There’s an actual equation when you’re analyzing properties, and basically, even if you’re managing it yourself, even if you’re doing the maintenance yourself and everything, you wanna take off 10% for property management classes, you wanna take up 5% for maintenance costs, and you wanna take off roughly for my area, in most other areas, 3% for vacancy is probably fine, so that as you had around 18%Of your growth rented, if you can keep that out of your gross rent and still cash flow… That’s a great property.
Welcome back to the prospect and show. Today’s June 15th, and we have Spencer Gatton on the show. How are you?
I’m great, thank you. How are you?
Very good, thanks.
So to start things off, everybody listen to the show knows we do three things, We have the path, the President in the future. So to kinda start off with your background, where you come from… And tell us a little bit about how you got to where you’re at right now.
Yeah, so I’ve actually funny enough, I came across somebody recently who had a similar background story to me, But started off actually in acting, which is not generally very business-related, but that’s where I started. I first moved out to Vancouver and I was like, Oh, I’m gonna be an actor. I dropped out of university for it, and I was like, This is the plan. This is the easy way to do it. I’m just doing this, I’m gonna be famous.
So what ended up actually happening is I moved out to Vancouver and I ended up meeting with a pretty big agent out there, and he was like, Okay, I’ll give you the load out, you have no experience, you have no real… You have no photos, you have no anything and you’re expecting to get into acting, and I was like, Yeah, it’s easy. And then he’s like, No, but he’s like, You’ve got potential. But you’re from Ontario anyways, and you’re from Toronto, he’s like, Why don’t you go do this in Toronto, why don’t you get started there where it makes sense, you’re closer to family, he’s like, You can get some experience and then break into the market from there, and I was like, Okay, well, I’m kind of just living in Vancouver for nothing. I guess I’ll move out to Toronto again, and so I moved out to Toronto and then I got my first agent. And I actually started getting some auditions pretty quickly, which I was excited about, and in my first year, I actually got a few bookings, but there was nothing that was in that break-out role, and I was kind of paycheck to paycheck with my day job, and then with the acting, it was really not enough to go full-time at all, and what ended up happening is steam started to pick up in the acting career, and my agent actually quit, he just left the industry entirely, so I was just like, Okay, I just got started I just got momentum and then my agents quitting.
And so he left, and then I ended up on a search for a new agent, and that took a few months, so then I had no acting money coming in, no auditions, and I was basically bearing through my savings and everything like that, and I was just like… I was always had financial pressures and that was always weighing on me pretty heavily because it’s like I wanna follow what would be… At the time I’m going, This is my dream in this… What I wanna do? It still is, but I wanna follow this. But how do I do it sustainably? So I ended up moving out of Toronto. I was like, I’ll work for a few years, like I’ll take a pause on acting, and it’s so funny, I kept setting these arbitrary numbers, I’m like, I just need to save 10000 and then I can move back to Toronto and I can just audition again, and it’s easy, and I was just What a random choice of number, there was no actual logic behind it, but then I got kind of in the workforce and I was always like, Okay, I was pursuing acting for that time and I never had a fail safe. I never had a background of like, Okay, what happens if I pursue this for 40 years and nothing happens… I know, I enjoy it. But what happens in 40 years?
Because I’ve got nothing to show for it. I’ve got no retirement, I’ve got no savings, I’ve gotta know anything. I was be paycheck to paycheck for 40 years, so I was like, How can I make money? So I did the classic How to Make Money Online, Google, and then ended up in a few different avenues, of course, you always get the high… So ones like day trading and all these other… Bestial. Yeah, for a… The one Ballarat a one urinating in a… Yeah, so I was like, Okay, these are good quick get Ridge Crick schemes. That’s awesome.
