The Opportunity In Proptech: Canada Vs. America

[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.

[00:00:12] When comparing the United States and Canada, we see some striking contrasts in their real estate and economic landscapes.

[00:00:21] Yeah, that probably has something to do with one being quite a bit larger than the other.

[00:00:26] The U.S. market demonstrates how massive it is with its commercial real estate sector valued at $24.7 trillion.

[00:00:37] Yes, trillion dollars and an impressive residential market at $88.9 trillion.

[00:00:45] Real estate makes up a lot for global wealth and the sheer size of industry globally is very impressive.

[00:00:52] Yeah, exactly. And the total value of global real estate was estimated at $379.7 trillion.

[00:01:00] That is back in 2022. That was nearly four times the global GDP.

[00:01:06] Sector wise, residential real estate accounts for 76% of the overall market and was valued at $287.6 trillion in 2022.

[00:01:14] Now, following residential real estate, there is commercial real estate which was worth $50.8 trillion and contributed 13% to the total global real estate value.

[00:01:27] The remaining value was covered by agricultural land which we have talked about a few times in the show and just a massive amount of billionaires buying hundreds if not thousands of acres of agricultural land.

[00:01:41] While the U.S. economy and real estate market are more than 10 times larger than Canada's, interestingly, the U.S. residential mortgage market is only 6.4 times larger, highlighting Canada's higher home price to income ratio and greater emphasis on real estate as an investment class and perhaps our need to consume debt.

[00:02:00] Hmm. Yes. Now, residential investment is the direct contribution to housing market overall.

[00:02:07] It includes output from not just things like new home building and major innovations, but things like ownership transfer costs.

[00:02:16] And it's important, but far from comprehensive measures of home buildings contribution to GDP.

[00:02:22] For example, finance and insurance are housing heavy measures as well, but they're separate categories.

[00:02:29] There are also things like retail, such as just paint and furnishings that all contributed to the bigger real estate economy.

[00:02:38] Yes. And we're almost dangerously invested in real estate at this point, but we're also at a turning point here, the beginning of a renaissance period that we have spoken a lot about on the show.

[00:02:48] Yeah, exactly. The renaissance, right? The one that we are all familiar with was a period of cultural, artistic and intellectual innovation that took place in Europe between the 14th and 16th century and produced the likes of Leonardo da Vinci, Raphael, Michelangelo and several other Ninja Turtles.

[00:03:08] Well, what if we were starting to experience something like that here again in Canada now, but instead of through art, it was through new technology?

[00:03:19] It seems to be great timing. Technology should be used to help fix major issues, especially with the advent of AI and the information revolution.

[00:03:28] You know, these candidates for fixing could be the housing crisis, the application of PropTech, Contech and FinTech should all be utilized to streamline processes, collect data, reduce costs and just make the industry work as a whole a lot better.

[00:03:44] Yeah, I mean, if we're using the renaissance example here, we may as well say that Canada has been operating in somewhat of a dark ages to a certain extent when it comes to how slow certain industries adopt these new technologies, right?

[00:04:00] Then Contech being construction tech, property technology and FinTech being financial technology.

[00:04:06] You know, we see Canadian construction, real estate and banking being really slow to progress and adopt some of these new technologies.

[00:04:16] Canada has carved out its own unique advantages, particularly in innovation and talent development.

[00:04:21] The country boasts a strong education system, skilled talent pool, government, supportive government policies and favorable immigration programs that have fostered a thriving tech ecosystem in Canada.

[00:04:30] These differences create unique opportunities for cross-border expansion, particularly for Canadian companies looking to scale their operations into the larger U.S. market.

[00:04:40] Welcome back to another episode of the Canadian Real Estate Investor Podcast, where today we're doing a deep dive into the world of PropTech.

[00:04:48] That's property technology.

[00:04:51] My name is Nick Hill and I am joined today and every Tuesday and Friday by Daniel Foch.

[00:04:59] Yeah, that's right, Nick.

[00:05:00] And we are going to look at the opportunity for these PropTech companies, not just here in Canada, but also to expand to the U.S.

[00:05:07] and how they are changing the business of real estate and the built environment as we know it.

[00:05:12] Yeah, we're going to be looking at a new report by our friends over at the PropTech Collective called

[00:05:19] A Guide for Canadian PropTech Companies Navigating the U.S. Real Estate Market.

[00:05:25] So if you're in the world of PropTech or a professional in the world of real estate, like a residential or commercial real estate agent, mortgage broker, lender, contractor, developer, you're planning to grow your business and use PropTech to help do it, especially if you want to expand into the U.S. at some point, this episode is for you.

[00:05:42] Now, before we get into the findings of the report, let's give a quick shout out to the authors, PropTech Collective and DealVesity.

[00:05:51] PropTech Collective is a premier national association for companies at the forefront of innovation in the real estate and construction industries.

[00:05:59] They put out at least one report a year. We've done a lot of work with them.

[00:06:03] They are fantastic. I would recommend anyone that is looking to, you know, just change the way that they're operating their business and maybe implement some of these new technologies to really check them out.

[00:06:19] And then DealVersity is an innovative strategy consultancy helping tech firms navigate the new market expansion.

[00:06:26] They offer deep insights into local markets, competitive landscapes and product on go-to market strategies.

[00:06:34] So pretty good team putting this information together here.

[00:06:38] Yeah. So the report they put together provides a guide for Canadian PropTech firms planning to expand internationally.

[00:06:44] It focuses on the U.S., one of the largest real estate markets and a key target market for many high growth Canadian technology companies and real estate investors alike.

[00:06:52] But successful expansion requires careful market selection, establishing strategic partnerships and focusing on customers with high growth potential.

