Possibilities in Real Estate Part 2

Jessilyn Persson: [00:00:51] Today’s topic, we are going to continue on the possibilities in real estate, this is part two. In the last episode during part one, we discussed understanding your goals, what makes you uncomfortable, and what are you willing to do when it comes to real estate? Now I’m really excited to roll into part two of three. This is going to be a three part series, so stay tuned after this for the next one. Today’s takeaways, I know the first one is different real estate asset classes. I know this is a hot topic because it’s probably one of the first questions I get asked when people hear that we are real estate investors. Then they start trying to pick our brains on all the different options in real estate, just for me to bring them back down to be like, let’s start with one.

Brian Persson: [00:01:39] Sometimes the first time people talk to us, they’re trying to decide their entire real estate investment future in that one conversation. It’s just not possible because there are too many different types and too much to invest into.

Jessilyn Persson: [00:01:51] Under real estate asset classes, the one we’re most familiar with is residential properties. Which of course can run the gamut of single family homes, duplexes, suited properties, condos, townhouses, right into multifamily. Our portfolio has encompassed all of those, with the exception of the larger multifamily. That’s where we, at some point, analyzed our portfolio and went, some of these just aren’t working for us. We got rid of our single family homes and our condos, but we just found a real sweet spot here with suited houses.

Brian Persson: [00:02:36] It increases the cash flow of your property. You have two rental incomes instead of one from your single family home. As you know, the more units you can have under your portfolio, the less risk you are going to take on, because you’re never going to be out of rent entirely. That’s why we like the basement suites, it reduces the risk of having a single family home.

Jessilyn Persson: [00:03:01] Probably the main reason we got into residential properties at the time when we first did, is ease and access. To buy a condo or a single family house back then, I think we’re paying $100,000, maybe $117,000. To buy a property at 20% down, that was easy compared to a multifamily where now you’re looking probably in the millions and then your percent down there is much bigger. It’s easier to get into, and that is why we chose that route at that time. Under residential there are other options like short term rentals, some people call them Airbnb, which we have not dabbled in and chose not to after we’ve done some research. But we have friends who do quite well in it.

Brian Persson: [00:03:49] Primarily it was the work involved in short term rentals. We want it to be passive investing, or as passive as we can get it. That was a big problem with short term rentals, is that when you hire it out, all these services, then you lose all your profits. If you do all the work yourself, you pretty well have a full time job. But for some people, they love condos and they love doing the short term rentals. That’s sometimes the only way you can make a condo work. That’s quite explicitly why we got out of condos because they worked when we first bought them, but as time went on, condo fees went up. There’s a lot of things you can’t control about a condo because it’s up to the board. Even if you are on the board, sometimes you don’t have control, you get vetoed.

Jessilyn Persson: [00:04:40] I still chuckle, when one of our condos got to the point where the condo fees were higher than the mortgage on the property it’s like, really? How is this even possible? Also, we’ve been hit by several special assessments, as have many people who have condos. Our big one that we got hammered with was, I think, $60,000. When I say that to people, they look at me like I’ve gone mad. They’re like, ‘like that’s even a possibility’. I’m like, it is.

Brian Persson: [00:05:08] I would say we actually got lucky with that $60,000, even though it sucks to get that special assessment. The way I had bought that property, because that was the very first property I had owned and we turned it into a rental eventually, meant that we had enough equity in the property itself that the property was able to pay for itself.

Jessilyn Persson: [00:05:30] To pay for the assessment.

Brian Persson: [00:05:31] None of the money from that assessment had to come out of our own pocket. That was lucky because at that time that was very early on in our real estate career and some of the knowledge that we’re passing on right now, we did not have. Condos can be dangerous for that exact reason. We lucked out in that sense, but I cannot imagine what it was like for other people who were not in a positive equity situation like we were, where we could afford that.

Jessilyn Persson: [00:06:04] They would have had to borrow the money and pay interest to pay that down. It wasn’t an option, it had to be paid.

Brian Persson: [00:06:10] Then turning it into a short term rental, that was not an option either eventually with those condos that were no longer cash flowing. Part of it was the work, but also there’s certain cities around Canada now that are banning short term rentals. Your business plan as a short term rental could get axed by regulations.

Jessilyn Persson: [00:06:31] Even if it is allowed in the city, because it is allowed here in Edmonton in some areas, some condo boards will not allow it. You have to be very clear on what the rules are before you go and purchase a property for short term use. If you buy it for that concept and it doesn’t work out, you’re now having to go to plan B. Whatever that plan B is for you.

