What Happened In Canada's Last Real Estate Crash, The 90's

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

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

[00:00:13] Welcome back to The Canadian Real Estate Investor podcast.

[00:00:16] My name is Nick Hill and I'm joined every Tuesday and Friday by my good friend Daniel

[00:00:22] Foch.

[00:00:23] But in today's episode, we are joined by another good friend, friend of the show,

[00:00:28] a fellow podcaster, a mortgage hall of famer and a real estate investor.

[00:00:36] Yeah.

[00:00:38] What doesn't this man do?

[00:00:39] I feel like he is a full-service real estate company all on his own.

[00:00:44] He really is.

[00:00:45] He was on TV for 20 years.

[00:00:50] Now one of his main focuses and passions is running his MICK and this vertically

[00:00:57] integrated conversion arm where he basically takes single-family homes and turns them

[00:01:00] into four and five units.

[00:01:02] And you know, it has a fully built out, fully integrated model around that.

[00:01:06] Yeah, exactly.

[00:01:07] And within that model is property management, you know, his construction arm and he's

[00:01:12] getting more and more into the education space as well because he knows a lot and

[00:01:17] he's been around for a while and he wants to share that knowledge which we are big

[00:01:22] fans of.

[00:01:23] It only makes sense because I learn from him every time we chat and we definitely

[00:01:30] hope you do too.

[00:01:31] I've been on his podcast which is, it definitely does really well on YouTube.

[00:01:35] It's shot in like super high quality.

[00:01:37] So I would encourage you to check that out.

[00:01:40] Vince and I have had two very good conversations that are available on YouTube.

[00:01:43] I guess I spoiled it there.

[00:01:44] His name is Vince Gaetano.

[00:01:47] Yeah, exactly.

[00:01:48] So we sit down with Vince to discuss several things, one being his outlook on the

[00:01:55] market right now.

[00:01:56] We talk about construction and what challenges he faces in the city when

[00:02:01] converting a single-family home to a four or five unit building, a multiplex.

[00:02:06] Yeah, it's exactly.

[00:02:07] He also tells us more about his MICK which he mentioned and that's his

[00:02:11] mortgage investment company, how he started it, what the operations of a MICK

[00:02:17] are, what investing in a MICK looks like and what kind of returns his investors are

[00:02:21] getting.

[00:02:23] And then finally he shares his thoughts on the current market and its

[00:02:26] similarities between the recession Canada went through in the 1990s.

[00:02:31] And he's got some great stories from there because Nick and I were babies in

[00:02:35] the 90s. So as much as we like to talk about, you know, the comparisons,

[00:02:41] it doesn't really work all that well because like, yeah, we're busy

[00:02:44] crawling around and not really just observing what was happening in the real

[00:02:48] estate market.

[00:02:49] Couldn't get too deep into the market when you're wearing a diaper, I guess, right?

[00:02:53] I mean, it was I think that that was kind of the same thing.

[00:02:56] Like, I think the market was a diaper too.

[00:02:58] So there you go. There you go.

[00:02:59] Well, on that note, why don't we get into the episode, Dan?

[00:03:03] We hope you listeners enjoy this discussion.

[00:03:07] And if you want more from Vince, he puts a ton of content out.

[00:03:10] So I'm sure he he drops all of his links where you can find him.

[00:03:14] We'll link them in the show notes as well.

[00:03:16] So enjoy this discussion with our good friend, Vince Catano.

[00:03:21] Today, it is not just Daniel Foch and myself.

[00:03:25] We are lucky enough to be joined by a good friend, a mentor, a legend

[00:03:31] in the mortgage and real estate space overall.

[00:03:36] Vince, or is it Vincenzo as our mutual friend, Tony would say?

[00:03:42] It's Vince. Vince is fine.

[00:03:44] Vince, thanks so much for joining us today.

[00:03:46] Why don't we start things off with a super quick high level introduction,

[00:03:51] who you are, what you do, maybe what you're what you're known for here

[00:03:56] in the space. And then we've got some really great questions about some of

[00:03:58] your businesses.

[00:04:00] Well, I've been in the mortgage business longer than an amortization

[00:04:03] schedule so people could figure that out.

[00:04:06] Started off on the lending side with TD.

[00:04:08] That's a ten year am though.

[00:04:11] It's an extended one, actually.

[00:04:13] Started off with the big banks with TD and BMO and then headed over

[00:04:17] to the mortgage broker side and was at Monster Mortgage for a number of years.

[00:04:22] Did a lot of TV on CP24, hot property.

[00:04:26] And in 2021 branched off and started up Owl Mortgage,

[00:04:31] where not only do I mortgage broker, but also run a MEC.

[00:04:35] We start we launched a property management company and we also have a

[00:04:39] construction company as well that helps folks out with rentals and

[00:04:42] repurposing and stuff like that.

[00:04:43] So a lot of things going on.

[00:04:46] I think it's a full service that we offer our clients from soup to nuts.

[00:04:51] And it's been a lot of fun helping people out.

[00:04:54] Yeah. And you certainly you certainly you certainly do that just for

[00:04:58] everyone that's listening. I want to kind of give a high level overview as to

[00:05:01] what we're going to be talking with Vince about today.

[00:05:03] Vince, you mentioned a MEC that's a mortgage investment corporation.

[00:05:08] We'll start there, but I do want to make sure that we touch on some

[00:05:12] of the conversion projects that you've got going on, which are which

[00:05:14] are really cool and I've been lucky enough to come and visit them a few

[00:05:17] times investing in the city of Toronto and the challenges that you face.

[00:05:23] And then I'd love to do a kind of rewind and look at the 90s recession

[00:05:31] that you worked and invested and helped investors through and maybe

[00:05:36] kind of compare that compare and contrast that to today.

[00:05:40] And then, of course, we'll finish off with with maybe some advice for

[00:05:43] younger Canadians getting into real estate investing in business today.

[00:05:46] But with all that being said, let's go back to the beginning here.

[00:05:51] Can you tell us what is a MEC and then maybe tell us about your MEC specifically?

[00:05:57] Well, MEC is an acronym for Mortgage Investment Corporation.

