Secrets of the Canadian Real Estate Cycle

Tony and Jo-Ann Peters sound like they have been investing for 30-plus years, but in actuality they purchased their first piece of investment real estate in the year 2000. Their drive, enthusiasm and organization has propelled them to reach achievements that even they had not imagined were possible.

The reasons for their success are readily apparent when they talk about their investment business. It's also easy to see why Tony and Jo-Ann are classified as strategic real estate investors. In addition to possessing all elements and continually educating themselves on what it takes to be a strategic real estate investor, Tony and Jo-Ann have never let greed infiltrate their system. Their motto, “You can make more money doing things the right way than you can ever make doing things the wrong way,” is the foundation of their story.

Doing Things the Right Way

Tony: If you have heard me speak, you will know I always say “Life is a journey, not a destination.” Those words rang true in the year 2000, a time when our journey took an unexpected and extremely abrupt detour.

Jo-Ann: Unexpected and abrupt it was. Tony had been working in the manufacturing and construction industry for over 20 years and with one company for 18 and a half of those years. He had worked extremely hard, and as a result he had worked his way up the ladder from a construction tradesperson to the position of general manager with a large Western Canada–based fabrication/construction firm. He was making a decent salary, we had a great life and we were looking forward to him finishing out his career with a nice retirement package. Unfortunately—well, at the time it felt unfortunate—the company had other plans and Tony was out of a job!

Tony: Yes, my company was rapidly expanding via the growth by acquisition process. New blood was coming in all the time and I, like so many around me, became a casualty of the process. One day I was looking forward to retirement, and the next day that door was slammed shut! So what was I going to do, I asked myself? Luckily I had some time to reflect and consider my options. I considered purchasing a franchise, but I eventually began working for a large Canadian-U.S. engineering company based out of Edmonton, Alberta. I elected to take on the position of construction manager and headed up a project constructed in Vancouver. It was not an ideal location as my family was still located in Edmonton. I had to commute, but the compensation was extremely lucrative so I elected to take the position. It was about this time that I saw an ad for the Real Estate Investment Network [REIN] event.

Jo-Ann: Tony was quite intrigued with this ad; it was about real estate investing and the “Top Ten Alberta Towns” to invest in. This wasn't something that we had any experience with, as the only piece of real estate that we had ever transacted on was our own personal residence. He hemmed and hawed. He even tried to get his brother-in-law to go along with him to the event, but no luck. Tony decided he needed to find out more about this and went anyway. That decision is one we credit with changing our lives. Tony was hooked and that fall we both attended the two-day REIN ACRE Workshop and our eyes were opened to a whole new world.

Tony: That event did change our lives, and at the same time I had come to the realization that I needed to be in control of my own financial future, because no one else would. In a year of uncertainty, this could prove to be the opportunity I had been looking for. Jo-Ann and I have always researched and done our homework before jumping into any new venture. I always like to say “educate, take action, get more education then take more action . . . ” By educating ourselves, we lowered our fear barriers and we were able to confidently take action. Of course, we still had some fear, but a little fear is a good thing as it keeps you in check. If you have no fear you become reckless. Within six weeks we had purchased 10 doors.

Jo-Ann: Tony was still commuting to and from Vancouver at that time and I was doing a lot of the research on local properties. As a result of my ongoing research I came across eight townhouses [two four-plexes] that were located in Devon, Alberta. Our market research showed a strong and growing economy and those were the first purchases we made as educated real estate investors. They cash flowed approximately $1,400 per month, but these first purchases also kept us very busy. We “managed to manage” the properties at the same time that I was running a busy household and Tony still had a full-time out-of-province job.

Tony: I started to realize that my day job was now starting to get in the way of my real estate investing career. I felt like I had a pair of “golden handcuffs” holding me back from pursuing something that I was extremely passionate about. The night before I had to sign a new and lengthy construction manager contract for a new project, I elected to back out in order to pursue my real passion, and to do so on a full-time basis. This was not an easy decision, and it would not have been the right decision for a lot of people, but it was right for us. We continued to pay attention to the market fundamentals and for the next few years we acquired as many cash flowing [buy-and-hold] properties as we could get our hands on.

