12 Lessons From Buffett & Munger For Real Estate Investors

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate

[00:00:06] the market and provide the tools and insights to build your real estate portfolio.

[00:00:13] Welcome back to another episode of the Canadian Real Estate Investor podcast.

[00:00:16] My name is Warren Buffett and I am Charlie Munger.

[00:00:19] What?

[00:00:20] Gotcha.

[00:00:21] No, it's just us.

[00:00:24] Just Nick and Dan.

[00:00:25] Yeah.

[00:00:26] But sorry.

[00:00:27] I think it gave a hint as to what we're talking about.

[00:00:31] Usually they know what it's about from the title.

[00:00:32] Oh yeah, I always forget the title.

[00:00:34] We don't see the title usually come with the title afterwards.

[00:00:38] However, I did come up with the title for this one before because when the late great

[00:00:43] Charlie Munger passed away a few weeks months ago at this point.

[00:00:48] Yes, a while ago, months ago, yeah.

[00:00:49] I started doing a whole bunch more research into these two.

[00:00:53] Anyways, before we get into it, you know we like to start things off with a quick

[00:00:57] review, pump our tires, get everyone fired up.

[00:01:00] One of our amazing listeners wrote this.

[00:01:03] This one is from our KADIS through Apple Podcasts and it says great podcast five stars in

[00:01:11] line with value investing philosophy have been listening to these guys for months ever

[00:01:16] since they heard them on we study billionaires.

[00:01:19] That was a, that was fun getting on there.

[00:01:21] Those are those are good guys.

[00:01:22] Yeah, I like doing the US podcast circuit.

[00:01:24] We got to do that again.

[00:01:25] Yeah.

[00:01:26] And listen, our KADIS, we appreciate the review.

[00:01:31] We appreciate the support.

[00:01:33] Thank you very much.

[00:01:34] And that review is a perfect one for today because we are talking about investing philosophies

[00:01:42] from one of the greatest two of the greatest investors of all time and some of the most

[00:01:48] famous billionaires and known unfortunately, and it's not us.

[00:01:52] I thought you're going to say like Elon Musk or something.

[00:01:55] There's a there's a note in here for me to say who like I'm surprised, but we already

[00:01:59] started to episode the spoiler on kind of ruined the surprise.

[00:02:02] But yes, who with an exclamation mark and a question.

[00:02:05] Who are you talking about?

[00:02:06] So well, widely known as the most successful investor of all time born in 1930 in Omaha, Warren

[00:02:15] Buffett started investing at a very early age.

[00:02:18] Hence, most of his childhood consisted of entrepreneurial ventures.

[00:02:23] He started a business from selling chewing gum, magazines and Coca-Cola to becoming a billionaire

[00:02:28] and he hasn't left any stone unturned in the process.

[00:02:31] The journey began and eventually became one of the best known investors in history, but

[00:02:37] it wouldn't be complete without the help of his friend Charlie Munger who Buffett described

[00:02:41] as his closest partner and right hand man.

[00:02:44] These two grew Birkshire Hathaway from nothing to have a market cap of over $830 billion

[00:02:50] dollars.

[00:02:51] There's a few mathing that's just shy of a trillion dollars.

[00:02:54] A couple bucks there.

[00:02:55] Yeah, now these two are epic in so many ways.

[00:03:00] Their overall impact on the investing community, the annual shareholders meetings which unfortunately

[00:03:06] I was never lucky enough to attend.

[00:03:08] I know Bradin one of our podfathers had attended at least one and everyone just said they were

[00:03:14] epic.

[00:03:15] But also the idioms and the anecdotes, the investing lessons and the principles that these

[00:03:21] two great men shared with us throughout their lives.

[00:03:25] What we've done is we've gathered some of our favorites here and we're going to go through

[00:03:29] them and apply them to what we think we are not so bad at which is real estate investing.

[00:03:36] It is interesting to do that application because I think one of the things that's probably

[00:03:43] wrong with Canadian real estate is that they don't focus on value investing, rule number

[00:03:48] one investing which there's actually a great podcast called the rule number one podcast.

[00:03:53] I remember that was like one of the first investing podcasts I ever listened to and rule

[00:03:58] number one by the way for those of you who don't know this is never lose money.

[00:04:02] Do you remember what rule number two is?

[00:04:04] See rule number one.

[00:04:05] Yeah, never forget rule number one.

[00:04:07] Rule number three is you do not talk about fight club but that's for a different podcast

[00:04:11] club to get through.

[00:04:12] So yeah let's get into these more.

[00:04:14] Yes, start us off here.

[00:04:15] Open ended ones.

[00:04:16] Number one says someone's sitting in a shade today because someone else planted a tree

[00:04:21] a long time ago.

[00:04:23] This highlights the importance of long term thinking when investing and having vision

[00:04:27] for the companies you invest in or the assets and markets you invest in when applying into

[00:04:31] real estate.

[00:04:33] And you know, you could even say someone is living in a house today because someone else

[00:04:36] built that house a long time ago.

[00:04:38] I mean my house, I was just pulling some drywall off in one of the rooms and I found a

[00:04:43] did I tell you about this?

[00:04:44] I found a newspaper clipping from a lot of it.

[00:04:47] It talks about the founding of the Dominion Bank which was in 1869.

[00:04:52] Wow.

[00:04:53] Yeah, and it talks about this guy who, I think it's Charles Tupper I want to say who ended

[00:04:59] up becoming the sixth Prime Minister of Canada from a newspaper.

[00:05:03] So anyway, that reason this house exists today is because somebody built it during that

[00:05:07] period of time.

[00:05:09] I think it's, you know, this kind of is derived from that saying where, you know, if you're

[00:05:14] not willing to own a stock for 10 years don't even think about owning it for 10 minutes.

[00:05:18] Right?

[00:05:19] I don't know what do you think about it on that one.