[00:07:01] Yeah. I mean, Dan, we talk about this all the time, right?

[00:07:04] It's essentially formulated an investment thesis. It has all the same practices, right?

[00:07:08] Knowing your market, understanding your TAM, that's your total addressable market and knowing your customer within that market.

[00:07:16] Income levels, government support programs and incentives, building a power team, hiring the right people and more.

[00:07:22] If you are a PropTech founder looking to expand into the U.S., an investor looking to utilize PropTech or a real estate investor looking south of the border for investment opportunities, this episode is for you.

[00:07:32] So let's start with a few points from their executive summary.

[00:07:36] The U.S. is one of the largest real estate markets globally, $24.7 trillion worth of commercial real estate market cap and a U.S. $88.9 trillion residential real estate market.

[00:07:50] Absolutely crazy numbers.

[00:07:51] Now, while the U.S. economy and real estate market are more than 10 times larger than Canada's, the U.S. residential mortgage market is only 6.4 times.

[00:08:02] So, you know, that does make me a little nervous, but we get to just wait.

[00:08:08] We're going to read out some really great stats a little later in the episode and maybe explain why those numbers are so contrasting.

[00:08:17] But then the mortgage market seems to be a little different.

[00:08:19] It's because mortgages and debt are handled so differently in the U.S. and Canada.

[00:08:26] We're also going to look at the five largest asset classes in the U.S., multifamily, industrial, office, retail, and hospitality with details on market data, top markets, and major players.

[00:08:36] We also cover strategic market selection, forming key partnerships, targeting customers with growth potential.

[00:08:42] As well as why Canada is an attractive place to establish companies with its strong education system, skilled talent pool, supportive government policies, favorable immigration, and thriving tech ecosystem.

[00:08:53] So, as we just said, the U.S. is one of the biggest real estate markets globally, but so is China.

[00:09:01] But you know what has really hit the fan recently in China over the last few years?

[00:09:07] And in fact, when I was doing some research for this episode, if you type in China real, and you don't even have to put a state, you just type in China real into Google.

[00:09:16] The first thing that self-populates as a suggestion is China real estate crisis, which they say has started in 2020 and is now ongoing.

[00:09:26] Yeah, we spoke about this quite a few times on the podcast with the biggest property developers in the world, like Chinese giants Evergrande and Country Garden, having to declare bankruptcy due to extreme mismanagement and overbuilding.

[00:09:38] Yeah, it's pretty scary what's happening over there.

[00:09:40] Should we just do a real quick recap, provide some context?

[00:09:43] Yeah, might as well. A little off topic, but there's definitely some good lessons learned from that country and has a ton of emerging tech in the property and construction sectors as well.

[00:09:51] So, the crisis was triggered by a combination of factors, including monetary policy.

[00:09:56] So, state-owned banks provided low interest rate loans to developers, which led to overbuilding and debt.

[00:10:02] New regulations and debt limits for developers were introduced.

[00:10:05] The default of Evergrande Group in 2021 was followed by defaults from other major developers.

[00:10:10] Yeah, so exactly. That was some of the causes. Some of the effects were plummeting prices.

[00:10:15] The value of new homes dropped more than 23%.

[00:10:19] Unlike Canada, where we don't have enough housing, China seems to have too much because there was empty apartments, tens of millions of them.

[00:10:26] And millions more just simply left unfinished.

[00:10:30] And then, of course, that all resulted in massive losses of wealth.

[00:10:34] And the value of real estate assets has simply evaporated to the point where it is equivalent to each Chinese family of three losing $60,000 in assets.

[00:10:46] That's wild, actually.

[00:10:47] It's a wild story.

[00:10:48] Scary, scary stuff.

[00:10:49] So, the Chinese government introduced measures to support the real estate market, including reducing interest rates on existing loans, cutting down payment rates, lifting purchase restrictions in certain cities.

[00:10:59] Sounds kind of familiar to government policy here that's been, I would argue, trying to make an effort to keep housing prices up.

[00:11:07] Yeah, yeah, totally.

[00:11:08] So, I mean, look, lessons from this is don't overbuild and don't completely financialize housing, right?

[00:11:14] Watch your capital stack and don't overleverage.

[00:11:16] Watch.

[00:11:17] We'll get back on track.

[00:11:18] The reason I wanted to bring this up is because, you know, China is always on the forefront of technology.

[00:11:23] So, this is all about utilizing and implementing these things properly.

[00:11:27] Just because you've figured out a way to build a building way faster doesn't mean you should just start putting up millions of units that are never going to be lived in.

[00:11:36] So, let's get back on track here, Dan.

[00:11:38] Other notable real estate markets include Japan, Germany, India, the UK, and France.

[00:11:43] And they're all driven by their large populations and, of course, high GDP levels.

[00:11:48] Canada ranks as the 10th largest commercial real estate market.

[00:11:52] But even though we all love residential real estate over here, that doesn't crack the top 10.

[00:11:57] It is kind of cool to see the commercial real estate make the top 10 globally, though.

[00:12:04] Yeah.

[00:12:04] So, let's just look at some of the major global players and sizes of their residential and commercial sectors.

[00:12:09] So, it looks like if you look at the 10 largest real estate markets, Canada's number 10, their commercial real estate market is $1.9 trillion.

[00:12:18] Then the UK's commercial and residential come in at number 7 and 8.

[00:12:23] Germany is number 4 in commercial and number 4 in residential.

[00:12:28] China is number 2 in commercial and number 1 in residential.

[00:12:32] Whereas the US, on the other hand, would be number 1 in commercial and number 2 in residential.

[00:12:38] France is number 6 in commercial and number 7 in residential.