And so I kind of just ended up looking through and what I found was no matter which lane I took, it always ended in real estate, so even the traders would always say, Oh, 10% of my portfolio is also real estate. Even people who had nothing to do directly with real estate, I always kind of found that that was the common denominator between all of the investing, and then I came across a statistic, which is 90% of millionaires have become that through real estate, and it makes sense especially now, being this heavily involved in the real estate industry, I see why this… It’s such an achievable dream once you’re actually involved with it, so I kinda just kept going and I was just working… I had a really low salary job, my job was paying me 30-000 a year, and I was working full-time for 3000 a year, so it’s like I was not making bank or anything like that, so I’m like, Okay, I’m not saving any money at this job here, but I’m also in it as a learning time, I was like, Okay, it was a low-stress job, so I was like, Okay, I don’t take work home with me, I can just focus on lean, and ended up doing more and more research on real estate here I started just getting to real estate podcasts, and then I just hammered Real Estate podcast like no joke, I’m in the thousands of hours… Multiple thousands of hours of real estate podcast, I’ve listened to pretty much most of the Canadian ones that were available in… And then I was doing all the American ones, like there’s a really good one that I got started with, which I like… And he names roles, I don’t know if you’ve come across him at all, he’s from Florida, and he actually in a really cool story, so he was a really successful real estate investor and then got wiped out in 2008, he lost 50 million in 2008, and I… So he had to start pretty close to fresh, his apartment building said stayed, but he lost all his single family, and so I started listening to his and he got me really motivated, and then there was a Canadian podcast and I came across a real estate investor who was local, and he had a really cool story of similar to mine, he was a small town kid, grew up with a family, was not a lot of money. And so I was like, Okay, I’m gonna reach out to him, and I did, and he was a good fit from a coaching perspective at that time in my life, and I worked with him for three years, and that’s kind of what launched my real estate investing business. And he had already… He had started from nothing and he got up to over 200 units at his peak, we… So I was like, Okay, well, that’s what I wanna do. I wanna have 200 units. So this guy, and blah, blah. So it was a good fit at the time, for sure. So that’s kind of how I got into the real estate investing business, and I just fell in love with real estate at the time, and I was like, Okay, if I’m literally spending all of my free time that I’m gonna not working day jobs on real estate investing why am I not just working as a realtor and making it my… Also my day job.
Sure, sure. And what do you think… Now that you talk about that, division I, the division of, Here’s my day job, here’s the portfolio, everybody ending at that same point in real estate. Do you think that working in real estate as your day job has made it easier for you, is it just that you’re closer to it, is it a better vehicle to actually get into investment opportunities, like what’s the benefit of doing the real estate job as the day-job the investor as the side job, I think the benefit is gonna depend on what business you wanna start as a realtor, if you want to be an investment-focused realtor and you’re working with other investors who are in your area, they bleed into each other a little bit, so it becomes a bit more difficult because now I wanna buy that property, but my client is also interested in that property, and then you’re a competitor with your clients, and it’s like an awkward dynamic and you’ve gotta run everything by them. So in that sense, it’s not the best fit, but where I find it is a great fit is you just get so strong in your negotiation skills and kind of like maneuvering the deals and learning about real estate overall, that it’s going to help your investing model. So what I find, and I’m kind of trying to focus on a bit more is focused with the residential home buyers and then focus on investing, that’s my business separately, so I don’t have to worry about competing with the residential home buyers for one of my invests in properties on the investment property side, is it single family? Multi-family, what’s the actual model there?
So everything has been either multi-family or single family to be converted into multi-family just because multi-family is just the way to go from a cash flow perspective, when you want to grow a real estate portfolio, it’s pretty tough to grow it exclusively on single family the cash flow is just so tight there, and a lot of people don’t like a funny enough and my new YouTube videos about its cash low specifically because that’s where a lot of people when they’re growing, they don’t realize that there’s a bunch of other expenses that you need a factor in because multiple just… They’ll take the simple number of, Oh, well, my cash flow is minus my mortgage, minus my taxes and minus my insurance, the rest is cash flow.
Right, well, that’s not true because you have so many other things that you need to worry about, ’cause when that property goes vacant and you have to repaint it and you have to re-floor it and get the kitchen done, you have to pay for those somehow… Well, what you’ve been doing the whole time, if you’ve built it into your model is you’ve been taking that as a certain percent with your maintenance in vacancy, so 8% of your gross rent over the three years that they rent there, you should have a nest at the end that is built up in that account where you don’t actually have to pay any money out of pocket, if you design your model like that, you can grow infinite amount of properties because hopefully, if you’ve done it properly, like You’re not paying for every property when the maintenance is being done, the money is in the account, so you don’t have to pay for it out of pocket. Got it.
And when people are starting off, especially with your experience, do you find that the scalability can be linear, do people learn at the same rate and say, Okay, I got one property and I gonna get a second property, a lot of the portfolios that I’ve seen here kind of exponential, where I got one property this year, I got three next year, and then the year after I got 17 or something, like you see these rich adored or anything from ksar in those guys, they all talk about the portfolio over time that changes substantially, just within a five-year period of time.
Does that happen? Is that realistic? Is that something that you see happening yourself… Yeah, absolutely. The hardest one, by and large, number one, because you’re learning everything on number one, and then you also probably are going to make a mistake on number one, unless you’re working with a mentor of some sort or a realtor who’s a very involved in the industry, I E one editor. Yeah, yeah.