[00:05:20] Yeah, I mean, look, I love it.

[00:05:23] It's kind of one of those, it's cute enough that you are going to remember it but it's

[00:05:28] really got a deep meaning right?

[00:05:31] I mean someone sitting in the shade today because someone planted a tree a long time ago.

[00:05:37] You can be both of those people in that equation, right?

[00:05:41] That essentially means to me do the work today so you can enjoy it in a few years which

[00:05:47] one of the other investing philosophies that we've talked a lot about on the show is delayed

[00:05:53] gratification.

[00:05:54] That is investing 101 and especially in real estate.

[00:05:57] In our real estate is not the quick turnaround game.

[00:06:00] It's not Bitcoin or any one of the coins or anything like that.

[00:06:03] It takes a while for this stuff to happen.

[00:06:06] Just like it takes a while for a tree to grow but when that tree has grown and you look

[00:06:10] back and think, wow, thank God I did that all that time ago and I'm glad I did and that

[00:06:14] was pretty easy.

[00:06:15] Now you get to enjoy the fruits of your labor.

[00:06:17] It's interesting too in regards to the current context of Canada's economy where we...

[00:06:22] Well, so there's two pieces here.

[00:06:24] Actually, the first one I'm going to touch on because it's more quick.

[00:06:27] If you're not willing to own a stock for 10 years don't even think about owning it

[00:06:29] for 10 minutes with real estate and speculation where we're seeing a lot of people get

[00:06:33] smoked right now.

[00:06:34] If you're not confident in owning a piece of real estate forever, you shouldn't buy it

[00:06:40] especially because think about a stock.

[00:06:42] You buy like a hundred or so thousand dollars worth of stocks and it costs you nine dollars

[00:06:47] to make the trade.

[00:06:50] In some cases you can do it for free because they're selling your order flow information

[00:06:53] or whatever.

[00:06:54] So it's less than 1%.

[00:06:57] When you're selling real estate, you're paying 5% of the...

[00:07:00] Whatever, whatever it is.

[00:07:01] It's all over the...

[00:07:02] Several points.

[00:07:03] Yeah, but like three to six percent transaction costs.

[00:07:07] And so it's not like that...

[00:07:10] You can't recover from the mistake that quickly.

[00:07:12] It costs you a ton.

[00:07:14] Minimum you have to make six percent just to cover the switching costs, right?

[00:07:17] You know what I mean?

[00:07:18] Like the investment has to go up in value six percent before even making one percent

[00:07:23] to cover all those switching costs and that's before even account for like land transfer

[00:07:26] legals moving, etc.

[00:07:28] So that's the big thing from my perspective where it's like if you're not willing to

[00:07:31] be in this for the long haul, real estate isn't a buy and sell and asset.

[00:07:35] It's a whole asset, right?

[00:07:37] And then the other piece is just that I found the tree thing interesting because there's

[00:07:41] that quote like that Greek proverb that is like society grows when old men plant trees

[00:07:46] and in the shade of which they will never sit in or whatever you know what I mean.

[00:07:50] Yeah, yeah, yeah.

[00:07:51] And with the housing crisis to go full circle here with the housing crisis it's like for

[00:07:55] us creating housing today that we may never benefit from, right?

[00:08:01] But this is for future generations like a lot of people who have capital right now

[00:08:04] are older people who don't need houses, they don't need units.

[00:08:06] They don't need large mcmans to be cut up into multiple units so that you know new Canadians

[00:08:11] or younger Canadians can have affordable housing.

[00:08:14] But if they use their capital for those purposes that's how a society grows and it's probably

[00:08:18] like the only way that the Canadian economy can really grow in this scenario because we're

[00:08:22] at like the super standstill perspective.

[00:08:26] So I like that one.

[00:08:27] I like that example.

[00:08:28] Hey, he had a couple good ideas.

[00:08:30] Yeah, I wonder too.

[00:08:31] Look at this in the smart guy.

[00:08:32] The next one here is and obviously I turn this into an acronym and initialism is A-B-L

[00:08:39] which is always be learning similar to the always be closing but slightly different.

[00:08:45] The Buffett formula was going to bed smarter than when you woke up so get smarter every

[00:08:53] day, learn every day.

[00:08:54] Most people go through life not really getting any smarter kind of you know we go through

[00:08:59] high school, some of us go to university or college or we get into a trade or something

[00:09:04] like that.

[00:09:05] And we kind of stop our learning there never really acquiring new skills but why?

[00:09:13] They simply won't do the work that's required to go and learn.

[00:09:18] So it's easy to come home sit on the couch, watch TV and zone out until bedtime rules

[00:09:23] around but that's not going to help you get smarter.

[00:09:26] That's not going to help you achieve your goals.

[00:09:29] You need to be actively seeking out education and some of the easy ways to get smarter are

[00:09:36] to read more.

[00:09:38] Listen to this and many other podcasts, watch good content surround yourself with smart

[00:09:44] people.

[00:09:45] You know I heard Warren Buffett spent 80% of his time reading and thinking and has done

[00:09:51] so for his entire career.

[00:09:54] Now obviously that's not possible for a lot of us to do if you are a plumber or

[00:09:59] an electrician or someone working in a retail job you can't sit there and read the whole

[00:10:04] time but we have other because we have other things to require our attention.

[00:10:07] But if you can prioritize learning and carve out the time for it on the daily, you will

[00:10:13] start to get smarter and it will be worth it.

[00:10:16] That can be with every subject or specific subjects.

[00:10:21] You know if you spend 15 minutes a day half an hour a day on something compounding that

[00:10:27] knowledge over the course of a year or two or three years, you will become an expert.

[00:10:31] So Dan you know I know you and I are constantly learning through the research we do for this

[00:10:38] podcast, the research we do for the articles that rewrite the research that we do in the

[00:10:44] market intelligence that we collect for our other businesses.