Brian Persson: [00:06:55] If you do it, have a plan B. Because your entire business plan might be at the control of the city or whatever county you’re in. That was another reason why we didn’t want to go. We didn’t want to have someone else in control of our business plan.

Jessilyn Persson: [00:07:11] Another real estate asset class is commercial properties. That can be retail spaces, office buildings, industrial warehouses. I know you and I, from time to time, we’ll talk about it. We’ll look at the odd thing, but we’ve never jumped on that. I think part of that was, generally, those are a little pricier so you need to have a bigger deposit down. Not only that, our big fear was if they go empty, say our retail space, you could be sitting empty sometimes for 3, 6, 12 months, and you have to cover all those overhead costs.

Brian Persson: [00:07:43] To find a new tenant. If you have things like the pandemic happen, where all of a sudden the entire world population shifts to virtual, if you’re in an office space, your need has just gone way down on that office space. The public no longer needs you.

Jessilyn Persson: [00:08:02] I remember when we’d drive downtown Edmonton, we’d look at some of these massive office buildings, vacant. I always wondered, those poor owners, they’re hurting right now.

Brian Persson: [00:08:15] Commercials can do you well, but there’s a lot of risk to it that we don’t like. As we talk all the time, we teach our ‘sleep at night factor’, commercials do not give us a good sleep at night factor because of those long vacancies. Trying to find a new tenant because you’re slightly at the mercy of how the economics are of that particular province. Not that you aren’t with residential, but everyone always needs a home. Whereas nowadays, people can work from their computers. You can’t sleep from your computer, you still need a place to put your head.

Jessilyn Persson: [00:08:50] You do. A third asset class we’re going to speak about is alternative investments. Private equities, real estate investment trusts, MICs, which you can speak to more than I can.

Brian Persson: [00:09:04] We love these because they are truly the ultimate way to invest passively into real estate. You don’t have to have any skill, you don’t have to have any knowledge on it. I’m a licensed private equities dealing representative, so I can transact people into actual real estate, but it’s more like a share like you would buy Apple off the stock market. It’s still investing into real estate, and you get a lot of the benefits of real estate, but you don’t have to do any work, you just sign the paperwork. You can invest in registered funds, as well, here in Canada. There’s a lot of benefits to it in terms of it being the ultimate passive income. It’s also a really good way to diversify your portfolio. For us, as experienced real estate investors, we could get more by investing into our own real estate portfolio, but we know we need to diversify and we don’t want to have all our eggs in one basket. We invest some of our money into private equities, into REITs, into mix. Just to give you a quick high level view of what those are, real estate investment trusts, or REITs, basically it means it’s a collection of properties that you invest fractionally into. MICs are mortgage investment corporations, and basically you’re buying shares of the mortgage debt on other properties. Really good ways to diversify your portfolio and, like I said, the ultimate passive way to invest in real estate because you literally don’t have to do anything.

Jessilyn Persson: [00:10:46] I agree with that, awesome. I’m gonna roll into takeaway number two which is understanding market dynamics. The market research basics, we know location, location, location. We say that based on the fact that we have invested in Sherwood Park, Edmonton, Saskatoon, which is another province away, just based on different reasons at the time. We know that for us, for suited properties, Sherwood Park is the gold.

Brian Persson: [00:11:22] Why is Sherwood Park awesome? Let’s talk about that.

Jessilyn Persson: [00:11:25] Firstly, they are very much a family oriented community. I don’t mean to say that just holistically, they take really good care of all their parks, their schools, their libraries, and they have a lot of programs for parents, for the kids. About 99% of the properties here in Sherwood Park are home owned, so people really take care of their properties. Which keeps the value up but makes it almost impossible to buy in. Especially as single parents, there’s not a lot of rental opportunities and the price to buy in is more expensive. But for us as owners, a lot of our renters are single parents who want their kids here for the community. Also, it’s generally closer to grandma and grandpa, but they can’t afford to buy here, so they rent.

Brian Persson: [00:12:14] Plus the community has a lot of industry in the county, so there’s a lot of tax dollars that come towards the city here. We joke that they pave the roads maybe a little too much.

Jessilyn Persson: [00:12:27] They do.