[00:12:43] I'm kind of reading this on a map.

[00:12:44] That's why it's all out of order, by the way.

[00:12:46] I do know how numbers work.

[00:12:49] Japan is number 3 commercial and number 5 residential, which is actually pretty wild.

[00:12:55] It's just geographically very small country compared to everyone else on this list.

[00:12:59] India is definitely getting up there, which is interesting.

[00:13:01] Number 3 residential real estate market in the world.

[00:13:04] Wild.

[00:13:04] $34.3 trillion market cap.

[00:13:07] And number 5 in the commercial space.

[00:13:09] Then you've got South Korea and Indonesia on there as well.

[00:13:12] You forgot.

[00:13:13] Did you purposely forget Italy to allow me to read it?

[00:13:16] I did.

[00:13:17] I did that just for you.

[00:13:18] Oh, I thank you so much.

[00:13:19] Because I was shocked to see Italy on there as well.

[00:13:21] I mean, when you think Italy, I don't think a lot of commercial buildings.

[00:13:27] But, you know, they're number 9.

[00:13:28] Milan.

[00:13:29] Milan's like pretty happy in the city.

[00:13:31] Yeah, for sure.

[00:13:31] But, I mean, you know, again, it's just not something that, you know, I just don't think

[00:13:36] Italy real estate.

[00:13:37] I think, you know, maybe on the residential side, but Italy became-

[00:13:39] But their residential one kind of surprised me too because like when I think Italy residential,

[00:13:45] I just think about all of those like houses that you see on Instagram for $1.

[00:13:49] Yeah.

[00:13:51] So, for Italy to hit that as number 10, $7.5 trillion.

[00:13:55] Man, that's a lot of $1 homes over there.

[00:13:57] So, anyway, fascinating stuff.

[00:13:59] What we see, what this map does tell us is that real estate on a global scale plays a huge

[00:14:06] role in every one of these major economies.

[00:14:08] And the United States just absolutely kills it as usual.

[00:14:12] So, now let's look at the general economy of both Canada and the U.S.

[00:14:18] And keep in mind that in 2023, the U.S. had a gross domestic product GDP of about $27.36

[00:14:25] trillion.

[00:14:27] Well, Canada's GDP was slightly less at $2.14 trillion.

[00:14:32] The U.S. has the largest economy in the world.

[00:14:34] Well, Canada is the ninth largest.

[00:14:37] So, when we look at the nominal GDP, and this is from the 2023 USD, 24 points, 27.4, Canada

[00:14:45] 2.14, GDP growth, 2.5 in the U.S., 1.1 here in Canada, GDP per capita, 85,000 USD versus

[00:14:57] 54,000 USD.

[00:14:59] And Dan, we've talked a lot about that.

[00:15:00] That's probably the most depressing stuff.

[00:15:01] Yeah, man.

[00:15:02] I mean, we've put out those interactive charts and they're floating around a lot right now

[00:15:06] as well, whether they're ours or other people's.

[00:15:08] But that kind of lost decade and that GDP per capita recession that people like CIBC economist

[00:15:15] Ben Tal has been talking about for years at this point, right?

[00:15:19] Interest rates were both in and around the fives.

[00:15:21] Unemployment rate, again, this one gets scary.

[00:15:23] This is outdated here because the U.S. employment rate was at about 3.6 when this study was conducted.

[00:15:29] They have Canada listed here at 5.4, but I believe we're at 6.8.

[00:15:34] Is it Dan right now?

[00:15:36] I'm not sure.

[00:15:37] I think it just went up to 6.8, yeah.

[00:15:40] Yeah, okay.

[00:15:41] This would have been this report.

[00:15:42] Well, this is 2023 economic snapshot, so that's why.

[00:15:45] Yeah, yeah.

[00:15:46] But I mean, I'm just updating things here, right?

[00:15:48] And then the median annual income level, USD 74,000.

[00:15:54] Canada in USD is 54,000.

[00:15:58] So, yeah, the U.S. unemployment rate, I think, is 4.2 right now and Canada's is, like you said, 6.8.

[00:16:05] Yeah, okay.

[00:16:07] Yeah, so let's focus here on real estate comparison.

[00:16:12] You've heard of a CMA, right?

[00:16:14] Yes, a CMA that stands for comparative market analysis, which is the process of estimating a property's value by comparing it to similar homes in the area.

[00:16:23] Is that correct, Dan?

[00:16:24] Yeah, so why don't we do maybe a CCA, comparative country analysis.

[00:16:29] All jokes aside, though, it's fascinating to get the difference in numbers of things like publicly traded REITs and the differences in mortgages.

[00:16:39] So let's go through these here.

[00:16:42] So I'm going to do real estate market comparison, the U.S. versus Canada.

[00:16:49] Canada, CRE investment volume in the U.S., $375 billion.

[00:16:53] In Canada, it's 41.6 billion.

[00:16:56] The number of publicly listed REITs, 179 REITs in the United States, 38 REITs in Canada.

[00:17:03] The number of residential units stock, 144 million residential units in the U.S., 16.5 million residential units in Canada.

[00:17:12] Home ownership rate, pretty comparable, both around 66%.

[00:17:17] Canada is slightly higher.

[00:17:19] The home sales volume, 4.8 million units in the U.S.

[00:17:23] In Canada, 443,000 units in 2023.

[00:17:28] The average home price in the U.S. is 500,000 USD.

[00:17:33] In Canada, it's not that much off that.

[00:17:36] It's 511,000 USD as of Q2 2024, those two numbers are, which is actually really interesting.

[00:17:42] We've made this comparison a handful of times.

