Chapter Two
My Early Years as an Investor
Sting's I Was Brought To My Senses always makes me think about my early years as an investor. I have to say, knowing what I know now about real estate investing, technical real estate analysis, real estate cycles and the importance of cash flow, I am almost embarrassed when I look back to when I first started. I was so naive in the ways of real estate: I didn't have a big support network or research to draw from and I didn't really know how to analyze a property. Yet here I stand today a successful investor who has lived through many a downturn and almost as many upturns. I stand with the scars, bumps and bruises collected along the way, and I'd say it really was all worth it.
I also believe my story could have been very different had I had known then what I know now and if I had a group of veterans to hang out with, like REIN members (I started investing long before REIN existed).
Like a lot of Canadian kids born in the 1960s, I grew up with the expectation that my life was going to be better than my parents' lives. And thanks to my parents, my youth was pretty good. My dad was the general manager of a Sears Canada store in British Columbia and my mom worked as a bookkeeper and office manager. We lived, along with my younger sister, on this great acreage near Abbotsford, which is where we moved from North Vancouver when I was in grade four. Life on the acreage-turned-hobby farm is where I developed my keen appreciation for the natural world (and for hard work). I must have had an eye for what made certain things valuable and that's probably why I collected stamps. I was also an entrepreneur: even back then I loved sharing my discoveries with others. I never made any real money selling my discoveries, stamps, vegetables or eggs, but I loved doing it and it certainly gave me a lot of practice talking and listening to people. As a young teen, I worked at neighbouring farms, and by age 16 I was left in charge of poultry and dairy farms when their owners took holidays.
In my early teens I also developed a passion for music. I became the go-to music guy for local parties. I still love music: to me it is the elixir of life. Looking back, I see that my musical tastes, much like my approach to business, were honed in the following two ways:
I share this because anyone who's heard me speak has probably picked up on the fact that I really love music and I can often link very specific real estate memories to songs or albums. (I bought and wore out (yes, it was vinyl) the now iconic 90125 album by Yes while living in the first house I bought. Every time I hear a song from that album, I am transported back to that time and place.)
That appreciation for music and rock trivia also played a pivotal role in how I came to meet and fall in love with Connie. My sister, Joy Anderson, brought her by my apartment to meet my roommate, because Joy thought they would be a great match. Luckily for me he wasn't home, and the rest is truly history. That night was the first time we played Rock Trivia and I was amazed to discover that Connie was the only person I knew who could truly compete with me. So once again, music played a pivotal role in shaping my future. And 25-plus years later, I could never give the makers of that game enough thanks. But I digress. Let me get back to that real estate story and jump back in time a few years.
Ownership Made Sense
I know that a lot of real estate investors get into property ownership because their parents are investors. Well, Dad worked for Sears and I started working at Sears when I graduated from high school—no real estate base there.
The real awakening of my real estate curiosity occurred very innocently while I was watching a Habs-versus-Leafs game on “Hockey Night in Canada.” During the game, my friend's dad, Dan, began speaking about real estate and some of the things he was doing. It seemed random and out-of-the-blue because I knew him as a successful chicken farmer and had previously learned a lot from him about that. I thought I had a pretty good idea of why my parents worked so hard to buy the acreage where they lived: this property was a significant investment in their future. (As it turned out, that acreage was located in one of the most sought-after rural regions in B.C.'s Lower Mainland.) However, the discussion with Dan really shone a light on the importance of real estate as an asset class for creating long-term sustainable wealth.
At this point in my life, I knew that some people didn't own the homes they lived in, opting instead to pay good money to live in homes that other people owned. But knowing this hadn't taught me anything about real estate investment. Listening to my friend's dad talk was like listening to a veteran financial advisor. Until that night, I'd never given much thought to the idea that maybe I could (and should) buy homes for other people to live in and rent. It was obvious that it wasn't going to replace my income right away, but if this successful, grounded and knowledgeable man was willing to share his wisdom, I was willing to listen and learn. I was intrigued.
This conversation occurred in the 1980s, which were characterized by high interest rates, inflation issues and unemployment above 10 per cent. But at the time, I had no idea how important these factors were. All I knew was that real estate was going to be one of my “golden tickets” to financial success.
So, after a while, my “Hockey Night in Canada” friend, Daren, and I bought a property as a joint venture. And with that joint venture, the journey—with its bumps, bruises and scars—began. We knew nothing about macroeconomics, the analysis of a real estate cycle or even what our next move would be. All we knew was that we were in!