But the first one is the hardest, after you’ve bought three, buying in and one year doesn’t seem as daunting because you’ve probably experienced enough during the ownership of those three, because to have three properties, you need to have a handy man or you’re able to call and you need to have a leasing agent unless you’re gonna be renting it all yourself and running it all, but ideally you wanna learn all these jobs, but you also want to be prepared to delegate all of these jobs because if you’re planning on buying in, you can’t do all of the work yourself, feeder.
Well, I’m pretty handy, I could probably fix the floor and do all that stuff, it’s like You gonna do nine properties floors, and if all nine of those properties have two units, are you gonna to all of those floors. You’re not gonna do that, so you need to build the model so that you can buy those nine, But you’re generally learning it over those first couple of years that you’re buying here smaller amounts… Sure. In with your experience, what you’re seeing right now, how do you set up a model that makes sense in the multi-family space where you’re able to make money from it, but then also cover these other expenses, like having leasing agent, like having associated costs with the Morgan all these other ancillary costs like fixing, rehab, whatever it is, how do you account for that? And the numbers associated with it.
So you always need to buy for cash flow, never buy for appreciation, never buy for any of these other… That’s where you make all that money when you flip it, ’cause that’s not the first question I always get when I say I’m a real estate investors, people say, Oh, you’re a house flipper, and I’m like, No, I actually own a portfolio and blow blohm, then I have to explain the difference, but when you’re buying for cash flow first, you can make whatever number is going to make sense for you in your market, so some people are able to cash flow 250 a door, and that’s like, Okay, you got a Four PLEX that’s cash flowing you a 1000 a month.
That’s great if you’ve got that level of cash flow, you’re not going to have to pay for anything out of pocket on that property, any repairs, anything like that, but in a market like mine where it has appreciated so heavily and the prices increase so quickly, you do have to adjust your cash flow number so that it makes sense because so I could calculate my properties on… Oh, each one of these doors, cash flow is 250, but what I actually do is I calculate it on each one of these doors, cash flows 150, because that extra 100 goes straight to the account for, that’s my… They can see my maintenance and all that, and that’s on a per door basis, so on a duplex, so it would be 200 and whatever, and you have that built in, but there’s an actual equation when you’re analyzing properties and basically, even if you’re managing it yourself, even if you’re doing the maintenance yourself and everything, you wanna take off 10% for property management costs, you wanna take off 5% for maintenance costs, and you wanna take off roughly for my area, in most other areas, 3% for vacancy is probably fine, so that has you had around 18% of your gross rent, if you can keep that out of your gross rent and still cash flow, that’s a great property because it doesn’t really matter how much a cash flows from that point on, because you know that all of your costs are taking care of… You’re never having to both personal cash into that property.
Got it. And so for people who are gonna actually make money with it, right, beyond just, Hey, we’re not gonna lose money… Right. is kind of our time… How does that develop over time? Is it that you need lots of properties, is that you need to take equity back out to bid, then how do you actually leverage that so that you can cash flow and ultimately remove yourself from job? How do you actually get to that point? So to get to that point, you definitely need to… As you said, a lot of people will run out the down payments very quickly, not a ton of people have 1 million dollars liquid where they can go by 10 properties, so the best scenario for that is to always try and find properties that you can buy that are, let’s say you need some sort of rehab or under-market value… For me, it’s a little bit tougher. As a realtor, I can’t buy a lot of off-market deals, there’s a lot more regulations with that, as a private investor, you can buy stuff off-market for, let’s say if the property was gonna sell for 200000, but you got a private deal for 175000, you’ve already built in 2500 in equity there, that’s gonna mean a lot when it comes to the refinance, right. So all real estate is long-term, so to get out of your job, you’re still not gonna do it in year one, regardless of if you’re a super genius, it’s just by time you’ve bought the properties and turn them over and all the tests gonna take time and well, some people do it with flipping, I’m just talking about the buying old portfolios, but the thing with the bin Hold is you always are going to be leveraging your property so you can continue to grow that portfolio. So what we’ve done, a perfect example is a deal that’s finishing up right now, we bought a single-family home, we paid to have it renovated and put in a basement suite, so we turned it into a duplex, well, it created a huge wedge of equity, so what we were able to do is re-finance that property and take out all of our investment, take out all of our renovation costs, and then even we took out 2000 in tax re-profit, so that property actually paid us money to home, and then we’re taking all of that same equity that we had and Brian repeat, and that strategy is called The Burgh strategy, which I’m not sure if you’re familiar with, which is the by renovate, rent and refinance and repeat. And the reason that that’s such a great… But it’s the fastest way to wealth because if you only have 100000 to invest or even a smaller amount, it’s the way that you can buy 10 properties with that same initial… It’s Really leverage the… No, the… There’s no role in the marketplace that you can take, like you said, 1000 and basically leverage 5 to even 10 thus, the Small Stone payments on like an FHA or some of these specialty loans could be, right, you can leverage whatever the math is on that 35 times your income immediately on any given deal, ’cause you can go mortgage the rest of it. Now, is that the ideal situation? Probably not an it flows, it really shouldn’t matter, ’cause you can go put a 1000 down and then go leverage the other 35 immediately.
