Adding extra streams of income to properties with legal second suites wasn’t discussed much ten years ago. Today it’s all the rage and on this episode of The Your Life! Your Terms! Show, we have Andy Tran on to chat about the opportunity. Andy’s a great guy who decided to walk away from Corporate Canada to go out on his own. Today he helps investors walk through the process of legally converting properties into second suites, increasing their cash flow potentially massively! You can find out more about Andy at www.SuiteAdditions.com.
Tom Karadza: Hey everyone, it’s Tom Karadza and sometimes Nick and I just wonder, you know, what’s going to happen to people 10 years from now in this area who don’t own good assets. Internally, we’ve been looking at income growth over the last 15, 20, 25, 30 years. We’ve taken all the data from Stats Canada. We’ve mapped it against things like property prices. Whether you like real estate as an investment, or you don’t like real estate as investments, there’s no arguing that incomes are just not keeping up with things like property prices.
And if you extrapolate it out, you know, another 10, 15, 20, 25 years, it just really seems like there’s gonna be this group of people who own assets in this area, and there’s going to be, and by this area I mean in Canada and specifically in the Golden Horseshoe, and this stuff applies to everyone right across North America. But there are gonna be people who own assets, and there’s gonna be people who don’t own assets. There’s nothing in today’s government policies that make us think there’s going to be less spending of money, less debt, cheaper money, which is going to drive up the prices of real assets for things like property.
And then if you’re in this area, you mix in things like high immigration and relatively good incomes, it’s just a recipe for continued growth of property prices. So sometimes I think we get a little lost in the weeds, maybe even arguing about what’s the best strategy, where’s the best place to invest, and you kind of miss the big picture, that is, you know, you want to own hard assets in your life, in an environment where the government continues to keep interest rates low, continues to spend more than it takes in. I’m not even making a comment on the government’s policy. Selfishly, I don’t even really care.
I know that might sound bad. I’m just selfishly thinking for my own family. And when these policies are in place, it really just seems like the best thing that we can do to protect ourselves from the declining value of the dollar is to own hard assets. So if you haven’t had the time to check out real estate, if you’ve been scared about it, or if you’ve been given bad advice about it in the past, we do a training class for people who’ve never met us before. We talk about our adventures in real estate. We teach you about some real estate investing strategies. It’s a 90-minute class. We do it about once a month or so. Register for that class. It’s Nick and I who are always giving that particular class. We’re both here afterwards, we can answer any questions. You can find the URL for that at CanadianRealEstateTraining.com.
So if you go to CanadianRealEstateTraining.com and you want to learn more about real estate investing, you want to ask us any questions. At this point, we’ve pretty much been asked everything that you could possibly imagine. Come on out to our offices, come to that class. We get really good feedback about that class, and we’re sure you’ll learn a thing or two. Or hopefully you will. Afterwards, we stick around answer any questions.
We have a limited amount of seating in that class. Our membership continues to grow and new people are constantly coming, and joining the membership. So if you want to come to us and you’re not a member, but you want come information from us, that class is the place to start. So it’sCcanadianRealEstateTraining.com. If you fill in your information there, Jenny from our office will reach out to you and confirm your seat in the class. Make sure you have it. She’ll give you the latest date details and our address and all that kind of funky information.
But if it’s something that’s been on your mind for some while, and you want to meet a group of people who are together, are doing this, trying to figure out the strategies that work, trying to figure out how to create cash flow, trying to navigate through the financing, trying to find out the best lawyers and paralegals, and trying to figure out the new Ontario standard lease agreement and everything, this is likely a good place to start, or at least you can check out what we’re doing that way. So, CanadianRealEstateTraining.com, to come out and check us out. That’s the introductory class for people who are checking out Rock Star, and the whole Rock Star membership and the whole bit.
With that in mind, today we have on a great guest. Andy Tran is just a great guy. You’ll hear some of his story. We start off talking about nothing to do with Second Suites, which is turning into a little bit of how this show operates. We talk a little bit of things that have nothing to do with real estate almost on every episode. We kick off with that, but we segue over into Second Suites, and have that whole conversation. Andy has been through a journey, just like all of us have. We just realized in chatting before the show that we worked in the same building. When I was at Oracle Corporation for Mississauga for a couple of years, he was working out of the same building for a little while. So, small world.
And then Nick and him have crossed paths before. You’ll hear it all on this episode of the show. At the end, Andy hands out his URL, where you can find out more information about him. Like I mentioned, just a stand up guy, a great guy, been through a lot himself. Thinks like us. That’s it. Enjoy the show.
Promo: Are you ready to live life on your terms? Is it time to take charge? Real estate, business building, the economy, health and nutrition, and more. It’s the Your Life, Your Turn Show with Tom and Nick Karadza. Are you ready? Let’s go.
Tom Karadza: Okay, we’re on with Andy Tran.
Nick Karadza: Except Andy doesn’t have a mic yet.
Tom Karadza: No, Andy, you have a mic. Can you, let’s hear something.
Andy Tran: Yeah.
Tom Karadza: There he is.
Nick Karadza: There we go.
Andy Tran: Can you hear me?
Tom Karadza: We are live.
Nick Karadza: Perfect.
Tom Karadza: This is a professional podcast, we’re ready to go. But continue the conversation about the particle board walls.
Nick Karadza: Yes, so we were just speaking about. We’re going to speak a lot about Second Suite. What are we speaking about today? Second Suites. Right? All sorts of real estate stuff? So back in the day, I was working at the Region of Peel up in Brampton off of the 410 and Queen Street, and I was working up at that building and I was going to look at, I had started investing by that point, so I was going to look at different properties on my lunches and probably during work hours too, which I probably shouldn’t say, but can’t get fired form there now so. So I was going to look at all these different properties.
Tom Karadza: Very responsible government employee you were, Nick.
Nick Karadza: Of course. Yeah, yeah, yeah. I did not fall into the stereotype at all.
Tom Karadza: Were you driving a government truck?
Nick Karadza: Uh …
Tom Karadza: So were all of our taxpayer dollars paying for you to go around looking at properties?
Nick Karadza: No, I think I was smart enough not to take the government car to go look at government properties, right?
Tom Karadza: The expression on Andy’s face. Andy’s not sure whether he should believe this or not. These are all true stories, Andy.
Nick Karadza: I did take the government car to go home and take a, when it was hot in the middle of summer I had to go swimming to cool off, so I did take the government car to make a pit stop at our parents’ house to jump in the pool. That was very important.
Andy Tran: Yeah, I notice those city vehicles. Like, you know, Region of Peel or Haltom Region sort of parked under a tree under the shade in the summer. I don’t know what’s going on there.
Nick Karadza: You know, it can be very stressful sometimes. You need to take those breaks, right? It’s very important.
Tom Karadza: But go on. So what were you talking about these properties?
Nick Karadza: Yeah, so I was going into these properties looking at basement apartments, and shortly afterwards, or I guess a few years after this time, basement apartments in Brampton were just outlawed completely. You couldn’t even have a stove receptacle. They outlawed stove receptacles in the basement and stuff because some of these basement apartments were just complete death traps.
I saw things. I saw walls built out of paneling. The paneling that you would normally put for wainscoting or something on the wall. That’s what the whole wall was built of. Not drywall and then the paneling, it was just the paneling. Which that stuff goes up like nothing, right? And it was just raw wood that it would light a fire instantly. Some other stuff that they used was almost like cardboard. Like it was like a glorified cardboard for walls in these basement apartments and stuff. It was like the safety component of it or the safety thought was just not there whatsoever. I was in disbelief at some of these properties.
I had never seen this before and someone’s like, “Yeah, that’s a sort of name for the toilet,” but there was like a toilet that was basically just a hole, and that’s what people used. There was I think a toilet in the hole or something. I don’t know. But I had seen some things in these basement apartments that…
Tom Karadza: You’re describing something pretty crazy now.
Nick Karadza: No, no.
Tom Karadza: If there was a hole and then a toilet inside the hole.
Nick Karadza: No, it was on the second level and it was like a wood box of plywood built around it or something. Like I’m telling you, I wish at that time there were smartphones so that I could’ve taken pictures. You wouldn’t believe some of the stuff that I saw. And it totally freaked me out and I was like I don’t want to own these types of properties and deal with these types of tenants that are going to comfortably live in these properties at all because just my beliefs were different sets. So Second Suites, that’s why it’s so important to talk about this. I mean they’ve come a long way from what they used to be or what they were viewed as before.