[00:17:44] It's like everybody always looks at the U.S. and they're like, oh, look at how cheap houses are.

[00:17:48] It's like, did you remember to multiply that by 1.36 now or 1.4?

[00:17:54] Yeah, so the killer one is because when you go back to the stats you were reading is that income and GDP per capita.

[00:18:01] When you get to the home price to income ratio, people in the U.S. make a lot more money on average.

[00:18:06] So the home price to income ratio is 6.7X.

[00:18:09] In Canada, it is 9.4X.

[00:18:14] Yeah, that's the scary difference.

[00:18:16] And the next piece I'm going to read is also, I already mentioned, mortgages work very differently, loans work very differently down there.

[00:18:22] So when we look at a mortgage in the U.S., they're typically 30 years, okay?

[00:18:28] I'm not talking about an amortization.

[00:18:30] I'm talking about the actual mortgage itself.

[00:18:34] They're typically 30 years with matching AM schedules.

[00:18:37] Private mortgage insurance is required if the down payment is below 20%, so similar stuff up here.

[00:18:42] Interest is tax deductible for primary and secondary residents.

[00:18:45] And Fannie Mae and Freddie Mac are key players in the mortgage market.

[00:18:50] Well, up here in Canada, things are very different.

[00:18:54] Typical five years with a 25-year amortization.

[00:18:57] Mortgage rates change at the end of every term.

[00:19:01] Dan, every time we mention something like this, I'll never forget when you were doing your Twitter spaces and that one time that randomly a whole bunch of Americans came on.

[00:19:10] And we were chatting mortgage with them.

[00:19:12] And they literally, we had to explain to them, they couldn't believe that there's, you know, people get one, three, five-year mortgages up here.

[00:19:19] And they're like, how does anyone do anything?

[00:19:22] Well, it is funny.

[00:19:23] It's funny, especially because in the U.S., people are like, they're a little gun shy for adjustable rates because of what happened in 2008, right?

[00:19:32] Like a lot of those were teaser rates or, you know, people getting into like two, three, four, five-year products.

[00:19:38] And then they'd get hit when it reset or they'd have this thing called an adjustable rate mortgage and an arm or an option arm.

[00:19:45] And all of our mortgages are basically that in Canada.

[00:19:47] And so you explain that to them and they're like, oh, you guys are in big trouble.

[00:19:53] Yeah, maybe.

[00:19:56] Those comments live rent-free in my head still to this day.

[00:19:58] Yeah, like I remember we had like Grant Cardone and like Cindy Stumpo on a Twitter space once on one of my Twitter spaces.

[00:20:04] And they were literally like, I don't know how it hasn't burned to the ground up there yet.

[00:20:08] We're like, we're working on it, okay?

[00:20:12] So again, mortgage insurance applies, same thing, less than 20%.

[00:20:16] Another difference is interest is not tax deductible up here.

[00:20:20] And of course, we, unlike if we don't have a Fannie and a Freddie, we've got CMHC up here.

[00:20:26] So pretty crazy, but let's do a deeper dive.

[00:20:28] Now that we've got that information, Dan, let's take that and do a deeper dive into look at some of the different real estate asset classes and the differences in sizes.

[00:20:39] Take me away.

[00:20:41] Start talking to me about this graphic we've got here.

[00:20:43] Yeah, so if you just like think about things in sheer size, right?

[00:20:48] Like so, you know, think about the population of Canada is or the population of the US is 8x the population of Canada, right?

[00:20:57] So that's, let's say that gives us our baseline.

[00:20:59] We can hope that everything will end up at 8x, but it's not.

[00:21:04] You take GDP per capita, it's 1.6x.

[00:21:07] If you take nominal GDP, their nominal GDP is 12.8 times higher than Canada's GDP.

[00:21:15] Their commercial real estate market is 13 times larger than Canada's commercial real estate market.

[00:21:22] Their residential real estate market is 15 times larger than our residential real estate market.

[00:21:28] And their residential mortgage market, this is the one that's kind of shocking because it's the only one that's below that 8x baseline is their residential mortgage market, which is 6.4 times larger.

[00:21:40] Yeah, this is the wild piece here is the difference in sheer size.

[00:21:46] Now, I love here in this graphic that the good people at Proptech Collective put together.

[00:21:51] There's a bit of an explanation piece, a couple of bullet points in the size of the residential mortgage market, which I'm going to read out because I just think it provides some good context.

[00:22:01] So it says, homeownership rates Canada's high homeownership rate drive substantial mortgage demand.

[00:22:07] Very true.

[00:22:08] Real estate as an investment for Canadians, it is often viewed as the primary investment due to its historically strong performance in key markets.

[00:22:16] Again, a classic mistake that a lot of Canadians make thinking that real estate is the only investment.

[00:22:22] Dan, we both love real estate and investment, but it's far from the only way to invest your money and get returns.

[00:22:28] Canadians carry higher mortgage debt levels relative to their income.

[00:22:33] And the mortgage structure doesn't do us any favors either because, again, we typically have a five-year term with 25 to 30-year AMS, unlike an actual 30-year term in the States.

[00:22:45] And, of course, interest rates and affordability have been playing games with Canadians over the last few years.

[00:22:52] Historical low interest rates and limited supply and high property values, particularly in larger cities.

[00:22:57] They don't name them, but I will.

[00:22:59] Toronto, Vancouver, maybe in Montreal and Calgary at this point have driven up housing prices.

[00:23:03] So that is why we see some of the disjointed stuff on the size of the residential mortgage market in particular.

[00:23:12] Yeah, so the question then becomes why might someone want to build or invest in Canada?