[00:10:47] And now we've also gotten to the habit and it's one of my favorite things is actually not

[00:10:52] only just learning but actually re-teaching what we've learned to other people through

[00:10:57] our course and our community and even through the podcast which we love to do.

[00:11:02] So always be learning ABL don't get.

[00:11:06] I'm glad you went back to the ABL because so there's a couple things I want to add here.

[00:11:10] Number one is if you don't know what Nick is referencing, I feel like it's like everyone

[00:11:15] should know but maybe not.

[00:11:16] For all of it.

[00:11:17] You can't find that movie anywhere.

[00:11:19] So ABC always be closing comes from one of the probably the most notorious real estate

[00:11:26] themed film ever right?

[00:11:27] It was considered like one of the best films of the 1990s.

[00:11:31] Alec Baldwin, Al Pacino, Kevin Spacey, Stacked Cast.

[00:11:37] So it was it's called Glen Gary Glen Ross by the way and it's really about sales and

[00:11:43] also just what not to do in real estate pretty much but dark gritty sales move.

[00:11:48] It's a really, really interesting film.

[00:11:49] So anyway that's what he's referencing so I appreciate that.

[00:11:52] I've been meaning to get an always be closing tattoo actually not gonna lie but we'll get

[00:11:58] matching tattoos or like the coffee mug like coffee is for closers only.

[00:12:02] I actually used to sell coffees for closers only mugs at Guelph.

[00:12:06] For our students as to the merger store we should for sure.

[00:12:10] Closers only coffee mugs.

[00:12:13] Number two was you mentioned the skilled trades.

[00:12:16] So as you know I work out with a skilled trade every single morning like we.

[00:12:20] Not a different one right?

[00:12:21] This is the single.

[00:12:22] That was sure good of skilled trades.

[00:12:24] And they all listen to also I have like this like secret jealousy for skilled trades

[00:12:29] like I wish I could be outside every day working with my hands but that aside we have a

[00:12:34] lot of listeners from the skilled trades and and I want to just give them like a shout

[00:12:39] out.

[00:12:40] I was thinking about this the other night like laying awake and bad just thinking about

[00:12:43] how we had to do something for like to for the skilled trades because in a lot of cases

[00:12:47] they're this is playing in like a job site radio you know we're in there in their air pods

[00:12:52] while they're working you know most of the guys that I know that our plumbers are like

[00:12:55] tritions or whatever doing more repetitive stuff that doesn't require that much thinking

[00:12:59] they're they're doing you know double work right they're listening to an audio book

[00:13:02] or listening to a podcast or whatever so if that's you thank you we appreciate you for

[00:13:08] sure and we're going to keep making this so you can digest this information because we

[00:13:11] do have like tons of guys coming into the into the into the course who reach out to us

[00:13:17] from the podcast email that are in the trades yeah on job sites love to see so shadow

[00:13:21] to those of you on job sites just put this on your whatever radio so everyone can hear

[00:13:26] it because we want more of you listening to the show because you are quite frankly the

[00:13:31] most capable of solving candidates housing crisis and the most capable of making an

[00:13:35] absolutely obscene amount of money in real estate.

[00:13:37] We need you now more than ever.

[00:13:39] Here we go this is Nick singing podcast where you're talking about karaoke in the last

[00:13:43] episode so I guess you get over here.

[00:13:46] Carried away is that a good pun because karaoke let's let's keep going.

[00:13:50] The markets are good but not perfect at Berkshire Hathaway's annual shareholders meeting

[00:13:55] Warren Buffett advised against obsessing over finding the perfect time to buy stocks instead

[00:14:01] he recommended investing and observing the stock market over time to determine if more

[00:14:04] shares should be purchased or sold so this is where real estate becomes a little bit tougher

[00:14:09] because you can't dollar cost average into it but you can if you're like one of the

[00:14:13] ways I think about this is every time you get a rent check you're getting dollar cost

[00:14:16] averaging back in dear asset right because that's money that's kind of being reinvested.

[00:14:22] Buffett explained that he and his business partner Charlie Munger along with other Berkshire

[00:14:26] Hathaway executives have employed the strategy for its higher potential returns and to alleviate

[00:14:32] the pressure of predicting the stock market.

[00:14:34] If the value of a stock decreases after purchasing he would buy more shares as they have become

[00:14:40] less expensive.

[00:14:41] He admitted that he and his team have not been successful at timing the stock market this

[00:14:44] is the best investor in the world won't try and time to market.

[00:14:49] Do you like in this tabbing an insurance policy in a volatile market?

[00:14:53] He shared two instances where he attempted to predict the market resulting in significant

[00:14:57] losses once in the 2008 recession and then 2020 right before the COVID pandemic.

[00:15:04] So anyway it goes on to discuss his investment in airlines between 2016 and 2020 when he

[00:15:11] ultimately sold his positions near the bottom due to pandemic related shutdown so he actually

[00:15:18] had a paper hand move during that period of time.

[00:15:21] So what does this mean for real estate investors?

[00:15:22] I guess don't try and time the market remember that nuclear original what was it?

[00:15:28] It's not timing the market it's time in the market.

[00:15:31] I don't know how I come up with this completely.

[00:15:34] Yeah, I mean of course how could I forget that and but on a very serious note it's you

[00:15:43] hear the arguably the best investor in history saying don't try to do this and yet he is

[00:15:51] contradicted by numerous fake investors or what have you that are peddling the opposite

[00:16:00] kind of stuff on social media these days where it's like follow this trend and like this

[00:16:05] is what this means.

