The Future Of Real Estate Investing In Canada

[00:00:00] Welcome to The Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio. Today we're going to talk about what I would feel is probably the best real estate investing opportunity in Canada in 2025 and perhaps the only opportunity in 2025 that actually works in every market across Canada.

[00:00:26] Now speaking of markets in Canada, Dan, hard to ignore downtown Toronto and downtown Toronto has a dense core of tall, glassy skyscraper type buildings that surround the waterfront of Lake Ontario. But despite its dense core, you can hop on a quick subway ride to experience a stark contrast from the modern towers to see lots of single family homes sprawl out in every direction as far as the eye can see.

[00:00:54] Now, residents in cities such as Toronto and many others seeking housing options between those expensive single family homes you just mentioned, Dan, and the generic high rise condos face really limited options. Some cities have very few mid-sized rental buildings to fill that growing and noticeable gap.

[00:01:17] And this isn't just a Toronto thing. A similar void in architecture can be found in many other North American cities, Los Angeles, Seattle, Boston, Calgary, and Vancouver. In fact, just yesterday, an article titled, What is Missing Middle Housing and Could It Solve Utah's Housing Crisis? in the Salt Lake City Tribune made waves locally.

[00:01:42] So urban planners consider this a major issue. So significant that they've actually given it a name. The name, of course, is Missing Middle. You've probably heard it on the show before. This term can be a little misleading. So we're going to define it here since it doesn't directly refer to middle class housing, right?

[00:02:01] Instead, it describes a specific range of building sizes and types, including duplexes, triplexes, courtyard buildings, multi-story apartment buildings, multiplexes. These building types all play a crucial role in cities and their absence can significantly impact urban communities in a variety of different ways. I have to say courtyard buildings are sick and they need to come back. Very cool. Yeah, for sure.

[00:02:29] While they've been gone for a while, most of these types of buildings have been missing from many of our cities in new development, at least for the last like 60 to 70 years. Like you look at those unreal courtyard buildings and they're 70 years old. Yeah, exactly, Dan. And if we look at more older and mature cities like the ones in Europe, for instance, Rome, Paris, London, we see them almost entirely made up of missing middle.

[00:02:57] Actually, what they're missing is the single families and the skyscrapers. And they usually have much less of those. Whereas here in North America, we've become so accustomed to just seeing those two typologies. Yeah, it's interesting because you look at like all of the cities that are famous that everybody wants to visit, right? You know, London, Paris and Toronto, Vancouver, Calgary.

[00:03:21] But you know, I mean, look at Paris, like Paris is equally dense to a Toronto, right? It's just, but you don't see any of these like 80 story residential buildings in a city like that. So the architecture, I think that a lot of people like that, that really makes a city feel more like a historic city than like this, like, you know, massive metropolis is that missing middle.

[00:03:46] And so, you know, Europeans might be able to answer this question or a lot of cities across most of the world, most of the old world, right? So, you know, in the Middle East, et cetera, there's this type of housing because they were limited by their construction before, right? They could only build three, four or five stories. So, you know, people in those older cities might be able to answer this question. But in North America, we have to ask this question, who would live in this style of building? And even more importantly, who is capable of building them here?

[00:04:14] Also, what does it take to build one of these from the land, the permits, the zoning process, and the team required are all different than other investment types. And when should you be looking to get involved in this opportunity if you're interested? And how long would something like this last, this opportunity? And how to understand what it takes to even execute on a project like this?

[00:04:42] As cities across Canada change the rules around this emerging product, the other question is, where is the best place to build out one of these projects? And why? Why should you be aware of this emerging real estate investment vehicle that will likely change the landscape of our cities over the next few decades? And then finally, how to build it, how to take a missing middle project from start to finish, how to get financing, and overall, how to navigate this very changing emerging market.

[00:05:11] Today, we're going to do a deep dive into what is possibly the biggest opportunity in Canadian real estate right now, the missing middle. Real estate strategies and rules like the 1% rule or the famous and maybe infamous BRRRR strategy were once the gold standard for real estate investment. But as inflation, interest rates, greed, and speculation, and changing sentiment and demographics shifted the market, could the missing middle be the new gold standard in Canadian real estate?

[00:05:39] Is this the biggest opportunity over the next few years? Welcome back to the Canadian real estate investor podcast as we aim to shed some light on all of these questions and do a deep dive into the missing middle and how to capitalize on it. On that note, Nick, what do I think is the best opportunity to invest in Toronto right now, but also some other major cities? Residential properties located on oversized lots on major arterial roads? Oddly specific and exactly correct.

[00:06:06] Dude, I literally have heard you ramble on about that so many times for hours, maybe even days or weeks of my life when you add all the hours together. So there was no chance I wasn't getting that one. I just assumed you weren't listening most of the time there. I figured you'd tune me out. That's what I do when we're recording, by the way. Okay, good. Good to know. So, Dan, what's the play here? I buy a house on a main road and then what? Yeah, then you add incremental density to the property. You add units. Okay, so it's a big house located on a main road.

[00:06:35] I can go get some drawings done, get a building permit, hire a contractor and add a couple units. I convert it, take out my equity, rent it out and move on to the next one, right? Sounds pretty easy. This is all missing middle stuff we've been talking about in the show for years. It sounds good, but I want to go back to the main road thing. Why does it have to be on a main road specifically, Dan? I mean, it doesn't per se, like, you know, the city of Toronto, Calgary as well, just upzoned. Oh, Edmonton, same thing. Like, just upzoned to, like, four units.

[00:07:04] But what you're starting to see, and I would always use Toronto kind of as the, is it called a bellwether? A leading indicator to, you know, to look at some of the other cities and what their planning policies could end up doing. And so, what Toronto did after they did fourplexes was they did this thing called major streets, okay? And major streets is exactly what it sounds like. They changed something about the major streets.