[00:06:01] It's a type of investment company that pools money from investors

[00:06:05] and lends it out as mortgages.

[00:06:08] These corps focus on mortgage lending per se, and they're designed

[00:06:13] to provide investors with regular income streams from interest collected

[00:06:18] from borrowers.

[00:06:19] They're structured as flow through entities for tax purposes to avoid corporate tax.

[00:06:25] They are defined by the tax code and are regulated by provincial regulators.

[00:06:31] You know, a lot of people call their funds MECs but not necessarily our MECs.

[00:06:35] MECs do have defined requirements.

[00:06:39] They have to have minimum 20 investors.

[00:06:41] No one investor can have more than 20 percent control of the investment

[00:06:47] in the MEC.

[00:06:48] And you have to make sure you're lending out on Canadian real estate.

[00:06:52] That is clearly defined.

[00:06:55] And you really can't own real estate unless you're in the enforcement of that real

[00:06:59] estate for power sale purposes or whatever the case is.

[00:07:02] Like, you're not able to own property with that fund.

[00:07:06] You could only lend and own it temporarily.

[00:07:09] As far as my MEC is concerned, it's called Blue Bridge Mortgage Investment Corporation.

[00:07:13] We've operated since 2021.

[00:07:15] It was linked to a previous MEC that I operated and was the mortgage administrator for when

[00:07:20] I was with my previous brokerage.

[00:07:23] When I left, all my investors said, Vince, we'd like to follow you so start another one.

[00:07:29] So there is a bit of a link to the previous group of investors that really liked my

[00:07:33] investment philosophy and how I managed it and respected their capital at the same

[00:07:39] time of giving them a very fair return.

[00:07:42] It's been a lot of fun.

[00:07:43] And I do invest in the MEC myself.

[00:07:47] I think that's one of my selling propositions to investors is that my money is invested

[00:07:51] along with them and they're very comfortable with that.

[00:07:54] So our board, everyone has investment in the MEC and we represent close to 30% of

[00:08:00] the MEC just at the board level.

[00:08:02] So folks are very comfortable.

[00:08:03] Awesome. Do we get to hear what your investment or your thesis is for lending out on

[00:08:10] deals and what the returns that you're talking about would be?

[00:08:13] I mean, just like what makes it compelling for investors that a lot of them wanted to

[00:08:18] come with you.

[00:08:18] Yeah. Like one of the things we really try to do is we always want to be a

[00:08:23] temporary bridge or a bandaid to someone's situation.

[00:08:28] Like a MEC isn't a long term mortgage for a client.

[00:08:32] It's got to be temporary in nature.

[00:08:34] And one of the things that we try to do is always try to understand how we're

[00:08:37] going to get out of it.

[00:08:38] It's one thing to get in the mortgage.

[00:08:40] The other thing is to try to get out.

[00:08:41] And I'm really tied to making sure that I know what the exit strategy is.

[00:08:48] And I do that not only for my investors, but also for the borrower.

[00:08:52] And one of the things we do with our MEC at Blue Bridge is that all our

[00:08:57] mortgages are fully open.

[00:08:58] So there's no penalties associated with getting out of our mortgages because

[00:09:02] I want my money back for my investors.

[00:09:04] I want to lend it out again and I don't want anybody to feel like there's

[00:09:09] strings tied to getting out.

[00:09:11] The whole idea of the MEC was to help brokers facilitate getting people

[00:09:16] through a tough challenge or a timely situation and get them out with no

[00:09:22] back end charges when they leave.

[00:09:26] We kind of shifted in 2022 and the market started turning to, I call it,

[00:09:33] value type situations where people are repurposing, people are building and

[00:09:39] improving properties.

[00:09:40] We do a lot of construction loans.

[00:09:42] We focus on a lot of repurposing projects because I really see value

[00:09:46] increasing in those situations which helps my security.

[00:09:50] You know, one of the things a lot of MECs are facing right now is

[00:09:53] depressed values, LTVs at excessive levels.

[00:09:57] And some are in trouble.

[00:10:00] What I try to do with my own money as well as my investor money is protect it

[00:10:06] and respect that capital and make sure it's not in harm's way.

[00:10:10] So, you know, we have loan loss provisions we put in place just in case

[00:10:15] something does go wrong, something we always got to fight with the

[00:10:18] auditor about because we never have losses, not going to would, but we

[00:10:22] always have to defend this loan loss provision because, as I said earlier,

[00:10:27] it is a flow through entity and you have to flow through all the profits.

[00:10:30] So, you got to justify this loan loss provision somehow.

[00:10:33] But for the most part, it's just trying to help folks get through

[00:10:38] that timely issue whether it's a bridge or a bandaid and get them

[00:10:42] back on their feet and into the alternative or prime space again.

[00:10:46] Yeah.

[00:10:47] Okay.

[00:10:47] That makes sense.

[00:10:48] And I like the thesis but I want to look at it from an investment if,

[00:10:55] like, I'm an investor in the mix side of things because, I mean, Vince,

[00:10:59] you've heard this a million times as well.

[00:11:01] People want to invest in real estate because they think it's passive

[00:11:05] and real estate investing and the word passive should very rarely be

[00:11:11] in the same sentence unless it's real estate investing is not passive.

[00:11:16] Would investing in a mix which is kind of a bit outside of

[00:11:21] investing in real estate directly but would you look at that as a

[00:11:25] passive investment for people that want exposure to real estate?

[00:11:30] Yeah, I think so.

[00:11:31] You know, people that are in the mix are in it long term.

[00:11:34] It's not a short term investment.

[00:11:36] You know, we want to make sure people are in for at least three years.

[00:11:40] You know, there is redemption penalties up to the three year mark

[00:11:43] in our mix of 2% in the first year, 1% in the second,

[00:11:47] half percent in the third.

[00:11:49] After that, you know, there's no redemption fee.

[00:11:53] But we do need notice if you want to redeem because we only have

[00:11:57] two redemption periods throughout the year because mortgages aren't liquid.

[00:12:02] You know, they're in terms, they're tied up and you really can't

[00:12:05] liquidate them as quickly as people think.