Was that a smart thing to do? In retrospect, maybe, maybe not. We didn't do it because we had a big master plan. We just knew real estate was the place to be. In reality, even if we wanted to learn more about real estate investing, the state of the Canadian industry was such that few resources existed. Most of the information that was available described quick flips and get-rich-quick schemes, which, at the time, looked very attractive given the absence of more sophisticated options. I was young and naive about a lot of things, but even then I knew that a fool and his money are soon parted by exaggerated claims of fast money!
So why did we do it? In all honesty, we were just taking what we'd learned from hard-working parents who walked the talk of fiscal responsibility. While some of our peers were out spending every dollar they earned, we were focused on a more contrarian approach (just like my music choices). We were not yet thinking in terms of long-term wealth creation. But we were, as Bachman Turner Overdrive sang, “Takin' Care of Business.”
Learning as I Went
Where did my real estate investments go from that first house? For a long time they went absolutely nowhere. And that's important to my story because I wasn't some kind of real estate investment prodigy: I didn't have a giant stash of cash that I could use to buy a bunch of properties. I was a working guy with a part-time job in a bargain centre where they discounted the furniture and the wages. That little fact matters because it says a lot about my early years as an investor. Forget the anecdotes of early successes and disasters—I nearly missed the whole game!
By the time Connie and I started dating (January 16, 1987), I was working full-time and had sold my share in that first property. Connie and I got married in December 1987 and we bought our first home in Edmonton in early 1989. I'd been transferred there with Conair Aviation, a British Columbia-based forest-firefighting company. We didn't even know what winter was until that first year together in Edmonton. Despite the weather—think minus-30 degrees (Centigrade) with a fierce wind the day we arrived—that move ignited our lifelong love of Alberta's capital city. And yes, when I look back on that experience, our understanding of Edmonton—and how it works and how it moves—definitely helped me develop a strong awareness of a residential real estate market that would get top billing in the portfolios of many Canadian investors by the mid-1990s and beyond.
The first home we owned as a couple was on 167th Street. We had driven back to Edmonton from Abbotsford and on that drive we listened to a complete set of How to Invest in Real Estate cassette tapes. That really shed some light on the path we were going to follow to make real estate an important part of our life. Although we certainly didn't understand our choice of property with the sophistication we could apply today, I do think we had this sense of that area as a neighbourhood in transition. Postwar Edmonton had weathered the economic and cultural changes of the 1960s and 1970s and the soul-crushing economic downturn of the early 1980s. It was beginning to be a positive place again, with that enthusiasm largely fuelled by job growth connected to the petroleum industry.
Houses similar to the one we bought needed work, but they had basement suites for rentals. And, because of the strengthening economy, the real estate market was also doing okay. So the hard work we put into the house paid off both while we lived there and much more when it came time to sell. The neighbourhood was safe and offered good access to the rest of the city—market characteristics I now talk about in terms of investment potential. Even though real estate was far from being our primary focus, we certainly understood that we wanted our mortgage payments to go towards a property that would hold its own, or appreciate.
From 167th street we moved to Lessard, a community on the west side of Edmonton. There we bought half of a beautiful duplex in a neighbourhood of large, newer homes that, at the time, were on the edge of the city. In fact, there was a canola field half-a-block west of us. I learned an important lesson here about buying one of the less desirable houses in a great neighbourbood: the values are protected! Indeed, a friend who was investing in real estate reminded me that as new homes were built, houses like ours would benefit from the appreciating values in those newer areas. He never called it the Real Estate Doppler Effect, but he obviously knew how to tap into that fundamental!
We were young, happily married and gainfully employed: our life in Edmonton was on an upward trajectory. I even moved jobs to become the general manager of a local aviation company. We thought we had it made. Life was great—and trending up.
In early 1992, a family friend, Alan Jacques, showed up in Edmonton to teach a financial course and we invited him to stay at our place. I was still in my twenties, and I boasted a little about the fact that the two owners were the only people in the company who were higher than me on that corporate totem pole. Connie and I were living in the second house we'd bought and I really felt like I was on top of the world—with a future that looked pretty darn good.
Imagine my surprise when Alan suggested that I was, perhaps, peaking a little early. He challenged me to think past what I was doing right now and to look at what I might be able to do in the future. I balked. I wasn't entirely averse to the idea that I might want to try new business ventures. But the thought that there could be more than this was a little other-worldly. Given where I was professionally, I felt that a move away from the aviation company would sacrifice security for destinations entirely unknown. Much as I knew and respected Alan, I couldn't help but wonder if he really knew what he was talking about. Keep in mind that we still weren't talking real estate so much as raw entrepreneurship.