[00:07:27] So, major streets are the roads that you would drive to get to places unless you're one of those, like, weirdos who, you know, jogs through neighborhoods to get everywhere. Hey, don't say that. I kind of like doing that sometimes. Yeah, you do that. I take, like, the weirdos part. Oh, I do that on country roads, but, like, not, you know, not through a neighborhood. Yeah, fair enough. You do it because you got your subwoofers going and your Honda Civic, like, just, like, waking up everyone, right, on your commute to work. Disturbing the peace.

[00:07:51] The main road thing, from my perspective, is I like main roads because you're basically just not competing with the marginal buyer. If you want to succeed as a business person, you have to have a competitive advantage, right? And the Bank of Canada says 50% of buyers are first-time homebuyers, and first-time homebuyers are also the most competitive buyers. So, don't compete with them. First-time homebuyers, yeah. First-time homebuyers are competitive. I just want to provide some context on that because you're probably thinking, why, if you're listening, why would a first-time homebuyer be so competitive?

[00:08:21] Well, it's simply that because this is their first time in there. There's a lot of emotion involved in that transaction, right, Dan? So, you're not just looking at the dollars and cents like a good investor should. You're letting emotion play, which is, again, why you want to avoid that competition because it gets irrational. Yeah. And yeah, your first-time buyer, your marginal buyer, end-user buyer, they often are less likely to want to live on main roads. So, buy on main roads and you're less likely to compete with them to build your multiplexer missing middle supply.

[00:08:50] So, in Toronto, they're in the process of upzoning main roads to six stories. So, literally, you could go and buy and this is where it becomes a cool opportunity for investors, you know, the regular investor in Canada who probably maybe owns a single-family home or duplex with a large lot in an urban area. If we start seeing more and more of these getting upzoned to the way that Toronto is, six stories up to 10 units without site plan approval and up to 30 units with a site plan through that major streets program. Huge. Yeah. Yeah, exactly.

[00:09:20] So, you also explained something that is like pretty complex and made it sound really simple, which is the process of, you know, adding all the units, right? So, let's just double-click on that because it's not as simple as just like buy land, get permits, build it out. I would say that this is, you know, it's somewhere between the larger scale institutional investments that we see and, you know, the smaller onesie-twosie stuff that we see like your retail investor doing in Canada.

[00:09:44] So, from start to finish, building Missing Middle is, I would say, a complicated process, but a lot of people want to learn this process and that is really our primary motivation around and this is something we're super excited to announce. We're going to be running this partnership with Alkareem Devani from Middle, which is, he's one of the members of CMHC's Housing Supply Challenge and we're going to, he's been doing it across the country with great success. He's a huge local community coming out to learn how to build Missing Middle. We're going to do it with him in Toronto.

[00:10:14] Yeah, exactly, Dan. Super excited for this. Al and his team are really great guys. They've been doing sold-out workshops, as you said, Dan, across the country. We'll put links to the tickets and the events in the show notes here. It's a full-day in-person course that teaches you what it takes to deliver middle housing. So, you're going to learn about the development process, how to identify a site, how to work with your design team, navigate approvals, financing.

[00:10:39] So far, they have a pretty solid proven track record. So, they've got 382 students, 286 lots of lands that is being worked on through this system. And over 1,900, almost 2,000 projected units that they'll be delivering through this. And this is like pretty early. This just started.

[00:11:01] And the way that Al and his team are able to provide the resources to see almost 2,000 units projected is awesome. So, we're just going to go a quick – Dan, why don't we just run through the curriculum real quick? And then we'll do it. And then the rest of this episode will be full. Yeah, I would say like, you know, listen to this closely as well because this is kind of like what your system is. Like if you're going to build a standard operating procedure like a business plan or a business manual,

[00:11:28] like the list of what we're going to describe is everything that you need to do to take middle housing from start to finish. It's obviously, you know, it's not going to be a full day of that like you would get at the middle event. But it's, you know, this is a rough framework of what it takes. And actually, before you start, Nick, I will say early bird tickets are on sale until the end of January. So, make sure you get them because they're going fast. Yeah, exactly. Okay. So, through this program, step by step, right? That's why we like to do things.

[00:11:56] Keep it as simple and easy to follow as possible. It all starts with the development process where we'll map out what the development process looks like before even diving into the details to help you frame the wealth of information that comes. So, look at this as the starting point, right? This is wrapping your head around just about everything. Yeah, for sure. Sorry, one last thing I forgot to mention. It's February 21st, 9 a.m. to 4 p.m. in Toronto, downtown at the YMCA, I think. Yeah.

[00:12:23] Anyway, without further ado, the next thing, this is the part that everybody gets excited about. This is probably why you're listening to the podcast. Site acquisition and pre-development. You got to buy the deal well. And, you know, there's a bunch of key considerations that you want to review. You want to have a framework built for picking your development site, including red flags, expected costs, but also zoning, like we just mentioned. What can I do here? What lot size do I need? Water, sewer, et cetera. There's so many different things that you need to think about when you're considering your acquisition strategy. Yeah, exactly.

[00:12:52] I think one of the main things on the real estate transaction piece that a lot of people get excited about is, hey, you know, my known or babushka owns a single family home down in Toronto or in Edmonton or Calgary, or, you know, my aging parents do, or I've got this great deal off market on a power of sale on this property. Well, that's great. But just because you think it's a good deal for a missing middle project does not mean you can even build one there.