[00:12:08] We are registered so we do have folks that have RSPs

[00:12:12] and tax-free savings accounts invested and, you know,

[00:12:16] the yields are pretty attractive.

[00:12:19] You know, our hurdle and target rate is 8%.

[00:12:22] The last quarter we paid out at just under 9.4%.

[00:12:26] So, you know, it's a pretty well-oiled machine

[00:12:32] spitting out pretty good yields.

[00:12:34] But, you know, there is inherent risk with MIC investments

[00:12:38] because if you're lending out to folks that don't repay,

[00:12:43] there's not going to be capital...

[00:12:45] Sorry, interest repaid to the investors

[00:12:47] because that's their main source of yield.

[00:12:50] So, you have to be very prudent.

[00:12:52] You got to be very cautious.

[00:12:53] You got to do your due diligence when you're lending money out

[00:12:55] and know what you're lending on.

[00:12:57] I always say the most important aspect of lending is the real estate,

[00:13:01] the security, that appraisal, who's doing it,

[00:13:05] what are the comps, where are the adjustments,

[00:13:08] where are the variances used when comparing to other properties

[00:13:10] that have sold and really know that that piece of real estate

[00:13:15] is liquid if you have to unload it.

[00:13:19] Yeah, I think it's funny.

[00:13:21] Like you see a lot of folks in the MIC space that are running MICs

[00:13:24] that are lawyers, I think a lot,

[00:13:26] like probably most common outside of mortgage brokers is lawyers.

[00:13:29] And one of my concerns with it is that they're not underwriting deals

[00:13:34] like the way that people market participants are, right?

[00:13:37] Like you and myself.

[00:13:38] And so I think some of it's like where they are really,

[00:13:42] really strong on legal protection and no offense to MICs run by lawyers,

[00:13:45] but like really, really strong on legal protection

[00:13:47] doesn't account for underwriting risk, right?

[00:13:50] Where somebody needs to be in the market, understand the deal.

[00:13:52] Valuation is where the majority of problems are realized

[00:13:56] and the majority of money is made as well.

[00:13:59] People buying properties well, you make the money on the buy.

[00:14:03] People getting in bad positions,

[00:14:05] you lose all the money on the buy by overpaying.

[00:14:07] On that note, and then we'll move on to kind of a different topic

[00:14:11] for direct investors, for people who want to buy and sell real estate,

[00:14:15] who should be approaching MICs in general, but your MIC,

[00:14:19] like what kind of borrower would be a good fit to borrow from you,

[00:14:25] to approach you, to borrow money for a type of deal

[00:14:28] that they'd be looking to do?

[00:14:30] Well, like I said, you know, it's people that are needing temporary funds.

[00:14:34] Builders, we deal with a lot of builders.

[00:14:36] We deal with a lot of, as I mentioned, repurposing projects.

[00:14:40] You know, trying to find construction financing in this market

[00:14:43] with traditional banks is just impossible.

[00:14:45] The number of thresholds and processes and paperwork required

[00:14:50] is very cumbersome and expensive,

[00:14:53] and the reality is with rates at the levels they're at,

[00:14:57] speed is a huge, huge advantage.

[00:15:00] You know, when you're dealing with financial institutions,

[00:15:03] they have thresholds you need to get appraisers out

[00:15:06] to make sure those thresholds are met,

[00:15:09] and if they're shy of them, then the whole project is stalled,

[00:15:13] like you can't move on to your trades to do the next stage.

[00:15:16] So it's really important that, you know,

[00:15:19] a lot of trades would prefer to pay an extra point or two

[00:15:24] on the interest rate to get the speed of that cash,

[00:15:27] to get that train moving in getting that project done.

[00:15:33] So especially when you're dealing with the challenges

[00:15:36] the city has with permitting and getting the inspections done on time

[00:15:41] and having folks run out to do certain things at different stages, right?

[00:15:47] So I think it's mostly contractors, builders,

[00:15:51] folks needing help with bridges,

[00:15:54] non-traditional bridges because, you know,

[00:15:56] big banks need two sales to do a bridge,

[00:15:59] whereas a private or a MEC doesn't necessarily have to have a sale.

[00:16:03] Just if there's equity, there's something that could be done.

[00:16:07] And then folks that have very good fixed rates

[00:16:12] that are maturing for two, three years and need access to cash

[00:16:16] and don't want to break that mortgage

[00:16:18] are also a large portion of our client base.

[00:16:22] You know, you're stuck at 2.49 on 800 grand

[00:16:27] and you need an extra 50 or 70 grand

[00:16:30] because your kids are going to university or whatever the case may be.

[00:16:33] You don't want to necessarily break that mortgage.

[00:16:35] You're okay paying a little bit more on a smaller component in second position

[00:16:39] because, you know, at maturity, get rid of it.

[00:16:42] Yeah, no, it makes sense.

[00:16:44] But I think this is a perfect time for us to kind of use that as a good segue

[00:16:49] because you were mentioning speed, building, contractors,

[00:16:55] and you play in that space as well, Vince.

[00:16:58] And, you know, I'll never forget,

[00:17:00] you once told me as we were driving around the city

[00:17:02] looking at a few of your projects

[00:17:03] that you don't have to leave your backyard to make money.

[00:17:08] And this is after I told you that most of the properties

[00:17:10] that I own and that Dan and I own are a minimum two to four hour drive away.

[00:17:15] What if your backyard, what if your backyard is expensive?

[00:17:19] Well, you guys, you both have an advantage on me.

[00:17:21] You guys are younger than me, so.

[00:17:25] But I think you, and I would argue that you have the advantage

[00:17:29] of probably being more well capitalized

[00:17:31] because you've had more time in the market.

[00:17:33] So it might be easier for you to do deals in your own backyard.

[00:17:36] But I'm curious because I know Nick's question is sort of like,

[00:17:39] how do you do deals?

[00:17:40] You know, our backyard is Toronto.

[00:17:41] How do you do deals in Toronto?

[00:17:43] You know, understanding that probably the average person doesn't have

[00:17:47] the 300K required to get the land costs,

[00:17:51] you know, just just your million dollar land purchase for a Toronto deal. Right.