And that’s what I always try to say to people is, especially people starting out, house hacking is one of the best ways to grow your portfolio from the start, because you can get into your first property for such a cheap amount of money, because even if like you said 3%. Well, if you buy a 400, 000 for plex, that’s 12 000 a, that’s all you need to get into the property. And now you have a Four PLEX that you can move into, so now you’ve moved into it, so your cost of living is super low, but what the ideal thing is to do, it would be if your house hacking it’s moving to the units in. renovate them, turn them over, so now that for place that you bought for 12, 000 at the end of the years worth 500000 because you’ve increased the cash flow so high and you renovated the units, I, you can refinance and leverage that same money to start over again, right with or whatever it.
Ideally, you want something with a bit more of equity, ’cause if you refinance that the 500000, that 20%, it’s only taking up 400, but that’s like the principle of how you’re able to get in for such a low amount of money and refinance and get that money right back to you.
That’s a really good point. I think the… Everything in the US, I don’t know that Thursday Quito in Canada, but a 1030 exchange a lot of people end up doing in the US, which is, it seems like a great opportunity ’cause you can go take a duplex, go through the whole per method, go to refinance it take the money back out and then basically upgrade to something more expensive with the deferred tax option… Right.
Well, that’s actually the power of the refinance, regardless of the 1031 exchanges, you don’t pay taxes on the refinance, so let’s say you bought house for 200000 and in a couple of years, it’s worth 400, 000, and then you refinance, you take a 320, you don’t pay taxes on that 120000, because it’s considered a liability, the mortgage, so I… That’s the other benefit of refinancing versus selling a property, because when you refinance, that’s now a liability, but you can use it to invest, but you pay zero tax on that 120000, so if you sold that property, you would take out 200000, but then you pay taxes on it… So you might only walk away with 150 or taxes, or you can refinance and take out the 120, still own the property, how to pay you cash flow, because ideally, if you’re trying to leave the job, you want the cash flow to keep compounding, and when you sell a property, you get rid of all that cash flow, but you want to keep that cash flow for the next one, so if each property only cash flows 300, you know, Okay, well, to cover my costs and my expenses, I need 10 properties to cash flow 300. that’s 3000 a month, and now that at least covers my cost of living… Sure, so I don’t need a job anymore, you’re not retiring extravagantly with that, but at least, you know, you’re protected. So people always ask, Well, how much cash flow is good, cathle?
There’s no number, it’s what makes sense for your lifestyle and what you have for your plans, so basically, if you wanna have 100000 retirement plan, then do the reverse math on how many properties you need to get to 100 000 in cash flow.
Right, so not assuming that you’re just talking about the cash flow, that’s not even taking into consideration the fact that you have a buy and hold that ultimately could be a cell, you might dump a property and take the cash back out of that at some point, so there’s some equity built in there, not that you should buy homes for equity, I mean, sometimes people would do that, I guess, right. On a flip, but if you can cash out immediately at the end, it’s probably better than sitting in an IRA or a RSP or RSP or whatever the ADA… Canadian equivalent, right? It’s more liquid, it sounds like… Yeah, for sure. There’s a bunch of different ways that you can do it, especially if you grow really quickly at the start and you get to 15 properties really quick, well, if in five years, your cash flow is not as high as you would like it, yes, you can… Absolutely, liquidate a property with a full cash sale, like any liquidation event, that’s gonna make sense at the time, because when you’re running those re-finances, if you’re happy with those 15 properties, but you can refinance them and take on an additional 40 grand or 30 grand or 50 grand. Well, that’s still tax-free income, and if you’re happy with the 15 and you’re not buying anymore, well, now you’ve refinanced that 40 grand out and you can use it for the lifestyle, if that’s your plan, you just need to build your… Your financial map to whatever income is gonna be sustainable for you and happy for you, so what I like to do is write a letter to yourself and figure out what is your dream goal of the finances, so if you know like, okay, well, my goal is much more than 100000, I want it to be 500000. well, write out a plan to yourself from the future and say, Okay, here’s how I came up with this 500000 and try and visualize, okay, what is the avenue that I have to take to get to this X number that is my success number or my happiness number my goal, number, whatever you wanna do, you shouldn’t find your happiness and just straight cash and numbers, but that’s your satisfactory like, Okay, this is where I know I can take care of myself and my family and whoever… And go from there.