[00:13:17] As Dan said, the permits and the zoning and, you know, the different types of hoops that you've got to jump through to satisfy each one of these different municipalities is a lot, right? So let's talk about the real estate. You really have to be a market expert, right? A hundred percent. You have to know, like you look at developers, like there's a reason developers don't jump around from city to city too much, you know, because it's a different process running that business in many different cities. And so, look, if you're like a, you know, a smaller real estate investor trying to make

[00:13:45] the jump to the next level, you got to really, really niche down on the city that you're going to be in, know all of those zoning codes better than anyone else. Go talk to the plan, go like literally go talk to the planning team at the city. They love questions like this. Hey, I want to build 10 unit buildings. What's the easiest street in this city for me to do that? Or what's the best street in the city for me to do that? Like they will help you build your acquisition strategy by the way. Yeah. And that's not even just like, Ooh, maybe I should do it. Like you're going to have to do that.

[00:14:15] And you know what? Coffee and that is financial advice. Yes. Financial advice do not show up with an envelope full of money, but if you want a little bit of a bribe, a coffee and donuts go a long way. I don't even know if they're allowed. They're like, they're not allowed to accept anything now, like municipalities. So I don't even know if coffee and donut, they might just be like, nope, can't do it. Is that worth more than a dollar? Okay. Yeah. Timbits maybe. So the next piece is real estate transactions. Danny kind of touched on this, right? This is an absolutely crucial part.

[00:14:42] We're going to learn and teach you how to transact properly to make sure you're buying the right deal. Key terms and conditions used in both sellers, buyers, balanced markets, and how to really negotiate piece of property to actually execute this stuff on. Yeah. And in like a perfect world, one of the biggest challenges with these sites is your land cost is pretty high for how much you end up building. So in a lot of cases, it's better to let the existing owner hold that property while you're in the development process.

[00:15:10] And so we'll see a lot, because it's a short development process, we'll see a lot of people basically buy properties conditional on getting their approvals, right? So you would tie it up conditional on getting the approvals. Because again, there's no site plan. It's not going to be a two-year rezoning process you're doing as of right, no site plan up to 10 units. So that is an example of one of the strategies that we're seeing employed. Design and development is kind of the next phase once you've bought and closed on the unit. And maybe again, that design and development piece ends up taking place during your

[00:15:40] conditional period or before you've actually taken possession of the property. If we can figure out how to get the right permissions from the owner and structure the deal properly to do that. And you want to figure out the most cost effective form of middle in your city, but also the most cost effective way to design and develop this transaction, the structure that you're going to be building, what rents, what unit configurations, et cetera, are you going to get the best bang for your buck on? Yeah, exactly.

[00:16:06] Then what this is one of my favorite parts, because I'm a very visual guy. I have a background in construction. Sometimes you got to touch and feel it, right? So what Al and his team do is they do walking tours. So they'll take you to an actual site and be able to critique real life examples of built, missing middle or promising sites, or just as importantly, problematic sites. So, hey, this site looks like it works, but no, the egress in the back is too small or

[00:16:36] there's a fire hydrant's too far away. So little things like that. So for sure. The next piece, and we're going to have a couple of people from the city actually coming to speak at this event. I think Brad Bradford's committed to speak. Some of the people who are on EHON, Nama Blonder is going to be participating. Sean Galbraith, who was part of the EHON and one of the most involved people in the yellow belt is going to be participating. I don't know if, is Greg Ewans? I think he is. Maybe he's not. I believe he is. He'll be there at least.

[00:17:05] But a lot of folks who are involved in this. So you're going to get like really, really deep insight on what the approvals environment looks like. And this will help you understand the local policy framework and how to navigate that process. And this is just like, again, take that if you can't come to the event or if you're in a different city or whatever, take that and say, okay, how do I do this in my own city? How do I understand the local policy framework and navigate the process to optimize my approval chances in working with the local government in Edmonton or Calgary or whatever it is?

[00:17:33] Yeah, for sure. Then, of course, there's financing your project with a Performa. Do not skip this step no matter what. This is where you're going to validate your project and use that validation to secure your finance. And you're going to complete with a Performa template that we provide and interactive exercises. We have several financing experts that have done and or funded multiple of these types of projects. The Performa piece is absolutely necessary. And of course, finally, that leads to the construction piece where we tied it all together.

[00:18:03] By understanding construction contracts and learning the pros and cons of working with a general contractor or DIYing a project like this, which I know a lot of you out there are very interested because you've probably seen or heard a lot of the ads out there, whether it's on this show or Instagram algorithm pumping stuff to rate to you with the lowest rates and all that kind of stuff. This is where you really got to determine, is this something I want to DIY or am I going

[00:18:30] to treat it more like a business and really try to hire everything out? Yeah, it's interesting. So I have a handful of renovations going on, a couple of different investments. And for anybody who's listening, you're probably familiar with that or have been listening for a bit. I'm kind of in the perspective where I think one of the biggest ways to... I guess I'm putting my money where my mouth is, as they say it. I think one of the biggest ways to add value to properties right now is to add units. And so I'm doing that.

[00:18:57] But anyway, through this process, I've kind of been GCing some of the stuff myself, but I've kind of been handing it off. And I've been like, I don't know if I'm ever going to manage a project. GCing on a project. I don't think I'll project manage ever again. It's just, I don't know. It's just one of those things. Highest and best use, man, right? We talk about it all the time, right? Is this your highest and best use? Probably not, even though you're good at it. Yeah. Well, I think I've just learned that I'm not. Like, I am good at it when I... Sorry, even though you're mediocre at it. Yeah.

[00:19:25] No, I think I would be if I had the time to contribute, but it's like, this is the thing you can't be good at. What does Ron Swanson say? It's better to whole ass one thing than half ass a bunch of things. So there you go. Anyway, let's chat about how we got here. Like, why is the middle even missing and why we need to find it? So let's go all the way back to the early 20th century. Toronto faced a surge in immigration leading to the construction of multi-unit buildings. Sound familiar?