Jo-Ann: Tony always stresses the importance of continuous education. In 2003, we were seeking more education when we were introduced to the world of creative investing, and we saw this as a huge opportunity. Tony and I were attracted to the “creative entry” and the “creative exit” strategies and how they would complement our long-term buy-and-hold real estate investing business. Creative real estate investing wasn't something we had been exposed to before, so we signed up and attended the three-day workshop in June of that year. After attending this workshop we headed off to B.C. for our annual family boating vacation in beautiful Sicamous, British Columbia.

Tony: I was very intrigued by what we had just learned. I saw a bunch of new tools for my real estate investing tool pouch and it was very exciting. I learned that there were many different creative entry and exit strategies [JVs, agreements for sale, options, lease options, seller financing, etc.], there can be many different combinations and there is never only one right way to buy or sell a piece of real estate. It was my job as a sophisticated real estate investor to determine what tools to use and when to use them, and this is what propelled us to a completely different level of investing. Although we were fully energized by the workshop, we did what we always do—we let the hype die down, we let the dust settle and we soaked up the knowledge we had just received. We spent our annual lakeside vacation reviewing our latest education and then we started to create and define our business plan. We needed to decide on what kind of team would we need to assemble, what costs were going to be involved, logistically what needed to be done, what our marketing plan was. We also had to determine how much seed capital would be necessary in order to implement and sustain our marketing campaigns. We were fully prepared to liquidate some of our long-term buy-and-hold investments in order to properly fund our business and marketing campaigns; we knew that being fully committed would get results and that throwing a few bucks at it wouldn't make it work. Those of you who know me will know that I immediately started to systematize and define our processes. I had created and followed systems for my buy-and-hold business, so it was only natural that I did the same for the creative side of my real estate investing business.

Jo-Ann: When we returned from vacation, it was easy to see that some of our fellow seminar attendees had already begun aggressively marketing themselves. There had been a lot of excitement at the course so we weren't surprised, but over time we slowly started to notice their marketing disappear. I could understand why, as a lot of those seminar graduates were not prepared to be in this for the long haul. As a result of their lack of success, they had already started to give up. Creative real estate investing wasn't easy—it was hard work, and it wasn't really meant for novice investors. Back then there were no groups or forums to help us out; we were on our own. We had to continually modify our processes in order to fit the Canadian market. We realized that this was the same for most seminars that we have attended over the years. Everything was done by trial and error and it was our job to tweak it to our specifications.

Tony: Once we got our creative real estate investing business going, it was even more critical to purchase all of our properties under market value. I had always done that with my long-term buy-and-holds, but buying under-market was even more important with the creative side of the business as it gave me so many more options with respect to how I would [purchase] “enter the front door” of my properties. It would also provide me with more options with respect to how I could [sell, lease-to-own or retain] “exit the back door” of my properties. Some of my decisions ultimately depended on what my needs were at any specific time. Could I use some additional cash flow? Perhaps I would assign the deal or fix-and-flip it to another real estate investor? Did I want to keep this property as a part of my long-term buy-and-hold portfolio or maybe do a lease-to-own and get the best of both worlds? I elected to do a combination of deals in order to ensure that not only did I have enough cash flow to keep my business running smoothly but I was also creating a portfolio for long-term wealth creation. I was also confident enough with my skills as a sophisticated real estate investor to use other people's money. Of course, I never structured an investment that I wouldn't have put my own money into, but in being able to leverage off of other people's money, I created a win-win scenario for all stakeholders involved in the transaction.

