Can you tell me a little about what you do?
I’m the president and CEO of Blueshore Financial. We have a team of expertly trained financial advisors—certified financial planners—who offer a very personalized approach to help individuals manage their wealth and investments across a whole diverse range of needs, from personal investing to business, to what they should invest in, retirement, estate planning, etc.—all the complicated things.
When did you first become interested in real estate?
I started out when I was a lending officer. When I looked at wealthy people who were borrowing money, it struck me how many of them had made money through real estate. I came up with this idea that true wealth, long-term, sustaining, powerful wealth comes from real estate or dividend stocks. So it seemed to me that that would be a good thing to get on board with. I also think that real estate gives you leverage so that you can really get outside returns. Leverage, of course, is both a good and bad thing: if used wisely, it can get you huge returns.
How long have you been investing in real estate? Would you consider it a passion?
It’s a passion of mine, absolutely. I’ve been investing since I was 26. I’ve owned many residential and commercial properties. It’s my business to finance them, to see the market and then purchase properties when I think it’s the right time.
What are some of the differences between commercial and residential investment?
If we look at how you can invest in real estate, there are three ways. One is that you look for a deal: something that is undervalued that you can get something like that through foreclosure.
Other people that are great investors that I finance, they look for very expensively built, good-structure buildings that they can go in and fix up. It’s the structure that’s being undersold, because something has gone wrong with the investment, the bones of the real estate are really, really good, and so they can go fix what’s not looking good on the outside, usually something superficial, and either flip it or hold it for a long time.
The last one is when there’s some reason why the investment has gotten lower income. Maybe the tenant isn’t that good, or rent was badly negotiated or rent has gone up, and some investors go in and get a kick that way.
Each person should understand what type of investor they are—it’s rare that they are all three. And usually what you are good at is something to do with your personality or your job or your style. So you need to be aware of that. For me, I’m kind of long-term, just looking at good income and good location. I don’t mind paying a premium for it, because I know I’m a long-term holder and usually the market rewards the best properties, well-located with income.
With residential, you tend to get more of an emotional buy. It’s not always directly related to the rental income, it’s related to what someone will pay for it. We finance a lot of luxury real estate, and you find that luxury is based on emotion, either what it costs or what the rent was. You need to be a bit more of an artist if you’re going to do that, interested in design or be really good at reading the market, and what people want as far as trends go at that time. But two or three years later that same residential luxury building may not be worth as much because styles have changed. They are not good to hold in that case, but good to flip then sell.
You also have to decide if you’re a flipper or a holder. I’m a holder, and most of my real estate I still hold. I sold some that was just too much effort to manage.
Commercial is very much tied to the capitalization rate, which is the current interest rate and what sort of return you should be developing over time. A good rule for commercial is that you decide to buy the property based on the return it’s giving you today. If it happens to inflate and go up in value that’s great. But the tenant could leave and you could have a poor return tomorrow, so you shouldn’t bank on capital gains, you should bank on if it’s a good return if I keep it for the rest of its life.
And right now, interest is at four or five per cent in Canada for good-A buildings, whereas if you’re taking the risk and buying something new in residentials, you want about a 25 to 35 per cent return because there is more risk.
Can you talk about the importance of real estate for a person’s wealth portfolio?
Like I said, I think it’s one of the few things that helps build long-term, sustaining powerful wealth, and because you can leverage and gain positive cash flow that gives you a fantastic cash on cash return. It’s also unearned, as opposed to earned income. I don’t have to work for every dollar I make, it just keeps growing.
I buy with an eye towards the population trends. If you can get ahead of the market, it’s pretty much a license to print money. If you can move just before the residentials get there to buy land, or if you can get in near a school being built, buying in areas like Vancouver or Toronto, areas that are getting urbanized at an incredible rate, that have low unemployment rate and everyone looking for a place to live wants to go, then you’ve got a lot of wind at your back for your investments. That’s how you really, truly build wealth: get ahead of those trends.
Where is the Canadian real estate market now, and where do you see it moving in the near future?
There are two different markets: one is the typical Canadian real estate market, and that’s probably going to do fairly well. It’s tied to interest rates, and if those go up too quickly, that’ll hurt property values. I don’t think this will happen. I predict Canadian real estate as a whole will be fine: maybe not hit the double digit returns it’s been getting, but hitting single digits.
In places like Toronto and Vancouver—and I’ll speak directly Vancouver—we are land-constrained by the ocean, the mountains, and the border, and we just don’t have any more area where w
e can zone single-family. So we’re going up in condos. And our condos aren’t going up as fast as our single family right now. We’re having multiple bidding wars on single-family homes, and it’s because the number of houses are going down as we are knocking them down to make room for condos.
The big picture is, who said you should have a single family home in a 2.5 million city that’s only five or 10 minutes from the centre of town? You can’t do that in London, Paris or Hong Kong. The Vancouverites and Torontoites need to change their expectations. The only way people in large parts of Asia and Europe afforded their housing was by living together. Kids are staying home longer, parents are taking care of their kids to buy. It’s becoming more of a family investment.
Now, there’s a similar trend in the United States, but it’s because of different reasons. We don’t have as much student debt, our employment never really went down after the Great Recession, so this new family-investment style wasn’t a financial decision in regards to income of the kids, it’s related to how much single family home prices have gone up.
What is your advice to avoid the risks of investing?
Definitely speak to your financial advisor. Investing is risk and reward based, and it revolves around what you can afford. You need to have someone be the mirror to your dreams and suggestions: that’s critical.
What is the best financial advice you’ve ever been given?
A couple of things: unearned income is better than earned income. Two: where people screw up on investing is they mix what they want personally. For example, an investor might be interested in skiing, and buy a hotel unit in the mountains thinking they’ll use it and rent it. And usually you have to keep distinct between a good investment and a good personal use property. You don’t have to live in your investment property.
Also, if you can’t drive to your investment property, argue about the rent, and drive back in a day, don’t buy it.
A veteran of the financial services industry, Chris Catliff has devoted his career to building better credit unions through customer relationship technology and knowledge management. He has broad experience in leading and developing financial institutions through an emphasis on innovative service, engaged employees and premium client service. He has served on over 30 boards and is responsible for a successful rebranding and technological innovation at Blueshore Financial.