[00:16:06] And you know I think if the last few years have shown us anything it's that markets can

[00:16:11] get extremely volatile it's that you know these quote unquote once in a lifetime things

[00:16:17] can happen consecutively after one another and no one really has any idea where the market

[00:16:24] is going to go and occasionally you know referencing the big short occasionally you have a few

[00:16:28] outliers that have the right information at the right time and they can go and make these

[00:16:33] educated predictions based off of data but you know if Warren Buffett's there saying don't

[00:16:40] time the market because it screwed me and we've got a bunch of people out here trying to

[00:16:44] time the market guys figure it out anyways then next one here is the world is full of

[00:16:51] foolish gamblers and they will not do well as the patient they will not do as well

[00:16:58] as the patient investor.

[00:17:00] So this one specifically from Charlie Munger the this is obviously when he was still with

[00:17:08] us the 99 year old so he was talking this kind of stuff at 99 years old on 34 and I can't

[00:17:14] come up with anything remotely as clever as this just need more time just give it another

[00:17:17] 60 years.

[00:17:18] 60 something that you know, fake originals.

[00:17:20] So the 99 year old gave this statement regarding crypto in a piece in the Wall Street Journal

[00:17:26] now again for all of our crypto lovers out there and we have you know, there's nothing

[00:17:31] wrong with it.

[00:17:32] This is strictly just from his point of view the the op ed piece in the journal included

[00:17:37] his thoughts on cryptocurrency calling it a form of gambling and calling for the US government

[00:17:42] to intervene Munger said that crypto is not a security currency or a commodity and Warren

[00:17:48] Buffett also shared his skepticism regarding cryptocurrency but Mungers take against crypto

[00:17:54] was potentially a lot more public and outspoken so overall the Berkshire boys didn't like

[00:18:02] or don't like crypto.

[00:18:04] But let's look at this in the context of real estate investment now remember at its core

[00:18:09] investing is about buying assets that have a reasonable expectation of generating a return

[00:18:15] over time.

[00:18:16] Well speculation is more about taking risks in the hope of making a quick profit.

[00:18:22] So a real example here would be speculating on let's say an assignment sale versus buying

[00:18:29] a property well having done your due diligence and having an investment thesis that works

[00:18:34] and an adding value to that said property and holding it for a planned period of time.

[00:18:42] So this just means to me that if you sway away from the fundamentals, the likelihood

[00:18:46] of you getting burned increases drastically.

[00:18:49] That's that's what that means.

[00:18:50] That was not a shot against crypto.

[00:18:51] I recently bought Bitcoin as well after gambling it away in the Spanish casino years ago but

[00:18:57] I think this you know, this just means again going back to looking at a foolish gambler

[00:19:03] versus a patient investor right which one are you going to be and what are the characteristics

[00:19:07] of each one of those traits?

[00:19:08] Each one of those personalities.

[00:19:10] Yeah, I think it does go well for like Canadian real estate is one of those things where

[00:19:18] a lot of people like and I think crypto is a good parallel regardless of what you think

[00:19:22] of it.

[00:19:23] I'm pretty big fan.

[00:19:24] I don't really like the word crypto.

[00:19:25] I'm more of a Bitcoin guy but the idea that like you see all these other people getting

[00:19:32] rich right?

[00:19:33] And that happens in Canadian real estate a lot where you see all these other people getting

[00:19:37] rich.

[00:19:38] I have my hands up doing air quotes right now but like because you don't know, you really

[00:19:40] have no idea whether or not they're actually they actually made it or whatever but you get

[00:19:44] this FOMO so easily when you see somebody make a bunch of money on poop coin or whatever

[00:19:48] you call it right?

[00:19:49] Like same thing.

[00:19:51] Well, that was the reason that more people bought in what was it 2022 was like 45% of people

[00:19:57] bought because of FOMO.

[00:20:00] That is not an investing philosophy, fundamental thesis.

[00:20:04] It's nothing.

[00:20:05] That's that's buying it's strictly based off of an emotional response which is never advised.

[00:20:13] Yeah.

[00:20:14] I think that like real estate it's it's never should have been this type of asset right?

[00:20:19] It never should have been this type of FOMO asset, this type of traded asset, this type

[00:20:23] of like where you have like assignment contracts that people can flip and they've created like

[00:20:28] basically DIY securitized like the future housing market.

[00:20:32] Like you know real estate has always been a long term buy and hold asset more in line with

[00:20:37] value investing which is like comes from the beginning of the de-episode to kind of

[00:20:41] go to circle back but the part that I like is that you know he talks about gambling

[00:20:46] and how gamblers will not succeed when compared to the patient investor.

[00:20:50] Buffett has a quote on this that says the market is a device for transferring the money transferring

[00:20:54] money from the impatient to the patient and I think that this is like the biggest thing

[00:20:59] from my perspective.

[00:21:00] It's like he who is able to or she or she or they who are able to defer gratification

[00:21:07] will typically do better but most people want to see it now so they go and they lever up

[00:21:13] and they buy you know a bunch of precon contracts right at the peak of the market or whatever

[00:21:19] because most people only see things when they're too hot, when they're unignorably hot

[00:21:24] right?

[00:21:25] Nobody's paying attention to it in you know 2019 when the market is like at the bottom

[00:21:30] coming off of that 2017 peak after interest rates were going up.

[00:21:35] You know what you can find somebody even like last year like when the market was falling

[00:21:39] you couldn't everyone was oh it's scary but when it's actually scary and prices are ripping

[00:21:44] up double digits month over month everyone's like oh I got to get in on that because I don't

[00:21:47] want to miss next month's 10% increase.

[00:21:50] It's like the same thing we just saw with like the ne video run right?

[00:21:53] It's like hey if you only realize what ne video was after seeing like you know hockey stick

[00:21:58] charts on Instagram or TikTok and you're like I got to get in on this.

[00:22:03] You got into late.