Then I remembered that conversation in front of the Habs-and-Leafs game when I first got the message that sitting still is moving backwards. Alan was a catalyst of that thought change. This was another instance where exposure to the perspective from an outside source led to a breakthrough. I was learning the value of gathering new viewpoints—a practice I now use every day.
Perspective Brings New Reality
I try to pay attention to new ideas and different ways of seeing the world. Of course, it's not possible to follow through on every promising suggestion. You can't possibly act on every new idea that comes your way. Many people try that and end up broke, tired and frustrated. You also can't un-know what you learn. And that's why Alan's comments, along with my life experiences to that time, meant that the seed of a new perspective that Alan planted that afternoon grew into what we have today.
As that was going on, Connie learned her job with Air BC was about to lead to a transfer back to Vancouver. One of the factors that kept me from acting on Alan's plan was the fact that Connie and I needed a salary to live on if I branched off into the unknown. Her transfer led me to give up my job with SkyHarbour Aviation and helped us reframe our situation. Before long we were back in Vancouver, this time renting a leaky condominium while we searched for what's next.
Interestingly enough, moving from Edmonton to downtown Vancouver provided me with a fresh perspective on how supply and demand (not actual value) drive market prices. This was a time when buyers in Edmonton could get a small mansion for what you had to spend on a condo in Vancouver. That ratio has shifted, with demand in Edmonton based on job and population growth pushing up the values in that city. Still, it was a fantastic opportunity to learn that the actual dollar value of property is not as important as demand for property. This principle explains why the cheap property is not always a good deal.
It was around this time that I was enrolled in my first weekend-long transformational workshop. The workshop was designed to get participants to start thinking that they had the power to control a lot of their future, financially, as well as in terms of family and personal philosophy. As part of that workshop, I wrote my first formal life purpose statement, which today still hangs on my office wall:
To use my humour, honesty and intelligence by reading, gaining knowledge from all sources, and keeping everyone around me in a positive frame of mind, so I create success in my business and all areas of my life so that everyone has everything they need to be comfortable and to enjoy their lives.
I won't pretend that I knew everything that mission statement was meant to encapsulate. I can tell you that when I looked back on that statement years later, I realized that it marked the first time I had thought about my life as having a purpose. More than anything, I believe that workshop helped me tap into a resource I'd always appreciated—and taken for granted. In a nutshell, it convinced me that there was great value in surrounding myself with people who were kind of like me. I valued humour, honesty and learning, and I liked being around others who valued the same things!
That workshop also gave me first-hand experience with how exciting it is to be around people who want to take control of their future in a way that helps others to do the same. For the first time in my life, I realized that the people I admired most were the people who took responsibility for their lives. None of them were negative. None of them played the victim—even though many could have done so, considering what they had been through.
The people I met there understood that financial security was a key component of a healthy and secure future and to that end they were actively engaged in pursuing business ideas that could make that happen. But chasing the almighty dollar was not the reason we were born. I wasn't really sure what that meant for me. But I was excited—and a wee bit scared.
Some Wins, Some Losses
I've met people who don't want to hear that real estate investing was ever scary to me. They want me to be That Guy. That Guy who never looks back. That Guy who always knew what he wanted and how to get it. That Guy who never makes mistakes. King Midas, but in real estate.
I was never That Guy. Like Richard McTavish, the protagonist of my first real estate investing book, Real Estate Investing in Canada 2.0: Creating Wealth with the ACRE System, I was a guy who worked hard and loved my family. Unlike Richard, I actually liked what I was doing for a living. Now that I had left the aviation world, my pay wasn't great but I loved what I was doing. Like Richard, I felt undeniably stuck even though I was going through the motions of moving ahead. I was the captain of my own ship—but I really didn't have a plan for where that ship was going.
And that's how my early efforts at entrepreneurship came to include a number of business ventures, some successful, some not. I launched a publishing firm. I worked as a printer broker. I looked for ways to add real economic value to other ventures. I taught, I learned, I pushed myself to never stagnate. The one constant (two if you count Connie—and I certainly do!) was that I continued to nurture my connection to other people like me: those who valued humour, honesty and intelligence and liked working with others to make good things happen.