[00:19:53] Concerned about maintaining social order, Toronto implemented restrictive zoning laws in 1912 to ban apartment buildings in most of the city favoring single family homes. This move was driven by prejudice attitudes and fears about social decline. In other words, nimbyism. Same shit, different century. Same shit, different days. Same shit, different century. I love it. By the 1960s, as Toronto had expanded, planners designated many areas as off limits, allowing

[00:20:20] only single family homes to be built in those areas. This created what is now known as the Yellow Belt, which is a vast region that restricts new types of development. For those listening outside of Toronto and not familiar with it, the Yellow Belt essentially wraps around the entire GTA like a belt would. The lack of missing middle housing such as multiplexes, townhomes, and some of the other typologies we mentioned resulted in unaffordable neighborhoods and declining populations in those areas.

[00:20:47] Ironically, the zoning intended to protect single family neighborhoods actually backfired. On the note of Yellow Belts, Sean Galbraith, who's the planner who's going to be speaking on our panel, he actually used to go to planning meetings wearing a literal yellow belt on his suit. Love that. And then he threw it out when they got rid of the Yellow Belt thing. You're a rebel. Yeah. Anyway. Oh, he's a beauty. It's going to be great to have him speaking up there. Anyway, so why is it missing? Well, the restrictive zoning and the NIMBYs are the main culprits here, but here's why we

[00:21:17] need to find it, Nick. We need to find the missing middle because it plays a pivotal role and a vital role in creating affordable urban communities that benefit both residents and investors. For residents, it can offer diverse housing options like multiple bedrooms in a multiplex that make neighborhoods a little more desirable and more accessible and home ownership more attainable. For investors, these properties also yield attractive returns through higher demand and less competition

[00:21:45] than single family homes while helping to expand housing supply. It also gives the small cap investor, likely you, the listener to this show, and citizen developers the ability to contribute to the development space, which for a long time, Dan, has kind of been a bit of, I don't want to use the word mafia, but it's kind of, you know, you can't really get in. Cartel is for sure. Cartel. Yeah, there you go. I would say like any, I mean, this is Canada, right?

[00:22:11] Like most markets get like a oligopolistic cartel kind of forming. Development's been okay, but there was like, there was always a jump that you had to make. And right now we're seeing the consequences of this, right? So, you know, when you don't have a mid-market, developers go literally from building like five single family, like custom homes to maybe like a one acre townhouse site to like a 50 story high rise concrete tower.

[00:22:38] And a lot of the guys who made that jump got smoked by the market. Yeah. And, and, and so, you know, had they, had there been a scale where they were able to go in and continue to participate in more infill projects and put their skillset to use in projects that were lower risk, that more, were more suitable for their capital at like, you know, the amount of money that they had, the covenant there, you know, the, the scale of their business, they probably wouldn't be in that position. Right.

[00:23:05] So I think that that's a really interesting piece because now you're seeing like a lot of, you have a lot of these large institutional players who basically are running, they're the ones who are surviving. They have a staying power to stay in the market right now. And they're the ones who are kind of still doing this business of creating houses, let's call it. But at the small end of the market, there's still a bunch of retail investors who can buy the lots, you know, these all of these like single family lots that now can house up to 10 units. Again, 10 units as of right without a site plan in Toronto, up to 30 units with a site plan in six stories.

[00:23:35] So you like, you know, you and I own lots that, that fit this criteria, right? Like we own your 50 by 150 lots. So all of a sudden now we are landowners of potentially meaningful development sites. That to me is the, the big shift that's taken place here is there's been so much value creation for the potential infill developer and the landowner who has this in this infill site. So while I agree with everything you said, it's, it's not even that we, we so much need to find it.

[00:24:02] In many cases, we just need to uncover and change kind of what already exists in that regard, right? These, these lots that many investors already own. Canada is some of the largest single family homes in the world. And for a long time, they've been underutilized from a space perspective, right? Like we, I think we use something like 60% of our, or sorry, less than 60% of our space. No, it's even, or sorry, we don't use 60% of our space. Yeah. So we use 40%. 30 or 40. Yeah. Yeah.

[00:24:29] So again, like, and, and you've got generations now that are just kneecapped by basically affordability, right? So like, you know, they're not like, oh yeah, let me build, buy the biggest house that I can get and, and just waste a bunch of it, not use it. They're like, just give me whatever I can afford. And if that means it's a smaller unit, then I guess I'll have to accept that. Right. But they, a lot of people just want to be able to own or rent homes that they can afford. Right. Yeah, totally. So great segue, Dan, let's talk about that.

[00:24:58] Who let's discuss who would live in this style of building and just as importantly, who is even capable of constructing them? So let's talk about the end user and the team that needs to be put together here. Yeah, for sure. So policymakers and urban planners have been vocal about the critical need for family friendly housing in urban areas. And I think that the easiest way to really understand this is, I mean, it's funny because like, I think that like there's different political factions that sort of like have competing ideas

[00:25:27] within themselves. And so like people who hate missing middle housing and like, you know, that they probably are also concerned about like the birth rate as an example, like why aren't Canadians having kids, right? Or like, why is our, why does our population have to grow so much primarily from immigration? And the reality is a big portion of it is if you think about the affordability equation, people aren't having kids for the most part because they can't afford to. And so like when you're, you know, when you're X age and you think, oh, you know, this is my quality of life.