[00:22:04] Yeah so there's this like amazing article it's probably one of the most profound articles

[00:22:09] like academic articles on consumer sentiment it's called mutual fund flows and performance

[00:22:14] in rational markets I'm going to geek out here for a minute but national bureau of economic

[00:22:18] research put this out in like 2002 and basically determined that at the exact peaks

[00:22:24] and bottoms of the market like within like within weeks like our days of like that that

[00:22:31] the flow of people investing in mutual funds which is like kind of the probably the best

[00:22:37] read on like the retail investor like now people have a little bit more access to stocks

[00:22:41] and stuff so it's probably but everyone rushing in basically mutual funds everyone rushes

[00:22:46] in at the top and everyone rushes out at the bottom like they're perfectly good so rational

[00:22:50] markets and consumers are incredibly good at being completely wrong.

[00:22:56] So just do it.

[00:22:57] Yeah do with that what you will yeah I mean I would be I would be in that group of people

[00:23:00] I'm good at it right so this is why real estate for me is especially good because it you

[00:23:05] can't really paper hand or you shouldn't be able to you can't really paper hand you

[00:23:08] can't really like panic cell a house you know what I mean well you what we know is you

[00:23:13] can try to get sell a host but it's is is any going to panic by it right yeah as usually

[00:23:19] panic sells and panic lies don't align.

[00:23:21] Yeah but you're locked into a mortgage contract in a lot of cases so like real estate I think

[00:23:25] one of the biggest reasons why people like real estate so much as an investment is it really

[00:23:29] does force you to be in there for like at least a five year if you're on a five year

[00:23:32] fixed it's like do you want to pay a X thousand dollar mortgage penalty no I'll just hold

[00:23:37] this thing for a little bit longer right so it forces you to be a long term investor that's

[00:23:41] why real estate has the savings vehicle built in because it's you know you got to pay down

[00:23:45] a mortgage so most people in their primary residence you know I get it saving money well

[00:23:49] pay a mortgage you have to so it has the hard asset built in and it has that forced holding

[00:23:55] right anyway on that note.

[00:23:56] It's a great segment to the next one.

[00:23:59] We're just riding our segues around right now as we as we always do volatility is not

[00:24:04] risk in is annual shareholders meeting Buffett once said if the investor fears price volatility

[00:24:09] aeroniously viewing it as a measure of risk he may ironically end up doing some very

[00:24:13] risky things writing big insurance policies a part of Berkshire Hathaway's business so

[00:24:18] it's no wonder that risk has taken up a lot of their focus and while investment risk

[00:24:22] can be a problem subject to the amount you're prepared to accept to achieve your financial

[00:24:26] goals market volatility is a natural part of how markets behave Canadian real estate

[00:24:30] is a very good example of that.

[00:24:32] It's just going to say this kind of lends itself to the conversation we just had yeah

[00:24:35] so consequently you should welcome volatility that that's a rational market trying to price

[00:24:41] itself I mean most cases volatility is price discovery it's the market trying to determine

[00:24:46] what an asset is worth while investment risk can be a problem oh and by the way if you

[00:24:51] have good fundamentals you always know what an asset is worth it's worth some some

[00:24:56] variable amount based on the cash flows that it gives you right oh you have to have cash flows

[00:25:01] you're asked there's probably some some some some some formulas for this stuff go check

[00:25:05] out the five day challenge yeah you should for sure so in reality volatility only becomes

[00:25:12] a potential risk issue if you decide to cash in any of your investments after they've

[00:25:17] already fallen in value if you do that paper hand move right and real estate kind of has

[00:25:21] this unique thing where it can recuperate its value through yield right through rents and

[00:25:27] so you can almost always make something a sensible investment by holding it longer as long

[00:25:31] as it's not bleeding you out right so in other words risk is based on how you react to market

[00:25:36] volatility rather than the volatility itself I love that I think that's such a powerful

[00:25:40] statement right there yeah it's good I mean yeah so as investors we need to acknowledge

[00:25:45] those risks and acknowledge the volatility and adapt and react accordingly so we can

[00:25:52] do whatever we need to do to minimize them protect our investments and and kind of ride it

[00:25:56] out and that's a great again segue there's got to be a better word for segue I'm because

[00:26:01] every time I say I picture you and I with big helmets you know looking yeah like nerd

[00:26:05] guy who started segue right a segue off a cliff is that true story was it like it is like

[00:26:10] a stunt like no she did that's how he died oh yeah I'm pretty sure that happened it crazy

[00:26:16] crazy check that did not yeah another one you're talking so this goes to that that volatility

[00:26:22] piece and it goes to the consumer sentiment piece and this is another one of Buffett's

[00:26:26] philosophies and it's in investing it's okay to do nothing the do nothing approach in investing

[00:26:35] isn't new it's the idea that over the long term setting up your portfolio and letting

[00:26:40] it grow will leave you better off than making frequent changes chasing short-term goals

[00:26:47] and reacting to the latest headlines and trust me if you live in Canada there has been

[00:26:52] a hell of a lot of recent headlines that would probably forced you to react in ways that

[00:26:59] you likely shouldn't be doing yeah we talk about this in in our sales video for the for

[00:27:04] the course you know like it's funny because we run an investment podcast but most of

[00:27:09] our advice has been like don't really do anything yet or like I think we're kind of just

[00:27:15] admitting that we're getting to a market where there's opportunity where you're starting

[00:27:18] to see some distress deals and good opportunities and so you know when we did the launch for

[00:27:23] the kitchen water loom meet up somebody asked me like what would you do or what's like the

[00:27:27] best advice you would give to an investor today and I said do nothing like I really think

[00:27:30] it's a powerful market to just do nothing and to be patient just watch things happening gather

[00:27:35] information and sharpen your skill set and that's the big reason why a lot of people are in the

[00:27:38] course right and they're doing deals because they're establishing these fundamentals that are

[00:27:43] establishing parameters they're becoming much better investment investors and so you don't

[00:27:48] always have to be out there transacting to be to get better at transacting or to even make your

[00:27:52] future deals better you can focus on investing in yourself in present day or like doing doing

[00:27:58] nothing when it comes to not not being an active investor but focusing on like that learning and