[00:23:18] And many people in the real estate industry have been asking themselves this recently as things seemingly are getting more difficult in Canada,

[00:23:24] getting more slow to actually make progress and more expensive.

[00:23:30] But it's not all that bad.

[00:23:31] So let's go through some of the reasons from the report that Canada might be a compelling place,

[00:23:40] despite some of the headwinds we have going on right now.

[00:23:43] So Canada led the G7 countries in higher education.

[00:23:47] So quality of education is a big one, right?

[00:23:49] 57.5% of working age population have college or university credentials.

[00:23:54] Canadian universities rank highly for computer science and information systems in the QS World University rankings.

[00:24:01] Number 13, U of T.

[00:24:03] Number 21, Waterloo.

[00:24:04] And number 34, McGill.

[00:24:06] 35,000 graduates in mathematics, computer and information sciences in 2021.

[00:24:11] 51% increase in STEM grads in Canada from 2010 to 2018.

[00:24:15] So and frankly, if you go back to that income piece that we're talking about,

[00:24:19] like when we talked about that price to income side,

[00:24:21] I don't think you have to pay Canadians as much by the sounds of it, you know?

[00:24:24] I mean, like you look at wages in Toronto and Vancouver,

[00:24:30] which is like, you know, where the house prices are.

[00:24:33] Well, we just saw that Wawa chart that we talked about on one of the last episodes.

[00:24:37] The highest in North America.

[00:24:39] Yeah, you can, you know, if you're a tech company,

[00:24:42] you can hire somebody for far less than, than you would have to in Silicon Valley or LA or whatever, New York.

[00:24:51] And so I think tech companies, a lot of them are kind of really trying to benefit from tapping into that talent at a low labor cost.

[00:25:01] Yeah.

[00:25:01] Yeah.

[00:25:02] It's a great point.

[00:25:03] Now this next piece has come up on the show once or twice.

[00:25:06] This is the classic bull case for Canada here.

[00:25:10] The ever increasing demand side of the supply and demand equation.

[00:25:15] I am talking about immigration.

[00:25:17] The report here says that one in four people, which equates to 8.3 million,

[00:25:24] are landed immigrants or permanent residents in Canada as of 2021.

[00:25:29] Four hundred and sixty eight, over four hundred sixty eight thousand people immigrating to Canada within the year.

[00:25:35] And Toronto and Vancouver are among the top five most diverse cities in the world.

[00:25:42] And we've seen a lot of government policy changes as well recently when it comes to real estate from changes in CMHC, MLI Select, new zoning.

[00:25:50] And when we look at what the government is trying to do here to support new technology,

[00:25:53] it seems to be in line with the growth they hope to see in the sector.

[00:25:57] I actually, interesting, somebody mentioned this to me yesterday at the Valerie office,

[00:26:01] that there's these two scientists, one in Montreal, I think, and one in, I want to say Toronto,

[00:26:07] who were kind of like, if it wasn't for them, AI never would have been a thing.

[00:26:10] And I know Canada has been putting a lot of money into AI and innovation and stuff like that,

[00:26:14] which is funny because, you know, we have historically not put a ton of money or, yeah,

[00:26:20] probably a proportion of GDP into R&D, research and development, right?

[00:26:24] But that ends up being like our one little win is, you know, in the tech space.

[00:26:27] So anyway, yeah.

[00:26:29] So government support is another really big reason.

[00:26:32] There's $3 billion in national tax incentives annually via scientific research and experimental development or shreds.

[00:26:38] That's what a lot of people call them, like you get shred funding.

[00:26:41] $2.8, sorry, $2.4 billion in budget set aside to build capacity and artificial intelligence for 2024.

[00:26:47] And $200 million for Ventro Capital Catalyst Initiative, VCCI.

[00:26:52] $2.4 billion for AI.

[00:26:55] That's pretty cool considering, Dan, you are now a partner at a AI-powered real estate firm.

[00:27:02] Maybe there's a couple bucks in there for you guys.

[00:27:05] Well, I don't know.

[00:27:06] Like it does say build capacity.

[00:27:07] So I would imagine it's probably more like server side.

[00:27:09] So like building some of these like super clusters, which does make sense in Canada.

[00:27:12] Like Canada is actually really well equipped to be a successful market for like the super cluster concept, which is – or like just basically these big server farms because one of the biggest issues with them is keeping them cool, right?

[00:27:27] Right.

[00:27:27] Right, right.

[00:27:28] Of course, yes.

[00:27:28] So I mean, hey, we've got a little bit of that going on, right?

[00:27:31] Go to Winnipeg, Edmonton, pretty much almost any city.

[00:27:35] Not hard to find cold weather here.

[00:27:37] No, unfortunately.

[00:27:39] Yeah, I mean, look, the tech ecosystem here in Canada is overall, it's pretty great, right?

[00:27:43] I mean, entrepreneurs, whether you're in tech or whatever field you're in, you need an ecosystem of support to succeed.

[00:27:50] And a lot of that can be found in places like outside of our meetups or your traditional mentorship.

[00:27:57] You know, a bit more of an established place would be something like an accelerator or an incubator.

[00:28:02] And there happen to be 326 of those across the country.

[00:28:06] Now, an incubator and accelerator, they're both programs that provide resources that support startups, but they focus on different things.

[00:28:16] Incubators focus on early stage startups, such as those in kind of ideation or prototype phases.

[00:28:22] And accelerators, hence the name, focus on more established startups that have already have customers or products for sale.

[00:28:30] And they help to accelerate that company.

[00:28:34] So again, 326 of those across the country.

[00:28:37] We get the highest tech job growth rate in North America from 2017 to 2022, with Vancouver leading the way at 69%, Calgary 61%.

