Real Estate Investing Made Easy How to get rich, for real Bruce M Firestone

Real Estate Investing Made EasyHow to get rich, for real

Bruce M Firestone

Bruce Murray FirestoneB Eng (Civil), M Eng-Sci, PhD

Ottawa Senators founderCentury 21 Explorer Realty Inc brokerwww.profbruce.tumblr.com www.EQJournal.org www.DramatisPersonae.org www.brucemfirestone.com@profbruce@quantum_entity“Making Each Day Count”

How I got Started in Real Estate

Working for GOC Bought existing company from group set to retire Asking price: $350k

“Where did you get the $10k?”“I borrowed it!”

1025 Merivale Road

Plaza part of package of assets End of 25 year lease with IGA at $1.65 per s.f. Sell for $1.1 million 18 months later

Nine Year History

Revenues went from $300k per year to $120m Some trading/some build and hold Office buildings/shopping plazas/land development Moving up value chain/staying away from large

competitors Bought 600 acres/purchased NHL franchise/built NHL

caliber arena Land value went from $12k per acre to $450k

¼ billion valuation today

45 Minutes to Change Your Life

Own Your Own Home Buy Some Residential Rentals Adding Additional Value Being Green Adding In-Home Apartments or Granny Flats Buy Some Commercial Property Buy Some Land

Why Bother?

Bank of Montreal poll 34% of respondents said retirement “plan” win

lottery some plan 40% counting on inheritance for retirement 28% expect financial assistance from children

Why Bother?

three classes people, mostly government workers, with defined

benefit pension plans top 1% who in 2012 had 19.3% share of US

national income (up from 7.7% in 1973) remaining 80% who need to save millions for

retirement & can’t

RETIREMENT INCOME OF $72,000 ANNUALLY WOULD REQUIRE SAVINGS OF $4.8 MILLION AT 1.5%/YR IN T-BILLS

Why Bother?

everyone selling you life insurance, term insurance, mutual funds, hedge funds, LIRA, TFSA, GIC, term deposit, savings account, gold, stocks, stock indices, bonds, derivatives, art, collectibles, coins… is looking for a sucker IMHO

Why Bother?

out 100 richest families in Canada, 61 had all or substantially all wealth in real estate

what do Holy Roman Catholic Church, Emperor of Nippon and House of Windsor share in common?

Have bulk of wealth in real estate

real estate is business model for dummies

Make Money When You Buy

In real estate, you make money when you buy not when you sell

1. buy when everyone else is selling2. sell when everyone else is buying3. buy what no one else is buying4. sell what no one else is selling5. buy before the bottom of the market6. sell before the top of the market

buy low/sell high

Own Your Own Home

Pay off mortgage ASAP Get unearned rent Forced savings Inflation protection Rainy day fund

Sally Supersaver

“How many of you can save $775 a month?” “How many of you can pay rent of $775 per month?”

Sally Supersaver

Sally saves $775 per month for 3 years “Power Savings Account” Yields 0.7% p.a. in interest Total saved is $28,095.76

iPhone/new car/trip to DR over following 2 yrs eats all of Sally’s savings

Holly Homeowner

Uses savings ($27,830) to buy starter home for $220,000 Puts 10% down/uses balance to pay for legal fees,

transfer taxes and surprises In 5 years, paid off $19,766 of principal on mortgage of

$198,000 (forced savings) Real estate inflation increased value of property by 3.5%

per year

Holly Homeowner

On 5th anniversary, Holly sells for $261,000 After paying realtor 5%, attorney $783, nets $247,000 Pay back lender: mortgage face amt $198,000 less

principal repaid during 5 years Nets around $70,500 from sale Cash-on-cash return of about $1,250 per year

Total cash on hand > closing $75,443.33

Holly Homeowner v Sally Supersaver

Sally Supersaver did well for 3 years before spending splurge

Holly Homeowner turned $27,830 into $75,443.33

Hard to save $75,443.33 Harder to resist urge to blow it


There are 4 types of returns in real estate—

1. cash-on-cash returns2. real estate inflation3. forced savings4. unearned rent


Holly invested total of -$27,830 Cash-on-cash return ~ 4.5% p.a.