[00:28:03] reading that he mentioned earlier 100% and I think that we're still kind of in that market where

[00:28:08] there's just so much question marks are so much volatility so it I think it's it's it's a good

[00:28:15] market to be comfortable not chasing well I think I think we're getting to that place where

[00:28:22] the patient investor is winning versus the speculative or foolish gambler right I mean

[00:28:29] and you know it is true right like less really is more in some cases and this is one of them

[00:28:35] and we look at consumer sentiment and emotion and the misinformation out there and you know

[00:28:42] the this mass desire to get rich quick that more often than not if not almost always you know

[00:28:49] unless you're one of those lucky people that somehow makes it through all that almost always

[00:28:54] resulted in people losing money you know one great characteristic of all the investors we've

[00:29:02] studied all the investors we know and I like to think you and I have it as well Dan is is grit

[00:29:07] or stain power right and the ability to keep a calm cool collected head when everyone else seems

[00:29:14] to be getting rich or everyone else is going to buy in all these things right so I mean grit

[00:29:18] as a term that refers to the combination of passion and perseverance stability to stay committed

[00:29:25] to a long-term goal and persist through challenges and setbacks sounds a lot like my real estate

[00:29:31] investing career it involves having a growth mindset which you'll have by educating yourself

[00:29:38] surrounding yourself with good people by being resilient which you'll achieve resilience by

[00:29:44] understanding market cycles and not getting lost in the nuances of the day-to-day headlines

[00:29:52] and of course maintaining a strong work ethic which if you are planning to get into real estate

[00:29:57] investing or if you already are an investor you likely have a strong work ethic because it's

[00:30:01] a lot of work so in the context of investing having grit means staying disciplined staying the course

[00:30:06] and not being swayed by short-term market fluctuation or all of that external noise that is going on

[00:30:13] it's about having that determination to stick with your investment thesis and strategy

[00:30:18] and see it through even when it gets hard huh well today I learned I here I was thinking that

[00:30:26] that grit was a type of porridge made from coarsely ground dried maize or hominy oh yeah there's

[00:30:33] that delicious dish as well and that band that sings that song my life be like you know

[00:30:46] all right it's better to hang out with people better than you which is why you spend so much time

[00:30:51] with me right yeah there you go he figured it out finally another way to get smarter outside of

[00:30:56] reading is to surround yourself with people who are not afraid to challenge your ideas this one's

[00:31:01] kind of simple right it's a life lesson that's applicable to everything not just investing

[00:31:06] if you want to be a better tennis player hang out with good tennis players if you want to get

[00:31:11] better at speaking Italian hang out with people fluent in Italian hey I'm trying to find some good

[00:31:19] people hang out with yeah if you want to be a better cook hang out with chefs if you want to be

[00:31:25] a better real estate investor join our course not just kidding well you mean you could hang out

[00:31:29] with some real estate investors in that course we have the free one as well though the five day

[00:31:33] challenges a pretty good community in there like over a hundred people and we're gonna we're

[00:31:36] going to be doing I think we're going to move it to like monthly webinars on that so we'll keep

[00:31:40] that community kind of like resurrected on a monthly basis where we'll get fired up and talk about

[00:31:44] something do more specific topics like I think vendor takebacks and we'll do some distress deals

[00:31:50] yeah stuff like that so I mean there again and if you want to be a better real estate investor

[00:31:54] another place you could do that go to our meetups we have some awesome stuff happening in the

[00:31:57] meetups we're gonna be launching them they're actually neck and I can have this fun little contest

[00:32:01] will announce soon we're going to be to launch its contest between me and Nick to see who can get

[00:32:06] more people to come to their meetup so we're launching two new Ontario meetups we're going

[00:32:10] to be launched in a bunch of other ones across the country this year yeah and we will ideally at

[00:32:16] least one of us will be trying to get out to yeah so if you if you want to if you want to host a

[00:32:20] meetup if you're like a real estate professional give us a shout we'd love to to help you do that

[00:32:25] we built a pretty good infrastructure and pretty good promotion I think we have over 2000 people

[00:32:28] in the meetup.com group close to coast now Calgary's getting like 50 60 plus people yeah

[00:32:34] augmented the student big stuff Toronto I was at the most recent one it was awesome thanks everybody

[00:32:40] who came out to say hey we're launching Vaughan Sudbury which I'm gonna go to Windsor which you're

[00:32:46] gonna go to two two of the few investible cities left in Ontario anyway go to a meetup that's

[00:32:53] a good way to find people or join our course that's a good way to to continue surrounding yourself

[00:32:58] with people that you want to be like and a lot of those people in the course in the community and

[00:33:03] the meetups are working on creating real estate investing businesses and that leads us to another

[00:33:10] buffer principle which is a great company keeps working after you are not a mediocre company won't

[00:33:18] do that so this goes to that faithful word of passive real estate investing I love those one

[00:33:25] because it's all about the importance of having good systems the right power team and people around

[00:33:32] you and overall running and growing a good businesses about working on the business not in

[00:33:39] the business and I love applying this one to real estate because by doing this you can achieve that

[00:33:44] goal that everyone's dry soil which is actually making real estate investing passive however you've

[00:33:50] got to plant those trees so you can sit under that shade of passive real estate investing years

[00:33:56] ago and you got to have the grit to get there yeah so on the note you mentioned that working on

[00:34:02] the business in the business not in the business that's an I thought it was in Naked Hill original but

[00:34:07] I actually I was on this podcast recently called controlling compound with Darren Mitchell

[00:34:11] and beauty like can you find an end-to-the-infant banking stuff and he often I was listening to some

[00:34:21] of his other shows and he often recommends this book called the emeth and I went on a whole emeth

[00:34:27] thing I downloaded like four of the different audiobooks so they have one the emeth which is

[00:34:32] like that's where this comes from by the way that's the context of me talking about this book

