We’re obviously big fans of real estate, but that doesn’t mean we’re blind to any possible crashes or corrections. Although we can never predict these things accurately, we can prepare for them. On this episode of The Your Life! Your Terms! Show, we sit down with Mike Desormeaux to discuss the 1990 Toronto real estate crash, the 2007 U.S. real estate crash, and share some of the latest activity we’re seeing “on the streets” right across the Golden Horseshoe. Enjoy the show!!
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Transcript
Hey everyone, it’s Tom Karadza out on this episode of the Your life. Your Terms. Show, I sit down with, Mike does, Norma who, who’s a very long time member of the rock star team, super great guy. And we go through some of the real estate data that is often not discussed, discussed, does scuffed to scuffed, discussed. And the reason that we do that is we can’t find this information in an easily accessible form for ourselves. So sometimes we’re looking at population numbers, the economic numbers both in Canada and globally to see how it impacts the Bank of Canada and interest rates here in, in, in Canada and how that will affect our properties. So part of the reason for us doing this episode is because we like talking about this stuff and we really don’t see it discussed in this manner in very many places.
So this is our attempt at breaking down the last big real estate crash here in Canada at the last big and the only big one, which was in 1990 if you’re younger than like my age, which is 46 you probably have no clue about this. But I remember it very vividly because I had a huge impact on our family at that time. So we break down that crash. And the reason that we’re breaking it down is just so that there’s no surprises so that if there was ever a future crash, you kind of know what to expect because of what lessons we’ve learned from a previous crash. So that’s why we’re talking about it. We’re not saying there’s a crash that is coming or it’s imminent or anything like that. We just want to learn, we want to be prepared. So that’s why we talk about that.
And then we talk about the two south 2007 2008 U s real estate crash and we draw some comparisons between the two so we can learn from that as well. And Mike, um, talks about some of the latest stuff that he’s seeing on the streets, the rent prices, the action, what he’s seen at different price points. So we kind of Meld all that together in a discussion on the current state of the real estate market because it’s a question that we ask ourselves all the time. Is that, can we be facing a crash here in Ontario? Are we at that point? Could it happen? So this is just our way of exploring this topic. So hopefully you enjoy this and pick up a few goodies. I think you will and if you’re listening to this and you want to check out real estate investing for yourself, the number one thing we get feedback on besides the books that we give away for free would be the class that we give here in our OAKVILLE offices.
You can grab a seat for that class. It’s a 90 minute introduction to real estate investing. From our rockstar perspective, we shared the strategies that are, we are using right now with investors all over the Golden Horseshoe here in Ontario. You can grab a seat for that classic Canadian Real Estate training.com so you, the next dates are published on that website as well. The details. Actually, we’ll come to you when January Anthony from our office, confirm your seat so you can go and grab a seat@canadianrealestatetraining.com those classes are always full, so you need to grab a seat if you want to get in on, on the next one. And Canadian real estate training.com is the URL. You are your oil, your old URL, the URL to get your seat. With that, let’s get on with the show.
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Okay, Mike, we are live. So before we begin, I just want to, uh, where recently, if you’re listening to this, you should know where both recently back from Mexico guy in the team, JP hunt got married in Mexico. Uh, myself and my wife Carol and Mike and his wife Sarah and Nick and his wife Diana. We all went down there to be part of that wedding. And apparently there’s way more Tequila brands in Mexico than we were even aware of. And I did not know this. I’m very used to, I mean I felt like I deal with wine Somalis, but you know the guy who comes around a nice restaurant and he’s the expert in wine or basically who tries to upsell you to buy expensive bottles of wine that you really shouldn’t be buying. That’s the way I look at these guys. But have you ever heard of it?
Tequila, Somalia? No. That’s the first time. So when we’re at lunch and some guy comes up to, uh, actually you guys were at lunch before me. I think you guys were already talking about the Tequila. Now what happened? You guys were at lunch then I got there and we said, let’s see. Sample that Tequila. I think so, yeah. Your brother started with dot. Yeah. One of you guys. And then if you, if you’ve heard us talk about Don Julio Tequila before, you should know there’s levels, there’s Don Julio, there’s like the silver, there’s like a, maybe just a regular gold, but then there’s the, uh, how do you say it? Rap? Uh, 1942 the, yeah, there’s the 1942 in their reality and before that there’s the nae Ho and there’s like one other one that I’m forgetting right now. So they’re like five levels, but the highest is the reality.
And the next highest is the Don Julio 1942, which I have right here. And their reality, we had never really seen, we hadn’t tasted before. Never even saw that bottle. The bottle. Beautiful Angel has one actually. So I, yeah, yeah, but, but it’s be, it’s beautiful. And we bought the bottle and a security came over thick. A video of it being open. Cause I guess some people lie about it being opened and uh, don’t, what are they doing? The entire staff of the restaurant as well. I came over to see this and then you start offering, one of the guys said, Tequila shot. You’re going to get the freaking guy fired? No, to be clear, I think you did. No, this one, I swear. I swear it was, yeah. Okay. Yeah. I think I encouraged it afterwards, but then I think you had some common sense and you’re like, hey, you’re going to get the guy fired.