[00:25:56] I don't know if I want to share this with, you know, like our, you know, have a family. I don't think it's enough. I have enough resources to grow my family unit. That's what makes middle-class people often decide not to have children. And that seems to be Canada basically has the lowest birth rate we've ever had in Canadian history. And just boil down, okay, affordability is a function of how much you make plus how much you spend and what's the biggest piece of everyone's expense. You can answer this one for me, Nick. What do people spend the majority of their income on?

[00:26:25] Starts with an M. It's something I do for a living. I remember right now, mortgage. Mortgages if they, if they have mortgages, but if they don't, it's then it's rental. Right. And so, you know, it's how do, how do we create an environment in which people can afford housing again? And that, that to me is, you know, policymakers consistently point out that our cities lack suitable options for families who want to live in urban environments without being confined

[00:26:53] to either a small condo or an expensive single family home. Yeah, exactly. And that is where the missing middle becomes crucial. These buildings can offer the perfect balance, right? They've got multiple bedroom units with shared outdoor spaces, often more attainable price points than single family homes, especially if you're buying one of these at like condominium, right? Like if you can buy one unit within one of these and they provide space that families kind of need and want while still maintaining the benefits of living in a major city.

[00:27:24] Exactly. And despite years of policy discussions and recommendations for more affordable family friendly urban housing, there's been minimal progress in actually building these types of homes in the past. We've basically been building McMansions and shoeboxes in most of Canada, to be honest with you. Yeah, exactly. So again, Dan, who would live in this style of home? Well, me, I would. And I think many others like me would as well. If you want to live in a city, but you're sick and tired of overpriced cookie cutter condos

[00:27:53] and the only other option in the downtown core is to live in a unaffordable, large single family home, well, you may want to as well. Yeah, they really do offer, I would say like more unique space and living experience. Plus, I think like some of the negative externalities of these like massive condos is like just Google like building name elevators and like there'll be like a story like, you know, it's like, and so like certainly don't tell you stories. Don't forget anything. If you live on the 19th floor, like I used to, don't forget something in your car because

[00:28:23] it'll take you 20 plus minutes to go back and get it, right? Right. Yeah. So, you know, I think that density works to a point and I think that we've kind of, we've really hit that breaking point where it's, it's a diminishing return, right? Like the, the ROI on, on density or the quality of life or quality of the unit that is able to be delivered by density is diminishing massively, right? So a lot of these units, the missing middle units can have a more appropriate amount of

[00:28:53] space than a condo. They can be built cheaper from a construction perspective. Land cost is kind of the one thing that's a little bit of a, you know, it's kind of a question mark because like, you know, one of these lots is you have a marginal buyer who can pay one and a half million for the house. And then, you know, if you want to develop that into a 10 unit, your land cost is still pretty high, right? So the question is like, will land costs settle to make them a little bit more economical? But most people feel that, you know, condos, like condos are basically like hotel rooms now, right?

[00:29:23] And so, you know, it's great for like a student or like a young professional who maybe doesn't have a partner, you know, eats out most of the times or like gets takeout or whatever is at the office. The park is their backyard, you know, the gym and they're like, you know, they're, they're so everything's decentralized from their house. But as we get older and we want to become homebodies, we spend more time in our homes, you know, you tend to demand a little bit more space, right? And so, you know, you've basically got again, that, that too small condo unit that's being

[00:29:52] built or a McMansion was statistically shows again, as we mentioned before, most rooms don't actually get used by the average family. Exactly. So look, young professionals, younger families, multi-generational households, people that are just looking for that next step on the property ladder, easier access to outside. In most cases, you're not dealing with elevators. If any of those sound familiar to you, you may fit the demographic of someone who would live in a missing middle building as well. Okay.

[00:30:20] So we've identified the end user, but what about the project team? Who do you need involved? Right? That's the other important who here. This is something from, you know, that we're going to be going over in the middle school event in great detail. And we'll actually have several key players who would be power team members there speaking. Yeah, for sure. Exactly. And that room is going to be full of people that you need and want to be hearing from. We'll keep it high level here on the podcast, but you need a team on the financing side. So you need a broker or lender.

[00:30:50] And ideally one that understands, not ideally, necessarily one that understands multifamily underwriting practices. And of course, certain programs like CMHC, MLS select program. And most importantly, they can help you either figure out how to get money for your project or how to get money out of your project once completed. And on the construction and design side of things, you'll need an experienced contractor, a full suite of trades, an architect to deal with the zoning and permitting nuances.

[00:31:19] And, you know, anything else that whatever city you're in will throw at you to make this project. And you're inevitably going to have some demands that you'll need a local expert who can get through those. For sure. For sure. And exactly. You need a team on the construction side of things that understands things like installing multiple mechanical systems or the proper fire separation or noise reduction between units, right? This isn't the same as building custom homes. It's quite different.

[00:31:49] It's also very different from building your mid-rise, which a lot of people get confused with this stuff. Yeah, I think the permitting process is super important as well. I mean, we had this come back to bite us in a deal, not a missing middle deal, but a single family, you know, once permit was issued, we were delayed for a few months and it completely changed the trajectory of the project, right? So imagine being held up for months by permits in a very expensive city, you know, paying debt on that project with already thin margins.

[00:32:18] This kind of thing can kill a project pretty fast. So you really do need it. This is like, you know, time is of the essence is probably the easiest way to put that one. 100%. Okay. So we've talked about a few who's. We talked about who will live in these a little bit about the project team and who needs to be involved. And we'll come back to that one again. One more who before we move on. The last who is who should be attempting to take on this kind of project.

[00:32:44] Yeah, I would say you should have a pretty substantial net worth, liquid capital. Yeah. I mean, it probably shouldn't be your first deal, not your first rodeo per se. 100%, man. And we get this all the time, you know, newer investors that have seen or heard something like this. And they're like, well, what about an MLI deal? I'm like, have you done a duplex yet? Like, no. I'm like, well, then forget about it. So if you have no experience in construction or project management or property management or real estate in general, you probably shouldn't do one of these. Yeah. Yeah.