[00:17:56] Yeah, there's no question that the barrier to entry in Toronto

[00:17:59] is a little bit higher than other parts of the province or the country.

[00:18:03] But the reality is, is, you know, with the recent bylaw changes

[00:18:07] to allowing homeowners to build up the four units

[00:18:13] has provided a tremendous opportunity.

[00:18:15] I call it a value innovation that is sitting there for people to take advantage of.

[00:18:21] And it may be for folks that already have a property

[00:18:25] and not necessarily have to go out and buy one.

[00:18:27] Like, you know, you talked about, you know, we're in our backyard.

[00:18:31] Well, we could be sitting in our backyard

[00:18:32] and you may be sitting on a plot that could put up a garden suite or a laneway.

[00:18:36] And, you know, the rents are elevated because of the lack of units out there.

[00:18:43] You know, this government is constantly pounding on the housing door.

[00:18:49] And the reality is, is they're not going to build it.

[00:18:52] So it's incumbent on us to find that opportunity and build it ourselves,

[00:18:57] whether it's one or two or three or four units at a time.

[00:19:01] And that's the opportunity.

[00:19:03] And those are the folks that we're helping educate,

[00:19:08] helping them understand how you can increase your ROI

[00:19:12] on an existing piece of real estate they already own.

[00:19:14] And, you know, there are opportunities out there under a million bucks

[00:19:19] in the City of Toronto that can be repurposed.

[00:19:22] Now, you may not necessarily have to do it all at once,

[00:19:25] but you could definitely have the goal of ending up

[00:19:27] at four units at some point in time.

[00:19:30] So, you know, I think the opportunity is huge.

[00:19:34] And I think it's incumbent on us to help folks out

[00:19:39] and understand that opportunity and guide them through it.

[00:19:41] And I think that's one of the reasons why I kind of have

[00:19:44] the full facet of products available, whether it's the brokerage,

[00:19:49] whether it's the MEC, the construction arm,

[00:19:52] as well as the property management group.

[00:19:55] It's that we're a one-stop shop to help folks achieve

[00:19:58] that opportunity to build their wealth.

[00:20:00] And it's an exciting time.

[00:20:02] I know there's a lot of folks out there dreading what's happening,

[00:20:06] but I see opportunity in it.

[00:20:09] I really do.

[00:20:10] Yeah, 100%.

[00:20:11] I mean, you've done such a great job at vertically integrating.

[00:20:15] I want to kind of do a deeper dive into one of these

[00:20:20] or many of the conversion projects that you've done

[00:20:23] where you are taking that single-family,

[00:20:26] older, maybe a bit dilapidated product

[00:20:30] and turning it into these absolutely gorgeous,

[00:20:35] almost luxury four or five units

[00:20:39] that you've done multiple times.

[00:20:41] Can you walk us through one of those, Vince,

[00:20:43] from start to finish, if you're OK with it,

[00:20:47] even include some of the numbers or something like that?

[00:20:50] What does that look like?

[00:20:51] What kind of resources do you need?

[00:20:53] Talk to us about timeline, cost.

[00:20:55] Share whatever you can,

[00:20:57] because I know that there's a lot of people

[00:20:59] that are trying or want to do this,

[00:21:02] whether it be in Toronto or Ontario

[00:21:04] or other parts of the country.

[00:21:06] The whole thing is taking that single-family and adding density.

[00:21:09] And you seem to have really figured out how to do that

[00:21:12] in a very streamlined way.

[00:21:14] Well, being one of the first folks to do it,

[00:21:18] we were also learning along the way, right?

[00:21:20] Because you're running into a bureaucracy

[00:21:24] that is dealing with it for the first time.

[00:21:26] So they're not as well-versed

[00:21:29] as everybody would think that they are.

[00:21:31] And I'm talking about the city,

[00:21:33] the planning department, the permit department.

[00:21:37] And people have to prepare for that.

[00:21:39] So dealing with somebody who's done it and understands it

[00:21:42] is going to give you an advantage,

[00:21:43] because we're already seeing what to avoid and how to do it.

[00:21:47] So we're looking for properties primarily near transit hubs.

[00:21:53] Okay?

[00:21:53] So we know that parking will be a challenge

[00:21:57] when you're converting from single to four units.

[00:22:00] So you have to be within that 500 meters

[00:22:04] of a major transit hub,

[00:22:07] whether it's an intersection, subway,

[00:22:09] whatever the case is.

[00:22:11] If you could purchase in that 900

[00:22:13] to a million, two million, three range,

[00:22:16] you're going to have an opportunity.

[00:22:18] If you're dealing with laneways,

[00:22:20] a 20-foot lot should be ideal.

[00:22:22] Anything less than that, it's gonna be difficult.

[00:22:27] Our premise has been,

[00:22:29] can I build something bigger than a standard condo?

[00:22:34] The condos that are out there

[00:22:36] are all 500 square feet or less.

[00:22:38] Our friend Ron Butler calls them crate, dog crates.

[00:22:41] But the reality is, is can we build a unit

[00:22:46] that's 850 to 1100 square feet per unit

[00:22:50] where you're getting two or three bedrooms?

[00:22:53] Because I think that is the ideal unit to rent out

[00:22:56] because there's not enough of them.

[00:22:58] So you do end up producing a product

[00:23:01] that will be in demand.

[00:23:03] Could be shared with somebody,

[00:23:05] could be just a little bit more room

[00:23:08] and a walk-up for most folks.

[00:23:10] So we do believe that the construction costs

[00:23:14] to go from a single family to four units

[00:23:17] is roughly 850 to a million one.

[00:23:22] And that includes the financing costs.

[00:23:25] And we do believe that when you're complete,

[00:23:29] a year to 15 months out depending on permitting

[00:23:33] and accessibility, because that's also a big issue.

[00:23:36] When you're dealing in these laneways,

[00:23:38] it's very difficult to access them.

[00:23:39] So you've got to get crews that understand

[00:23:42] how to deal with the logistical challenges

[00:23:44] of getting stuff in and out.