Correct. Yes. Um, which it never occurred to me. And as soon as we said that he did back off, he’s like, yeah, but did you see his eyes light up? I wanted to share it with all of us, but uh, that’s their gold. That is their gold and that Don Julio. Arielle, if you ever get a chance to have some of that, um, take it anyway. This is a very serious buckets and not a podcast on Tequila. So, uh, over the last few weeks we’ve just been asking ourselves, we’re like, okay, we’ve been talking a lot about the population growth in Ontario and all the positives that are going on in Canada and Ontario’s, um, and uh, we started, uh, asking yourselves what would it take for the real estate market to crash? And, and Mike, I don’t know you, but the way I’ve kind of break it down is I say, okay, the two things that I can identify that would definitely impact the real estate market are interest rates and access to credit.
Correct. Yeah. So if, if one of those two things go, so like interest rates would have to spike up and, or access to credit would have to be diminished greatly. And it seems to us in Canada, um, interest rates, if you’re not aware. Um, we just had a, one of the mortgage brokers we work with, Dave Butler come in here and told us that fixed rates in Canada are, uh, below variable rates. So interest rates are coming down at the present moment, right. And, um, the one of our members actually got a mortgage at an interest rate of 3.03 for a three year fixed. So you’re able to get fixed rates, mortgage. So interest rates are not going, I guess my whole point is interest rates are not going up in streets are actually falling right now. And that fix being low, lower than the variable right now.
Yeah. You know, what do you know, I don’t know if you know this, do you know if you, if you’re on a variable rate mortgage right now, if the fixed is lower than your variable or the banks lending, you lock in at a rate lower than the current rate that you have? It’s a good question because that’s worth like if you’re on a variable rate now of like, you know, in your variables like 3.4 or something like that and you can get a fixed lesson it, you might want to consider just calling the bank, seeing if you can fix it. Yes. First time in a decade. Yeah. Never, yeah. Never seen this kind of thing. So that’s going on. Um, and then access to credit, access to credit. So what’s, what we find really interesting and are dealing with mortgage brokers on a lot of investor type business is that we get some insights into the banks.
And what’s interesting is, um, which mortgage program, um, did we learn about? There’s a mortgage program right now where the banks weren’t, oh, it was, um, mortgage a loan person, uh, plus improvements purchase. Plus, I’m sorry. Thank you. Purchase plus improvements. Um, just a few years ago it was much more difficult to get a purchase plus improvements mortgage. Now we’re hearing that a lot more banks are willing to offer investors a purchase plus improvements mortgage. Yeah. And to me this is how laughable because this is the way the banks, when the bay, when the government of Canada is trying to make a access to mortgages more difficult, like in January, 2018 when all the mortgage rules tightened up, the banks on the backend agree with everything that government does. They always look like they agree at the media, but then on the back end they go and figure out other ways to give up more lending. Right. And one of those other ways, his mortgage plus improvements. So this is a way we’re more credit gets flushed into the market, not less. Yeah. I think with easy money and credit. Yeah. Consequences. Consequences, higher inflation. Yeah. Yeah, exactly. Like we’re putting, so like it’s, it’s Kinda like we have lower rates and mortgages, although we changed some of the front end rules. If you’re somehow able to qualify under the rules, the banks aren’t offering you less of a mortgage, they’re willing to offer you more and yeah,
right. So in my mind I’m like, what would it actually take right at this point for the real estate market to collapse when access to credit exists, it’s harder to get definitely, but it exists, right? Interest rates are low and then you got to look at demand. But the population growth in this area continues to exceed all the projections. Yeah. So like I don’t understand which factors it will take for a real estate correction to happen. Look, it is going to have to be like a global financial crisis that also affects Canada to like maybe lock up access to credit because if there’s a global financial crisis then the Canadian banks would be pulled into that and then they might kind of close the doors and say, hey, we’re not giving loans right now. And then I can see property prices coming down. So, and then, so my question, I guess to you, Mike, is for everyone listening who’s not active in the market, what are you seeing in them?
Like are you seeing, where do you see prices? So describe the property, kind of prices, their locations and what are you seeing out on the streets right now? But just to go back to even in 2008 when we did have a global financial crisis, the stuff that we’re typically looking at, these starter homes, they were really not impacted at all. So even if there were something to come down the pipeline, how effected, how affected do you think these started now? It would be, I, it’s a good point because you’re right, we didn’t, we hardly, we basically plateaued. It was like an 18 month window where things were kind of sort of flat and then we just kept going up again. So I guess I’m just talking about like a devastating one where the Canadian banks are just like, oops, we invested in a whole bunch of crops somewhere and we got pulled in.
Cause you’re right, that one was big. Yeah. Um, and for those of you who don’t know during the you the last financial crisis, if you didn’t monitor that closely, other markets did get greatly affected. Canada didn’t get that affected. But places like Japan, like the Japanese stock market started get affected because when there was cash calls on the u s for hedge funds had cash calls where people were pulling their market out a money out. Uh, investors in Japan were confused why their stock market was starting to go down. But the reason their stock market was starting to go down as part of the US housing crisis was when the stock market was affected in the u s hedge funds had to go to places that were good, like the Japanese market and sell what they had over there to serve the cash calls that they were happy to have any having in North America.