[00:34:36] on the business not in the business comes from the emeth and it's a dance for the entrepreneur

[00:34:41] myth I think it's a kind of a weird book named be honest but anyway and it's all about systems so

[00:34:45] they have one the emeth real estate investor and they have one the emeth real estate agent as well

[00:34:50] so if anybody's listening looking for a good future read check them out there I would probably do an

[00:34:54] audiobook although there were certain systems where I was thinking like oh I wish I had a highlight

[00:35:00] here to like or like write this down so but they're they're good in audiobook format and you probably

[00:35:04] only need one you don't need three because they're all very similar anyway anything else you want

[00:35:08] to add there before I move to the next one I'm good yeah let's keep going all right don't bail away

[00:35:13] in a sinking boat if you can swim to one that is seaworthy should you find yourself in a chronically

[00:35:19] leaking boat this is so good for real estate investing okay this is like this is really good if you

[00:35:25] are one of those people who is in a cash negative investment and trying to decide whether or not

[00:35:31] it's going to make sense for you like really really look at your situation because I recently got

[00:35:36] new subheading added to the government of Canada website which says that people who can't afford

[00:35:40] their mortgage should also think about selling their properties not just asking their bank to let

[00:35:44] them not pay their mortgage which we talked about in a recent podcast and that was because I did

[00:35:49] this this video on Instagram about anyway the point is you can sell bad assets right if they're

[00:35:56] bad assets not because of volatility not because of FOMO not blah blah blah and so should you find

[00:36:02] yourself in a chronically leaking boat energy devoted to cha changing vessels is likely more productive

[00:36:07] than energy devoted to patching leaks really really powerful stuff and that can be taken to mean that

[00:36:12] when you find yourself in a turnaround situation you are better off finding a better quality company

[00:36:17] or asset to invest in like seriously if you're but if you're sitting in a cash negative condo in

[00:36:22] downtown Toronto as an example it could make a lot more sense for you to sell that take a loss

[00:36:27] and go buy a cash flow positive property in another market or possibly even go by two because like

[00:36:34] mo and and I don't I'm not saying it does 100% makes sense because everyone's situation is different

[00:36:40] that's how financial advice works but here's the thing you should probably run a cost benefit

[00:36:45] analysis on whether or not their better options yeah you got to you got to audit if you're not going

[00:36:51] to be giving yourself honest audits of your own portfolio you know who is well and options right it's

[00:36:58] like have you have you done people who are like well I'm trying to time the market it's like okay well

[00:37:02] have you done if you've even heard my quote yeah but no but have you have you have you run a cost

[00:37:06] benefit analysis on how much equity how much prices we need to come down to make it make more sense

[00:37:11] for you to buy at a 5% rate or how much prices could would go you know if they went up how much you

[00:37:18] need rates to come down to compensate for the difference no most people have never run any of these

[00:37:21] cost but it doesn't have to be in a fancy spreadsheet like literally just two variables side by side

[00:37:27] with some pros and cons underneath each of them that's a cost benefit analysis and you know what

[00:37:31] let's be very clear people might feel listening to me like no no that's stain power now I'm an

[00:37:35] investor that's a character sick no that is ignorance is bliss right and that is very different

[00:37:39] than stain power right and so and so as much as we say like don't sell for for volatility right like

[00:37:46] or you know be be willing to see pass the noise of volatility I'd be also be able to identify if

[00:37:52] the asset that you're holding sucks and if it would make more sense to not own it like we have

[00:37:57] deals that we've been in the $200 thousand that you have in that asset could be way better performing

[00:38:03] elsewhere whether it's a different municipality different province or whatever yeah we're just in

[00:38:08] cash not costing you money every month like if you're cash flow negative it's like if it's like

[00:38:13] causing you stress financial harms no worth you know like man anyway that people got to realize

[00:38:19] like selling and cutting losses that's like you take it on the chin that's that's that's tough

[00:38:24] but it's often worth it yeah yeah totally and I mean that lands itself nicely to the next one here

[00:38:30] as well which is you don't need to own a lot of things in order to get rich now again this is a

[00:38:37] mistake we see a lot lots of investors want more they want to buy their next one before this one

[00:38:44] or the ones they have are performing at their highest and best use more doors more airbnb's more

[00:38:52] money more tenants more everything more doesn't equal like just because you've got more doors does not

[00:38:58] equal more money it's all about you know door count for a lot of people and you know but some of

[00:39:02] the most successful real estate investors that I know keep their portfolios lean and mean and have

[00:39:08] smaller door counts but have way better returns because they have figured out how to maximize the

[00:39:15] use of each one of those assets and before they go off and buy their next one they focus on that one

[00:39:20] and that goes back to what day I'm saying earlier in the show is that sitting around and doing nothing

[00:39:26] sometimes doesn't mean literally doing absolutely nothing that just means maybe you're not

[00:39:29] acquisition mode but maybe you're looking at your portfolio auditing it and being like okay man

[00:39:34] I'm gonna huge portfolio optimization I need to sell this hey maybe I can rent this garage here

[00:39:39] hey maybe I should doplex this or maybe this tenon needs to be turned over or whatever that strategy

[00:39:45] may be doing nothing doesn't literally mean doing absolutely nothing in some cases does easier

[00:39:50] to say for stock investors but with real estate you can always be doing something without going

[00:39:57] buying another door because if you go out and buy another door and your portfolio is not doing

[00:40:03] that well and this new door is doing that well and you don't have the systems or the people in place

[00:40:07] to help you actually make all of those assets perform well and then you go and try to sell that

[00:40:12] portfolio I mean Dan we have seen some pretty dismal portfolios for sale over the years and there's

[00:40:17] a lot of them in the market right now with high vacancy with stuff that needs a lot of work and

[00:40:26] yeah guess what the people that own those portfolios were not doing things probably because they

[00:40:31] did were not looking at the highest and best use they were just always in growth mode and growth