Tom Karadza: We’ll give Andy a proper introduction in one second here. I just need to … The hole in the floor just made me flash back to when I was backpacking through Europe and I was trying to get to Florence, and the train stopped at a place called [Firenze 00:08:45]. And I didn’t know that that was Florence in Italian. And I just had to change trains. I didn’t know if I was lost. I was with a buddy, and we jumped off the train, and I had to go to the washroom.
So I threw down my big backpack and I went into the washroom, and the washroom was just little holes in the ground with little places for your feet that had tread, kinda like some grip so that you could squat down, and you just, the hole in the ground, that was the toilet. And I remember coming out of that washroom thinking, “Where are we? Are we lost in Italy somewhere?” I didn’t know I was in the outskirts of Florence and this was a classic toilet. This was probably 1994, no, ’95-ish. Anyway.
Andy Tran: You know what the funny thing about that is, in Asia, especially China, that’s a common thing throughout the country, right? But now they have high-end hotels that actually have those types of setups where it’s basically somewhere where you can just grip your foot. And it’s not exactly a hole, but it’s mimicking that.
Nick Karadza: See? What’s old is new again… Comes full circle.
Tom Karadza: Oh yeah, see. It’s the new thing. Squatty Potty, who knew? Squatty Potty was ahead of its time. Yeah, that’s amazing. But you know, it’s funny because I remember staying at our aunt’s and stuff where they would just … Now we’re way off topic, but our family in Croatia had no running water or plumbing when we went there, Andy, in the summers and the first time I had to go to the washroom as a kid, you just get used to going out in the bush, right? And they would buy toilet paper. That was like their splurge for us.
Nick Karadza: That was luxury to them.
Tom Karadza: Yeah, and we would just go in the bush and you just squat. You just got used to squatting. Like squatting wasn’t a big deal. Just wherever you were, you squatted. Anyway, so with that introduction [crosstalk 00:10:22].
Nick Karadza: This definitely took a little bit of a right turn to start off this one.
Tom Karadza: Yeah. So Andy, the whole Second Suite thing, how did you get … Can you describe what…
Nick Karadza: Did you give Andy the intro yet?
Tom Karadza: No I’m gonna do an intro.
Nick Karadza: You said you were going to.
Tom Karadza: Everyone will have heard an intro that I’m gonna do before this, so nice intro for Andy.
Nick Karadza: Okay.
Tom Karadza: I want to jump into the Second Suite stuff. Andy, how did you get started in real estate, first of all?
Andy Tran: So with real estate, it’s something that I’ve always been, since probably the mid-2000s, something I was always thinking about. And in 2006, not knowing what I was doing, me and a few of my family members, like a few of my cousins, we just bought a pre-construction condo and it was hilarious because we went into this presentation center. It’s just downtown Toronto on Simco and Adelaide, and it was like five of us, and we went in and we’re like, “Yeah, we’re ready to invest. We want to buy a pre-construction condo.”
And we were just pestering this lady and asking her a million questions. Like, this condo was literally $199,000, and we were saying, “Ah, you know what? Should we do the $3,000 locker? Yes or no? Should we do the $20,000 parking?” And we were constantly pestering her. And meanwhile, she was probably getting foreign buyers that were buying like 10 units or 20 units, and meanwhile …
Tom Karadza: Yeah, she totally was.
Andy Tran: Yeah. And she was super nice and really sweet, but it was just really funny because we didn’t know what we were doing, and obviously the market carried us, right? But during that time, I did a lot of research and I know a lot of your guests talk about that book, that sort of changed your mindset, which is Rich Dad, Poor Dad, right? It didn’t really give you any tactical information, but it really just changed your mindset in terms of what the possibilities are, and it’s not necessarily that you have to be sort of stuck in a job or something that you’re not interested in, right? So I mean, typically it was in that corporate environment where I didn’t see myself being there for a long time, and started learning about real estate. And it wasn’t until …
Tom Karadza: What were you doing in the corporate … What were you doing?
Andy Tran: So maybe I should go a little further back?
Tom Karadza: Sure. Yeah.
Andy Tran: So I came out of architecture school in the late ’90s, and I worked for a bit for a construction company and I just, I didn’t enjoy it. And so, I actually went back to school and took something totally different, which was telecommunications management.
Tom Karadza: Whoa. That’s a hard right turn?
Andy Tran: Yeah, yeah. Yeah, and funny story actually. Mark Greenidge was in my class.
Tom Karadza: No way.
Andy Tran: Yeah.
Tom Karadza: Oh my god. So for anyone listening to this …
Nick Karadza: When? You went to Sheridan?
Andy Tran: Sheridan College, yeah.
Nick Karadza: So when I was at Sheridan, I saw Mark come into some of my classes, into the computer lab, because I was at Sheridan at the same time taking whatever, systems analyst or something.
Tom Karadza: Did you ever tell me you saw Mark Greenidge?
Nick Karadza: Maybe not. I don’t know. I don’t tell you everything.
Andy Tran: There’s so many overlaps, like with the Oracle building.
Nick Karadza: That’s funny. …if you saw a crazy guy screaming down the hall, maybe a little bit drunk from leaving the pub or something at Sheridan, that might’ve been me.
Andy Tran: Did you go to The Cage on Wednesday nights?
Nick Karadza: Oh, not normally on Wednesday nights, no. But yeah, that’s funny.
Tom Karadza: Wow. So Andy was the nice, studious person and you were the person drinking too much cheap beer.
Nick Karadza: Yeah. Well they also had …
Tom Karadza: At some place called The Cage.
Nick Karadza: They had the game the NFL Blitz in the arcade there, and I spent some serious quality time with that arcade game too.
Tom Karadza: The reason that we’re all having a reaction to Mark Greenidge is Mark Greenidge, I went to grade school with Mark Greenidge. I remember the first day that Mark walked into grade one, because he started a couple days after the rest of us started. I guess he just moved into the area, and he came in just bawling. I’m sure he’s gonna want me to share that with everyone, so I just want to make sure I’m clear. He came in, he was crying. His father was at the door, he was crying. We became really good friends right through grade school.
Then we kind of after university, we just drifted kind of separate ways. I hadn’t heard from him. And then all of a sudden he showed up one day and he’s like, “I want to invest in real estate,” and through Rock Star we helped him buy some properties, and now he’s a coach here at Rock Star, and he took a year off and he’s been traveling around the world for the year with his family.
Andy Tran: Yeah I heard. That’s amazing.
Nick Karadza: Yeah, that’s pretty cool.
Tom Karadza: He’s actually, Andy, just so you know, we’re talking to our cousin right now, he’s gonna be staying at our place in Croatia next week. So Mark’s gonna be staying in Croatia next week with his family. They’re doing their Croatia stop on their world tour. But anyway, so back to you. So you went and took that course at Sheridan, and then what?
Andy Tran: Yeah, so I came out and after that …
Tom Karadza: Talk right into the mic. Right into the mic. You can pull it down and everything. Yeah, there you go.
Andy Tran: So I, yeah, graduated and I still didn’t know what I wanted to do, so I backpacked through Europe. I took like three months and slept on cheap hostels and on the beach sometimes.
Tom Karadza: Totally. Sidewalks, yeah, yeah.
Andy Tran: That was fun. Came back and I found a job in that industry, the telecom industry, and it was a company that I worked for between the years of roughly 2002 to 2007 in Mississauga doing telecom. But during that time, I was sure within a year working there I didn’t want to be there either, and so that’s when I started looking into home inspections.
Between around mid-2000s, I started studying and actually even started a part-time home inspection company. And I thought that that was really gonna be the direction where I was gonna be headed in terms of starting a business and getting into real estate. That was great because the home inspection, I learned so much about houses in home inspections compared to architecture school. Because architecture school, it’s really just very theoretical and they don’t really get into the nitty-gritty of how a house is built. But home inspections, I had to look at furnaces, I had to look at electrical systems. I had to climb up on a roof, get into crawl spaces, and that experience was really good when I was actually going out looking for houses, right?
So fast-forward to 2007, I started working as a home inspector for a company downtown Toronto called Carson Dunlop doing home inspections, and between 2007 to 2011, roughly, I probably inspected about 1300-1400 houses, and just saw everything.