[00:33:14] I would say like, you know, if you've seen ads for, you know, the best rates, the longest amortizations, and you think this is a quick and easy way to make money in real estate investing, you probably shouldn't do it. Although that does, that world of ads seems to be attracting the people who are like, oh, I can lose money in a condo, so I can definitely lose money in a fiveplex. Just five more chances for me to lose money. Yeah. Yeah.

[00:33:39] So, I mean, investing in or building a missing middle properties is not for everyone. But those that can pull it off can feel great about providing a housing type that doesn't currently have much of a place in the market and they can usually, if done correctly, make a pretty penny while doing it. So now let's look at what does it take to build one of these? The land, the permits, the zoning, and the team required can be a little bit different than other investment types. You are getting a little bit more into development here.

[00:34:07] So it's not like just going to buy a small like duplex or something like that. You're building, creating a small unit building, right? Yeah, exactly. So necessary roles on your project team would consist of, and some of these are obviously overlapping in any real estate deal, but you need a lawyer, an accountant, a mortgage broker, a lender, a realtor, a contractor, an architect, and a planner. Just a few of the crucial roles there.

[00:34:33] You would also want to ensure that at least most of them have experience with this asset class or at least have worked with investors before or are an investor themselves. For sure, man. And this is a, as you said multiple times, this is a very nuanced space and emerging market, which makes many of its participants early adopters, which also means that things are always changing. Yeah. And a lot of the changes that have happened, I would say, are outside of the realm of the average person's control or the investor's control period.

[00:35:01] The permitting and zoning processes are the cities who are changing them. The interest rates is central banks or the bond market who's changing them. Not only that, but the personnel, the actual people are changing. And so the lines of communication can get broken pretty easily. Exactly. And not only that, but CMHC is a moving target as well. And things can get quite complicated on the construction draw schedule, on a project, or even worse, the projected ROI and your performance based off incorrect or outdated information.

[00:35:31] And that is going to really mess up your funding. Yeah. That's going to mess up your funding. That seems to be a popular one right now. Yeah. I mean, you basically got realtors doing these pro formas for these pre-con investors buying five plus unit, basically apartment buildings in Alberta, Toronto pre-con investors. The realtors are writing the rent assumptions. And then just ask yourself, what happens if you can't hit the target? I know the answer to the question, but most people probably didn't when they got into this deal.

[00:35:57] So let's also not forget about development charges, tree studies, tons of different studies that the city could throw at you potentially. Again, if you're doing the sub 10 units without site plan, maybe you can avoid some of this stuff. But the reality is a lot of these projects need more than 10 units to make financial sense. So I should also mention that depending on what type of financing you aim to get, you will also need to meet certain requirements there as well. If you plan on taking advantage of programs like MLI Select, like you mentioned.

[00:36:27] There are net worth requirements, liquidity requirements, experience requirements, etc. Which again, another thing that seems to be left out of the conversation with a lot of these people advertising these MLI Select deals that you can buy pre-con five plexes. Yeah, for sure. Just back to what you said, Dan, right? Like there are several boxes that need to be checked for you to even consider doing something like this property management, project management experience, right? This is serious stuff.

[00:36:54] You're not just going to get money because you think you have a good idea and it came up with a good design. Also, a lot of the rhetoric and advertising and kind of almost propaganda behind this stuff is you can do it with no money and it's the best rates and all kinds of stuff. False. You need cash. And you need covenant, which is net worth, to satisfy those CMHC requirements. Yeah. You know, like the OPM thing is funny, right? Like we had an individual come through our course funnel the other day that was saying

[00:37:23] he wanted to do other people's money and I was like, okay, cool. Like that's fine. Like in order to do deals with other people's money, like all you got to do is find a really, really good deal, right? So that'll take, you know, you're going to have to knock on like a couple hundred doors a week, right? And he was like, oh, I can't, that's not going to work for me. I was like, okay, well, honestly, like you can either do a deal with your money or someone else's, but you have to have a really good deal to do it with someone else's. And that just surprised me, right? I think a lot of people just have this expectation that like, you can just be like, hey, like I have this idea. It's called real estate investing and you want to do it with me.

[00:37:51] And then they're like, yeah, here's like, here's a million bucks. Like go buy something and make it good. Okay, cool. It's like, no, usually it's a chicken and egg problem, right? And like the easiest way to show an investment, to show capital that you're good at what you do is to bring them a really, really good deal. And it's not that hard, especially like the city of Toronto just upzoned every single major street. We have a team of people knocking on all of those doors. Cause I actually believe that this is the biggest opportunity probably in the last decade in Canadian real estate. And we're still not going to be able to knock on all the doors.

[00:38:21] So, you know, get out there and talk to owners. Cause that like, that is one way. We're going to leave them for us. Yeah. Yeah. That's true. Do that too. Yeah. I think then, then, you know, the net worth piece, right? I think I was talking about the OPM thing. So like you need a, you need a substantial network net worth for CMHC to want to ensure the file and the lenders to want to take on this file. Right. So what it takes serious team of people, the right site, right? A really, really good site, the right building and building team and a net worth or covenant to back it up.

[00:38:51] You need to be able to borrow money. You need to be somebody that somebody wants to lend money to. Let's go to 100%. Yeah. Okay. So let's talk about when, when you should be looking at getting involved in an opportunity like this and not just when, but how long will this opportunity last and how to understand the time it takes to execute on a project like this. If only there was some kind of event or workshop that literally walked people through something like this. Yeah, I know. If only.