So it like inadvertently brought down the Japanese stock market during that time. So this is how things ripple around the world. But you’re right, even in Canada right next door here, we were hardly effected that such a supply and demand crisis right now. Um, three, four weeks ago I was filling a property in Stoney creek that had bought almost a decade ago. So it was I think nine years to be exact when I first put tenants in there with $1,600 a month in rent. I’ve had a couple tenants sense, but this last time I filled it fill the for 2150 a month. Um, so I think it was seven or eight families came out. I wish I had seven or eight homes at the time that were available, but uh, all of them were decent families. You obviously go with the best one, but within 24 hours I had uh, the seven families through a applications processed.
Lisa signed money collected and it was done within 24 hours. This particular family that took it as a, actually a three generational family. So it was mom and dad, their daughter, her husband and their 28 month old daughter. And it’s just with the young couple were paying for their particular house that they were at and what the parents were paying. They just thought it’d be best to come together and have a bit more room together. And the parents would obviously help out with the grandkid as the husband and wife are now working four streams of income coming in for that house now as well. So that that rent price in nine years has gone up 36%. So almost 4% per year despite our 1.8 that were 1.8 years that we’ve been allowed to do over the past decade. Yeah. So just, so all the people that came out to the house, could you get a sense of where this one was in Branford?
You said? No, Stony Creek, Stony Creek to green mountain. So if you, if, if you’re from Toronto proper, you don’t know what’s Stony Creek, it’s just kinda like, just a little bit down the highway from, it’s part of Hamilton, but it’s like at the far end of Hamilton as you’re driving on your way to buffalo down the QEW. Um, I’m curious, was everybody looking at the home? Could you get a sense, where were they from? What’s everyone from Estonia? So good question. Yeah. So, um, a lot of them were actually from Stony Creek, Hamilton surrounding area, St Catherine’s. Um, but prior to that, yes, I’d get more people from closer to the GTA tobacco, Toronto. Like that’s not unheard of. And I’m sure it would have come across that if I showed it a couple more times. I just showed her that one time and that was it. It was done.
So that’s what I’m curious. So you are seeing people from the Toronto area are renting out in place lake, Stony Creek 100% we have investors in Saint Catherine’s filling their properties with couples from Toronto that are making the daily commute. Yeah. That’s happening. Yeah. And there was, what are they doing daily commute to what Aldershot Burlington Gautrain station stopped there and then hopping on. I think that’s their best bet right now. Yeah. Until that gold train line increases out the way to Niagara it. Got It. Okay. Okay. And then what, I’m just curious since we’re talking about this and what are you seeing in the market right now? Because the first, Janice, if you don’t know the real estate market, you haven’t been a part of it for a little while. January, February was pretty much crickets. No. Like it was pretty quiet. Especially when the weather really got back there in February.
Yeah. Things were almost stains. Still not a lot of new listings came up. Not a lot of people wrote, they’re looking to buy. Um, but then now you told me, some of you, it’s probably been about five weeks ago now or four weeks ago where you were seeing some stuff that shocked me. Can you describe it? It’s, it’s getting busy again. So is coming up, but as the inventory is coming up, it’s not staying on the market long. Um, a couple of days at best. Multiple offers across the board around southern Ontario. Yup. So what cities are you seeing the multiple offers? Uh, it’s almost every city now. No Way. Yeah, yeah, yeah. On something called the city, so, so everyone can hear. Cambridge, Kitchener, Hamilton, London, London, and kitchen are very fierce for, for multiple offers. London yet. Yeah. On student rentals in London to a single family homes, students doing rentals.
There’s typically not too many multiple offers because that’s a specific demographic that’s an investor now specifically that’s going after that property. Yeah, but on the single family homes, it’s just these families trying to get in and they’ll always, you know, out pay would, an investor would pay. So we’re not usually typically losing offers to another investor. It’s another family beat us. So last night we had one in Bellville, two and a half hours away from Toronto going east that were, there were nine offers on that property. Mind you, this one was a single family home. Belvin is two and a half hours from here in Oakville. Yeah. Not Two and a half hours from Toronto. So two hours from Toronto. Is it really that far? But it is really, I, we stop at in Bellville. Is that really two hours out of the city? I always thought when this one Swiss chalet, yeah. Bellville have a home inspection there. Wednesday. I’m debating if I should go to Montreal on my way.
Listen Mike, the habs aren’t in the plan. Okay. No need to be going to my trail. There’s no need to be bringing up the name of Montreal. I know your last name is French last name, but we don’t need to be talking about Montreal. Okay. Um, but yeah. Um, the benefit of two and a half hours east of here is property prices. So they’re a little less, so this particular home was listed, the one that we did get to 80, we’ve got it for two 60. This is the home inspection that we’re going to, we’ve got to describe it. When you say $280,000 for someone in trust. So everyone outside of the city thinks that’s pretty normal that you can buy stuff like that. But people in Toronto, when you say you can buy something for 280, they think you’re a straight up lying. So can you just describe what your a three bed, one bath bungalow, a garage or no garage driveway up the side.