Tom Karadza: That’s the best way to learn for sure.
Andy Tran: Yeah. And how that forayed into secondary suites was people constantly asking me, “Is this a legal secondary suite?” That was their number one question, especially in downtown Toronto. They were always saying, “I want to rent this out. I know I can rent this out for $1500. Is this legal?”
Tom Karadza: Is the city of Toronto gonna shut me down, Andy, or are they not gonna shut me down?
Andy Tran: Basically, yeah.
Tom Karadza: And everybody asks that question, especially when you’re beginning. You don’t know. You’re scared. And there was no really good answer. I mean it’s still tough to get solid answers, but it’s much better. But back then, what did you tell people back then?
Andy Tran: I would always tell them ask your realtor or ask your lawyer to see the documents…
Tom Karadza: You were deferring. You were deferring, yeah. I see it.
Andy Tran: And say, “Yeah, call the city. They might have some records.” Right? At the end of the day, I didn’t know. I knew some things, right? I knew looking at these houses, I knew they were unsafe. Like I knew that you had to have proper egress windows and proper fire separations. And I know they didn’t have that, but I didn’t have the information to tell them what specifically they needed to do. But they wanted to know if it’s legal, and so I thought the best answer would be you have to find out from the city or from your lawyer to see if there is, right?
Tom Karadza: Which is the best answer, yeah, yeah.
Andy Tran: But I got that question constantly. Because I did so many. Out of all the inspections that I’ve done, probably half of them were in the east end of Toronto, sort of the Beaches-Danforth area where it’s just a high density of old houses that have basements with water issues and there were apartments down there, and a lot of them were like death traps. And people kept constantly asking me the same question, “Is this a legal apartment? Can I rent this out?” Right? And I thought, there’s just so many people that wanted to get the answers, and I figured now that I’m getting into real estate … And this is when I first started purchasing real estate as an investment. So I worked with Irwin at around 2010.
Tom Karadza: So what year are we?
Andy Tran: 2010 now.
Tom Karadza: Okay. Got it.
Andy Tran: And so I purchased a couple properties with Irwin, and still working at Carson Dunlop as an inspector at this time, and yeah, just people asking me the same questions. And that was also the same time, just before the investment properties when I purchased my own home in Scarborough. And I decided that I figured if I really learn this and really understand this, I can translate this into a business. And so I went through the process. And this was around, so I purchased the home in 2009, principal residence, and 2010 was when I put in the permit application with the city. And they were surprised. They were like, “What are you doing?”
Tom Karadza: You’re doing this legally?
Andy Tran: Yeah.
Tom Karadza: And properly? We don’t know how to handle you, Mr. Andy Tran.
Andy Tran: Yeah. At first, I was just gonna do it. And I was like, you know what, this is a good opportunity for me to go through this process because people keep asking is their unit legal. So I went to the Scarborough City Hall in Scarborough Town Center, and I had really been rusty with the stuff that I learned in school, so I hand-drew all my drawings, and I took it to them and they were looking at me funny, and they were saying, “What are you doing here?” Right? And I said, “Doing a legal secondary suite. I went through all the Toronto bylaws and I know that you guys do allow them.”
And he sort of told me, he says, “Yeah but, you know, they’re all illegal anyway.” So it was kind of funny. This was the guy at the front desk.
Tom Karadza: We know they’re all illegal. Here’s what he’s saying: We know they’re all illegal but we need housing. So just us as a city aren’t doing anything about it. At that time, anyway.
Andy Tran: Yeah, basically. But I was really insistent on going through the process, because I told him I wanted to learn. He says, “Well okay, you can make sure. I’m not gonna tell you have to do it. You have to design it. As a homeowner, you can do it yourself.” So at the time, I was not a licensed designer, and so as a homeowner you can do the design but you’re not … They’ll help you, but they don’t want to design the work for you. Because A) it’s a lot of work for them, and B) they don’t want to take any liability for that.
So this was me going parsing through 685 pages of the Ontario Building Code making sure that everything met the requirements. So after a month of going through this thing and putting all the drawings by hand, I submitted to them, and it was … They were actually kind of surprised. They were saying, “Oh okay. You actually put in a lot of notes here that are relevant.” So there was probably about a couple weeks of back and forth with myself and the plans examiner, and finally we had working drawings that I could use to do the basement suite renovation. So this …in Scarborough.
Nick Karadza: And this was before, what was it, Bill 136?
Andy Tran: …Bill 140.
Nick Karadza: Bill 140.
Andy Tran: Yeah.
Nick Karadza: So this was before that.
Andy Tran: Yeah, just a couple years before that, yeah.
Nick Karadza: Okay. So that everyone’s familiar with Bill 140, Bill 140 is what came down the pipe that mandated from the province that all municipalities started allowing … So how I mentioned earlier Brampton had basically outlawed basement apartments. The province mandated that all municipalities put in guidelines for how to allow them.
Tom Karadza: Yeah, and we should define it. So how to illegally allow a second basically rentable unit.
Nick Karadza: What they call a secondary suite in the house.
Tom Karadza: Which is basically like turning a single-family home into a duplex [crosstalk 00:21:44] but legally.
Nick Karadza: So you did that, sorry, and this was done all before that. At the time, so Toronto had these guidelines in place when some municipalities were outlawing them. You found that and you kinda went through this process.
Andy Tran: Exactly, yes. So Toronto actually allowed them since the year 2000.
Nick Karadza: Okay.
Andy Tran: Prior to that, a little bit of history before that was that prior to, I would say 1994, there was no bylaws with regards to secondary suites, so you can actually put them in as long as you did everything properly with a permit and everything. But after that, all the municipalities basically said, after around 1994-1995, that we’re not gonna allow them in our cities because of opposition, right? And mid-’90s …
Tom Karadza: Well you had some areas. I think Brampton’s protest was that they were just getting so many people living in this area that their social services couldn’t keep up with all the new people living in these homes, right. The population was growing up. Then the province came in with this bill saying there’s a whole different thing where the province is trying to prevent urban sprawl and saying, “Hey, all you cities, we need to legally get together and start eliminating this.”
Nick Karadza: That and the province also … In not so many words, they pretty much came out and said, “Look, we have a housing issue, an affordable housing issue, and we’re obviously not able to solve it. We can’t manage our money because we just want to spend it on all sorts of ridiculous stuff. Like canceling the power plant for a billion dollars.”
Tom Karadza: No, no little jabs at the government.
Nick Karadza: No little jabs always. When it comes to the amount of financial mismanagement. So they can’t solve it, so they’re looking at the private investor to solve it. That’s basically what they came out saying. Saying like, “Look, we need the private real estate investor to help us solve the housing crisis. This is one way we see this happening, right? Your point [crosstalk 00:23:25] …
Tom Karadza: Yeah, and I just want to make a point on that. I think real estate investors should be proud that they’re investors because they are offering good, quality housing, the majority of them who are doing it properly, to basically the province of Ontario.
Nick Karadza: You’re right.
Tom Karadza: And sometimes I feel like real estate investors get a bad rap because …
Nick Karadza: They’re looked at as greedy landlords.
Tom Karadza: … they’re looked at as greedy landlords, and especially in the media a lot of times they kind of get that, you know, “Hey, this greedy landlord’s trying to do this.” But really what’s happening is the province isn’t able to solve housing. They come up with these bylaws and saying, “Here, we’re gonna do this second suite stuff in every municipality around Ontario.” I hope I’m paraphrasing this properly, “Should have their second suite laws.” And now investors can go do them properly and provide housing.
Nick Karadza: Yeah, and this one you were talking about, Andy, this was your own property that you were putting the second suite in? Or this was already a rental property?
Andy Tran: No, this was my own principal residence, yes.
Nick Karadza: So you were putting in a basement suite.
Andy Tran: Yes.
Nick Karadza: What were you gonna rent it out for at that time? Like, once it was done, what did you end up renting it for?
Andy Tran: Well I never had an intention of renting it out, so …
Tom Karadza: Andy’s like us. He just did something to learn.
Nick Karadza: That’s great.
Andy Tran: Yeah, so at that time I was, 2009 was when I was living in a condo with my girlfriend at the time, now wife, and my parents were also renting a house, and we said I want to invest in real estate and I don’t think that I’m gonna be able to do it if I put all my resources into my house, right? So we decided basically to put our money together and we purchased a house, and it was a back split. We divided into a legal duplex. The great thing is that we all live under one roof right now. I get free childcare a couple days of the week, so that’s nice.