[00:28:47] And, of course, Waterloo makes it up there as well at 52%.

[00:28:50] And, Dan, there you go, five global innovative clusters as well.

[00:28:54] So sector-specific stuff between supply chains, advanced manufacturing, digital industries, and AI.

[00:29:02] So, yeah, really good stuff to see, to be honest.

[00:29:05] Yeah.

[00:29:06] I guess now, kind of to circle back to my comments on not having to pay young Canadian tech talent,

[00:29:14] as well as companies pay young tech talent in the U.S.

[00:29:19] We've all heard of the term brain drain.

[00:29:20] It's probably most famously associated with Greece, I think, when they were having like lots of doctors and talented individuals leaving because there wasn't a lot of opportunity in their economy.

[00:29:29] I think Canada seems to, on paper, have a little bit of this brain drain issue, right, where young, talented people get educated here in Canada and then they leave the country to go work elsewhere, especially in the U.S.

[00:29:40] But Canada has a ton of opportunity in the tech sector outside of just Toronto and Kitchener-Waterloo.

[00:29:46] Vancouver is a hub for tech and sustainability.

[00:29:48] Montreal has become a global AI hub.

[00:29:50] Ottawa for government and cybersecurity.

[00:29:53] Calgary and Edmonton for energy and innovation.

[00:29:56] So, they mentioned that Toronto has one of the top three largest tech talent workforces in North America with 285,000 people.

[00:30:06] Wow.

[00:30:06] And they even mentioned in the report that it's great talent for competitive rates.

[00:30:11] There you go.

[00:30:12] I mean, like it is, right?

[00:30:14] You know, I think anybody even in the tech space knows like you can always typically get better pay by doing the same job in the U.S., right?

[00:30:23] Yeah.

[00:30:23] Yeah.

[00:30:24] At least in the tech space.

[00:30:26] So, let's move on to some of the expansion tips from some of the prop tech leaders that did make their way into the U.S.

[00:30:34] Now, we're going to take these and kind of morph them into how to apply them to your investment real estate thesis as well.

[00:30:43] Because essentially, these points that are provided, they're all fantastic.

[00:30:47] I agree with all of them.

[00:30:48] But they're not specifically just for tech, right?

[00:30:51] They are for this report.

[00:30:52] But for us, this can be kind of a bit of a grandiose thing and applied to any type of business that you're doing.

[00:30:59] So, the first one is setting early sales strategy.

[00:31:03] So, what you want to do is identify your ideal customer.

[00:31:06] Experiment with various approaches to identify your ideal customer.

[00:31:09] And once you find a good fit, create a repeatable process to move prospects through your pipeline.

[00:31:14] Now, Dan, how would we apply that to real estate?

[00:31:17] For me, this is creating systems and figuring out who that end customer is.

[00:31:22] And that could be, let's use a tenant as an example, right?

[00:31:27] If I'm looking at my ideal customer is a young professional or my ideal customer is a student, maybe a student at KW or in one of these kind of tech sector hubs.

[00:31:40] I'm going to find and build out a system to figure out the best way to attract and retain that person.

[00:31:48] Yeah, the other way would be just like thinking about it from a deal perspective, right?

[00:31:51] Like if I know that I want to be the market leader in whatever up-down duplexes, I want to buy all the wartime bungalows in my market and convert them all to up-down duplexes with a basement apartment.

[00:32:05] I need to go and identify all of those properties, right?

[00:32:09] You see this a lot in like the commercial real estate space where brokers will really niche down in like one specific asset class type, right?

[00:32:17] And they'll become an absolute expert and they'll know every single customer in that.

[00:32:21] And that's maybe we're all jump over to the prioritization of customers.

[00:32:25] But like same thing, finding those one or two people who can really help you help make your career, right?

[00:32:33] So they say in the report prioritizing customers, large marquee customers can be large contracts and send positive signals for future customers.

[00:32:40] They can also be 12 plus month sales cycles and have high demand for customization and service.

[00:32:46] So they're saying kind of be a little bit more careful in that regard.

[00:32:49] But you can think about this like buying a large portfolio or having your site set on a large portfolio or a large investor who maybe wants to sunset their real estate portfolio.

[00:32:59] And you know, okay, there's a good chance that I can get this person to hand that portfolio off to me.

[00:33:05] But maybe it'll take you 10 years to actually for them to get to the point where they want to sunset it.

[00:33:11] There's a lot of other deals you can do in that 10-year period, right?

[00:33:14] Yeah, 100%.

[00:33:15] I would also add one more example, right?

[00:33:17] If you are a real estate or mortgage professional and Dan, you know, you and I call it whale hunting, but you're out there and you're just trying to chase that, you know, I could make $100,000 or $500,000 in commission off of this thing.

[00:33:30] Well, yeah, you could and you should be chasing those whales.

[00:33:35] But you will starve if you are chasing a whale and you're not doing any kind of deal in between.

[00:33:40] So I think it's a balance of figuring out, you know, how to make money now and also working on those bigger things in the future.

[00:33:48] So when I say be selective, I think it means, you know, select the people that you can work with now to start to figure out those systems, those processes, your skills, what needs to be refined, while at the same time hunting for those whales that are going to be game changers and business changers and potential income life changers at the same time, right?

[00:34:08] They don't have to be mutually exclusive.

[00:34:10] Yeah, completely agree.

[00:34:10] Okay, so let's move on.

[00:34:11] Let's see what the report has to say about two of my favorite things, absolutely crucial in business and in real estate, building relationships and closing deals.

[00:34:22] So customer engagement says to stay informed about your customers' activities and achievements, do your research and personalized interactions.

[00:34:30] No one is excited about generic sales call.