The Real Estate Connection
Over time, several members of this initial core entrepreneurial group acknowledged an important common denominator: interest in real estate investment. No matter what else we were doing in our entrepreneurial lives, we always talked about real estate. Some of us were investing in real estate. Others wanted in as money partners. Still others just longed to know more. This is the seed that grew to become the Real Estate Investment Network.
Like a lot of entrepreneurs who saw value in diversifying their investment portfolios, many of us had already bought and sold properties prior to joining an association of like-minded investors. When REIN was launched in 1993 by my long-time mentor Alan Jacques, I became a charter member. Unlike a lot of our real estate investment counterparts, however, our interest in investing led those in REIN to start collecting, comparing and analyzing solid information about what made some real estate investments fail, while others cash flowed and still others absolutely flourished. Some of the information we were amassing came from our own experiences. A whole lot more came from the people we were getting to know.
As we attempted to compile more accurate information and clear strategies, it became obvious that the real estate investment industry in Canada had a problem. Being a skeptic at heart and a realist in hand, it became a real issue when seeing that some of the industry's so-called mentors were incredibly great sales people, but they weren't mentors at all. Because many of these individuals profited from the ignorance, they had no real incentive to teach others how to successfully invest in real estate. (If they did that, their client base might disappear!)
That is how REIN tied very nicely into my life philosophy, which is that success in business comes through helping others to become successful. Everyone benefits by giving people plans, directions, strategies and information that gets them out of the financial impasse in which many people are trapped.
That's right. Real estate was about to become actually doable for the average Canadian. This approach lacked the sexy attention-grabbing promise of the get-rich-quick pitches. But it was quite obvious that those who understood the value of long-term sustainable wealth would be interested in this brand-new message and brand-new model.
REIN Takes Off!
The next few years were a whirlwind of activity. REIN was flourishing in British Columbia by the time I found myself back in Alberta helping to make REIN a success in that province. Before long, REIN was handing out Bronze Awards to members who had bought at least three properties. The first Gold Awards were granted a year later, this time to members with at least 17 properties in their portfolios. Ironically, it took me years to get to my third property because, remember, back then I was doing it on my own. The members, in essence, were kicking my butt in speed and quality!
Before long we were fielding calls from investors across the country, with most of the calls coming from British Columbia, Alberta and Ontario. These were provinces where people who owned their own homes were waking up to the idea that they could leverage that investment to create long-term wealth by investing in homes for other people. As well, both veteran and would-be investors were hearing stories about REIN's market research and the fact that members were using investor-developed systems to achieve success.
Looking back, it was the reputation of our unique and cutting-edge research, combined with our singular focus of not having constant sales pitches at our events, that prompted membership to really take off. As our data and analyses hit Canadian streets, they filled a void and REIN membership swelled to more than a thousand. Numbers like that allowed us to expand our research department, bringing in top economists, analysts and others willing to shed light on the reality of the real estate market. As success stimulated success, membership benefits skyrocketed.
Fuelled by the enthusiasm of other members, and enlightened by the research REIN provided, Connie and I were building our own portfolio. We were also proving the truth behind another life-affirming statement that hangs on my office wall. This statement, originally uttered by motivational guru Zig Ziglar still inspires me: “You can have anything in life you want, if you just help enough other people get what they want.”
News of what REIN was helping Canadians do continued to spread. Growing numbers of investors and market analysts were attracted to what REIN offered and they brought their personal business stories to REIN functions. Expanding membership added value to the organization through the members' willingness to share their real-life stories: their mistakes, their wins and their contacts. Together, REIN staff and members were creating an organization far bigger than the sum of its parts. And this philosophy remains today. REIN has never been about the speaker on stage. It has always been about the information shared by all.
REIN was attracting individuals who were keen to exchange what they knew of real estate investment and that approach was laying a solid foundation making it possible to develop systems that could be put into place one day and improved upon the next.
In 2001, Connie and I took over the reins of REIN. While details of the organization's evolution are not as important as the success its members were creating, I must say their success led Connie and I to want to make it even stronger and deeper. So that became our focus: we ignored the naysayers and set out to do what we could to make a difference in as many people's lives as possible while continuing to build our own portfolio.
By 2001, the economic fundamentals were telling us that Alberta was on the cusp of something big in the real estate market. Emboldened by that data, Connie and I focused our investing attention right where the numbers told us to go. It was exactly what we were teaching the members and it wasn't just exciting, it was fulfilling. What we were teaching worked.
Learning tough lessons from seasoned investors who had made and lost money in the real estate market, I expanded our portfolio while staying true to the three most important principles of my system:
I stand by these principles with pride. But let's be clear. While principles govern one's business practices, those principles must tie into an over-arching goal. Without this goal, it could easily be just about chasing money.