Nick Karadza: Oh that’s huge. Very valuable, yeah.
Andy Tran: So, yeah, that was also a learning process for me, and my thinking was that long-term I was going to be able to not have to hide anything if I ever want to refinance the house or if I want to sell the house later, to say it’s a fully legal secondary unit. It’s a legal two-unit. Here’s all the permits. Here’s the report from the city indicating that. And I felt that that’s gonna translate to potentially a higher value down the road. Right? Whether I sell or refinance.
And that’s sort of the argument that I say right now for people who want to do it is that at the end of the day, the renovation costs are gonna be the same. And the difference really is the additional permit fees and potential design fees that you incur, right? But that is gonna pay back for itself.
Nick Karadza: Yeah, I mean we’ve learned, look, with this type of thing, if you’re going to do it, you know, like you said, if you’re gonna go through the trouble of doing the renovations anyways, do them right the first time. It’s gonna save you all sorts of costs and there’s gonna be an additional benefit when you’re selling, like you said, when you’re going through that process. Do it right the first time and save yourself all the headaches afterwards. Because we’ve seen countless people, and I’ve learned this lesson myself the hard way, where if you try to cut corners the first time you do it and then you go back, it ends up costing you more time and effort because you have to redo different things and I’m like, “What the heck was I doing?”
Tom Karadza: So our paths started to cross, Andy, so now we’re … Sorry, when did you finish that? 2000 and … When did you get the final permits on it?
Andy Tran: Funny thing is I had it open for a couple of years, so I didn’t close it out until 2012. So it was just because I was doing it by myself. I was doing it piecemeal, and I didn’t actually close it out until around 2012. So once that was done, I was into the real estate investing at the time. I was still working for the company, but I was figuring out a way to be able to exit out of that and get into real estate.
Tom Karadza: Yeah, so I just want to talk about it, because this is where our paths cross now. So I think when we started Rock Star back in 2006, we were doing a lot of single-family stuff. You know, single-family rental, single-family rent-to-own, single-family home as a student rental perhaps. And then maybe around the years 2013-’14 … When did that Bill 140 come? When did that get announced?
Nick Karadza: A while ago now.
Andy Tran: Yeah, so it was …
Nick Karadza: It was one year, then it went into effect the year after.
Andy Tran: It came into effect in 2012, but the province did not set a deadline as to when the municipalities had to comply.
Nick Karadza: But then they ended up setting a deadline later, correct?
Andy Tran: Not that I’m aware of. So basically, all the cities have, all the major cities, especially the ones that we’re looking at in terms of investment, they’ve complied with that bill, but there are still a few cities that are …
Nick Karadza: Okay. Is that why Oakville doesn’t? I don’t think Oakville has anything definitive.
Andy Tran: They do.
Nick Karadza: Do they?
Andy Tran: Yeah, but they have specific areas.
Nick Karadza: They took a while. They took it seems like the longest. It was tough early on because all the cities had different guidelines, which they still do. But it was tough because no matter who you speak to at the city, you’re getting a different answer. A lot of the time, like I remember calling up, depending on the city, but you would get some of them were very vague in what the guidelines were early on, and half the people that were answering phones to answer those questions didn’t have the answers. Whereas some cities all laid it out very nicely online. There was exactly what you needed to do. It was tough to get the information as an investor early on, even once the things were passed. I’m sure there’s still some difficulty with some municipalities where it’s a little bit of a moving target sometime when you’re trying to go through the process.
Andy Tran: Yeah. Yeah, there are a few cities that is difficult, but in terms of many of the cities that we’re working with, it’s day and night compared to where I started.
Nick Karadza: Yeah…
Andy Tran: There’s a lot of good information. A lot of cities, they’ll have good couple of page cheat sheets in terms of some of the major things that they’re looking at for the bylaws in the building code, but more …
Nick Karadza: Which are those cities?
Andy Tran: I would say when it comes to secondary suites, cities like Hamilton, Kitchener, Barry, they have really good information in place. Mississauga. I would say a lot of the cities where it does make sense for us to invest and convert into two units and be able to make cashflow, they have the information in place right now. Because they do recognize …
Nick Karadza: So what about Brantford?
Andy Tran: Brantford, yes as well.
Nick Karadza: Pretty good?
Andy Tran: Yeah.
Nick Karadza: St. Catharines?
Andy Tran: St. Catharines is good but they’re a little bit challenging on several other areas, and it has to do with the complications in their bylaws. So I’ll give you an example. So they have a different way of interpreting a house that is a duplex compared to one with an accessory suite. So that’s where the bylaws of that particular city is very important in terms of what they define it as. Right? So if you’re in Kitchener for example, a two-unit is a duplex, is a house with an accessory suite. They don’t differentiate anything.
Nick Karadza: All the same.
Andy Tran: They’re all the same. Whereas in St. Catharines, a house with an accessory suite is something that they intend to do only in those low-rise single-family neighborhoods where they want to be able to add additional housing units and not change the character of the neighborhood by too much. And a duplex is something that is in a different area, somewhere where it’s potentially a higher density area. Somewhere perhaps closer to a larger major artery. And so how you define it and how you actually position it is very important.
And so we’ve been finding that that’s been challenging to design the houses to contain these secondary units in a city like St. Catharine’s. Because your typical bungalow, the sort of the post-war 1950s-1960s bungalow with 800-1000 square foot footprint, that is very ideal for a secondary unit because you have that basement apartment that can be used for it. But now St. Catharines says that you can only use 650 square foot of that as a secondary unit. So you have this big chunk, another 3-400 feet in the basement that you have to figure out what to do with. And so we’ve been having a lot of challenges in terms of how we define that extra space.
Nick Karadza: Why do you think they’re doing that? Like, I know you’re explaining that their bylaws define everything. But that seems like such a ridiculous thing.
Andy Tran: It does, yeah.
Nick Karadza: Like it’s beyond comprehension to me.
Andy Tran: It is. It is very silly. These types of bylaws were determined through a public process in every city, right? So in Hamilton, they actually have the opposite thing where they say that the minimum size has to be 700 square feet. So in Hamilton, they say you can have …
Nick Karadza: One city’s the minimum, the other one’s the maximum.
Andy Tran: Exactly, yeah. So most of the time, they don’t want that secondary unit to be larger than the upper unit. They want it to be 50% or lower. Sometimes a city will say 40%. But with Hamilton, they say minimum 700. With St. Catherine’s they say maximum 650. And I think the reason could be that, I don’t know, but maybe several years ago when they had this public process and they were saying we need to provide more affordable units, what can we do to sort of minimize the changes in the neighborhood? And maybe one of the arguments was that if you make it smaller, there’s less potential for a large number of people to be in that unit, so it’s not going to affect the neighbors as much. That’s sort of probably the reason I can see that.
Nick Karadza: Could be. Could be keeping rents down to smaller units will generally get lesser rent. They could be any, who knows the logic.
Tom Karadza: Yeah, I can’t even … So what’s the process now for … Pick a city, like you said Barry’s pretty good or Kitchener’s pretty good. What would be the process to go through? Like say someone’s buying a single-family home. It’s in an area that’s zoned … Or I wouldn’t even say that. You lead us. You buy a home in an area. How do you turn it into a legal second suite?
Andy Tran: Yeah, so the first thing that’s very important is to make sure that you’re in a zone that allows it. There are certain cities with particular zones for whatever reason. Maybe it’s close to a college, where they will say they won’t allow secondary units because potentially they’re worried about students and things like that, right? There are specific entire cities that don’t allow them. For example, Stony Creek right now in Hamilton still doesn’t allow them. Ann Castor, but I mean Ann Castor’s not an investor market anyways, right? But there are some cities where it’s not zoned for it.
The first thing that’s very important is to check the zoning. A lot of information like I said are available online, either in some sort of an interactive map that’s online that you can go to that city’s website and pull up a particular address and find out what are the types of things that you can do in that particular property, like within the property line, what you can do. And that’s very important, not just for secondary units but if you ever want to consider doing small development, like turning it into potentially a triplex or a fourplex or something down the road. That’s something that’s good to know.