A lot of people say You shouldn’t find your happiness in the money, but at the end of the day, it’s just a measuring stick for the effort that was put in, so you’re saying it’s very easy to look at a bank account and say, I made 5000 or 50000 or 50000 or pretty hard to measure, some of those soft variables around it, but with real estate, it’s really just a numbers thing, right, money in, money out, doing all these calculations, and like you said, you gotta go to the future to come back to the present to figure out what are the steps reversed that I need to do to be able to get there so that you can make those plans now, given that it’s kind of a compounding effect this time goes on.
For sure. And the reason that I always try to tell people that money itself should never be the goal is I used to think it was so cliche to say It’s not the money, it’s the journey, but when I sold my first property and I took out 90, 000 in profit, which was the most amount of money that I’ve ever seen and ever had in my bank account at one time, and I was absolutely freaking out, I wasn’t happy about that 9000. I was happy about the success of the project, I was happy that I learned so much while I was doing that project, and I was able to go on to the next one because it’s the growth that I enjoy. I would have stopped if I was happy with the 90000 because a 90 grand in the bank. That’s incredible. Well, then you stop. What’s the point? You do have to enjoy the growth and the plan in… ’cause when I started this, I… They could only put 10 grand in my bank account. I’m good. Now, it’s silly to think about. At the time I was like, Oh, that’s the goal, but you just need to always have some other motivation versus just like a number is my motivation, ’cause once you hit it, you’re not gonna be happy anymore, when I had the first six figures, I was like, Oh, okay, I’m gonna be happy when I hit a million and property, and when I have my multi-million in property, I’m gonna be happy. The portfolio I have now is a multi-million dollar real estate portfolio, but I’m not that much happier because of the number an appear because I’ve learned so much and this journey has been fun.
The other thing is, my stress muscle has been flexed for the last five years, so nothing phases me on properties anymore. When I bought my first one, I was almost gonna just sell it because I got hit with this repair bill, I was first repair, but I’m like, This is crazy, I’m not gonna be able to for this, but you find a way and then you slowly over time, with using that stress muscle, you can just handle so many more things, so that’s the enjoyment that I personally take, not just the straight of cash, ’cause I’ve had decent pay days, but I’m never like, Oh yeah, that’s good, that’s Asia. Yeah, it’s kind of that pursuit in the pursuit of the future, it’s… I think it’s Math, Man, He… He… That good Oscar speech, he said something like, his hero is himself and 10 years… And it’s kind of like the same thing here, it’s like you’re trying to get whatever your plan is in 10 years and work back and say I achieve that goal, not that, Oh, I put 100 kid bank or whatever the number is. It’s that you’re trying to do that process to build long-term… Well, so that said, What’s the easiest way for someone to start with release, I know there’s a lot of information out there, a lot of methods, a lot of coaches, a lot of consultants, people, real estate agents, the people across the board that are somewhat in one piece of the market, but how does somebody actually start to break into that space?
The easiest and best way, especially if you’re just looking to start, which I always tell people, it’s depending on the age that you’re starting, because it’s a little bit harder if you do have a family of five to do it this way, but you can still make it work is by some sort of multi-family property at 5% or 3% down, whatever the lowest possible downpayment you can do, because it compounds exponentially by just having one property, because once you have one property, you now have created three income sources for yourself on one property living in it, because now you’ve got the mortgage pay down, Okay, so it’s paying down just for you to live there, so now you’re building equity for yourself, but if it’s multi-family, you also have the other units paying it down, and your cost of living has gone down, if you’re gonna buy a duplex, your cost of living is 50% of what it would be for you to buy a single-family home for yourself, so if you buy a single-family home, you’re still getting that equity, but if you buy a duplex, somebody else is paying for that equity, but good news, now you also are saving extra money monthly, so your cost of living has gone down by at least 50%, ’cause there’s another unit that’s there, so… Okay, well now it’s only 50% of what it would have been. I can save that extra 50% for my next down payment.
