hold on, that knowing your numbers is key, right? You could have ran that property for 18 months and then scratched your head one day and said, oh, wait a minute. Because I had all these other properties in this account, I didn't realize it was negative cash flow this whole time and so you wouldn't have created an action plan around it.
• 39:46
  Speaker C: That is excellent. This was great.
• 39:49
  Speaker A: Megan, tales from the trenches with some how do you prevent the tales from the.
• 39:54
  Speaker B: We had. We had a few trench Airbnb stories while we were. It was like right over Christmas here, too, and I was scratching my head going, we haven't had those kind of Airbnb problems like sewer and hot water tanks and the freezing of the pipes, and we had it all. We had guests that were showering in one unit and sleeping in another unit and then cooking in another unit. They still gave us a five star review. But you have to prepare for these kind of things, right? We overserviced as far as customer service goes and delivered everything that we could to make the experience a little bit more enjoyable. But there's unforeseen things that are going to happen and they'll be thrown at you, and the more confident you are on your business, the easier it's going to be to recover.
• 40:33
  Speaker A: Well, I'd love to get your take as we look at closing here on the Airbnb model a little bit, just because there has been some changes around some of the taxation stuff that's been introduced by the federal government as well as geographically. I know in BC there's some issues and changes going on. And so I'm just curious, maybe your perspective and your opinion on what should people who are either currently doing that strategy or looking at doing more of that or getting into that strategy, what are some of the red flags and things you would want them to be aware of to mitigate their risk around the dynamics that they have no control over?
• 41:13
  Speaker B: Yeah. And I mentioned earlier is that when I look at an Airbnb property, I want to have a couple different options for it, like an A, B and C option for it in case things change. I've actually talked to investors in the last couple of months who had that exact thing. They built their entire business plan around buying an ALR agricultural land section. They bought the know, they did all the Airbnb stuff. They got the licensing. They did. And then a few months later, the whole rules changed and everything. And I do feel like it's highly unfair. My heart goes out to all of those people that are struggling on Airbnb, whether you have rented your basement out to help cover the rising mortgage costs in your single family home where you're raising your family, or whether it was a business plan that you did with private investors, and you now have an Airbnb property that is sitting empty. I feel terrible for everyone that is affected in that situation. I don't think it's fair. I don't think, personally, I don't think a full economic impact has been done. We look at areas that are driven by tourism, that don't have other options for accommodation. Some rural places on the island driven by tourism don't have options for other hotels and motels in the area. And yet now they've taken all the Airbnb properties out. And so what happens is tourism is driven way down now. We don't have people coming to support those restaurants and small businesses. So I don't think the full economic impact analysis has been done accurately, to be honest. You might have an opinion on that as well. But I think it's unfair. I think that I feel really badly for those people that are really effective. Luckily enough, we're in areas of designation where we either have a clause where we're safe or we're under 10,000 people. So we're still in those good positions. I still think there's a market for Airbnb without a doubt. I don't think it's on the decline, without a doubt. I mean, as a family, as a mother with young kids, I always look for Airbnb properties first before I go to book a hotel. I want the amenities. I want a second bedroom for my kids. I want to be able to cook breakfast in the morning. So that is not ever going away for travel for me. I mean, even in Mexico here we're all in Airbnbs. But yeah, I do think that it's an area that you really need to go if you're looking at an Airbnb in an area that is potentially going to change with their zoning and stuff, go through the due diligence, go to the city, find their thinking, talk to people on council, like, what do they have in mind? Where are things going? What's the long term plan? Is there an opportunity for you to apply for a BNB license so that you kind of are held in safety?
• 43:37
  Speaker C: That's the right way to go about. And because typically when changes of that nature are enacted, very little thought gets put into the unintended consequences.
• 43:50
  Speaker B: Yeah, I mean, we almost purchased a property last year, and the builder was like, oh, no, the Airbnb does amazing here. And I'm looking at these numbers going, I don't see how they can do these numbers. Like, that's an eight month rental, high season. And I don't think the market in Kelowna, downtown Kelowna, is eight months. A little bit different if you're maybe on the water, but it was just a single family or a duplex, I think it was. And so we took a look at it and looked in the area, saw that the area for three bedrooms was kind of a little oversaturated, in my opinion. Ran the numbers, still came too close. And then, sure enough, colon has been hit really hard with that, really affected. So that would have been dissolved our whole business plan. And that specific property did not have an A, B or C option, so it would not have cash flowed as a long term rental. It would have done, okay, maybe on the midterm rentals, but long term is always your fallback, and it wouldn't have cash flowed.