[00:39:19] So this is something that we will be covering again, as we mentioned in the middle school event. And we will also be doing a recap and more content on the event. So we'll have like some, you know, we're going to have a post episode as well as a bunch of videos and video recordings from the event for people available on our YouTube channel and school platform. Yeah. So with all that being said, Dan, let's take a quick high level look at when, when you

[00:39:43] should do a project like this, how long projects like this take to complete and how long will the opportunity last talk to me about, talk to me about the project side of things. So when should you do a project like this? Obviously totally subjective to the person in the project. In some cases it may not be right now, or in some cases it may be as soon as possible and you have the land tied up and the team and the finances are ready to go. Yeah. In other cases, maybe you just shouldn't do these projects at all.

[00:40:11] And it's not a good fit for you, your skillset or your investment thesis. That's exactly why we do the podcast on topics such as this and throw events like our multiplexing event. And now this middle school event, we want to be able to help you determine if this is the right strategy for you based off of providing you with as much information as we can. Yeah. I mean, this is the new hottest thing in real estate. It might be, you know, the, the, the version of it that I think is actually like the, you know,

[00:40:40] the shiny object that everybody's chasing right now is these MLI deals in, in Alberta, but like missing middle and like these smaller, you know, plex typologies are what everyone is looking at right now because high rise builders aren't building and nobody can afford single family detached homes, right? Builders can't afford to build concrete or builders can't afford to build high rise and buyers can't afford to buy low rise. So what are we going to do if we got to get houses created? Exactly. And look, that, that shiny object syndrome that you've heard about in real estate, where

[00:41:10] you just jump around from every different opportunity with a burr, flip Airbnb, long-term, short-term, big, small, different markets. You got to be careful with that. And that shiny object syndrome, right? I think my Instagram algorithm has caught onto it and is now showing me multiple different ad sets for building missing middle projects and CMHC projects to, to use in, in order to complete those types of things. And honestly, man, these posts are, are a bit more of a liability than a representation of

[00:41:38] a real opportunity because they're so misleading. Well, yeah. I mean, like I've seen some of them saying that you can get, you can buy with like a rate from like 2.5 to 3.5%. It's like huge government money to buy. Yeah. I know. I'm surprised like that CMHC and the government of Canada hasn't been like, Hey, can you stop using our logos on Facebook ads? I'm sure they are. We don't want to be associated with this stuff. Yeah. It does. It does give me that, it kind of gives me that Merb vibe. Like when the Mer, like how the Merb end. For sure. And it'll be like that. It will be like that. Yeah.

[00:42:08] They really gotta, they really gotta sort this out. I think what, what will probably happen is they'll just get rid of the ability to, uh, for it, for it to be an acquisition, right? Like, cause right now it's like all these people are buying pre-made ones, but, and it's funny cause it is like, it's all the pre-con brokers, it's all the pre-con buyers piling into it. Right now, just, you know, uh, round two or whatever the, uh, uh, second, uh, you

[00:42:37] know, the sequel, I guess, or the sequel. Yeah. The sequel. Here we go. Yeah. Um, okay. So, I mean, look, simply put, when should you do one of these projects? Well, it's a individual sliding scale and that sliding scale starts as right now. Uh, if you're well positioned to do it, start, come to the event, figure out how to do it, put the party together and let's get going. We need this stuff. Uh, and that sliding scale goes all the way over to never. Maybe you are a real estate investor that should just be aware of this and never do one because

[00:43:06] you don't have the expertise, the market, the covenant, whatever it may be. Yeah. So you and your partner, Vince, friend of the show and overall beauty have been doing a couple of these missing middle projects on the go right now. How, how long are you finding they take? Yeah. So we're building stuff on the smaller side, Dan. Um, so our missing middle product is really just five units, kind of four in the main house and then one laneway or garden suite. Really beautiful product. Now, the four plus one allows you to reduce development charge costs though, right? It's a big time. Yeah. Yeah.

[00:43:35] Now, when we're looking at from like acquisition, okay. So like finding that deal all the way to stabilization, meaning that the units are all rented. We're saying to be safe. It's about 18 months. Some of them have been quicker. Some of them have been a little bit longer, but again, this is a sliding scale for how long certain things take, right? Like we can have projections and then a permit can come in and screw things up. A utility hookup can come in and literally delay the project by months. It's crazy.

[00:44:03] Little other things like how long trades take and even how long it can take to find great tenants, right? There's so many different, if this is a Gantt chart and one thing has got to be done after the other, there's a lot of variables that, um, that need to fall into place. Yeah. I think, you know, and not to mention how long a NIMBY can get the project delayed for. Like I put, I just put this thing out from Reddit, a proposed fourplex in Etobicoke was rejected after opposition for, for more than a 40 neighbors. I have to, I have to open this to read this quote to you.

[00:44:32] So somebody wrote a letter and it says this, if allowed, will begin a cascade of more houses, destroying the neighborhood into a slum yard of undesirable inhabitants who will bring crime and filth and drug activity and illegal aliens into a long established, quiet, safe neighborhood. I guess the NIMBYs are finally saying the quiet, the quiet parts out loud. Yeah, man, I know I was blown away to read that. Like somebody would actually put this using the word filth. Yeah, I know something like that. Like that just gives you the perspective of like what the, you know, like what you're up against.

[00:45:00] Like these are, these are the people who the crazy thing is like they're loaded with equity and got nothing better to do than just write letters to their, but like, man, what the, the frustrating thing is as a guy that is now in this space building stuff out like this, like no filth person or whatever other characteristics those people said is going to live in one of these things. Like these are all beautiful units. Dan, all of our other partners that were throwing this event with that dinner we had a couple of weeks ago with some of the major builders in the city.