Or they have some documents like their zoning bylaw document that you can download. Usually it’s a couple hundred pages or something like that. Just go through and find out if your property within the zoning map allows it. Or you can just pick up the phone and give them a call.
Tom Karadza: Yeah, I was gonna say to pick up the phone. The only dangers sometimes of picking up the phone and giving them a call, back to Nick’s point, is sometimes you get legitimately the wrong answer.
Andy Tran: Yes.
Tom Karadza: So if anyone listening to this, you pick up the phone and you get a call and you’re suspicious if that’s the right answer …
Nick Karadza: Yeah, you gotta double-check it.
Tom Karadza: … double-check the answer.
Nick Karadza: Sometimes just hang up and call …
Tom Karadza: Call back and speak to another person.
Nick Karadza: … call back and get a different customer service rep and get the different answer.
Andy Tran: …Yeah, you don’t know if you’re speaking to a planning specialist that’s been working there for 30 years or an intern …
Tom Karadza: That just got there.
Andy Tran: Yeah.
Tom Karadza: And you brought up another good point, because a lot of investors we work with do this, Andy. They’ll buy properties as a single-family home on a lot, a large lot, in a city like a Kitchener somewhere, or a Hamilton or a Barry, on a large lot. But it’s in an area that they know the zoning will allow them to not build, necessarily, a second suite, but an extension or a second … We have people doubling the size of their properties because the city will allow up to a certain percentage of the lot to be used for the house footprint. And then they’re doubling the size of the property, essentially doubling the potential income they’re gonna be making on that property.
Nick Karadza: Yeah, then they’ll be making the property bigger, adding a second story, whatever, depending on what the options are.
Tom Karadza: Yeah, yeah. In addition to doing things like second suites and stuff. So that zoning stuff can be really valuable information. Even if you don’t intend to build now, just knowing what you said, Andy, is a hugely valuable tip to investors.
Andy Tran: Yeah, you want to know what the limits are, what the boundaries are. And then it’s not even that you have to be within the boundaries. You can even go beyond the boundaries, and that’s where you have to go through a variance process. But the key thing is that the city’s actually, most of the cities, they’re usually on your side when you want to do that type of stuff. It’s just that they now have to involve the community as well for their input. Because the cities, they definitely want you to actually build more, right? They want more housing.
Tom Karadza: So I get the zonings, okay. So the next step is …
Andy Tran: So the next step is, yeah, putting together the permit drawings. Basically all the documents to show how your unit’s gonna comply with the building code. So if you own the home, you can do it yourself. So if you understand the building code and you’re okay with putting together permit drawings, you can do it yourself or you can hire a architect, what’s called a BCIN designer, which is myself. BCIN stands for building code identification number, and it’s basically Ontario’s way to recognize that that person’s qualified and they understand the building code enough to be able to produce permit drawings and documents to submit to the city.
Tom Karadza: So how do you have that now? Is that because of your architecture background?
Andy Tran: Yeah, well architecture definitely helped it, and just understanding the building code. I’ve taken many building code courses, so I’ve decided … When I first started the business in 2015, I actually outsourced a lot of work to other designers, and I was basically that person that was working with, sort of coaching the client and working with the designer. But I decided it made sense for me just to get it myself and to be able to sort of do it also. At the same time, also having other partner architects and designers that we can work with as well.
Tom Karadza: And so just at this point, is this when you walked away from your job?
Andy Tran: Yeah, it was around that time. So I was basically fully employed up until early 2017. So I was doing it part-time for probably about close to two years doing it part-time. Because, you know, I’m very risk averse.
Tom Karadza: Why did you finally pull it and say, “I’m quitting, I’m going on my own”?
Andy Tran: Oh, it just came down to the dollars, right? I was losing out on work because I didn’t have the time. So I was at a point where the income I was producing part-time was not replacing my income, but it was probably around 50% and I felt that at that point that if I had left my job full-time that the time that I had available will more than make up for that other 50%. And it definitely did.
Tom Karadza: Got it. Another example of how an entrepreneur or someone leaving their job is actually risk averse.
Nick Karadza: Risk averse, yeah.
Tom Karadza: And not a risk taker. But okay, so now someone goes, they can hire someone like yourself, or for the homeowner, they can do it themselves.
Andy Tran: Right.
Tom Karadza: And then if they hire someone like yourself, what is it exactly that you’re doing? You’re doing the drawings, you’re making sure that everything in the drawing is going to be done according to the bylaws of that particular area? Is that what’s happening?
Andy Tran: Yeah, yeah. So we go on site …
Tom Karadza: Like window size? I remember there’s some crazy stuff, like the amount of sunlight coming in and all this stuff that you’ve told us.
Andy Tran: Yeah, there’s a ton of things. So the first thing we do is verify all the zoning for them first to make sure that it complies, and then we’ll go on site. We’ll take all the measurements and then come up with a design that’s gonna meet all the bylaws. So make sure that we meet all the parking requirements, all the lot size requirements for the city. All that sort of stuff that is specific to the city. And then also, make sure that everything complies with the building code. Right? So things like building height. Things like windows for escape. We talked about ceiling height. Smoke alarms. Fire doors, fire separation.
So we come up with a design and our team puts together the permit drawings and all the specifications and documents, and instead of just handing it to the homeowner or investor to say, “Here, you can take this now,” we take it to the city on their behalf. And during that two to three-week process, that’s when we will work with the city to make sure that if there’s any issues that we will make revisions so that it does comply with it.
Tom Karadza: So then the city gives you the thumbs-up and says, “Okay, you can begin now doing the work.”
Andy Tran: Yeah.
Tom Karadza: Contractor can come in and begin using these designs to actually implement the second suite.
Andy Tran: Right, yeah. So they just give us the permits drawings. We submit two sets to them and they send us one set back, and they say that this is the one you have to keep on site, and there’s also a permit document that you have to post on the window to show that you’re actually doing work under permits. Because if a neighbor walks by, they want to know that if you have that big garbage bin out there that you’re legitimately allowed to do the work that you’re proposing to do. So that’s basically the approval from the city to say that now you can go ahead and do that work.
Tom Karadza: And during the process, when’s the city coming in to check anything? Are they?
Andy Tran: Yes, yes. So there’s several, let’s take an example of an entirely unfinished basement or basement where you’re gutting it and bringing it down to the foundation. So there’s various stages of inspections, right? So there’s the part where they’re gonna make sure the framing and the plumbing’s okay. Then you have the wiring, which is done by, not the city, but by the Electrical Safety Authority, and insulation, all that stuff that you need to be able to see before you put the drywall up. And then they’re gonna look at that and give you the okay, and then you can put drywall.
Tom Karadza: Close up the walls.
Andy Tran: Yeah, close up the walls. And then usually that’s when they do another inspection, and then there’s a bunch of things that you’re gonna do. And then they have sort of a final occupancy inspection, which sort of says everything is done, all your smoke alarms work, you do have the right size window here, and you can go ahead and have occupancy now.
Nick Karadza: What about for the people that don’t want to go through that “hassle” and they don’t want to deal with the city, don’t want to get the permits? Do you just kind of wash your hands of the situation right away? I know you obviously recommend to do it, but there’s gotta be some people that come out and say, “Look, I just want to put up some walls here. I’m gonna build a unit in the basement. You know, a couple bedrooms …”
Andy Tran: Yeah.
Tom Karadza: Andy, just kinda tell me kinda sorta what to do.
Nick Karadza: Yeah, can you just give me advice and I’ll just go and find a contractor to do it. I don’t want to get the permits.
Andy Tran: Yeah, no that happens actually all the time. All the time we go in and there’s …
Nick Karadza: It’s crazy how much that happens.
Andy Tran: There’s various reasons, and I never tell somebody that they have to get a permit or they have to do it legal, because I do understand that a lot of times it is a difficult process. A lot of times it may be something that is perhaps not even a safety concern. You know, maybe they have all the proper fire separation, they have the egress windows, and they have everything that makes this a pretty safe apartment, but for some reason maybe there’s a particular area that is a little bit lower than the required height for head room. Maybe there’s a room, like the living room doesn’t meet the 150 square foot requirement. Those are more comfort issues, and if somebody doesn’t want to rent a house because the living room’s too small, they can choose not to rent it, right?
So in a lot of situations, I’ll let people know that it’s probably … It’s totally up to you, right? At the end of the day, you can’t call it legal until the city actually has approved it and you do have paperwork. Right?