[00:23:47] You could build three units in the main house

[00:23:50] and a garden suite or a laneway

[00:23:53] in about 12 months to 15 months.

[00:23:56] Rents should be anywhere between 2600 to 3300 a month.

[00:24:01] And you then have a potential income

[00:24:04] of about 12 to $13,000 a month between the four units.

[00:24:10] And you should have a value appreciation

[00:24:13] of 2.4 to 2.7.

[00:24:15] And that's pretty much how it all works out

[00:24:18] in a nutshell.

[00:24:19] You mentioned challenges beyond like,

[00:24:22] you mentioned logistical challenges

[00:24:24] with people doing the sites,

[00:24:26] tighter site demands, et cetera.

[00:24:28] I've noticed like, I track power of sales.

[00:24:31] You and I are both risk management guys.

[00:24:34] We talk a lot about kind of the bare case

[00:24:36] of Canadian housing,

[00:24:37] but we're both active investors in the market.

[00:24:40] I think a lot of people will have a hard time

[00:24:42] accepting that people can be kind of bearish,

[00:24:44] but also willing to invest

[00:24:47] because there's a right way to do it.

[00:24:49] What are the risks and challenges associated?

[00:24:53] Like, sorry, I didn't come full circle there.

[00:24:56] I track power of sales and the reason I track,

[00:24:58] or one of the things I've noticed in power of sales

[00:25:00] is that there's a lot of incomplete projects

[00:25:01] coming up as power of sale.

[00:25:03] And a lot of mix in the market

[00:25:04] that are lenders on them

[00:25:05] and taking them power of sale and whatever.

[00:25:08] What are the risks and challenges

[00:25:10] that people are facing for projects like this to fail?

[00:25:14] And how do you make sure that you don't realize

[00:25:19] those risks to see the project

[00:25:21] through to being successful?

[00:25:22] You bring up a really interesting point

[00:25:24] because we do go visit a lot of those sites

[00:25:27] and as opportunities, right?

[00:25:29] Cause permits are already in place.

[00:25:31] And in one case,

[00:25:33] we did purchase a property that was unfinished.

[00:25:36] So I look at those as opportunities.

[00:25:39] Usually it's a budgeting issue and cashflow issue.

[00:25:42] They're not dealing with the right people

[00:25:44] that understand what they're doing.

[00:25:45] When I do my inspections for my MEC on these projects,

[00:25:49] I'm out with my GC.

[00:25:50] Like my general contractor is out next to me telling me

[00:25:54] how much it's gonna cost me to finish this thing.

[00:25:55] And knowing everything we know throughout the process,

[00:26:00] we know how to avoid the pitfall.

[00:26:03] But usually it's poor budgeting, unexpected costs.

[00:26:08] For example, if you're expecting to get maximum rents,

[00:26:12] you can't do it with a five and a half foot

[00:26:15] height basement.

[00:26:17] You gotta underpin it, right?

[00:26:18] So underpinning is very expensive.

[00:26:21] Could cost anywhere from 80 to 100 grand

[00:26:24] depending on the size.

[00:26:25] So you gotta know how to do that.

[00:26:27] You gotta know how to cost that out

[00:26:29] and understand where all the savings are as well.

[00:26:33] Like do you contract out drywall,

[00:26:37] taping separately and insulation?

[00:26:41] Or do you get one guy to do everything to save you time?

[00:26:44] Like there's a lot of do it yourself folks out there

[00:26:48] that just don't realize how things have changed

[00:26:51] since they've last done something eight years ago, right?

[00:26:55] And I think the do it yourselfers are the ones

[00:26:57] that get in trouble because they don't realize that,

[00:27:00] hold on, the whole process for code,

[00:27:06] building code has tripled.

[00:27:08] Like I think, I forget who it was

[00:27:10] that posted a picture on X about the building code.

[00:27:15] Yeah, I think it was Jeremiah

[00:27:16] and it was like it had gotten like this.

[00:27:17] I think it was Jeremiah Shameless, that's right.

[00:27:18] Triple the size.

[00:27:19] So the building code was X

[00:27:23] and now it's three times the size.

[00:27:27] You gotta deal with fire separation issues.

[00:27:31] You gotta make sure that if you're building a multi-unit,

[00:27:35] you have to take into account egress.

[00:27:37] You gotta take into account fire code regulations

[00:27:40] and safety issues and requirements that the city needs,

[00:27:45] making sure that your property is protected

[00:27:49] from your neighbors catching fire, right?

[00:27:52] So there's a whole slew of additional costs associated

[00:27:56] with building rentals that are not involved

[00:28:00] when you're just renovating your house.

[00:28:02] Multiple meters, multiple gas lines.

[00:28:06] You wanna increase your water line

[00:28:08] from half inch to an inch.

[00:28:10] That costs money and what ends up happening

[00:28:14] is people just run out of it.

[00:28:16] And when rates spike the way they have,

[00:28:21] their budgets just go bonkers

[00:28:24] and they're now in a position

[00:28:26] where they're way behind on the build.

[00:28:28] They run out of money

[00:28:29] and no one else wants to give them any money

[00:28:32] because their percentage completes at a level

[00:28:34] that doesn't warrant them to get any more advances.

[00:28:37] So it becomes a bit of a challenge.

[00:28:39] And usually those loans are behind 80% advances

[00:28:45] on the first.

[00:28:46] Yeah, I mean, it's funny.

[00:28:50] We've just recorded an episode about the supply flood

[00:28:53] that we've seen for condos in major markets

[00:28:57] like Vancouver and Toronto.

[00:28:59] And probably a lot of that has to do

[00:29:01] with investors trying to offload products

[00:29:04] that they can't afford to hold anymore

[00:29:06] knowing that 50% of condo investors in Toronto alone

[00:29:09] are cashflow negative.

[00:29:10] Then to take it up a notch,

[00:29:12] you get people that maybe had renovated a basement

[00:29:14] or something like that.

[00:29:15] And they're like, hey, well,

[00:29:17] I can turn this house into four units

[00:29:19] and interest rates go up, construction costs go up,

[00:29:24] the knowledge required to actually build something

[00:29:27] just like we were talking about with the building code

[00:29:28] drastically increases.