Uh, this one? No garage. I’ve wept the side. That’s right. Okay. Yeah, lots size frontage. A 50 by 100. Typically it’s still a good size. And then the intent with that three bedroom, one bedroom, a sorry, three bedroom, one bath is to turn it into a six bedroom, two bathroom student rental, and it would cashle over about $1,300 a month. There’s a college out there called loyalist, uh, 3000 students. Roughly the sale list yet. Loyalists. Yup. Oh, it hadn’t, I only laughing maybe like a cult or something. You’re going to be loyal loyalists. Yeah. Oh Man. I feel if anyone’s going there, I meant no disrespect whatsoever. I just know, I never heard of loyalists so much. Like the student population of um, Laurie and Branford. It’s a same similar 3000 people, but you’re buying a property for $200,000 less than you would pay in Branford.
So $280,000 property and then you’re renting it out for you. You said, sorry, bed. And that ended up in my head there for 50 plus or $500 constantly. How many rooms? It will be a six bedroom. It’s a three bedroom, one bath home. Now it’s a single family home. Yeah. No, but you said six spend. You’re busy. You’re renting. So for what? Just under 3000 or roughly 3000 a month. I know it’s inclusive of utilities and the purchase rates to 80 correct. That’s the one. That’s it. Then we never talk about this. Right. So if you’re a real estate investor listening to this, the 1% rule is disgusting. A lot of books where a lot of uh, books, especially US books, we’ll teach you, it’s a good investment. If 1% of, if you buy a house in 1% of the value of the house is coming up to you in rent, then it’s, it’s a win.
But we kind of dismissed that like about 15 ago because you can never find properties at the 1% rule. But this is actually something here since yet. That’s rare. That’s rare. Yeah. Okay. Agreed. Okay. It’s not like there’s a hundred of those available or anything. No. So the one we lost on last night, there were nine offers and that was, believe it or not, uh, two Oh nine two three 9,000 no way. Yes. Two Oh nine yet. How was the condition of the house? Same idea. Three bedroom one bath. When you were putting in that offer, I know you were working with our rockstar investor and then what were you thinking? Maybe you should just buy this if you need a partner. I’m here for hundred night. Yeah. Oh my gosh. Okay. Good for them though. It is. Yeah. Really good. Okay. And then multiple offers, um, in all, in all places.
So from Bellville right around for the starter homes, just to be, be specific. So anywhere in this case, yes, we’re talking low two hundreds, but I mean closer to southern Ontario around the golden horseshoe from the three 50 mark to 500 something decent turn, pretty turnkey. You were probably going into multiple offers. Of course. Unless we can catch that listing during the early week, then often a lot of people haven’t gone out to see it. And if the agents are in, the sellers are not holding offers and maybe we can sneak an offer and get it accepted and, and move on. But uh, Mike’s being very kind. That’s what you do regularly when you try to get an offer to. Yeah, that is, that’s the strategy. I remember when, when, uh, when we hit first started Mike, way back when all of us, if we saw a property in a city, we’d be driving from here in Oakville to maybe like a, at that time it would’ve been Hamilton mountain a lot.
And if it was good, we driving out there as we were driving out there would be calling an investor that we were working with saying, look, I think there’s a hot one here. If I go out there, put my eyes on this thing and it’s a winner. Get ready standing by the fax machine. Get ready to facts. I’m going to fax you the paperwork over you. Facts. They’re right back. We’re doing this now. Yes. We put offers so fast that the real estate agents, do you mean know what hit them since then, everyone’s more accustomed to that. But uh, that’s the way you got to do it. I don’t know if you remember Kevin. We have an investor and a, he was in communication with a couple from Ottawa that we’re moving out to Kitchener and this is way back. Are we back? And they came down and I took them out because they going to do a rent tone and uh, we went through a few homes and they said they want it, this particular property.
Then the investors didn’t come out with us. He was busy. So they said they want this property. They had roughly, I think it was 10 or $20,000 down as their down payment. Um, I go back to the investor. Good News. We found a property and they want it. Bad news is I don’t like the property. So, um, it took a lot of convincing because this couple was moving back to Ottawa because the deal was they were going to be here in two months. They needed a place. They came out here quickly once to work with Kevin. We do the ringtone, they go back to Ottawa and I tell I Kevin’s like do up the offer and I’m like, Kevin, who do me a favor, just give me 48 hours, let me see if I can find you a better property. So I went out, found
two of them, took videos of the homes, loaded them up to youtube. Is that the road to the tenants cat? That’s right. Yeah. The cat went to escape. That’s right. That’s right. Yeah. And uh, yeah, I remember that I had the listings in one hand, a Cameron and another, and I’m walking through the house, opened the sliding door and the cat shut across my free from inside the house trying to get out. And as it got across, one of my feet I think was my right foot. I threw up my right foot, cat went in the air, cut decat delicately put the cat back in the house. It’s on video and it is on youtube to this day. But um, yeah, so the deal was the tenants were much more happier with this particular house cause it’s always the house comes first. Um, these people were here, they were in a rush.
