The Secret to Real Estate Wealth

The Secret to Real Estate Wealth

Canada’s Leading Experts Reveal Their Secrets for Building and Protecting Real Estate Wealth

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A special note from the Publisher

Dear Reader:

Thank you for purchasing this book.

Creating this masterpiece took over 100 hours of my personal time and over 20 hours apiece from the contributing authors in this book.

In essence, you’re getting true lessons from 19 very dedicated experts, whose main purpose is to transform your life financially.

Please take the time to study this book and take immediate action.

I wish you massive success.

Sunil Tulsiani, Founder

Award winning best-selling author

My Sincere Acknowledgment

This best-selling book would not be possible without the expertise, patience, dedication, and generosity of the following experts:

Their diligence, expertise, and willingness to share are greatly appreciated.

Thank you.

Sunil Tulsiani, Founder

Private Investment Club

Award Winning Best-selling Author

CHAPTER 1

Should I Buy Real Estate in Canada or the USA?

by Sunil Tulsiani

If I give you $500,000 and tell you that you can either:

1. Buy 10 properties at $50,000 apiece, and each will earn $500 per month,

-OR-

2. Buy just 1 property at $500,000, and it will earn you $500 per month,

Tell me:

Which option is riskier?

Which option will make you financially free?

Which option would you take?

Every day, I deal with people who would rather pick the second option than the first because they feel comfortable buying in their back yards.

If you haven’t figured it out, the first option is what’s making my friends, my PIC members, and me become financially free.

In fact, I’ve already sold most of my Canadian properties and have invested almost exclusively in the United States.

In this book, I want to focus on some of the major cold, hard facts so you can form your own opinion whether to buy in Canada or in the USA safely.

The Canadian market WILL crash.

I know this is a very strong statement, and many people will disagree with me on this, especially the readers who are real estate agents, the investors who have made money buying pre-construction condos in Toronto, or the people who believe that the Canadian market is immune to the ups and downs of the real estate market.

But they’re wrong.

Here are 6 reasons why buying investment properties in Canada is extremely risky.

1. The Canadian Housing Market is Overvalued

The Canadian real estate market is overvalued. You don’t have to take my word for it, either. Many reputable organizations and experts like Deutsche Bank, The Economist, Stephen Poloz (Governor of the Bank of Canada), and the International Monetary Fund have all claimed that the Canadian real estate market is overvalued by as much as 63%, especially in the Toronto and Vancouver areas.

While there are always prophets of doom and naysayers when it comes to real estate, when both reputable international organizations and local experts are on the same page about something, you have to at least consider that there may be a problem.

According to The Globe and Mail report published in July 2016, the average price of detached houses sold in greater Vancouver reached $1.77 million. In greater Toronto, it was $892,747. But the average household income in Ontario is only $76,219. Even if you work with a mortgage of 0% down and a 30+-year repayment period, that would qualify the average family for only about $300,000 for a home.

2. Canadians Are Drowning in Debt

You may wonder what personal debt has to do with the housing market.

If people have too much debt, they can’t afford to buy anything, including houses and rent.

In the States, both the Great Depression in 1930 and the Great Recession in 2008 were brought on, to a large degree, by large increases in personal debt. Canada’s personal debt ratio is now along the lines of 166%, which means Canadians owe $1.66 for every dollar they earn in a year. To put this into perspective for you, this is similar to what it was in the States in late 2007, right before the real estate crash.

For Canadians, a lot of this debt is being fueled by rising house prices. While this isn’t dangerous in itself, if unemployment were to increase, or interest rates on mortgages were to increase, a lot of people would find themselves unable to pay their debt and consequently unable to afford their houses.

This would then lead to that vicious circle of people selling their houses to get out of debt, more houses going on the market and, because of the dynamics of supply and demand, a drop in real estate values.

This will be especially hard on people severely in debt because they might just find themselves in the unenviable position of selling their houses for less than they owe on them because they’ve decreased in value so much.

There is also some speculation that Canada’s strict lending criteria are partly responsible for this rise in personal debt. People are even borrowing their down payments at a much higher rate so they can buy or upgrade to their dream homes.

3. House Price vs. Average Income

A good indicator that the housing market is in trouble is to look at the ratio between how much people are earning vs. the price of housing. The system used to calculate this is called the Teranet-National Bank National Composite Housing Price IndexTM.