[00:29:30] And a lot of these people got caught

[00:29:32] in that kind of shift.

[00:29:35] This is, I think a great place for us

[00:29:38] to kind of go back 30 years,

[00:29:40] a 30 year amortization Vince, if you will.

[00:29:43] And I'd love to hear your experience in the 1990s

[00:29:50] when you were again an active mortgage agent

[00:29:53] and an investor helping other investors.

[00:29:57] We hear a lot of people comparing the recession

[00:30:01] that we're in right now

[00:30:02] whether people are admitting it or not

[00:30:04] to that of this one in 1970s

[00:30:07] and that of the one in the 1990s.

[00:30:09] I think the 90s is a lot more relevant

[00:30:11] for a lot of people.

[00:30:12] So can you shed some light

[00:30:15] on your personal experience back then

[00:30:17] and any similarities kind of comparing

[00:30:19] and contrasting what you're seeing today

[00:30:21] versus what you saw back then?

[00:30:23] Well, in the early 90s

[00:30:24] I started my career with the bank.

[00:30:27] I was a young buck.

[00:30:28] And when I got hired by TD Bank

[00:30:32] in the mortgage department

[00:30:34] they put me into a group called the MRU.

[00:30:37] MRU represented mortgage recovery unit.

[00:30:41] Sounds like a task force

[00:30:43] you're driving around with.

[00:30:45] It was.

[00:30:46] So my job at the time was to go out

[00:30:49] and meet some bailiffs to recover

[00:30:53] and enforce power sales.

[00:30:55] So you were like the dog,

[00:30:56] the bounty hunter of the mortgage team.

[00:31:00] Yeah, I did have long air back then.

[00:31:03] We need a picture of that.

[00:31:04] We need to see a picture of that.

[00:31:06] It was sad because the unemployment rate

[00:31:10] was going bananas.

[00:31:11] Interest rates were 11, 12%.

[00:31:15] And people were just hurting.

[00:31:16] There was just a lot of job losses.

[00:31:17] I remember GM had a truck plant

[00:31:21] at Eglinton Pharmacy and it shut down.

[00:31:23] And I remember vividly having to go meet a bailiff

[00:31:27] at a house in that area.

[00:31:29] It was Vic Park in Eglinton.

[00:31:31] And there was a bungalow and I got there.

[00:31:33] And remember we didn't have cell phones

[00:31:35] where you could take pictures, right?

[00:31:36] You just had the big Motorola flip phones.

[00:31:38] And I sat in front of the address.

[00:31:40] And as I drove up to it,

[00:31:42] it was spray painted green

[00:31:46] to match the TD Bank colors.

[00:31:49] And it didn't have a very nice message

[00:31:54] on the front of the house.

[00:31:55] So I called my boss and I said,

[00:31:57] we got a problem.

[00:31:58] He goes, okay, well go to the blacks in the mall

[00:32:02] and buy one of the Polaroid cameras

[00:32:04] and take pictures, right?

[00:32:05] I'll give you authorization to buy one and bring it in.

[00:32:08] Cause we couldn't take pictures.

[00:32:09] We didn't have phones that had pictures

[00:32:11] where you could take pictures.

[00:32:12] And it was dire.

[00:32:14] It was very difficult.

[00:32:16] And you remember he asked me,

[00:32:18] he goes, Vince, is there a car out front?

[00:32:20] Cause we also got to collect on the car.

[00:32:22] He said, no, I don't see the car.

[00:32:23] Says check the garage.

[00:32:25] And I opened up the garage

[00:32:26] and the van was through the garage into the family room.

[00:32:30] Also spray painted green.

[00:32:34] It was an eye-opener, but that's,

[00:32:37] people were angry, people were mad.

[00:32:39] And it was just a very tough time.

[00:32:42] And to put things in the perspective

[00:32:45] of how long this went on.

[00:32:47] The house I live in right now was built in 1999.

[00:32:52] And it's in the Wilson Heights and Shepherd area.

[00:32:56] And when it was built,

[00:32:57] it was built by Bram Lee limited that went under.

[00:33:00] They went bankrupt and they sold the original house

[00:33:04] for like over a million bucks.

[00:33:06] It was like a million 50.

[00:33:08] I'm the third buyer.

[00:33:10] The second buyer bought that house in 2005 for 580.

[00:33:18] And my wife and I purchased it

[00:33:20] when we had our third child in 2004.

[00:33:24] Sorry, yeah, 2004.

[00:33:25] So about 14, 15 years later

[00:33:28] and we paid under a million bucks for it.

[00:33:32] So it took 14 years for that price

[00:33:37] to even come close to what originally sold for.

[00:33:40] So having lived through how difficult it could be

[00:33:45] for real estate market to recover,

[00:33:47] seen it and lived it.

[00:33:49] And it's funny to me watching people on social media

[00:33:52] just think it's gonna pop back up

[00:33:54] and get back to where it is.

[00:33:57] And now things are different there.

[00:33:59] Rates were significantly higher

[00:34:01] and unemployment was a bit in the toilet.

[00:34:05] But those times are tough.

[00:34:08] And I think we're in for a tough time

[00:34:11] over the next 12 to 24 months.

[00:34:14] On that note, like what kind of advice do you have

[00:34:19] for people given that you've kind of seen a market like this?

[00:34:26] If we were to see a repeat of what happened in the 1990s,

[00:34:30] I know a lot of people maybe perhaps

[00:34:35] wanna feel that that won't take place.

[00:34:37] I'm not one of those people.

[00:34:39] I think that every day the comparison gets closer

[00:34:41] and closer to the 1990s.

[00:34:42] And we started this podcast with an episode

[00:34:45] about comparing Canada's housing setup

[00:34:49] to the 1980s and the 1990s.

[00:34:52] If it materializes in that way,

[00:34:54] what things helped people survive?

[00:34:56] Where did you see people become successful

[00:34:59] in that downturn in the 1990s?

[00:35:03] Where are the opportunities in the next two to three years?