Nick Karadza: But doesn’t that say something about the contractor that’s willing to go in there and do the work without the proper permits? Right? Because right away, if I got a contractor that is willing to start doing the work for me, he’s like, “Yeah, don’t worry. We don’t gotta get permits.” I’m just wondering, for someone that’s doing my job, I’m just wondering what other corners he’s willing to cut, and what problems I might run into afterwards. I don’t know. I’m asking. I don’t know, from what you’ve seen, I guess maybe do you deal with the contractors directly when you’re working with these guys? With the clients, like with the homeowners.
Andy Tran: Yeah, well my service is I coach the investor or the homeowner to work with their contractor.
Nick Karadza: Okay.
Andy Tran: But invariably, we do have a lot of contractors that we end up working with in multiple occasions, so we deal with them directly. I would have to say that, I mean all the good contractors that I’ve worked with, they have no issues if their work is being scrutinized by the city. I mean a lot of times they don’t want to have to do that, but they feel comfortable that their quality of work can pass the test with the city. And I feel that that’s a good filter when you’re hiring a contractor is if the contractor does not want to deal with the city for whatever reason, then that might be a good indication that they may be willing to cut corners. I’m not saying that they all are.
Nick Karadza: No.
Andy Tran: There could be specific reasons why they don’t particularly want to work with a building inspector or…
Nick Karadza: Yeah, if they’re avoiding the city then it could be a sign of something else.
Tom Karadza: And I think in most of the cases where people aren’t going and getting the paperwork to say it’s a legal second suite is they might already have a house that they feel is 90% close to meeting all the right criteria, so they’re like, “Ah, do I really have to … My ceiling height’s really low a little bit in this one area, which is might gonna prevent me from getting the legal permit. Am I good to run this as a second suite anyway?” The danger in doing that is, well Andy, I mean we’ve experienced it with different investors when they call us and tell us what happens with the city. But have you seen anyone where the city is shutting down anyone?
Andy Tran: Yeah, no that’s a great point, and I do come across a lot of situations where somebody will say, “I’ve done everything according to the building code, and everything is safe here.” And then what happens is that for some reason their tenant has an issue with a neighbor. So this is the biggest issue and this is actually the source of probably about 25% of my business is people will come to me after they’ve got that notice on the door from the inspector to say that, “We notice that you have multiple tenants in here because the neighbor called us.” Right? We won’t tell you which neighbor, but we opened up a file. And unfortunately, in those situations, even though you have everything done properly …
Tom Karadza: And they’re in an area of the city that’s zoned for it.
Andy Tran: Yes, yes. They can’t continue. They either have to bring it up to standard now, or they have to basically remove the cooking facility so that it’s not a legal apartment. The good news is that most of the cities we’ve worked with, in my experience anyways, they haven’t been very heavy-handed in terms of saying to people that they’re gonna fine them right away or they’re going to shut them down right away. Usually they’ll give them an opportunity to do what’s necessary. So in those situations, that’s sort of the good news, right? So my recommendation would be that if you’re doing it brand new, you might as well just go through the process now. And then in the other instance where you already have it, it’s totally up to them. I can’t make a decision for somebody whether they …
Tom Karadza: Yeah. The worst case scenarios that we’ve seen is when someone’s operating a “second suite” in an area of the city that’s not zoned for them. And then those tenants that are in the basement have a problem with the neighbor, and then the city’s called to the house, and then it’s just a complete shutdown because they’re not in an area that’s zoned for it, so the city’s just saying, “Hey, you can’t run this here,” and that turns into a disaster. Because now you have tenants living down there that need to find a new place to live. Maybe the income on the property that you thought it was gonna generate is now cut almost in half. So those are the kind of the nastiest kind of situations.
Andy Tran: Sometimes the tenants will call too, like after they, yeah.
Tom Karadza: That’s true. We’ve heard situations like this. Yeah, because they’re trying to get the landlord basically in some kinda trouble for whatever reason.
Andy Tran: Yeah, so they have a dispute, right?
Tom Karadza: Yeah, yeah.
Andy Tran: It happens sometimes, right? Landlords and tenants, there’s disputes sometimes. [crosstalk 00:47:14]
Tom Karadza: Yeah, we’ve heard about that kinda situation.
Nick Karadza: On occasion.
Andy Tran: Yeah. So yeah, sometimes when down the road, like sometimes they’ve left already and they could be just kind of a little …
Tom Karadza: A little kinda stab right back at the landlord. It’s true. And those are the kinds of situations that we’ve heard of. It always kinda gets rectified, but the bottom line in those situations is that if you thought you were gonna get a certain amount on the property, you’re likely not because you’re gonna have to turn it into just a single-family rental as opposed to a second suite. Because the income, in places like a Barry or a Kitchener, or wherever we’re doing this, the east side of the city, the income can really change when you do a second suite.
The reason we started talking about this is when this Bill 140 got announced, Nick at one of our events went out and said, “Hey, everyone, we’ve been doing a lot of single-family for a long time, but prices keep increasing obviously in this area. Here’s an opportunity to really raise the income and create some cashflow on properties, which makes these so interesting.” Because on some of the second suite stuff that we’ve seen, we’re renting out the main floor for $14- $15, even $1600.
Nick Karadza: More. We’ve done some at $18.
Tom Karadza: $1800. So conservatively, we can say $15-$1600, some at $1800.
Nick Karadza: Sure, absolutely.
Tom Karadza: And the basement’s shocking me because the basement was $900 back in the day but now it’s $1000, $1100, $1200. I think we’ve seen one basement at $1400.
Nick Karadza: Yeah, multiple.
Tom Karadza: Multiple. So you’re talking anywhere now from, what is that? From $28-$2900 to $33-$3400 range on one “single-family home” that’s legally operating as a second suite.
Andy Tran: Yeah.
Tom Karadza: Drastically changes the numbers.
Andy Tran: Yeah, it’s crazy how much people are charging for well done, really nice basement apartments now.
Nick Karadza: Well that’s the problem because the supply that’s out there is kinda crappy. It’s like so much other rental housing. When you keep your stuff up to a certain standard in a market that has just low standards, historically the typical low standards, and it kinda applies to most of the units available, they’re easy to fill and they’re easy to get a premium on. Right? It’s just kinda what it’s worth.
Tom Karadza: So you’ve been shocked on some of the prices people are getting for the basements as well then.
Andy Tran: Yeah, absolutely. Like sometimes I’ll follow up with a client after they’ve rented it out, because I just want to get a number so that I can show other people, right? And yeah, over $3000 for both units up and down. I think one of the big things, the reasons for that is that 20 years ago, if you lived in a basement apartment there was a certain stigma associated with that. Right? It was kinda like a shady place to live in a basement apartment.
But given where real estate prices are, given the fact that a lot of people are in certain circumstances, right? Maybe like individual people, students, elderly people where living in an entire house, or even in a large section of the house, whether it’s renting or owning, is not a financial … Like it’s not feasible for them. But they still are potentially middle income earners and they want to live in a place that’s nice, comfortable and healthy for them. So their demand for the secondary units is that it has to be done well. So a lot of them look like really nice condos, right?
Nick Karadza: And a lot of people don’t want to live in condos or apartments like in buildings and take elevators and have underground parking and that type of thing. They want a driveway that they can pull up to and just one set of stairs they can get in and out of their unit for. So some people prefer the condo. They want the high unit with the view and stuff like that. But some people don’t, right? Yeah, there’s demand for them I’m sure.
Tom Karadza: It’s also a reflection of what’s happening in this area of the world, right? In Canada, there was always this kinda perception that you would grow up and buy your single-family home for your family. But when we visit our family in Europe, I mean Carol, my wife, has relatives in Italy. People aren’t growing up outside of Florence thinking they’re gonna grow up, they’re gonna go to university, and then they’re gonna buy a single-family home somewhere in Florence.
Andy Tran: In the burbs of Florence?
Tom Karadza: In the burbs of Florence. That doesn’t happen, you know what I mean? Even some of our family, Nick, in Croatia and some of the cities that they’re living in there, no one was buying the single-family homes even in the city. We had one aunt living in an apartment that was actually the lower unit. It was actually the basement suite of this 20-floor, 20-story building. She lived kinda down one level. So when European cities that have population growth that’s been much longer than the Golden Horseshoe area, this is quite normal to not live or occupy the entire dwelling, the entire structure that you’re living in. But in Canada, we’ve kinda grown up that way.