That being said, I had one transaction that created a huge win-win for both myself and my JV partner, and I was ready to exit the project and celebrate our success. It was 2006, the Alberta market was booming and I came across a deal to purchase 10 townhouses for $110,000 each. It was a solid investment and well priced due to the fact it was a bulk purchase. We joint-venture partnered the project using the buy-and-hold tactic and soon the investment went through the roof. Within 18 months, each unit nearly tripled in value; that was $1 million in profit for each of us. I knew the time was right to sell; I had been following the market fundamentals and was more than satisfied with the ROI and even happier that the real estate cycle had done most of the hard work for me. My JV partner didn't share the same conclusion and wanted to keep holding on to the properties. He felt that the market would keep going up and he didn't want to shortchange any additional profit. His point of reference definitely wasn't in the neutral zone, it was pointing toward greed. After several discussions as to why we needed to sell and leave some profit “on the table” so to speak, and against my advice, we held on to the properties. As the old saying goes, what goes up must come down, and that is exactly what happened to our profits because we didn't execute our exit in line with the real estate cycle. If we sold now, at the current values, our profit margin would be approximately $200,000 each. Needless to say it certainly wasn't a disaster, but my JV partner now shares my same appreciation for the real estate cycle.

Jo-Ann: A lot of people think of Tony as the “Canadian Lease-to-Own Guy” and we certainly have done plenty of those. These have been very rewarding to both the tenant-buyers and us. I attribute our high success rate as a result of the focus that we place on finding people who are not necessarily in severe distress, but just need a little bit of assistance and/or guidance. Tony likes to refer to our lease-to-own system as a stepping stone to conventional financing. Why? Because it significantly increases the success rate because we are going into the deal with transparency and full disclosure. We fully expect to close at the end of the lease term with no unrealistic expectations or surprises for the tenant-buyer. We are not trying to reform people with credit that is “so messed up their mothers wouldn't lend them money,” and we also don't overvalue the purchase price of our properties. Conversely, we have also structured lease-to-own deals in the boom phase of the real estate cycle where the tenant-buyers stand to gain a large amount of equity. We were still happy to honour our side of the bargain and close on the deal, regardless of how much they were ahead. We knew what our ROI was going to be when we initiated the transaction, so we were happy with our profit margins. Unfortunately, greed all too often dictates a much different course of action for some real estate investors. As a result, there are a lot of unscrupulous investors out there that give this tactic an extremely bad name! One of our favourite sayings in how we approach our lease-to-own deals is: “You can make more money doing things the right way than you can ever make doing things the wrong way.” Always do it the right way!

Tony: A lot of people ask me how many properties we actually own. I don't really like that question, not because I don't want to disclose the number, but because it is totally irrelevant. I always say, “You can't eat equity,” so the number of properties we own doesn't really mean anything if they aren't providing me with the cash flow I need to support my lifestyle. With that said, at one point Jo-Ann and I did own approximately 250 doors. We don't know the total number of doors we have transacted on because we stopped counting them and started to focus solely on the cash flow they were generating. We had originally set a goal of 100 properties when we attended the ACRE program in 2000. However, never be afraid to set the bar too high, as you may be surprised at what you achieve. Henry Ford once said, “Whether you think you can or whether you think you can't, you're right.” He was right! We currently own about 50 doors and continue to creatively invest, keeping the properties that we like and putting those in our long-term buy-and-hold portfolio.

There are a couple of tips that I would like to share with others that I consider as instrumental in our success:

You don't need a formula when transacting on lease-to-owns; be realistic with your ROI and above all make sure it creates a win-win for all stakeholders involved in the transaction. Every deal is unique and needs to be assessed based on its own individual merits.
It's very important to educate ourselves before we go “barging in the front door” trying to help people. By not educating yourself, you can actually cause more problems for you and the people you are trying to help.
Make sure you have more than one tool [tactic] in your real estate investing tool pouch. Having only one tactic will definitely limit the number of doors you will be able to transact on, and as a result it will have an impact on your overall success.

Jo-Ann: And whatever you do, you must always remember to enjoy the journey. Tony and I understand even more than ever how important it is to enjoy the journey, as we lost our dearly beloved 17-year-old son Jordan in 2010. Jordan was handsome, smart and articulate, and an extremely gifted young man, and we were blessed to spend 17 wonderful years with him! Had we focused on what we were “going to do” instead of focusing on the present, we would have missed out on so many special moments with him and our family. Instead, we have many wonderful memories and no regrets. Jordan will always live on in our memories, and although our hearts are broken, he will inspire Tony and me to continue to enjoy the rest of our journey with our beautiful and extremely gifted 15-year-old daughter, Chelsea.