[00:35:06] Well, I think patience is one thing

[00:35:09] I think people gotta have.

[00:35:10] We live in this environment where everybody wants things

[00:35:13] now and wants things to happen quickly

[00:35:16] and it's just not gonna happen.

[00:35:18] I think back in the 90s people wanted to be here.

[00:35:20] People did see have a lot of hope for the future.

[00:35:23] And I think that's not the same this time around.

[00:35:27] I think there's a lot of people questioning

[00:35:29] whether they wanna be in Canada.

[00:35:31] We're seeing folks that are here temporarily leaving.

[00:35:34] We do have immigration here,

[00:35:36] which has been coming in droves

[00:35:38] that will continue to drive the need for housing

[00:35:43] but affordability is a challenge.

[00:35:46] And the problem we have in Canada

[00:35:49] is that population disparity is primarily in BC,

[00:35:53] Alberta, Ontario, Southern Ontario and Quebec.

[00:35:58] And the concentration of people in certain areas

[00:36:01] will probably help out the market a little bit

[00:36:05] but how many will wanna stay

[00:36:06] and how many will want the challenges of home ownership

[00:36:11] because qualification is so difficult?

[00:36:13] I like real estate.

[00:36:15] I see it as an opportunity to help folks out.

[00:36:19] You may not be a homeowner but you might be a tenant.

[00:36:22] And if you could help in that regard

[00:36:24] and provide a very nice unit

[00:36:27] and have a non-adversary relationship with your tenant,

[00:36:31] I think it'd be very fruitful for an investor to do well.

[00:36:35] And I think that's the key.

[00:36:36] I think there's too much negativity in this space

[00:36:40] between the tenant and landlord relationship

[00:36:44] and the reality is you can really allow your tenant

[00:36:48] to enjoy the unit and be happy doing so,

[00:36:51] making a fair return if you just look at the relationship

[00:36:54] a little bit differently.

[00:36:56] Yeah, I couldn't agree more.

[00:36:57] I mean, we talk about that all the time, right?

[00:36:59] Like real estate no matter where you are

[00:37:03] and what you're doing as a relationship business.

[00:37:05] And if you're a landlord, that tenant is your client

[00:37:10] and what kind of customer service are you offering?

[00:37:14] Listen, I invest in a lot of real estate

[00:37:16] but I also don't own my primary residence.

[00:37:19] I am a renter so I can see it from both sides.

[00:37:23] And I think that this is my kind of final question

[00:37:25] for you here, Vince.

[00:37:26] Like Canadians seem to be obsessed with real estate,

[00:37:31] right?

[00:37:32] There was a Royal Page study that came out recently

[00:37:34] that said 25%, one in four Canadians

[00:37:37] plans to invest in real estate in the next five years.

[00:37:40] There's four or five years or something like that.

[00:37:42] And hey, listen, as the three of us here

[00:37:44] as guys that live and breathe real estate,

[00:37:46] that's interesting and kind of scary

[00:37:49] and also kind of comical for us

[00:37:51] because I'm like there's not even enough housing

[00:37:52] right now and yet everyone wants into existing stock

[00:37:58] or wants to start creating housing stock.

[00:38:02] But there's so much opportunity outside of real estate

[00:38:06] to be able to build wealth, build a career.

[00:38:09] So what kind of advice do you have in general

[00:38:12] for young people right now in Canada

[00:38:14] that are maybe trying to figure out like,

[00:38:17] hey, do I spend time killing myself trying to buy a home?

[00:38:21] Do I try to invest in real estate?

[00:38:24] What other opportunities are you seeing out there?

[00:38:27] How should young people be spending their time

[00:38:31] and allocating their efforts

[00:38:34] within or outside of real estate?

[00:38:37] Well, I think good financial budgeting habits are important.

[00:38:42] I think people need to set proper expectations

[00:38:47] as to immediacy.

[00:38:50] People want everything immediately.

[00:38:52] I think you gotta give things time.

[00:38:55] I have three boys when they were all born

[00:38:57] I started an RESP and I sat down with my wife.

[00:39:02] I said, what's two grand a year gonna do?

[00:39:04] And I said, okay, I think we should do something

[00:39:06] like the prices of education go through the roof.

[00:39:10] This is never gonna amount to anything.

[00:39:12] And sure enough, 18 years later,

[00:39:14] when we needed to access them,

[00:39:16] slowly we built up a little nest egg

[00:39:19] that we didn't have to worry about

[00:39:20] any education costs at university.

[00:39:23] So when you have tools like the First Savings Account,

[00:39:26] which allows you to save eight grand a year,

[00:39:30] up to eight grand a year to a maximum of $40,000,

[00:39:34] that could generate a tax refund,

[00:39:36] which you could then in turn put into an RRSP contribution

[00:39:41] and get another tax refund,

[00:39:43] which you could then use to put back

[00:39:45] into your First Home Savings Account again.

[00:39:50] There are tools out there

[00:39:51] that will allow you to save money.

[00:39:54] Is it daunting what the prices of homes are today?

[00:39:57] Sure, but maybe one day you could buy in Kingston.

[00:40:02] Maybe your travels will take you somewhere else

[00:40:06] other than the market that you live in.

[00:40:08] And I think we as folks in this space

[00:40:12] have to do a better job of educating people

[00:40:15] into knowing that they have to set goals

[00:40:18] and they can achieve them with hard work,

[00:40:20] determination, and guidance.

[00:40:23] And I think that's the key.

[00:40:25] The key is continue educating people

[00:40:28] on how to get it done, house hack.

[00:40:31] I met with Nathan Kennedy,

[00:40:33] who's an influencer on social media

[00:40:36] and he works with a lot of millennials.

[00:40:38] And he talks about if you live in a basement apartment

[00:40:41] and you wanna buy your first home,

[00:40:43] maybe you rent out upstairs

[00:40:45] and continue living in the basement apartment

[00:40:47] and you own something, right?

[00:40:48] And these are the types of opportunities

[00:40:51] we have to help folks understand are out there.

[00:40:54] And we could do it by just making sure

[00:40:57] we spread education out there that is valid,

[00:41:01] concise, and helpful.