Fantastic, so that’s two income sources right away that you’ve created from yourself just by living in a multi-family property, and then because it’s multi-family and you get to create the value, you can force appreciation, which is another form of income from that same property, so you’ve actually taken three different sources of income from one property just by moving into it and also moved into it with the lowest possible down payment of the 3% or the 5%. So when you look at ROI on a 3% investment on a duplex or a triplex or a for plex, you cannot beat that in any investment model, you just cannot be that you get three income sources from… Like I was saying, a 400000 property for 12000, you’ve now got pay down potentially a cash flow and also appreciation on a property for 12000, where re you getting returns like that and you have a place to live it.
Yeah, and I think that that’s the mindset of people have to be in when they start the first one, ’cause probably to your point, there’s a lot of people who know what they should be doing, they know what the steps are, they just don’t actually do the steps, right, like the math is pretty straightforward to do all the steps, figure out where you wanna live, house hack it, if you can, if you can’t, still probably buy multi-family so that the risk tolerance is a little bit better and just keep paying it down, then do the next one, the question I have is, when people start and they’re doing a 30 to 50% down payment, how soon typically can they go in either cross-lateralis that to go buy another property or take out another mortgage? What’s that threshold? Or how do you figure that out?
It all depends on the type of property that you’re buying, so if your plan is growth and rapid growth, you always need to be buying a fixer upper property, like something that you need to renovate ’cause you need to other force equity. When you buy a multi-family property can force the equity or two ways really. So the one way is increase the rents and increase the income of the property, so if it’s in good shape and there’s nothing that you can do really and renovations-wise improved the property, the only other way that you can really improve the value is increased the risk so if it was currently rented for 600 and you can get 800 or 1000… Well, that right away, one of those units, if you could do that two or three times, you’ve built an additional thousand dollars of income on that property, well, now that property is shot up by whatever the cap rate is for the area, but it could be a 100 000 in equity that you could build on that property right away, if you’ve done that, you can now access 80% of that 100 000 ’cause now, if you’ve done that 100 grand right away, you can get out there what’s called a lock, which is a home equity line of credit, which I don’t know if you’ve discussed on here before, or you can do just a full refinance, which I always say if you’re waiting to buy, do the he lock, if you are going to be buying immediately and your plan is growth, do the refinance because you get a better interest rate and you’re gonna be deploying the capital right away, and then the other way is through renovations where you’re also kind of increasing the rent as well, if you can buy a really, really for property and renovate it and make it a lot nicer. And increase the rents and turn it over… Well, you’ve also built the equity there from the renovations, and so you force appreciation because some markets don’t appreciate that quickly, sometimes it’s only one or 2%, well, that’s not enough for you to access equity and to continue for you to grow your portfolio, especially if you bought in at the Three or 5% downpayment… Well, you bought a 400000 property and I appreciated that 2%.
Well, that’s 8000, you’re not buying another property with 8000, but if you were able to force appreciation through cap rates 100000, now you’ve got 80 grand and you can buy another duplex or for PLEX or whatever property it is at 400000 with that down payment that you’ve got so now you have the first one, you’ve taken that 80 grand out, you’ve bought the second one, and now you’ve got two properties which are paying down and appreciating and of course cash flow, obviously what you’re buying for, so that’s how the compounds… ’cause with only two in a couple of years, you can refinance those again and you can refine these both properties, and it’s crazy how once you have five and you’re running through re-finances, you can buy all the side of 10, it’s like, Well, wait a metadata… Right, yeah, I almost Elaine resting that you talk about the cap rate and the growth in the percentages, because you look at inflation, at least in the US, it’s like 3% per year, so if you’re getting a 20% appreciation on a hole, you’re actually losing money unless you could take the money back out to deploy it somewhere, right, ’cause if the dollars getting weak or by 3% for year, and you’re appreciating the house at 2%, peer, are you not really just down 1%?