They felt that they picked the best home. But in the end, I just knew it wasn’t the best for them and it wasn’t the best investment property either. So trying to make this a win win for everyone. So we did get a much better house in the end and everyone was happy. But uh, um, yeah, no, no, but I guess the point is that we’ve seen it from then, we’ve seen demand however many years ago that we’re talking over a decade ago, the last 10 years has been insane. The next 10 years with the population growth headed our way, like the big set I always put out, there’s that like look the Toronto, how it’s not the tribal housing authority, it’s one of the economic bodies within the city of Toronto. Put at that population data forecast that basically Trump’s Ontario’s forecast that says, hey look, we’re going to be going faster than the province of Ontario things.
The GTA, therefore casting is going to grow 43% from 2016 to 2041 or 3 million people. So we’re as of 2016 which is three years ago, we were at a population base of 6.7 million in the GTA and therefore casting that we’re going to 9.7 by 2041 that’s absolutely insane. So my point is that if we have access to credit, we’ve the best banks in the world, we have access to credit, we have low interest rates, and on top of all this, if we have a massively growing population explosion happening, what’s going to happen to property prices in the next 10 years? And then because we don’t want to be fooled by that. And I think something that I wanted to share with everybody now is that okay, things look rosy kind of for the next 10 years, 20 years here in this area, but it doesn’t change the fact that there could be a temporary crash.
And what would that look like? And I just want to share some data. And Mike, this is what we were talking about earlier. We went back and looked at two of the biggest crashes that we’re aware of, one in Canada in 1990 and then the u s crash. And I just want to share some data. So the 1990 Toronto real estate crash, that kind of happened right at the end of 1989 beginning of the year in 1990 we looked at the data from Toronto, the Toronto Real Estate Board. And if you look at the peak price, so the peak price from the 1989 to the the lowest point, um, it is a 27.6% decrease in prices. So we can round that up to 28%. So the very, very peak to the very bottom was a 28% drop. And the reason I’m sharing that is that just something, if you want to be aware of the worst real estate crash ever to happen in Canada, that’s what we’re looking at.
But the interesting part is the year before, if you bought one year before the crash property prices didn’t skyrocket much higher until the very last year. The year before, if you bought property prices to the very bottom, it looks like I don’t have the math worked out. It looks like property prices might have dropped maybe 10% total. It’s really just that froth at the very end where things came down 30%. So when you hear people talk about the great real estate crash, it was really people who bought like our father did because we were one of the families who bought flipping properties like straight up flipping, buying property straight to flip right at the point of the crash. And that particular property, if you’re listening to this went, it was a hard crash. It was a luxury home. Um, so $750,000, we went, it went down in price to 450, um, within a span of four months.
So that’s a pretty hard fall, but that’s right from the peak to the fall. But if you bought just a little bit before that and if you bought two years before the crash, the bottom there was no bottom for you because property prices came back down to prices two years before the crash. So I just wanted to put this into perspective. If the crash happened in 1990 it took six years for things to bottom out. But if you bought a property two years before the crash, the property price went to what you bought it at in 1987 so if you bought it two years before and it took six years, it went to 1996 for property prices to bottom. Literally property prices, you didn’t lose a dime because they went up in 1987 [inaudible] 88 and 89 and they came back to property prices in 1987 so it’s really only the people that are buying at that kind of moment that really take the biggest hit.
And it took six years for property prices to bottom out a fall of 28% as we discussed. And it took another six years for property prices to get back to where they were to at the very, very peak. And then now they’ve greatly exceeded that of course. But if you want to look at the whole span, it was 12 years, six years to bottom out and six years to get back up. That is, and the reason I’m sharing that, I don’t know if that’s, people want to hear that or not. Like it could be I guess scary if you’re not in real estate and you hear this kind of stuff. But that’s the worst case situation. That’s what we’re looking at. Right. And the um, I guess I shouldn’t say it’s the worst case situation could be. It’s really not that bad. So it’s going down six years coming up.
So that’s where you’re at. You’re even point. So that’s 12 years. What other asset or investment can you do where you put your money in it, it stays balanced over the 12 years. It goes up, goes down, whatever. And you still make money because you’re positive. Cash flow doesn’t even have to be positive. Okay. So just maybe don’t even the equity gain. Yeah, exactly. Yeah. No, I agree. I think it’s just cause we’re in real estate. I like to paint the worst pitch. Don’t think we’re like just selling real estate hundred the idea of selling real estate. But you’re right, when you boil it down like that, yeah. It’s like the price changed about the value of you didn’t your down payment money. Correct. And uh, as long as you didn’t sell source and you’re gaining equity through the whole time. Right. Um, I guess there’s a moment where you’re not getting equity because if you bought it at like 200,000 and it comes down in value, uh, your, your mortgages going lower, but it could come underneath what, uh, the amount of money, amount of equity you have in the property.
Like if you put 20% down, it could come and the drop was bigger than 20%. You could be negative equity there. You’re right. But I know I’m painting and you would have to sell, I’m painting the extreme pitcher. Yeah, yeah, totally. But you’re right. Obviously I’m in total agreement, but then there was this other one observation that I just wanted to share with everybody that we look at the sales volume back in 1989 and it’s a really interesting, the, the couple of years before 1989 the sales volume in the Toronto real estate market was 43,000 transactions, 49,000 transactions, and then it goes to 38 the year before the big crash and then it goes down to 26,000 so the real estate transactions went from 38,000 the year before to 26 so that’s a lot of volume. Like basically the real estate markets seized up, but there’s still 26,000 transactions going on and the next year in 1991 it rebounds right back to pre crash at 38,000 and then the next year 41,000 so my message on that is that even though purchase prices or property prices took six years to bottom out, the amount of activity only froze up for about a 12 month, 18 month window.