[00:41:04] Yeah, sound advice from the wise old owl himself.

[00:41:08] Vince, I know that you are not only here

[00:41:12] just telling us about education,

[00:41:14] but you also are very active in the education space.

[00:41:17] I think, Dan, unless you have any other questions,

[00:41:19] I think we'll wrap it up here.

[00:41:23] Yeah, I think we're good.

[00:41:23] I mean, I got a lot out of this.

[00:41:25] I'm a big fan of getting an understanding from,

[00:41:28] and I think like sort of this mentorship conversation, right?

[00:41:32] But getting an understanding from people

[00:41:33] who have been through and solved

[00:41:36] and learned from a lot of the problems

[00:41:38] that we're seeing in the economy today.

[00:41:39] So I really appreciate your time, Vince.

[00:41:41] And I think our audience is gonna get a lot from this.

[00:41:43] I would also encourage everybody to check out your show,

[00:41:46] which I've been on twice now.

[00:41:49] I think the second episode hasn't been published yet,

[00:41:51] but we have some awesome conversations about,

[00:41:54] yeah, we have some great conversations about this stuff.

[00:41:57] So I would encourage everybody to check that out.

[00:42:00] Anything else?

[00:42:01] Yeah, listen, and I love what you guys are doing.

[00:42:05] I think educating people on the issues

[00:42:09] that come up every day with real estate

[00:42:11] and the opportunities and the pitfalls is important.

[00:42:15] And there's so much good info out there.

[00:42:17] I think you guys are rocking it with what you're doing.

[00:42:22] And I think education is the key.

[00:42:23] I think there's a lot of information out there.

[00:42:25] I think it's incumbent on people to do their due diligence

[00:42:28] before they jump into the biggest perch of their life

[00:42:31] and learn and understand and try to take some notes

[00:42:35] from people that have been beat over the head

[00:42:38] with situations and avoid them.

[00:42:40] It's not like everything's happening for the first time.

[00:42:44] We've seen this all before.

[00:42:46] And respect history.

[00:42:50] Yeah, yeah, I mean, we say that a lot of times.

[00:42:52] So Vince, I was saying you are an educator.

[00:42:55] You've educated myself.

[00:42:56] You've educated Dan.

[00:42:58] You also put out a ton of educational content.

[00:43:01] Where can people find more of your content?

[00:43:05] Where can people, by the way,

[00:43:07] Vince and I work together

[00:43:08] on the mortgage side of things as well.

[00:43:10] So if you need a mortgage,

[00:43:12] if you want more information on the MICK,

[00:43:14] Vince, tell us where people can find

[00:43:17] all of the stuff they need to know about you.

[00:43:20] Well, people could usually find one of my rants

[00:43:22] on Instagram at Vince G. Mortgage.

[00:43:26] I do a weekly show called The Wise Old Owl Show

[00:43:29] on IG Thursdays at four.

[00:43:31] We're gonna switch that up.

[00:43:32] I'm gonna rename it Ruffled Feathers Moving Forward.

[00:43:36] Nice.

[00:43:37] And just started a new podcast,

[00:43:39] The Wise Old Owl Podcast.

[00:43:41] Surprise, surprise.

[00:43:42] And really having fun with that,

[00:43:44] just bringing on some really good thought leaders

[00:43:46] and chatting about different aspects of finances

[00:43:50] and home ownership.

[00:43:51] And just trying to help people understand

[00:43:56] some common issues that are out there

[00:43:59] that people need to know.

[00:44:01] And it's just frustrating when people make mistakes

[00:44:05] because they're ignorant and are unaware of how things work.

[00:44:09] And I think being in this space,

[00:44:11] I want to give back.

[00:44:12] And I just want to help folks

[00:44:15] get through the next 24 months,

[00:44:17] which is gonna be quite bumpy.

[00:44:20] I do it on the show, on social media.

[00:44:22] My son's a big influencer,

[00:44:23] so he's given me the bug to do it on social media.

[00:44:27] I was out of my element having just done TV for 19 years.

[00:44:30] So social media has been a lot of fun

[00:44:32] and I do feel 20 years younger.

[00:44:34] I gotta say, I stole Mark's gimmick for social media

[00:44:40] where I started using the dead co-hats

[00:44:43] to get people to go back and watch all my videos

[00:44:46] because he had that shirt thing

[00:44:47] like you were saying, right?

[00:44:48] Yeah.

[00:44:49] Yeah.

[00:44:50] Amazing.

[00:44:51] He's having a lot of fun.

[00:44:53] He's been doing the CBC, CTV circuits lately,

[00:44:57] talking about TikTok bands and stuff like that.

[00:44:59] So he's been getting a lot of airplay himself

[00:45:01] and he's having a lot of fun.

[00:45:02] Runs in the family, I guess.

[00:45:04] Awesome.

[00:45:04] Love to see it.

[00:45:05] Vince, thank you so much for your time today.

[00:45:10] I highly recommend for everyone listening,

[00:45:12] go check out Vince's podcast, his Instagram.

[00:45:16] If you've got any mortgage questions,

[00:45:18] he answers them live online.

[00:45:20] Reach out to him and if you want a residential mortgage,

[00:45:23] reach out to Vince or myself

[00:45:25] and the team will be there to service you.

[00:45:27] Thank you so much again, Vince,

[00:45:29] and we'll see you soon.

[00:45:31] Hey, the pleasure's all mine.

[00:45:32] Thank you, gentlemen.

[00:45:34] The Canadian Real Estate Investor Podcast

[00:45:37] is for entertainment purposes only

[00:45:39] and it is not financial advice.

[00:45:41] Nick Hill is a mortgage agent with Premier Mortgage Centre

[00:45:45] and a partner in the G&H Mortgage Group.

[00:45:48] Licence number 10317,

[00:45:51] agent license M21004037.

[00:45:56] Daniel Foch is a real estate broker

[00:45:58] licensed with Rare Real Estate,

[00:46:01] a member of the Canadian Real Estate Association,

[00:46:04] the Toronto Real Estate Board

[00:46:06] and the Ontario Real Estate Association.