Well, that’s only appreciation, but you’ve got the mortgage pay down as well, which is your additional mortgage pay-down roughly works out depending on what your term is and stuff to about 25-3%, so just from pay down and the appreciation combined. But the other thing is, you were doing that on… That’s 20% on the value of the house. That’s not 20% on the downpayment, which you have invested in the house, ’cause you’re leveraged on that value of the house, right. So even if you put down the full 20%… Well, if you put down on a 4000 home, I’m just keep going using that example ’cause we’ve been talking about it, but a 4000 home, 20% down payment is 80000.Well, a 2% appreciation on that is 8000… Well, that’s 10%, even if the inflation is 3%, you’re still up 70%, right, because you are… Inflation only actually matters on that 80 grand, not on the value of the property, and I… Like you said, if it’s on multi-family in your forcing to value that could really be spun into it with… You can leverage it even more. Where do you see people making mistakes, where is the piece of the puzzle where you’re just like, wow, that was the wrong move, and people are continuously making that mistake watching HGTV and thinking they know how to invest in real estate now, we laugh about it, but no, joke, that’s always one of the first comes… Well, I saw an HGTV when they were doing these clips, they were able to do the relations for 25000. Oh, did you see on the TV show that they did that… Great. That’s real life, for sure.
And people take that at face value, it’s not… I’m using CTV is the example, but basically getting bad information sources is really the big mistake because they’ll listen to their buddy Jeff who flip a property one time and now Jeff is their property guru where they’re going to… And it’s like Jeff doesn’t know anything. Jeff flipped one property one time, go to the guy who flipped 10 properties, 20 properties, 30 properties, and say, Hey listen, how did you do this? How can I learn from you?
And if they ask you to pay the money, and that’s what you wanna do, well, that’s the price you gotta pay, because guess what, if you learn with them is 10000, but you could save however many dollars on however many flips, you gotta put the value there, so education always comes first, or so many free education sources that you don’t have to pay for a podcast, that’s how I started with podcast before I actually even got to the mentor standpoint, but YouTube is awesome. Like books, we have unlimited books, so there’s a lot of opportunity, it’s more just about the education is the first step that you need to take. The other thing is to, they’ll work with realtors who is also their buddy Jeff cousin, and it’s like, let’s say you wanna buy an whole portfolio.
Well, how many properties does Jeff cousin on?
Oh well, he doesn’t know any properties, okay, so why are you listening to him as an investor, he doesn’t have any investment property, so I always say that rule is when you’re working with a realtor, this has always been the big one, ’cause there’s a lot of realtors who are just trying to make that transaction happen and they go, Oh, I’ll get him in a property really quick, I’ll collect my commission and I’ll move on, and that’s just like a high turnover rate. Male can turn model for sure is it makes sense from a business standpoint? Horrible business because especially if you’re an investor-focused realtor, you want to buy the best property for your client so that they can refinance it right away and buy two more properties because now you’ve just built three commissions for yourself as the realtor, and you’ve made your clients three times the amount of money. Right, so everybody wins, they’ve got three times the amount of properties and you’ve made three… The commission, I always work at the realtor, This is the rule, if the people can take this away, is the one big thing, work with a realtor who has owned multiple properties for multiply years… That’s it. If they’ve owned multiple properties for multiple years, work with them, I don’t care if you like them, or you know the… Or whatever it is, multiple properties for multiple years in that area that you’re investing… Yeah, I think that’s probably pretty good advice too, ’cause the end of the day, there’s a lot of people who teach… I just had this conversation with a client the other day, and I said, There is a huge difference between people who have a course and people who actually do it, I can go read a book and re-purpose a course and build a course and sell the course that’s not a problem.
What a problem is, can you actually deploy the knowledge into a real world environment and actually make the money or make the slip or make the… Whatever it is you’re trying to do the buy and hold, right?
So you have to look at the knowledge, who’s the knowledge coming from, like you said, where is it coming from, and what’s the background on that knowledge can be deployed in your area.
Like I said, if you’re in Toronto or Vancouver, Pittsburg in New York, all different markets, all different rules, all different people, you kinda gotta understand where you’re coming from, so from my perspective, where would you tell someone to start in terms of reading… Is there a specific podcasts or specific book or some kind of mentor that you recommend right out of the gate, like, Hey, go use this resource just to get a broad knowledge of the concepts.