An average ratio is 3 times a person’s annual income, so if you earn $40,000 a year, an average price for your house should be about $120,000. When you get up to 4.5 times your annual income, a property is considered unaffordable; and, at 5.1 times your income, that property is severely unaffordable.

Vancouver has a stunning ratio of about 22, which places it squarely in the crazy category. Toronto comes in at a ratio of over 11, which is still in the dangerous zone.

4. Low Interest Rates

Most people think it’s a good thing to get a 5-year fixed mortgage for less than 3%, and in most cases, it is.

Here’s the flip side of having the lowest interest rates in history. When people are thinking about buying a house or an investment property, they are thinking mostly about, What’s my monthly mortgage payment? So, if your current mortgage amount is $700,000 at 3% interest rates, imagine what will happen when the mortgage rates go up by 2% in the next 2-3 years? You’ll be paying $759.00 more per month in mortgage payments.

And if you’re thinking there’s no way the interest rates could go up to 5%...think again. According to The Bank of Canada, as little as 20 years ago, the average mortgage rate was 10%.

5. Cash Flow?

Most properties in Canada, whether you’re buying a house, condo, or commercial property, do not generally produce positive cash flow. In fact, the prices have gone up so much that the apartment buildings, plazas, or even small multi-units are being sold at a 4% cap rate. And investors are still lined up to buy them. Some of my students even end up buying negative cash-flowing properties because they’re hoping that prices will keep going up. Buying properties based on negative cash flow and hoping that the prices will keep going up is not a safe way to invest in real estate. In my view, the safest way to invest in real estate is to buy properties that put money into your pockets every month after paying all of your expenses.

6. Everything Works in Cycles.

Almost everything in life works in cycles, and real estate is no exception. The problem for the Canadian real estate market is that if you look at the cycles, we seem to be at the top of where it’s good to be at the top, and at the bottom of where it’s good to be at the bottom.

Property prices are at record highs and mortgage lending rates are at record lows. This places us real estate investors in the unenviable position where things in the Canadian marketplace can almost only get worse.

Am I saying that property prices will stop rising tomorrow and interest rates will start climbing by the time you read this? No, I’m not, but the fact is that with every day that passes, it becomes more likely that this will start to happen.

Investing based on appreciation only is better than gambling, but that’s not how I like to do things. I would rather buy ugly properties, fix them up, add value, and set it up so they produce a nice cash flow every month. And when the appreciation comes, that’s cool too.

8 Reasons to Buy Properties in The USA Now

1. Price

Everyone knows that the USA faced the worst correction of our lifetime in 2008. In fact, it was seen as the worst meltdown in the history of the United States second to the Great Depression in the 20’s.

During my mentoring, I tell my students that this kind of situation will not come back in our lifetime, and that they should buy as many positive cash-flowing properties as they can right now.

My main focus continues to be buying solid, cash-flowing properties in the various cities of the USA. My main reason to invest in real estate is to put huge amounts of positive cash flow into my pocket every month.

And my second reason is, of course, to make money from the anticipated increase in value, whenever that happens. We all know that what goes up must come down. But, what comes down must also go up.

My focus is on Mr. Warren Buffet’s suggestion to buy single family houses. My members love to pick turnkey, fixed up, and rented properties with a management company in place for $60,000 to $80,000. That’s the total cost of a fixed up property. You can get as is properties for lot less if you’re willing to do the fixups. Some of my Canadian friends ask if that’s the down payment, and they’re shocked when I tell them that it’s the full price of the cash-flowing detached house.

Similarly, my cash flowing Florida houses are even more popular because I can get fixed up, cash flowing, 3-bedroom houses for $70,000 to $80,000. And the amazing part is, some of these come with private financing, and my members do not need to qualify for a mortgage.

2. Potential Huge Return on Investment

I have already enjoyed nice appreciation on my US properties while putting massive amounts of positive cash flow in my pocket. Buying properties way below replacement costs is a great way to invest safely and become wealthy. You still have an opportunity to make big money from safe, solid properties in the USA, partially because most people can’t get financing, a lot of them have not-so-good credit, and it is still an investor-driven market.

The day the banks in the USA start to lend to regular Joe and financing becomes easier is the day that the prices should shoot up like crazy…like they have in Canada.

3. Hands-Off, Headache-Free Investment

One of the reasons why I left the police force over 10 years ago is to spend time with my family. There’s nothing more beautiful than to get positive cash flow passively. In fact, I would say that it’s better to make $10,000 per month passively than to have a million dollars.