[00:34:33] Okay, this one definitely hits home here.

[00:34:37] I mean, Dan, you and I have sent out thousands of emails over the years.

[00:34:43] And guess what?

[00:34:45] The ones that look like a generic sales email or a generic sales call usually don't get responded to.

[00:34:51] The ones that you can spend a little bit more time on, have a bit more of an understanding for your customers' needs, their wants, their desires, maybe referencing a specific project or something that they've done.

[00:35:03] Those usually get a bit of a better response.

[00:35:06] What are your thoughts on that one, Dan?

[00:35:08] Yeah, I would agree.

[00:35:09] I mean, I think this one doesn't need to be super elaborated on.

[00:35:13] I think, honestly, the key is just being genuine and leading with value and outreach probably, to be honest.

[00:35:22] Yeah, yeah, totally.

[00:35:24] I guess the next piece we have here is identifying the key stakeholders.

[00:35:28] I think this is actually a really important one when it comes to real estate.

[00:35:30] I mean, you may be looking at an asset and maybe you're going back and forth with the realtor who has the listing as an example.

[00:35:37] But the realtor isn't the one calling the shots, right?

[00:35:39] Let's differentiate between who's the decision maker, who's the user.

[00:35:43] They call them champions here.

[00:35:44] But regardless of seniority or enthusiasm, don't assume the person you're talking to has the signing authority or budget to make a decision.

[00:35:52] And apply that to the real estate side of things.

[00:35:54] You can save yourself a lot of time and headaches and negotiating with somebody who doesn't have the authority to negotiate.

[00:35:59] Yeah.

[00:36:00] Oh, man.

[00:36:00] I finally had read that one years ago.

[00:36:02] I would have saved myself some time.

[00:36:04] And speaking of time, that is the next piece here is timing.

[00:36:07] Understand where budget comes from and do your best to engage customers early in their budget planning cycles, especially if a new budget is required.

[00:36:16] So, again, this is all for prop tech people looking to grow and expand their businesses.

[00:36:21] We're applying it to growing business and growing your real estate portfolio in general.

[00:36:26] You know, timing and understanding both your own budget and where your money is going to come from, when you can deploy it, as well as understanding someone else's fiscal requirements.

[00:36:36] That can be a huge bonus for you.

[00:36:40] So, utilize that knowledge and try to dig deep and figure it out.

[00:36:44] Yeah.

[00:36:44] Next is, what do we have here, Nick?

[00:36:47] Timing?

[00:36:47] No, the next piece is just about hiring the right team.

[00:36:52] Right.

[00:36:53] Yeah.

[00:36:53] So, I think the team perspective is from – we talk about this a lot in the realist.ca course.

[00:37:02] It's like putting together the right people.

[00:37:04] So, I mean, you kind of get this unique opportunity when you're starting as a real estate investor where you're starting a business on what would basically be like performance-based costs, right?

[00:37:15] So, like no other business has an opportunity to build their team with basically like little to no upfront cost.

[00:37:24] You know, we're talking about prop techs where like the biggest thing that they are known for is like spending tons of money and burning, you know, a lot of money on salaries, right?

[00:37:33] Yeah.

[00:37:34] In – you know, if you're buying a real estate investment, you get a realtor, you get a really, really good realtor who knows their – knows the market, knows the asset class and is going to help you.

[00:37:42] Like that can be a comparably key hire, probably the key hire to be honest when it comes to acquisition side.

[00:37:49] If they help you make the right buy, like they could be worth their weight in gold, right?

[00:37:53] Like the payback on that investment is pretty key.

[00:37:56] So, you know, getting the right realtor, getting the right mortgage professional, getting the right contractor, inspector, etc.

[00:38:03] Those are all really, really key things.

[00:38:05] So, hiring the right team is a big one.

[00:38:07] Yeah, for sure.

[00:38:08] And I think that team having, you know, market presence, right?

[00:38:11] Like having them be your boots on the ground, having them spend time in that key market and having certain qualities as well, right?

[00:38:19] Like, you know, grit, passion, a willingness to learn and work with you.

[00:38:23] And, of course, a willingness to understand your needs and requirements.

[00:38:26] Like, hey, I'm looking to build this portfolio.

[00:38:27] I want to be here.

[00:38:29] I want to have this many properties.

[00:38:31] And then, of course, a willingness to understand the needs of the clients that they will serve on your behalf as well.

[00:38:37] Yeah, for sure.

[00:38:38] Next piece here is choosing the right market.

[00:38:39] Oh, man, this is where people just get stuck in analysis paralysis for days, weeks, months, even years, unfortunately.

[00:38:48] And really the best way to get over this is research, right?

[00:38:51] Evaluate markets and cities based on things like economic growth, real estate activity, population growth.

[00:38:56] And for them, they're looking at local tech ecosystems.

[00:38:59] But that's something that I always like to look at as well, right?

[00:39:01] What industry-specific stuff is happening there?

[00:39:06] So if you're investing in KW, maybe your target market is, hey, I'm going to find young people in tech sector to rent to.

[00:39:12] Dan, you've already talked about this comparative analysis, right?

[00:39:15] We want to understand what our competitors are doing in that market and be able to differentiate from them.

[00:39:22] Or we want to just straight up avoid a saturated market, right?

[00:39:25] Like, for instance, I'm not trying to speak ill of Calgary.

[00:39:28] I love all my Calgarians.

[00:39:30] I love Calgary.

[00:39:30] I'll see you for the stampede.

[00:39:32] But when I heard Calgary, when everyone was talking about it, it seemed a little overbought to you and I, Dan.

[00:39:38] And we set our sights elsewhere, right?