Brian Persson: [00:12:27] Location, location, location because of that. Because we chose to spend a little bit more to invest into Sherwood Park, I’ve talked to real estate investors over the last number of years here, especially during the pandemic. They’re all like, finally my cash flow is coming back. I keep going, your cash flow went away? You guys weren’t cash flowing for a little while? They were like, our rental market was this and that. Sherwood Park was this train that kept on moving. It was unstoppable when it came to how we were able to fill our properties, how we were able to keep the rents up, and we never stopped cash flowing, even throughout the pandemic.

Jessilyn Persson: [00:13:09] We got A+ tenants here, it’s amazing.

Brian Persson: [00:13:11] Sometimes it’s worth it to pay a little bit more to get the gold.

Jessilyn Persson: [00:13:17] When doing your market research, obviously you want to pay close attention to the economic trends of the area you’re looking to buy in, and the market cycles.

Brian Persson: [00:13:28] Strathcona, this area that we’re investing in, Sherwood Park, has a lot of industry. There’s a lot of money that comes in here. It creates low taxes for us, so we don’t have to pay a whole lot of taxes on our houses. Generally in Alberta, there are a lot of people moving here right now. We’ve gained 200,000 people year over year over the last two years, so 4% increases in population growth, which is huge. The rental prices have felt that very quickly, too, because there’s nowhere you can rent because there’s too many people here and not enough rental properties.

Jessilyn Persson: [00:14:05] Even though there are large industry areas around Sherwood Park. Talking a little bit more like oil pipes, buildings. But we’re only a short distance, 20 to 30 minute drive, into the center of Edmonton, which is all government. Government doesn’t go down so much even in the economy because the government’s always got to be run and there’s always government jobs so it’s a win-win.

Brian Persson: [00:14:31] Government, health care, we got some major AI sectors coming into Edmonton now. There’s a huge diversification here around Edmonton. At this time of the podcast, the whole country is looking at Edmonton, because not only is it diversified in terms of economy, but it’s also one of the cheapest places to live in the country with some of the highest wages. Places like Vancouver and Toronto, which have historically had pretty good rental markets because they appreciate. You can buy a property there and it just appreciates year after year. But now the markets are falling out there because it’s just gotten too big and no one can afford to live in Vancouver or Toronto. Guess where all the people in Vancouver and Toronto are coming? They’re coming to Edmonton.

Jessilyn Persson: [00:15:19] They are coming to Alberta. Another market dynamics to look at is adapting to change. Whether that’s navigating interest rate fluctuations or the market cycles happening.

Brian Persson: [00:15:33] This one’s a tricky one. First of all, you have to pay attention to the interest rates. You want to know where your mortgages are at, you want to know where things like inflation are at. Not to bring up the pandemic too many times, but inflation went crazy and interest went crazy high. I made some choices that weren’t typical real estate investor choices, but I looked into the future and went, if real estate rates are going up, both interest and things like utilities, then it is better for me to lock in now before they actually go up and ride the wave through to the other side of when they start coming back down. Sure enough, I did that in 2020 and 2021, locked in both my interest rates on all our mortgages, and all the utilities. I locked in the rates shortly after that because of inflation. Inflation was driving utility prices up. Here we are at the other end of that interest rate spike, and the utilities are starting to come back down. Interest rates have declined severely over this year.

Jessilyn Persson: [00:16:43] They’ve come down a lot.

Brian Persson: [00:16:44] Guess what’s happening, our mortgages are coming up for renewal. I’m not going to recommend any strategies here, but you really have to watch and look into the future to understand how you should play your real estate portfolio.

Jessilyn Persson: [00:17:01] Absolutely, so glad you locked in our utilities. I remember hearing some people talk a few years back how their utilities tripled. Their utility bill was a mortgage payment, almost. That’s how high they had gone up. That would absolutely hurt a portfolio and hurt cash flow for those who didn’t pay attention to that and had rental properties.

Brian Persson: [00:17:23] According to the statistics and according to the math, variable interest rates, having everything on variable including utilities, generally works out better for you. That’s what you’ll hear in the normal talk of conversation amongst real estate investors. But there are times when you can see the future coming, and you need to know how to manage that future. Even if you didn’t lock in interest rates, how closely are you going to manage your rents? How closely are you going to manage all the other things around that? Because if you’re not managing anything else and your interest rates are going up, your portfolio is going to be underwater pretty quick.

Jessilyn Persson: [00:18:06] Understanding market dynamics, we want to also be conscious of the real estate investment cycle. Understanding what and when changes are going to occur in real estate, which may or may not be directly related to some of the market trends or the economy.