Most of my members and mentoring students also love the idea of passive income, but have a hard time delegating the responsibility to someone else to manage their properties. Most people have heard the tenant horror stories and would rather focus on managing the tenants on their own.

For me, I would rather focus on buying cash flowing properties and hiring a good, trustworthy management company to look after the day-to-day issues with tenants. I like the putting-the-deal-together and making passive profits.

You should only consider investing in the States as a Canadian (or from any other country) if you’re able to set it up passively with a trustworthy team.

4. Higher Demand for Rentals

Due to the relatively recent property crash, the cost of building stand-alone residences in the States is still too high for a lot of people to consider building.

In addition, a lot of people were burned by the real estate crash, which left a bad taste in people’s mind in regards to home ownership.

While this is bad for homebuilders, it’s good for landlords. From 2004 to 2013, the number of renters in America increased by almost 2%. While this may not seem like that much, think about how many people that translates to. Until Americans decide where they want to go in the future, a lot of them are opting to rent instead of buy. In the last few years, the demand for rentals has surged, with the result that vacancy rates have gone down as rental prices increase.

Another important thing to consider here is that the percentage of renters has not increased equally everywhere. In nine out of the 11 largest metro areas in the States, the population is now primarily renting. So if you’re looking at making income from rentals, you can drastically improve your chances by focusing on these areas, where the number of renters is increasing above the national average.

5. Generally Optimistic Feeling about the US Economy

The GDP in the States has been climbing from 1.9% in 2013 to an estimated 2.9% in 2016. At the same time, Canada has hovered around the 2.0% mark.

Despite what a lot of people think, the American economy is recovering, and this is more apparent in some places than others. Business investment for the first quarter of 2015 stands at 3.1% with an estimated 5.1% in 2016, while Canada’s figures for 2015 was -2.2%.

How this affects you as a real estate investor is that a lot of people are moving to where the work is, which means they’re looking for housing near their new place of work. So by focusing on areas where business is booming, you can ensure a ready market of tenants.

To put it into perspective, in the first three months of 2015, America added a net 1,000,000 jobs to their economy. This translates to an unemployment rate of only 5% for the beginning of 2015, against Canada’s 6.8%.

This means 1,000,000 people are in a much better financial position than they were just three months prior, and they’re probably going to be looking either to buy a property, which helps with property appreciation, or to rent, which is good for landlords.

I also mentioned earlier that Americans weren’t buying as many houses, but despite this, investment in the American residential market has exploded from -1.8% in 2013 to 5.6% in 2015. According to reports, this growth is largely being fueled by foreign investors.

The other reason to consider buying US real estate now is that low housing starts will eventually lead to a lack of available housing. And since lower availability will lead to increased demand, we can expect this to push up prices in the US real estate market.

6. The Exchange Rate

While I’m writing this, you can get approximately $1.30 CAD for every $1.00 USD you earn. This means that $1,000 in rental income is actually earning you $1,300 CAD per month.

Now, I get some people coming in and saying they wish they could’ve bought properties 3 years ago, when Canadian and US dollar were basically equal, and that they’ll wait for that to happen again. In fact, one of my students who was buying a detached house for $50,000 backed off because the exchange rate at that time was $1.00 USD to $1.06 CAD. I will wait until our dollar becomes equal, was his reasoning.

Then 2 years later, he bought a similar house for $60,000, and the exchange rate was $1.20.

I’m predicting you’ll be paying $1.50 CAD for every $1.00 USD in the next 3-4 years, and the prices of the houses in the USA will go up.

So, my advice is to simply buy as many solid, cash-flowing houses as fast as you can, right now.

7. Low Average Private Debt

The average American’s personal debt hit the lowest level it’s been in 29 years in 2012. And at the end of 2014, it was still the lowest it’s been in a decade. While Canadians are spending more, the Americans have been paying their debt off.

This means that eventually, Americans will have more disposable income to enter the property market as owners (driving housing prices up), or they’ll have more money to spend on rents. This is apparent if you look at the recent upswing in consumer spending in the States. While America went from 2.3% in 2013 to 3.3% in 2015, the average Canadian’s spending went from 3.0% in 2013 to 2.2% in 2015.

8. Financing

Here’s a fact. Getting financing in the USA, especially for Canadians, is extremely hard. And the reason why this is totally awesome news for you is that it’s one of the main reasons why you’re