Cash-on-cash, money you can touch, feel and spend


Home up in value by $41,290.99 Value increased by more than actually realized via sale

Warren Buffet School of investing—buy and hold

Don’t pay transaction costs (legal or realtor fees) or capital gains or income taxes

Actually make more money by not selling Average 29.67% p.a. return


Ms Homeowner “forced” to save $19,766.23 over 5 years (pays down of mortgage)

Nets Holly another 14.2% p.a.


3 types of returns not strictly additive Best way to measure rates of return probably IRR,

Internal Rate of Return

IRR is discount rate that makes future cashflows exactly equal to initial investment

Higher discount of future cashflows to exactly equal initial investment, better project is


Holly’s IRR found by solving equation:


Solved by iteration Spreadsheet program

Holly’s IRR = 23.2% p.a.

>> than what Sally gets on Power Savings Account (0.7%)

“Most people can’t save their way to wealth, they have to invest their way there.”

Buy Some Residential Rentals

Rent control in many US cities e.g., New York City RTA, Residential Tenancy Act in Ontario Harder to get rid of horrible tenants or raise rents Generally have to re-lease/make move-in ready once per

year Costs money in terms of maintenance, lost rent due to

vacancy


Some large landlords love rent control > 36,000 rental units Single best thing ever happened to company Created artificial scarcity of rental product Drove competitors out/bought them at fraction of cost of

building new Reduced vacancy rates Allowed to pass on “government-approved” rent increases

(padded by flow through for maintenance/repairs/improvements

Free cashflow from portfolio north of $40 million per month


thoughts:

1. Get property manager who vets tenants carefully or, if you are your own property manager, make sure you are thorough/do background checks (employment/personal/credit/criminal check)

2. Don’t buy property that doesn’t cashflow 3. Use all leverage available to buy > 1 unit4. If you own 5 units & 1 becomes vacant, vacancy rate

jumps from 0 to 20% but if only 1 unit, vacancy rate leaps from 0 to 100%


more:

5. Leverage more cashflow, more forced savings, more wealth effect

6. Visit each rental, 1 per month/don’t be lazy7. Tough neighborhood, co-opted locals, hosted FREE BBQ 8. Make sure sound, smell, fire separate your units and

comply with building code, health code, fire, safety code

Adding Additional Value

Things I like:

basement apartment with separate entrance landscaped paving stone area suitable for parking in

front yard, side or rear yards bench seat with storage beneath foundation stone blinds


hardwood floors awning balcony deck barbeque bike rack


Tech package

Internet/wi-fi large screen TV Netflix and basic cable Magic Jack

“lipstick” to otherwise improve curb appeal/add DV

Trusted Team

deal-making attorney residential realtor and commercial realtor home inspector + commercial building inspector impartial appraiser mortgage broker who gets deals done creative designer talented group of contractors competent property manager home stager landscaper

Name Things

Henderson House Palladium Blue Heron Storage “Outta Site” Robertson Mews Briarbrook Dunrobin Lake

Names Branding Marketing Trust Sales

Being Green

All-off button Get rid of grass/substitute local flora (xeriscape) or hard

surfaces Low flush toilets with two flow settings Solar hot water Solar panels Solar air wall

Being Green

Additional insulation Heat recovery unit Heat pump Water-saving faucets LED lighting Intermittent spin washer Low energy-consumption appliances