Forecast: REIN and More REIN
When Connie and I assumed control of REIN in 2001, I took a hard look at what the organization was doing and analyzed where it matched my values. Where appropriate, I ever so slightly shifted the organization to make it even more effective for members. My daily interaction with REIN members, non-REIN investors and other industry insiders (including real estate agents, market analysts, lawyers and property managers) told me that investors and REIN members didn't want properties sold to them. They would rather come to REIN to learn to fish, rather than be handed the fish. I was delighted! What members wanted was an organization that fit my values, my life philosophy and my integrity better than I could have imagined.
A side story to this journey occurred in 1999 in the midst of these big business changes, when my dad began to have some major health problems. I remember that Connie and I were driving back from B.C. to Calgary after seeing him in the hospital when the song “The Living Years” by Mike & the Mechanics poured from the car's speakers. It was at that moment our life changed again. As we listened to those words of loss, Connie turned to me and asked why we didn't just move back to Abbotsford to take care of my mom and dad. In life, as in business, doing the right thing isn't necessarily the most logical course—but it often turns out for the best.
As part of that process of unpacking after the move, I came across a binder of information from that very first workshop back in 1992. For fun, I started to leaf through the pages and that's when I rediscovered the life philosophy statement I had written years earlier. It floored me to realize that, even though I had basically forgotten about that statement, my life had taken me to a place where I was now living this philosophy. That discovery could not have come at a better time: it coincided exactly with the completion of our analysis of the direction we wanted to take REIN. This was perfect! Connie's and my response to my dad's health crisis played a key role in turning REIN into what it is today. We weren't on a path we had stumbled upon: we were on a path we had chosen.
The subtle shifts in how REIN operates really helped differentiate the organization from others across the country. Did the decision to not offer real estate to members cost us millions? Absolutely it did. But I learned a long time ago that integrity and living up to your own values matters a lot more than money. This approach to REIN's business also allowed me to build my portfolio much more quickly than I thought possible. The bottom line is that staying true to my philosophy of helping others meant I left lots of money on one side of the table—and made lots of money on the other. Win-win.
More than a decade later, I wouldn't change any of that. If anything, I am even more committed to the idea that people can learn from the successes and failures of others. And I can say that because I believe that REIN has proven it.
REIN'S Success
I was recently asked to summarize the most important things that REIN membership teaches. In terms of my own portfolio's success, I know that my interpretation of the role of cash flow, appreciation and win-win relationships has served me well. In terms of what I learn from REIN—and what others are still learning from REIN—my answer shifts to the bigger picture. Right now, those who focus on underlying economics are uniquely positioned to (contrarily!) drive through the continual bombardment of news, analysis and commentary that hits us all every day. I have to say that the sheer quantity of information, and its capacity to overwhelm and confuse us didn't exist in the 1980s when I started out, and it wasn't prevalent in the 1990s either. The massive amount of information now coming at investors is so great that many people get stuck in neutral. They take no action because they don't know if there are any ports in the storm. That condition of being stuck changes when these same individuals tap into REIN's resources. This is when the success curve gathers momentum. Today's contrarian is tomorrow's leader—and that is what REIN continues to be a catalyst for: creating market leaders.
Success, now more than ever, will be built on a platform of solid and unbiased research. When investors finally discover it, and they start to stand on this solid platform, they find their confidence growing. This protects their investments from the havoc wreaked by emotional swings—and their portfolios grow stronger and sturdier in the process.
As an added bonus, investors on that sturdy platform are surrounded by people who are serious about improving the way real estate investment in Canada is done. These people are not afraid to look behind the curtain of confusion generated by emotional responses to the biased and just plain bad information available. They look at real information and then act accordingly.
What kept me from making mistakes was the opportunity to stand on that sturdy platform and then share my discoveries with others who had been on the path I once walked blindly!
And that's why my answers to questions about REIN's lasting value push past my own portfolio. The principles of cash flow, appreciation and positive relationships with the people I work with are central to my portfolio's success. My involvement with REIN has allowed me to put those principles into strategic action for my business. But I practice those principles within the rules that I've come to think of as the Three Cardinal Rules of Successful Real Estate Investing. They are:
As you will see in the next chapter, I do not deviate from these rules: they keep my business focused on the economic fundamentals that help me make money. I am not in business to chase money. I invest in real estate to create long-term sustainable wealth for myself and my family.