And then it bounces up. And there’s a couple of interesting notes. I remember that time and I know some rockstar investors that we work with. Remember that time as well. Part of the reason that the transaction volume volume came back is that some people had convinced themselves that the real estate market was going to go down forever. So they started selling in 1991 in 1992 and if you had the guts to be buying there, you were buying it like at some of the best opportunities ever. But so it’s a really weird time for the volume came back up in sales transactions, not because everybody thought the real estate market was rosy. All of a sudden it’s just that a bunch of people thought, oh my gosh, I better get out. This market is going to keep falling forever. But people who went in at that time and a whole bunch of people did based on the amount of transactions we’re seeing, they made out like bandits, right?
So I guess, and they might not have timed it perfectly because if you bought in 1991 or 92, you still had another three or four years for the cycle to really bottom out. But no one’s ever going to time it correct. If you’ve got a good property there, you were buying not near the high of the market, you’re already buying it a really good price. So just an just an observation. Um, and then I was showing was just showing, Mike and I were just going through this together. So we looked at the Canadian that was Canadian. So it took six years to bottom out at the very bottom and the drop was about 28% so we took us national prices, which is never good, you know, taking an average of all prices. But it’s, it’s, it’s, and the reason it’s never good is because the real estate market is definitely community driven, but we just want it to see what happened in the US at a national level.
And it’s a really interesting what we found from the top to the bottom. So the bottom took about six years to bottom out and it was a 27% decline in average national prices in the u s very similar, various totally similar. And then it took about five years for prices to come back up. So it didn’t take 12 years. The whole cycle was about 11 years and property prices came right back up. So that to me is like fascinating that we had this thing in Toronto was like 28% six years to bottom out. The U s national average was 27% down and six years to bottom out. So the only reason I like sharing that is that’s like are so far from the recent history of the last, what’s that 30 years almost? That’s what our worst case scenario tells us. We have to deal with US investors.
Right. I don’t know if that’s, I, I, whenever we talk about this, I’m like, I don’t know if that means anything to anyone or not. I just like knowing this stuff so I know what to plan for because then I’m like, oh, okay. If the worst case situation is a 30% fall, if I don’t sell and I’m getting rent like you’re talking about Mike, it doesn’t really matter to me. Correct. Yeah. If you’re in for the long term, yeah. It’s hard to really be concerned with this short term. Yeah. If you, if you’re not in this for the long term debt. Yeah. Maybe it’s valid. Totally. And the one of the things I found myself for a flipper especially, yeah. Okay, so two seniors. Yeah, there’s two. That’s funny you say it’s two scenarios. I was just telling someone the other day, I’m like, listen, there’s two things that you don’t want to get caught here cause if you’re renting it out, it doesn’t really matter.
You’re not selling the properties. Doesn’t matter. Maybe you’re not going to refinance it during that time is that doesn’t matter if there’s two scenarios that you can be dangerous. If you’re flipping properties and you get caught in this cycle, it can wipe you out. Look, it almost did our family, right? It could completely wipe you out. Like we were close to bankruptcy as a family during that era. In 1990 the second thing is, um, if you think you have a lot of real estate investors, think they have a lot of joint venture partners, a lot of people, friends and family around them that say, Hey Mike, I know you’re buying properties. Listen, if you find a good one, count me in. You know, we all as investors, you all have those buddies, right? Or family members and stuff. I’ll, I’ll give you some money. But you know, you do it and will be a joint venture.
All of those people during a recession or housing pro, a crisis disappear on you. Correct. So yeah, you know what I’m talking about, right? Yeah. I remember 2008 I think it was 2008 the year before we had about, or 2006 2007 we probably had a, Nick and I counted, it was either 10 or 12 investors by name on a whiteboard that told us, now, isn’t that right time to buy? I’m going to buy when the real estate market has a crisis. And we wrote their names on a whiteboard. I’ll never forget this. And then 2007 2008 hit in the U S and we called them and we’re like, guys, it’s pretty slow out in the Canadian market right now. No one’s making offers. And out of all those people, only two people, one of them’s an investor you work with today took action. Gotcha. The other 80% or more of that list told us no, no now’s not right time to buy.
Have you seen what’s going on in the u s right. Which was fascinating to me because they’re the ones who told us it’s not the right time to buy when prices are activities hot and then when the crap hit the fan, they also founded a reason that it wasn’t the right time to buy. Right. So fortunately as the market picks up the often on the sidelines saying, I miss the train. Yeah, I missed the train and wait for the next one, get away for the next crash. I can’t believe I missed that one. Yeah, yeah, yeah. I was just talking to someone the other day and you know, this is normal. It’s like, why didn’t I buy 10 years ago? I should have bought 10 years ago. It’s like we all that you’re just never going to time the market. Like you’ll never time the market. That’s why we like properties that pay for themselves.