[00:40:35] mode doesn't just always mean acquisitions yeah I mean well you look at the best funds it's like

[00:40:40] they maximize existing assets first and yeah I think about this a lot right now because I've

[00:40:46] I've run this cost-benefit analysis like I was just describing on my own portfolio and said what's

[00:40:52] the best use of you know 60 grand right now well getting drawings done doing a basement apartment

[00:40:57] and one of the assets that I have that is like really tight you know I said okay well that's going

[00:41:02] to add a $2,000 income stream to that asset which will help boost my ability to do it to qualify for

[00:41:09] the next one right because like quality like at this point you're like or if your income is not

[00:41:13] high enough because rates are so high then you can't really qualify for anything anyway if your

[00:41:17] portfolio is income is not high enough then you're not going to be able to scale so now I have to go

[00:41:21] and optimize all of these different assets I got to put a basement apartment in one I'm going to do

[00:41:24] the cabin renovation which I've been talking about a couple of times on the show so we can get that

[00:41:28] done this spring hopefully have it producing cash this this summer and so to me it like I'm fully

[00:41:35] on board with that because I think that there are good opportunities coming right now and if I was

[00:41:38] if I was new I probably would be investing right now it'd really be like hardcore and acquisition

[00:41:44] but also like fully maximizing the property that I have right now is also

[00:41:52] percent the obvious priority for me right now and just the like I've run the cost benefit analysis

[00:41:58] and the returns are higher on me just spending that cash on existing assets then they would be buying

[00:42:02] a new asset yeah I mean that doesn't surprise me all right hit us with the final life lesson from

[00:42:08] the great monger and buffet yeah so live life backwards it says which is a movie about that right

[00:42:16] Benjamin button or whatever I don't think that's the same concept but yeah kind of that was like

[00:42:22] yeah we always call Steph's dog Benjamin a button because she's like a puppy but she's 10 years old

[00:42:29] anyway live life backwards it says in other words start thinking about the kind of life you want to

[00:42:35] live and then take actions that will help you achieve your goal we talk about this a lot in the course

[00:42:40] when we go to goal setting it's like what's at the top of the stairs okay and then what are the

[00:42:43] 10 steps that you need to take to get there yeah we just call it reverse engineering yeah same thing

[00:42:49] since money is purely a tool for helping you achieve the lifestyle that you'd like the advice

[00:42:54] applies to investing just as much as it does to life I think this is like interesting because money

[00:42:59] especially in that context is like it becomes a store of almost like time right like you've heard of

[00:43:04] this I think there's a book it's a book that came out at the buyback your time is that yeah and

[00:43:09] they really made me think about like hiring and from the perspective of like buying back your time

[00:43:14] you know getting that freedom but then when you when you add that plus money and say okay money

[00:43:19] money is basically a store of time that you can buy back in the future you know what I mean yeah

[00:43:24] and so it becomes this like this storage system and so anyway that that that piece if you have goals

[00:43:30] like a lot of people don't really know why they want it like a lot of people think they want to be

[00:43:33] rich right and there's like okay like it would be nice to do that but they like you really

[00:43:38] haven't said okay what does that mean what is your rich life actually mean like what is what is

[00:43:41] you know your rich life I love I love that yeah conversation and that like yeah forcing people to

[00:43:47] actually explore what that means like you want to be rich yeah why so you can check your bank account

[00:43:51] about feeling anxiety or because you know exactly how you would spend your time and your money

[00:43:56] got a life in your head a life by design that you're working towards man and this is hard for me

[00:44:00] because like I never really for me I just love working so much I like to grind

[00:44:03] really yeah so and I always I never really thought about like what I would actually want to do

[00:44:08] with like free time right like it seems scary like whenever I have free time my brain's just like

[00:44:13] where like you know like I'm gonna go find another deal yeah there's just something to do like this

[00:44:17] I just and so we really really challenge people a lot and like you and I participate in this process

[00:44:24] on the course especially about doing smart goals we did a little section on I think in the five

[00:44:29] day challenge right yeah that's what I was going to do that are doctorate smart goals is a really good

[00:44:32] framework for that if you just Google smart goals and specific measurable attainable realistic and

[00:44:37] time bound and I think about this all the time because like you have to really really think like

[00:44:43] understand why you're doing it and the reason for that is because if you don't it's really easy

[00:44:47] to stray from the path if you don't have one right so if you haven't if you haven't picked a path

[00:44:51] it's really easy to end up on the wrong path and then that's how you accidentally buy a precon

[00:44:55] 25 precon condos that you can't close on you know what I mean it's also really easy to easily

[00:45:00] to experience that sensation of I've got all this energy my my tires are spinning and I'm not going

[00:45:06] anywhere and you you know you feel like you're not achieving anything even though you're you're

[00:45:10] all revved up and ready to go you need a direction to to work towards or you could be working like

[00:45:16] crazy and it's never gonna go anywhere you're never going to get the results that you want because

[00:45:21] you don't know what results you're trying to achieve yeah for sure for sure so all this to say

[00:45:27] understand your angle and work backwards and that could be a helpful mantra to keep in life

[00:45:32] for many different areas if you want to be successful is that it I think that's that's all of my

[00:45:38] I think that's it couple lessons from two of the greatest investors Nick Hill and Daniel Fosh oh

[00:45:44] sorry Warren Buffett and Charlie Morgan thanks so much for listening everybody we'll see you soon

[00:45:52] the Canadian real estate investor podcast is for entertainment purposes only and it is not

[00:45:57] financial advice Nick Hill is a mortgage agent with premier mortgage center and a partner in the

[00:46:03] G and H mortgage group license number 10317 agent license m21003037 Daniel Fosh is a real estate broker

[00:46:15] licensed with rare real estate a member of the Canadian Real Estate Association the Toronto Real Estate

[00:46:23] Board and the Ontario Real Estate Association