Being Green

Install motion sensors to turn off lights Get a programmable t-stat that doesn’t require PhD Install blinds/keep closed at night Caulk everything Ceiling fans Daylighting via skylights, light shelves, wall cuts,

clerestory windows, light tubes & light bottles

Adding In-Home Apartments or Granny Flats

Santa Cruz, California 1011, 1011 and ½

Oceanside Avenue High ranch style

bungalow/attached garage Ground floor, ½ level up, 2-

bedroom, 1-bath unit Lower level, ½ level down, 2-

bedroom, 1-bath apartment Separate side entrance

Adding In-Home Apartments or Granny Flats

Single utility space w/ shared washer/dryer

Addition of 1 door or removal two, 2-bedroom, upper and lower apartments or one single family, 4-bedroom, 2-bath home

Over time, use can change

Single Mother Strategy– Retirement Plan

Owns principal residence Bought 1 investment property/added basement flat Bought at good price taking into account work needed Good location w/ excellent rental prospects Area experiencing strong asset growth Goal: buy 2 more units/pay off mortgages on all 3 rental

properties as well as principal residence/live on proceeds

Started at 36 Halfway to goal

Single Mother Strategy

Expected income from (present & future) rental properties ~ $80,000 annually by 71

Inflation protection—first, increase rents at or above inflation rate and second, capital appreciation of real property tended to exceed CPI

Her only hope since no IPP

Perspective: she would need to save $11,428,571.43 to generate $80,000/year in income at 0.7% p.a.

Buy Some Commercial Property

Small scale real estate investors think:

“I can’t buy commercial” “I don’t understand commercial” “It’s too big for me” “That’s just for Banks, Pen Funds, REITs, Publicly

Traded behemoths and Insurance companies”


Nothing could be further from truth/parts of commercial real estate dominated by little guy including:

Mini storage Small retail plazas Office, retail and industrial condos Travel apartments Land development New construction


No rent control/commercial landlords distrain Parties to commercial transactions, both leases/sales,

supposed to be sophisticated & equal in terms of information/access to resources

3 to 5 year leases Capitalization rates in commercial trend higher Low intensity property management/industrial tenants

very independent/stable Low vacancy rates in industrial sector


Some @profbruce projects:

Village Plaza

Storage Building (Front Units for RVs/Boats)(note the skylights on the front roof)

Industrial Condos


Stay out of way of big guys institutions COC (Cost of Capital) < 1.5% If you give competitors that advantage, they’ll demolish

you

You can buy $229,000 industrial condo to diversify real estate portfolio


Matthew Firestone’s new industrial condo project for owner-occupiers

Land Development

Clients bought small 15,000 square foot commercial site on busy thoroughfare

Small house on property demolished Angela, tech CEO, spouse Simon, mother, Nora Simon therapist private practice Nora to live on top floor Angela longterm investment

Land Development

Functional program for project—

Land Development

Draft Site Plan—

Land Development

Major risks: financing phase and construction

For Angela, Simon and Nora (not real names), cash-on-cash returns are decent (11.4% p.a.) but overall IRR ridiculous 41.5%

Buy Some Land

Not making any more OK to “lose” money every month Lowest management intensity Cut grass/pay property taxes Externalities—when city grows around you/value goes

up

Be wary of downzoning

Conclusion

Real estate has unique attributes—

1. Rent to third parties2. By renting to third parties, you benefit from wealth effect3. You receive unearned (and untaxed) rent on self-

occupied property after mortgage retired4. When city builds infrastructure, demand for your property

increases 5. In many countries, allowed to deduct capital cost

allowance against income

Conclusion

6. Doesn’t go out of fashion7. Land, unlike, say, ideas, in fixed supply with many cities

further restricting supply by limiting urban expansion8. Amount of real estate consumed per capita steadily

increasing almost everywhere/average household size shrinking

9. In-migration to urban areas from rural areas continuing 10. Develop sustainable business model even if you aren’t a

genius

Bruce M Firestone Course and Coaching

• Sign up for Prof Bruce real estate course• Sign up for Prof Bruce real estate coaching• For more information, please contact Ms Nina Brooks

[email protected]

@profbruce

Documents

Real Estate Investing Made Easy How to get rich, for real Bruce M Firestone