I like localizing stuff as much as possible, because chances are, if you’re in Pittsburg, there’s probably a real estate specific podcast that is in Pittsburg, it might be somebody who’s a realtor, it might be whatever, and they may be trying to get leads, but you’re at least going to start your base knowledge on the area that you are going to be investing in, and if you’re looking in New York, try and focus on New York information, if that’s where you’re going to invest… You’re not always gonna be able to find a book that’s gonna be specific to New York, but with social media and podcasts and YouTube and everything, you’re going to be able to find some sort of local resource that is going to be specific to your market. The other thing is too, which obviously with the environment we’re in now is a little bit tougher, but meet up groups are huge because they’re free most of the time, so again, you’re getting another free resource and two, you’re mixing it in mingling with local investors who are actively taking action, because you don’t wanna work with a guy who invested 40 years ago who wrote a course like you said, because the rules are not the same as they were 40 years ago, so you want people who are actively investing and in your market, and some people invest cross-states, some patent live in New York, but it is hard to find, especially if you’re talking New York, New York, you’re not finding a lot of investments that make sense there, so then they look at Austin, let’s say…
Well, join some sort of Austin, Texas community. Because in Austin, there’s going to be people who are buying properties there, you can leverage, and starting out, I strongly recommend, do not go like that far from your properties, it’s not smart from a learning standpoint, because when you’re learning, getting really dirty on the first one’s fine, if you want to do the flooring on your first property… That’s fine. Sure, if you wanna do painting on everything on your first property, so you get the process… That’s okay.
And if you wanna manage your first property at shop to say most people should manage your first property because property management companies are the first ones to take advantage of you, so if you learn the steps, then you know what to look out for… Right, yeah, so you’re really protecting yourself by don’t build your business around you doing it, educate yourself on how it is done… Sure, because then you know, Okay, well, I know that that’s a made up fee that you don’t need to do, and I know that this is like, Why is this on my bill here, kind of playing defense early on, the person is the most educated always wins. Does matter what the industry is, what the market is all that, if you’re educated, you can make good decisions, but at the right time with the right people at the right place, it just way better to be educated. So going off of that, Where are you’re finding most of your properties right now, you’re doing the mostly in Toronto or You didn’t… Vancouver both.
So it’s mostly GTA. Most people on the podcast are, Roby, gonna know I’ve got some where NARAL is. So I’ve got some properties in Negras in Niall surrounding area, and then I’ve also got some properties in… Not everyone on over, this is but a Kishore-Gon and also London, Ontario. So I’ve got in a few different cities, but everything is within an hour from where I live because I built my portfolio around this, ’cause I knew I wanted to be relatively closer to the properties when you’re starting… Don’t have anything north of two hours away from you, especially when you’re learning, you’re gonna be making multiple trips to the property you’re gonna be showing and you’re renting it, you’re gonna be doing that, you don’t wanna be having a two-hour drive to your property, so try and find something within an hour, an hour is such a reasonable drive because you can pop on a podcast or two in that hour and you’re at your property also, if you need to make an emergency trip… An hour makes sense. So I’ve kind of used kite Warley was my central point, then I’m kind of an hour away from the negation, and then I’m an hour away from London, and then in kitchen where the other ones are, so everything is in… It’s all on the highway, so it’s like a cord or where I can access these properties all relatively quickly, assuming there any emergencies or anything that happened, and they’re also… They’re not the A markets, the bands markets where the cash flow is still available, so I’m not buying just for appreciation because in Toronto right now, there’s just no cash flow and in surrounding Toronto there’s no cash flow, so you kinda have to hit those C markets where it’s like the prices are nowhere near as high, but the rents are still there, so you can make the kind…
I got beyond the printings up, if people wanted to reach out to you, kinda learn a little bit about what you’re doing, maybe they’re local in Toronto kitchen or whatever, and they wanna reach out, what’s the best way for them to get in contact with you?
Probably my social, I would say I have my Instagram, which is just spent at Spencer Gatton, which I have been… I’ll post to my YouTube videos to there, and some of my other posts, I like to have fun with it too, so I don’t take everything too seriously and so they’ll see my YouTube videos. I definitely go humor first because the information can be really dry, but it’s also important, so I’ve been building… A lot of my videos are some of the baseline information that you need to know when you’re starting out, like how to actually calculate the cash flow, learning about the birth strategies, figuring out your markets, like I’ve obviously got some stuff a bit more specific tips on driving dollars and other things like that. So I definitely would say the best option would be reach out to me on Instagram, like I said, it’s just Spencer gotten my name, and that’s the name Spencer and then gate, and then that’s also being name on my YouTube channel, which is Spencer get and I try to respond to everybody’s comments on there, because a lot of people have specific questions, I don’t mind answering questions at all, even if you’re from Pittsburgh or Texas or wherever you’re gonna be from, I’ll generally be able to have some information for you, so you can reach out to me on there, and I, is there any question that I can… Awesome, well, thank you so much for coming on the show, I really appreciate you taking time out of your day. And hopefully for the listeners, I know we’ve got a couple of different small peaks in real estate that spend the most comprehensive episode about the strategies, the financing, the refinance, and all the peace between, so I will appreciate your time and how we can get them shut.
My pleasure, man. Thanks for having me.
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