[00:39:40] So the last piece here about choosing the right market is regulatory environments.

[00:39:46] So when we're talking about the U.S., each state, but similar to Canada, each Canadian province has different local regulations for real estate or for things like tenant law, landlord-tenant boards, rent caps, et cetera, et cetera.

[00:40:01] Yeah, for sure.

[00:40:02] The next piece would be, I think, you know, they discuss in the report choosing the right customer.

[00:40:06] But to me, a lot of that is just choosing the right fit from a product perspective, from a tenant perspective.

[00:40:12] Like you mentioned tenants earlier on.

[00:40:13] But to me, if you're a landlord who doesn't want to deal with students, as an example, or doesn't want to deal with seniors or whatever it is, then don't buy an asset in which you have to rent to those people.

[00:40:25] If you're maybe a business person and you can really empathize with the cash flow of businesses and you want to rent to a small entrepreneurial company, then buy a commercial asset that would reflect that, right?

[00:40:37] Maybe you have experience running retail before.

[00:40:40] Maybe you have experience, you know, maybe managing your student rental for the four other roommates that you had, right?

[00:40:45] Maybe you were the main person collecting the rents on that little head lease.

[00:40:51] I think from my perspective, like a lot of people don't think about this, right?

[00:40:55] They're unintentional about buying real estate and then they end up disappointed and frustrated and like it becomes a bad fit.

[00:41:00] And that can just be a really stressful thing.

[00:41:01] And it can actually prevent your ability to scale as an investor because you end up being like frustrated and it's consuming a lot of your time and energy and whatever.

[00:41:10] I think really, really evaluate who's like the right...

[00:41:13] What's the right asset?

[00:41:14] What type of property do you want to own?

[00:41:16] Do you want to manage?

[00:41:16] Can you see yourself having a good relationship with the tenants?

[00:41:19] What kind of tenants do you want to have?

[00:41:20] If you're not thinking about that stuff, then there's a chance that you end up with an investment that you're less than happy with.

[00:41:27] It's not that hard to just put a little bit of evaluation into this stuff.

[00:41:31] Yeah, I completely agree.

[00:41:33] I mean, I think the report that the PropTech Collective did here along with Dealversity is fascinating, right?

[00:41:40] I mean, a lot of the advice is similar, very similar to the stuff that you and I teach and talk about all the time, Dan.

[00:41:48] My biggest takeaways were the one, all the things that Canada has going for it, but also just the sheer size difference with what we see in the U.S. versus Canada.

[00:42:00] And then the stark differences in the mortgage market.

[00:42:05] Now, Dan, before we get out of here, I know you're hesitant to do it, but I'm going to force it out of you.

[00:42:09] You actually are a tech guy yourself.

[00:42:13] I believe you can put tech exit in your bio now if you want to.

[00:42:18] I don't know if I can do that because we didn't actually sell it.

[00:42:20] But yeah, let's talk about it.

[00:42:22] Yeah, tell me about it.

[00:42:23] Well, it is Toronto specific for now.

[00:42:26] For now, yeah.

[00:42:27] I think it'll expand across the country pretty soon.

[00:42:29] So it's called the Habistat.

[00:42:31] What does it do?

[00:42:31] Give me the elevator pitch and then we'll get out of here.

[00:42:34] Yeah.

[00:42:34] So the Habistat is basically just a data dashboard for realtors to advise their clients better.

[00:42:41] So basically what it does is if you need a chart made for any data point, maybe house prices in a specific area,

[00:42:48] we can go all the way down to neighborhood level, maybe a number of sales in an area, you can get that in real time.

[00:42:55] So as soon as a data point is updated on the Toronto Real Estate Board is updated in the platform.

[00:43:00] And so if you're a realtor or if you're an investor and you sit with your real estate professional,

[00:43:08] you can sit beside them and they can show you moment by moment what's happening.

[00:43:14] So some of the trends that we've spotted were rents falling in certain areas of Toronto as an example.

[00:43:19] So yeah, it's available to all realtors on the Toronto Real Estate Board.

[00:43:22] So there's like 70,000 of them.

[00:43:23] So if you're listening, make sure you check it out.

[00:43:25] You can just log in, click on it on the main page of the Toronto Real Estate Board now.

[00:43:30] And yeah, check it out.

[00:43:31] Give me your feedback.

[00:43:32] I'm really curious just to get like genuine feedback from real estate professionals on how it works

[00:43:36] and if they're happy with it and what use cases they're using it for.

[00:43:42] Amazing.

[00:43:43] You heard it here first, guys.

[00:43:44] Go check it out.

[00:43:45] Do Dan a favor and let him know what you think.

[00:43:48] Thanks as always so much for listening.

[00:43:50] If you liked what you heard today, find it useful, leave us a review, write us a written review.

[00:43:56] Always much appreciated.

[00:43:57] Thank you so much and we'll see you soon.

[00:43:59] The content of this podcast is for educational and informational purposes only.

[00:44:03] It is not intended as financial, legal or investment advice.

[00:44:06] Always consult a qualified professional for advice tailored to your unique circumstances.

[00:44:11] The views expressed are those of the hosts and guests and do not necessarily reflect the opinions of affiliated organizations.

[00:44:18] Daniel Foch is a real estate broker licensed with Valerie Real Estate Inc.

[00:44:23] Website is Valerie.ca, V-A-L-E-R-Y.ca.

[00:44:27] And a member of the Canadian Real Estate Association, the Ontario Real Estate Association and the Toronto Real Estate Board.

[00:44:35] Nick Hill is a mortgage agent and partner at OWL.

[00:44:38] Mortgage license number 10317.

[00:44:42] Agent license M21004037.