Brian Persson: [00:18:23] Everywhere in the whole world has a real estate investment cycle. In Canada it runs on about two year clips. If you see the GDP and the population growth expanding into a particular city or a particular area, you can pretty well guess that in about two years, after you see the population coming in and the GDP going up, that property prices are going to go up and rent is going to go up as well. Sure enough, what happened about two years ago was, a whole bunch of people were coming into Alberta, and now last year we went up 25% on average between 2024 and 2025, in rental prices.

Jessilyn Persson: [00:19:02] That was an incredible hike that we hadn’t seen in this area in over a decade.

Brian Persson: [00:19:08] We raised rent 11% and 12% year over year, and no renters batted an eye. Because they looked around and all they saw was higher prices everywhere else. If you follow that strategy, then you’ll know that two years after you see major economic things happening, both in population and GDP, you can be sure that that’s a fairly confident place to invest.

Jessilyn Persson: [00:19:30] Absolutely. The third takeaway for today is leveraging real estate for lifestyle design. Work life balance, we hear this all the time, you can use real estate income to support your dream lifestyle. If you want less work, more life balance, if you have real estate income coming in, you don’t have to work as much at your 9 to 5 or whatever job it is that you have.

Brian Persson: [00:19:55] We come from a school of thought where you should not leave your job until you can cover your expenses entirely, cover your income through passive investment. That is the ultimate goal, is to leverage your real estate to fund your life. I believe that you should take some benefit from your real estate endeavors before you manage to get to the point of replacing your income. Because otherwise you’re going to spend a lot of years slagging through real estate and not getting anything from it. Maybe that’s your personality, but we’re big believers in rewarding yourself for what you do. If you invest in real estate, take a little bit from your real estate. Not not a lot, not anything that’s going to break the bank on your real estate portfolio, but do reward yourself for investing in real estate.

Jessilyn Persson: [00:20:48] You get a big win, a big sale, whatever it looks like, go celebrate. Whether that’s a family vacation or a couple of days away, whatever. Take time to celebrate, absolutely. You hear a lot of ‘freedom through passive income’, which is the goal for us. To have passive income to pay for our complete lifestyle so that we can choose to not have the 9 to 5 should we wish. That is a big part of financial independence for many people.

Brian Persson: [00:21:17] For us, we have enough cash flow in our portfolio now that we take a vacation every year on the cash flow from our portfolio. That’s our reward, and then the rest goes back into the portfolio to further grow it.

Jessilyn Persson: [00:21:31] To invest it, buy more properties, whatever that looks like. As we’re working on our multifamily goals, that is to essentially replace any kind of the 9 to 5 that we currently have. I’m super excited about that.

Brian Persson: [00:21:49] Like I said, don’t quit your day job until you truly have what you want through real estate. Whether that’s replacing your income, whether it’s some extra cash on the side. Obviously you still need to fund your life in some way, so the real estate has to fully fund your life, not partially fund your life before you pull the trigger.

Jessilyn Persson: [00:22:09] Not just fully fund your life this year. You need to be planning ahead should you get to a point where you are fully retired, if that’s where you’re going. Is it going to fund you for life if you can’t work? Is it going to fund you? So look at all those different options before you choose to quit your day job.

Brian Persson: [00:22:29] Keep it in mind all the time, because that’s what you’re here for. That’s why you’re investing in real estate. If you don’t have that goal and that idea that you’ll eventually retire off of your real estate, you’re going to lose energy through the hard times. When interest rates do go up, or pandemics happen, or whatever the course of the world throws at you, you’re going to need that energy and that motivation and that future to look forward to.

Jessilyn Persson: [00:22:55] To recap today’s takeaways, the first one is those different real estate asset classes we walked you through. The second takeaway is understanding the market dynamics. Third, leveraging real estate for your lifestyle design. In our next episode, we’ll be talking about the possibilities in real estate part three. This one is going to have four takeaways. We’re going to cover creative financing strategies, building a strong network, creating multiple income streams and measuring and celebrating success. Thanks so much for tuning in to this episode of the Life by Design podcast.

Brian Persson: [00:23:31] Before you go, don’t forget to visit discoverlifebydesign.ca to book your discovery call and build your customized wealth strategy plan with us. We release new episodes every two weeks, so be sure to hit that subscribe button on your favorite podcast app and join us on this journey to create your life by design.

Jessilyn Persson: [00:23:49] Thanks again for listening, it’s been a pleasure being with you today. We’re Jessilyn and Brian, and we’ll see you next time.