Andy Tran: Yes.
Tom Karadza: And I’m sure we can talk about Asia as well, but North America’s kinda unique that way, this whole idea that you’re gonna grow up and get a single-family home. So Toronto’s kinda going through its growth moment here where perceptions are changing, right?
Andy Tran: Yeah, that’s absolutely true. One of the other points about living in, let’s say a basement apartment or a secondary suite that’s within that property is that they now have access to community amenities that they wouldn’t have, say, if they live in a condo or an apartment. So a lot of times if there’s a couple with one child or two kids, if they can get that address and they can get access to the school, then the demand becomes higher, and that’s where you see the higher rents as well.
So we have a lot of clients where they will actually have a small family living in the basement. Right? One or two kids in a two-three bedroom basement apartment, and they’re able to easily command the $1400 because it’s done really well and it’s in a good neighborhood.
Tom Karadza: Are you seeing any trends of areas that are surprising you? Like, where are you seeing some second suites? Are you seeing some happen in Hamilton more than Barry, or are you seeing more in Toronto than elsewhere? Are you seeing any trends that kinda surprise you or are interesting?
Andy Tran: Well just overall, just the trends of intensification. I know, Nick, you had a video recently that talked about that and sort of what the policies are towards that. The majority of my business is actually in this area of the greater Toronto region in sort of the Hamilton area. So I do see a lot of my work is in Hamilton, specifically the Hamilton Mountain. But overall, yeah, there’s that trend everywhere the cities are trying to create more housing units.
And for me specifically, I mean secondary units to me seems like just the low hanging fruit of what the possibilities are. I just see it as that stepping stone to what the next thing is in terms of policy with the government and what their intentions are long-term. And seeing that those opportunities, right, whether it’s triplexes, four-plexes, or potentially doing other types of accessory structures and things like that. Basically infill development is where we see. Infill and intensification is where we see these long-term trends in policies.
Nick Karadza: Yeah, there’s gonna be more and more of that. It’s just not gonna change. Everything, if you look around you, density’s just getting higher and higher. It’s not a trend that’s gonna change because they’re gonna need land, and the land is not readily available in the urban areas. So they have to go higher density in smaller living units.
Tom Karadza: After you and I saw the, I don’t know if you’ve heard about this yet, Andy, but there’s the greenbelt, but have you seen the bluebelt, which is the proposal of the extension of the greenbelt. Have you seen these maps?
Andy Tran: I haven’t seen the bluebelt.
Tom Karadza: Yeah…the bluebelt is huge. So I’m not sure how far they are on that process, but that’s something we’re watching, and we’re gonna be sharing with some Rock Star members at one of the upcoming events. But I wanted to talk to you about, you mentioned another accessory, you know, this might be something where the government just does other things, like triplexes and fourplexes, and that kinda stuff. Or other accessory units. What would be another accessory unit?
Andy Tran: So one thing that they’re doing on the west coast, and they recently implemented in Ottawa is coach houses. Actually, in Vancouver they call them lane way houses, so there has to be sort of a lane way there. So in Vancouver, they will allow a lane way house in your backyard, plus a secondary suite. So in total, you have three units on a single-family neighborhood in Vancouver. And that’s something that’s very common in the west coast US as well.
Tom Karadza: And Ottawa is now doing something similar?
Andy Tran: Ottawa will allow you to have a coach house, so basically a backyard cottage that is a fully functional unit. So whatever, 5-600 square feet, or up to 1000 square feet, something like that, and it’s gotta tie into the utilities of the main house. The issue with that is that it’s not cheap to build one of those things, right? It’s gonna cost you probably $150,000 to build one of those. And then also it takes away from your ability to have your basement apartment. But here in Canada, all our houses have…
Tom Karadza: It takes away because …
Andy Tran: The zoning. So the zoning won’t allow you to have three.
Tom Karadza: Oh, got it. Okay.
Andy Tran: So I see probably within a few years, and there’s a lot of rumblings in the city of Toronto about this is to allow lane way houses. I think that’s gonna be the first step, and there may be some talk later on of having the ability to do accessory units in your backyard as well, potentially with secondary suites.
So if you look at all of our lots in North America, the way they’re designed, they’re just these cul-de-sacs in suburban neighborhoods where you have a really long, narrow lot. So something like 40 or 50 by 150. That back portion is not being utilized to its fullest extent, right? So slowly, as time progresses I think the governments are gonna start saying that we’re gonna have to make better use of that…
Tom Karadza: This is why I think if you’re in an area, like you brought up Hamilton, if you’re in an area like Hamilton and you can buy a lot now on a house with one of these deeper lots, you might have some potential in the future for doing some awesome stuff. This is also kind of just another thing to me that I remember, Nick, a few years ago people were telling us, “Ah, you know what, prices for properties are getting so high and we can’t really create the cashflow anymore.”
There’s always a way to create cashflow. Things are always dynamically changing. If you’re kinda creatively thinking about this kinda stuff, you could be doing these things years ago. Like, Andy, when you had started. I think a lot of times people look at property prices and then they just shut down thinking, “Oh my god, the idea of being a real estate investor is over.” Look what’s happened in the last few years with second suites. Now there’s like a legal way to do it and to up your income on one single-family property.
Nick Karadza: I was talking to somebody yesterday that watched some webinar or something from some investor. It was someone down in Ohio somewhere. And he said, “Hey, the way I’m looking at it, because of …” or he was talking to him, and based on what he said he’s like, “There’s no real good investment opportunities and we’re set for a big crash because have you heard of this thing called the 1% rule?”
Tom Karadza: Oh.
Nick Karadza: And I started laughing because I’m like, “Yeah I have. That disappeared here a long time ago.” So for anyone listening, the 1% rule is you try to get 1% of the value of the home in rent. So if the home’s $500,000, you try to get $5,000 in rent. And I’m like, yeah, those dynamics …
Tom Karadza: We were actually hitting that really briefly around the year 2000, right?
Nick Karadza: We did early, yeah. But those dynamics changed a lot, and it doesn’t mean that the market … I mean, look, this is our opinion, right, but it doesn’t mean there’s a market correction for rentals because you can still generate cashflow to your point. So you don’t need 1% of the rent to generate cashflow. I’d jump on an opportunity to buy something, a property that meets that rule. But just this area doesn’t really happen because it’s a different area. The areas he was talking about don’t have the same population numbers, the immigration numbers, the employment numbers, that type of thing.
But to us, it’s still about generating cashflow. Because the way I always explain this is like the more cashflow you have on a property, the thicker your safety net is when you invest in real estate. Nothing’s ever guaranteed, right, but if you’re generating $500 a month in cashflow, then you have a much thicker safety net than someone who’s generating $20 a month, or someone that’s negative, just banking on appreciation. This gives you those opportunities, right?
Tom Karadza: Yeah.
Nick Karadza: Because historically, like we was talking about before, which is always important to remember is even if the underlying value of the property changes, historically rents don’t shift in areas. Even areas like, we’ll go back to Ohio since this guy was speaking specifically about Ohio, when property values got hit by 60%, rents didn’t move. Demand for rentals actually increased as people were moving out of their homes. So those are the dynamics I think people sometimes overlook when they’re talking to investors from other areas that don’t understand our area specifically.
Tom Karadza: I think where I messed up early on reading books is I didn’t understand that some of these strategies, like the 1% rule, it’s not just different areas, it’s different eras. So for example, I was reading the No Money Down stuff. These books were written in the 1980s and I was reading the book in the 1990s. And it was like how to buy real estate with no money down. But those books, and basically it taught you to go to the homeowner and say, “Andy, if you’re selling me the property, will you hold back 20%, and then I’ll go back, get a financing for 80%,” and then you’re holding back 20%. That’s gonna act as my down payment, and technically I’m buying the house as no money down. As long as all the lenders agree to all this stuff.
Or you hold the whole thing back 100%, and I’m buying it no money down, and you’re holding the whole mortgage, selling me the property. But I was reading these books in the ’90s when they were written in the ’80s. And in the ’80s, with high interest rates, nobody could sell, so you were doing creative strategies were really common, and there was a lot of no money down investing. But in the ’90s …
Nick Karadza: And people were putting much more money down to acquire the property as well, right?