• 44:44
  Speaker A: Well, what I love is that, as you identified, for anyone who's in that space or three looking in that space, take heed of the model of prepare that property. Make sure it can work in more than one way, more than one strategy can functionally work for it. You're going to go for the one, hopefully, that generates the most profit, but you want to make sure that you can stabilize or put yourself in a position of strength, even if it can't. And then additionally, I would also say this to our listeners. Changes like this by either local, municipal, or provincial, or federal governments have a direct impact. They create a lot of initial fear, and they create a lot of people. It's going to scare a lot of people out of the marketplace. And a lot of people who were too lean on their numbers to begin with were trying to force the property or the project to happen. And now they're in a position where they have to get rid of it in some way and probably at a discount. Well, that's going to create opportunities. So every time that there's some really bad, horrible, nasty news, there's also some really great opportunities that come of it. You have a thunderstorm and it knocks down, and it blows down a bunch of stuff and makes a huge mess. Hail comes and it smashes some car windows. Well, often what follows a thunderstorm is a lot of new growth. There's a lot of rejuvenation that comes after those types of things. So consider how that shows up in the real estate market and be mindful and be looking for those type of opportunities to appear.
• 46:12
  Speaker C: Well said.
• 46:13
  Speaker B: Just keep looking. Right. You're not going to find it in looking at ten deals. You might have to look at 100 deals.
• 46:19
  Speaker A: Don't be in such a hurry to get the deal done that you leave yourself under capitalized. And that's why we talk about the importance of becoming your own banker, so that you are always looking at a readily available, accessible pile of capital, the more that you have access to that. Our mentor, Nelson Nash, taught us that when you have a readily available access to capital, opportunities of high caliber will surely appear. So I think that's an important thing to note. So, Megan, we appreciate you being with us here today. Obviously, you're with us. You're in Mexico with your family. Amazing. And you are doing incredible work helping people recognize that their business needs to be a business, whether they know it or not, and how to get those fundamentals in place. And so to close us out here, we'd love to know, who would you most like to be a hero to?
• 47:07
  Speaker B: Oh, my gosh. Well, want to be a hero to my children, for sure, without a doubt. But I also want to be a hero to the person listening today who thinks like, I want to do it, but I can't. I'm afraid to. But if I take a look at the steps that she did, I get more courage from that. And I so deeply feel that whatever you want to achieve, you can. It takes hard work, it takes a commitment to your goals. But, oh, man, if you could just see yourself in two, three, four years, once you take those leaps, whether it is investing in a new way, whether it's diving into real estate, whether it is starting your own business, whatever the goal is, just go for it. And so that's who I really want to affect change for, is those people who are thinking, I wonder if I can love that.
• 47:57
  Speaker C: Don't fear failure, folks. Fear the absence of progress. And if you're seeing an absence of progress in your real estate portfolio, get in touch with Megan and see if there's an opportunity for some consultative work that is going to help you make progress, positive progress. And so to all of our viewers and listeners, thank you for tuning in. Megan, this was wonderful. We'd love to have you back again.
• 48:21
  Speaker B: Thank you. Yeah, I would love to.
• 48:23
  Speaker C: This was great. Rich fun as always. And to all of our viewers, you'll see a video that's just shown up on the playlist as a recommended next video to watch. The reason that we do that is we believe there's no such thing as having arrived in knowledge. So continue your journey of learning. The video that we've recommended is curated especially for you, so enjoy it and make the rest of your day outstanding. Thank you both.
• 48:47
  Speaker B: Thanks very much.
• 48:49
  Speaker A: Thanks for listening to the wealth without Basery podcast where your wealth matters. Be sure to check out our social media channels for more great content. Hit subscribe on your favorite podcast player and be sure to rate the show. We definitely appreciate it. And don't forget to share this episode with someone you care about. Join us on the next episode where we continue to uncover the financial tools, strategies, and the mindset that maximize your wealth.