Like that Bellville property you’re talking about, or a duplex in Hamilton or a rental and Barry, you know, or a triplex in Brantford. It’s like if these properties pay for themselves, you don’t actually have to concern yourself about timing the market. You should have to be aware that these things are gonna happen. And uh, and the other thing is when crap hits the fan, you don’t have access to credit. Like one of the reasons the real estate market might be tanking is that banks aren’t lending, right? So if you think you’re going to magically jump into the market at that time, you’re not because it’s harder to get mortgages and loans and that kind of stuff. So anyway, hopefully if you’re listening to this, that description of the Canadian time in 1990 in the you what the u s went through a little bit, just paints the picture a little bit of what might come our way during another real estate crisis is nothing to concern ourselves with.
This is normal. It’s completely normal. Yeah. You know when we’re talking to people and Micah, I don’t know how you handle this boat. Sometimes people will come up to me and they say, well Tom, the price of this is like too high on this property. And I’m like, if that’s the analysis you’re using, your analysis is to simple what’s the income? Tell me the income and tell me the expenses on the property. We’re investors. So if the income of this student rental or this six plex or 12 plex or legal duplex is greater than the expenses are covering the expenses is it really does the price point. Like why are we even having this discussion here? Like when, when when a permanent building owners who play in the bigger space, they never talk about the price. They just look at like what they talk about capitalization rate a lot, right?
So they will just look at the income and divided by the price. But one of the factors in deciding to them whether the property is worth it is the income, right? They never look at the price buy in and of itself. Right. But I find residential beginner, real estate investors are always just so like the price is too high. That analysis is just too simple, you know. I Dunno. Do you have any other ways to explain that or that that’s the basic stuff, right? And a moving target and yeah, I think it’s harder for investors that have been doing this for a while to wrap their heads around that this still continues to go the starter homes, um, in regards to their appreciation and what we’re buying them for now, which is basically double what we were paying 10 years ago. But I also talk to the tenants with the investors are dealing with the tents are dealing with the exact same thing and that’s a good property. Prices are. So it comes back to the numbers. And you know what the funny thing is, I don’t think any of us have ever, so I’ve had, I had to help a family recently find a rental property
in Oakville. We going into multiple offers on rentals. Um, you know I had seven families come out to this property. You know what I didn’t do ask if anybody wants to pay more. Yeah, I’m sure there’s some investors that have, but like here I had seven buying units at the house and it may be there’s a tactic there that we could have used to, you know, for it to go into multiple offers. But in the end I wasn’t worried about gouging anyone. I just wanted a good family in that property. But you’re saying those of us who asked for more, I’m not saying that I just may or may not know people who’ve done that.
But the interesting cause that if that was seven different agents representing seven different families, I guarantee you that there would have been something there to sweeten the pot will be six months, a upfront rent or higher, higher monthly rent price. And it’s your, and you know, uh, we know stories of renters who are not leaving properties because I am, I’m sure you own some properties and Nick and I own some properties where we know we’re renting out the properties at now. Well below market rent. I have investors that are renters that are buying properties but staying in their rental because it’d be less than the mortgage they had paid for their own freaking way. Yes. Way. That’s so smart. I love that big time. Holy Shit. You’re right. Because if they are renting for a long time now they have a great rental rate, right?
And they’re using their money to buy rental properties, Sorento to other people. Exactly. Shit. Who are these people? Let’s give them badges of honor gold stars for everybody. We should keep gold star stickers in here. Give them towards that goal. My Gosh, bolt start time. Holy Shit. I love that. Yeah, no, you’re totally right. But we have that and I’m sure you have tenants that have that too, like there and some properties. You know, we keep talking about cash flowing properties and cash flow all the time. We’re going to have to change that narrative a little bit going forward in Toronto. There is no doubt, but I just don’t want people to dismiss the cashflow isn’t possible because again, if you’re in Toronto, a lot of people think it’s not possible. But look at your Bellville example. I know people do it doing airbnb stuff that I can’t believe the amount of money I know a, they’re, they’re able to generate a few podcasts ago, we had a guy in here who’s built a tiny home and parked it on his friends lots somewhere and he’s renting it out for a crazy amount.
Um, legal duplexes or second suites or, you know, hover, we’re calling them. Those properties are generating cashflow, student rental properties, um, in almost all communities, the to, depending on the navy, not all of them, but they have a higher per student. Most are, are, are earning cash flow. Right. And then now with interest rates coming down, I mean, I think it’s too simple to just say, oh, probably prices are too high. There’s no opportunities. You should have to get a little bit creative for sure. You know, it’s, it’s too easy just to kind of dismiss it. Oh, real estate missed the boat. Oh my God. If that’s your analysis, then forget it. You have missed the boat. Like the rest of us are going to take action. Yeah. You know? Um, okay. I feel like we’re going on a little rant there and usually, uh, I, I wanted to talk about what the biggest thing about, I think most people are misunderstanding and we’re putting a report together on this that we hope to release some time over the next few weeks, is that we’re collecting all the immigration data coming into Ontario and the population growth
data that we have. We’re comparing it to the rest of the world. And literally at this point, I want to challenge anyone because I’m interested in the, this isn’t like, uh, uh, I’m trying to prove I’m right. I just genuinely do not know, but I cannot find another city in North America going through the population and development growth explosion that we’re having right now in the entire golden horseshoe, which would be like bet like Bellville Ontario to the east of Toronto to Niagara Falls. The Golden Horseshoe has 9 million people, 9 million. So that population explosion that I talked about was their analysis was only the GTA taking it from 6.7 to a 9.7 we’re already at 9 million people in the golden horseshoe. If another 3 million people just the GTA population growth happens. We’re going to 12 million people in this area over the next 20 years. It’s likely going to be more like this, this area with the amount of development.