[00:45:28] Every single person is building these things out in like, they are all nicer than condoms. Can we be very, very clear? Yeah. It's like, what would you prefer? I just buy like one of the other houses and turn it into a rooming house. Cause that's the other popular, you know, like that's the alternative. That's, that's the only way somebody is going to get yield on a, on a property in, in X neighborhood. Right. So anyway, anything else you want? I know we're getting a little long on time here. Anything else? I mean, I guess we should talk about location, obviously. Let's go, let's talk about the, the where. Yeah.

[00:45:57] So the where is location, location, location, right? The main thing here again is, is it subjective climate, rental market, municipality, zoning, relationships, et cetera. Yeah. That's, that's right. I mean, look, a project in Calgary is going to be different than a project in Edmonton, which will be different than a project in Halifax, which will be different than a project in the GTA. The good news is there is opportunity to execute these types of projects in almost every major Canadian market. For sure. Yeah. And it goes back to one of the most basic concepts we teach and talk about your investment thesis,

[00:46:27] right? It's a, it's crucial to pick a market and become an expert in that market. The only way for you to get a competitive advantage is to be better than all of your competitors. You know, the market better, you're better at, you know, you find better deals, et cetera, et cetera. And if you do all of that, then you're going to get the best deal and you're going to have success. Yeah. A hundred percent minute. It comes down just like a lot of things in real estate investing to a disqualification process, right? The more variables that you can remove, the easier it will be to determine if this type of investing is right for you.

[00:46:57] Now, final piece here, Dan, or maybe not the final piece, getting to the final piece. I think we're going to talk about the why and then maybe a little teaser on the how. So the why is, you know, affordable housing, right? It can provide affordable housing in there. As an investor, you want to go to something that has high demand. So you have the most, you basically have infinite demand if you can deliver affordable units, right? Affordability is always in style. You're creating supply. You're going for walkability, right? Which is one of the big things that municipalities want to get.

[00:47:27] You're capitalizing on three levels of government, right? There's legislative and a legislative environment that is encouraging this. So you're getting those favorable financing programs from the CMHCs of the world. You're getting favorable zoning from the Toronto's of the world, right? And so the government is like, you know, again, we've used the example of Tesla. Like Tesla would not have, well, they probably would have done fine, but they, you know, they really, really used the green vehicle revolution and a lot of those grants that people, you

[00:47:54] know, basically the government was giving people money to buy these vehicles and do the same thing. Like follow what policymakers are doing, because if they're going to make it easy for you, then it's easy for you to run a successful business. Do we have a chance to talk about the how, Nick? You want to wrap it up? Send us home with the how. Yeah. I mean, finally, look, the how is essentially how to build a missing middle project, how to get financing and overall how to navigate this ever changing and emerging market as an early adopter.

[00:48:23] You know, the great thing about being an early adopter is that if you can get into the space early, you likely have a lot more of an opportunity to receive the benefits and have a far more lucrative experience. The downfalls and pitfalls of being an early adopter is you've got to figure out all this stuff. You're, you're forging the path with the other early adopters. So, you know, go ahead, Dan. Yeah. I was just going to say, I'm often of the opinion that like finding a good deal is often

[00:48:49] like the best way to force yourself to do the how, which is just like, get, get out there, talk to owners, like go look at the zoning map and then pick a bunch of properties that you want to focus on and find an owner who's willing to sell you one of those properties at a decent deal. Even if you're an OPM person and you don't want, don't have the money. Cause the other alternative is we did have another person who doesn't, you know, probably doesn't have the money to be doing these types of deals come through our funnel, but he wants to knock on hundreds of doors and he's going to go and he's going to, and he's going to go and find the shadow to Jonah who joined our, who joined realist, but you know, he's going to go

[00:49:19] and find a deal and he's going to, and the deal is going to be sick. And then he's going to be able to attract partners because he's negotiated an excellent deal. And he'll be able to stay in as the equity partner and bring in a builder because he's built in enough value into the deal. The only way you're going to be able to do that is knowing everything that we just said, finding the right deal and then educating. Cause like you have to educate yourself on it in this within the specific box of that deal as well. So go find a property, even if you don't know the owner or whatever, and then backfill all of the information that you need for that property to make it a good, make it into a good investment that you can attract investors to.

[00:49:49] That's my how the easy, how, obviously there's a better how, but that's my easy. The one thing that never goes out of style in real estate is finding a good deal. And on that note, Dan, if you want to know the full how to, and kind of way more details and real action items for everything we just spoke about, I would suggest coming to our event if you are in the Toronto GTA area or Ontario and you're able to do so, we're going to go over the step-by-step process. We'll have every major expert that you need in the room. We've also done several podcasts on the subject.

[00:50:19] There's just simply too much to cover. So we need to hear all the different experts elaborate on their expertise. So that's the pitch for the event and why you should come. If you can't come, don't worry. We will have subsequent events across the country as well as more and more content coming out about the missing middle, how to find it and how to execute on this opportunity. As always, thank you so much for listening. Hope you got a ton of value out of today's episode.

[00:50:46] Go leave us a review, come to an event, sign up for Realist and we will see you soon. The content of this podcast is for educational and informational purposes only. It is not intended as financial, legal or investment advice. Always consult a qualified professional for advice tailored to your unique circumstances. The views expressed are those of the hosts and guests and do not necessarily reflect the opinions of affiliated organizations.

[00:51:13] Daniel Foch is a real estate broker licensed with Valerie Real Estate Inc. website is valery.ca, V-A-L-E-R-Y.ca and a member of the Canadian Real Estate Association, the Ontario Real Estate Association and the Toronto Real Estate Board. Nick Hill is a mortgage agent and partner at OWL. Mortgage license number 10317. Agent license M21004037. Agent license M210037.