Tom Karadza: Yeah, of course, there’s that. So in the late 1990s, I wrote up on a Word document, I wrote down, I don’t know if it was Word or … What was it before Word?
Nick Karadza: Word Perfect.
Tom Karadza: Word Perfect…Yeah, I don’t know what I wrote this offer in, but I wrote like a 15-page offer that was this no money down offer. Like I wrote the offer myself, and I presented it to this guy, Nick, we had bought one property off from, remember?
Nick Karadza: Yeah.
Tom Karadza: I presented it to this guy. Older gentleman, he was in his 70s. He was selling these properties and I said, “Hey, I want to buy this property from you. Here’s my offer.” And he looked at it, realized right away that it was a no money down offer, and he put his arm around me and he kinda just chuckled. He looked at me and laughed. He said, “Son,” and that’s when I knew it was all over, when he said son. He goes, “Son, we used to do this back in the day. We’re not doing this anymore.”
And then he went on to explain that when interest rates were kinda where they were at that time, I think in the late ’90s, 2000-era, I don’t know, 6-7%. Wherever they were. “Because we can just sell the property. I’m not gonna hold anything back. I just want my money. You know, properties are selling. We used to do this when properties wouldn’t sell.” You know, so it was just a different economic era, so you couldn’t make these no money down offers because there was just no demand for them. So real estate investing is just a dynamic thing where you always have to go with the flow.
And there’s one more thing, Andy, on talking about second suites here. I just feel that in this area, you’re gonna want to own property 10, 15, 10 years from now. So if you can figure out a way using second suites to buy a property now and make it cashflow for you, I don’t think 10 and 20 years from now you’re gonna be upset that you purchased a property in this area of Canada, you know? None of us have a crystal ball, obviously. Just from my take on immigration data and population growth.
Nick Karadza: Yeah, but if you’re owning a property that someone else is paying off for you, that’s the reality of it. So look, if you’re investing anything and someone else is gonna pay for me, I’m all for it. Cars depreciate. It’s a depreciating asset, but if somebody else is gonna pay for it for me, let’s bring it on. So that changes it. Stocks, mutual funds, whatever it is, if someone else is paying, it changes the dynamics a little bit, right?
Andy Tran: Yeah. And my strategy really is to buy something that is gonna work immediately right now. Even if it’s just break even. It’s gonna work right now and I’m not feeding it, but there’s that big potential for things later on that I can do to the property. So I do encourage investors to think outside the box in terms of not just looking for a product right now that works, but what can it be potentially, given all the information that we have right now, knowing that the cities want to do intensification, knowing that they want you to build using infill strategies and basically provide more density in the neighborhoods, right?
So one thing I tell a lot of people, all things being equal, if you can buy a corner lot, buy a corner lot. Because that corner lot, that backyard of that house, that’s facing another street, right?
Nick Karadza: Easily accessible. It gives you options.
Andy Tran: So even if it doesn’t meet the requirements for the bylaws right now, you can potentially push for it. You can hire an urban planner or an architect who knows what they’re doing, and you can push for this with the city. And the good thing is that the cities are on your side now. They’re gonna want you to do that.
So our mutual friend Charles Wah and I, so we worked on a project …
Nick Karadza: And Charles Wah found his way onto the podcast. Has Charles Wah paid you to say his name on this podcast, Andy? I’m joking, I’m joking. Go ahead.
Andy Tran: Ah, you blew my cover. Charles, you gotta pay me. Yeah, so basically I’m working with him on several projects, and what we’re looking at is to make sure that the existing property and the structure on it works right now, and then going through and really knowing what the city wants to do based on their zoning bylaws and their official plan. And working with an urban planner to say how can we improve this property and how can we add more value to it by potentially do severances, by potentially adding in additional structures. So those types of opportunities are everywhere.
And I think that with investors, and a lot … I go to a lot of investor meetings and different investor groups, and everybody is trying to just clamor over that last piece of property. It’s like something pops up on the MLS, it’s like we’re all jumping on it, right? And I think that, I mean that still works because of the market that we’re in, and there’s a lot of people moving in here and it’s valuable, but you can really sort of kick it up a notch if you can say yes, I’m gonna take this, which is gonna work great right now. I’m gonna add in a secondary suite. But can I also build something here later? Can I do an accessory suite? Or an accessory structure? Or can I build another house behind here? And those are the things that I do encourage people to look more into.
Tom Karadza: Yeah, with some creativity and long-term thinking, the sky is the limit. So I gotta know, what did your family say when you decided you wanted to walk away from your job? Anybody protest?
Andy Tran: No.
Tom Karadza: Everybody was onboard?
Andy Tran: Yeah.
Tom Karadza: And you, you were frustrated?
Andy Tran: Yeah, I was frustrated. I mean I had a great job and my boss was great. There was a lot of flexibility, similar to Irvin’s situation when he mentioned on his podcast, but it was just sort of long-term, right, sort of thinking. Having that flexibility and being able to say I want to take a month off and go somewhere. I was able to do that before too, but I always felt a little guilty. It’s like, “You know what? I can work remotely for a couple weeks and take a couple weeks off.” I didn’t want to do that. I want to basically, you know, just do it on my terms, right?
Tom Karadza: Yeah, totally. So, Andy, we want to thank you for jumping on here. You teach a class to Rock Star members here, so we’re grateful that you do that. We get a lot of good feedback to your class, so that’s something that you contribute to Rock Star members.
Andy Tran: I appreciate the opportunity to do that. Thank you.
Tom Karadza: Yeah, so very cool. That’s very cool of you. Good chatting. We’re gonna have you on again, I have a feeling. This whole topic’s gonna be something we’re gonna be talking about for many years, so we’ll be talking to you.
Nick Karadza: But what about if people want more inside information?…
Tom Karadza: Yeah, where would they find you? Where’s the best place to track down Andy Tran?
Andy Tran: Yeah, so just my website, SuiteAdditions.com. That’s spelled S-U-I-T-E Additions.com. You’d be surprised how many people go to S-W-E-E-T Additions.com. And it’s some lady in the US that makes, I think she makes confectionary.
Tom Karadza: Oh really? Does she know about you yet? Are you getting any emails forwarded [crosstalk 01:06:51].
Andy Tran: No, I should shoot her a message and …this domain.
Tom Karadza: Yeah, yeah. So SuiteAdditions.com. S-U-I-T-E Additions.com.
Andy Tran: Yeah, so they can contact me there. I have a free ebook that they can download which outlines a lot of the things that we’ve been talking about.
Tom Karadza: Yeah awesome. I forgot you offered that. That’s great. Awesome, Andy. Okay, cool. We’ll have you on again soon. Thanks for this, Andy.
Andy Tran: Thanks, guys.
Tom Karadza: Hey, it’s Tom Karadza again. So hopefully you enjoyed that with Andy Tran. We always appreciate when anyone pops in here and shares good information like he just did. If you want any real estate information of any types, whether it’s one of our books, a training class, videos, the best place to go for that is always going to be RockstarInnerCircle.com. So you can go to RockstarInnerCircle.com, we have three different books there that we give away.
The Income for Life book, one of our On the Streets book, which is a series of different articles we’ve written over the years. And then the Your Life, Your Terms book, which is a book where every chapter is written by a different investor that we’ve worked with over the years. We get a lot of great feedback on that book. It’s probably the book we’ve done the least promotion around, but you can get a free copy of that book there as well, including the one that we share the most, which is Income for Life for Canadians. That book’s on there too. So three books you can get. You can sign up for our introductory training class on our website as well. There’s tons of blog posts and articles and different resources on that site, so everything you want as a real estate investor, you can check out at RockstarInnerCircle.com.
Thank you so much for listening. Thank you for the great feedback that we’re getting. If you haven’t had a chance to give us some feedback on iTunes, we’d appreciate it if you could. It means a whole bunch to us. It really kinda is the juice that keeps this going. We’re still having a blast doing all this stuff. But any feedback you can share, whether in person, via email, on iTunes directly, we really appreciate it all. So thank you to all of you who’ve done that. And if you haven’t had a chance to do that, when you see us or if you get a chance to email us, or anything like that, please feel free to share your feedback. The best email to give us something from these podcasts is email@example.com. If you email firstname.lastname@example.org, that will always find its way to us in one way, shape, or form as well.
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