Mike, you and I were looking at a video today about all the condos that have been developed in the core of Toronto over the last like 10 years. Like that’s just shocking. That’s just that. Just Toronto proper. We’re not even talking about like Hamilton or Ottawa or Barry or Kitchener, like we’re in the middle and I think this is when you’re in the middle of it, you don’t see the forest for the trees kind of thing. Sure. So I dunno, now I’m just preaching to the choir. You’re like nodding in Saint Jude. I’m like, yeah, this is so, so, right. Anyway, um, there’s one thing else I wanted to bring up. Um, and it’s on one of my personal favorite topics, Mr. Uh, my normal, it’s on gold. Okay. I was listening to a podcast the other day and this podcast said, uh, it was a good podcast.
It was one of Tim Ferriss, his podcast. And he had a financial planner on there and they were just making fun of gold and thought, oh my gosh, I really want to be on this podcast. And I really, I literally pulled over to the side of the road and I started documenting all this guy’s insults on gold. And here’s what he said. He said, gold doesn’t pay income. And, uh, I agree it doesn’t pay income. And then he said, what are, they both agreed and they laughed. They said, what are you going to do with gold if you have to use it? You’re going to shave off slivers of it and give it to people and as payment for stuff. And they kind of laughed at that. I’m a big Tim Ferriss fan by the way, so I’m not, this isn’t attacking him. I was just like, damn, they need to be educated.
Um, that what was the next thing they said? What will the economy look like if, if, if it comes to gold, you know, it’s everyone gonna to have guns too, you know? And they were kind of like, oh my gosh, you know, like golden guns. Like holy crap. And then it was like, um, the only value in gold is that someone else will hopefully pay you more for it. Like there are no other value. That’s the value. Right. So these were there, these were their attacks and I thought, okay, this is really interesting cause I think they’re missing the boat at all these four points. The first point is that it doesn’t pay income. I just want to be clear. If anyone, no one here needs to rush out and buy gold or silver, I think we all should be adding assets to our lives.
Me and Nick personally, Mike, I know you had the same ad, good income properties to your life, life, you know, uh, work on your career, start your own business, get your own clientele, do all that kind of stuff. That’s very valid. But at some point you may want to up enough money that you’re like, oh, I can plan for other scenarios and I might consider buy gold and buying gold and silver. The only reason I would ever consider buying gold and silver is as an insurance policy on the financial system. That’s it. So have all my money is in the banks and the financial system, golden silver acts as an insurance policy for me against anything going wrong with that. I can’t see why I wouldn’t have an insurance policy on everything I’m doing and it’s the best sort of insurance policy. But I want to address these four points specifically that it doesn’t.
First one is that it doesn’t pay income. Gold doesn’t pay income because gold is actual money. Money in and of itself doesn’t pay income, right? You only pay income on something if you take a risk. So for example, a $10 bill doesn’t pay income. Everyone considers it money. We can all argue whether it’s currency or real money or not [inaudible], whatever, but it doesn’t pay income. When you go to the bank and you put it in the checking account, you get a tiny little bit of interest, so it’s earning income for you. You’re getting that interest because you took the risk of taking your $10 and giving it to the bank. In exchange for that risk, I’ll, I’ll be low. You get a tiny amount of income, right? And that’s how the world works. Money in and of itself was never designed to produce income. Gold is to me, the purest form of money.
It’s an insurance against all other forms of money. It doesn’t pay income because money does not pay income. You take, you only get income when you take risk with your money, right? Low risk, like a checking account, high risk, maybe a stock or whatever you did a stock that pays a dividend or something like that. Right? So that’s the first point, not designed to to pay income. The second point that your shave off slivers to pay for stuff is that these guys have never really looked at other countries around the world. So when you, when you go Slavia went through its problems, nobody got an a, and if you’re not aware of Yugoslavia between like the year in 1,990 and 95 or 96, don’t hold me to those dates exactly. Went through hyperinflation. Their currency basically went to shit. And um, nobody was running around shaving off slivers from whatever gold they had.
They actually kept their gold as the only way to hold value in their lives. What they were doing is when they were getting paid, and I know this because I’ve talked to people there directly during this period is when they were doing work and getting paid, they would literally run, if they got paid for that week’s work, they would literally run to the store and buy whatever goods they could from the store that same day because the value of their currency was going down so fast. They needed to buy goods right away because the next day prices were going to be higher. Nobody was going and taking slivers of gold, and that doesn’t really happen. There’s other forms of currency during these periods, right? You’re not going around taking slow. You hold your gold as a way to protect your wealth during those times. The last thing you’re doing is shaving off slivers.
You’re basically tucking your gold away and saying, after all the shit hits the storm and the shit that’s hitting the fan passes, one of the only things left a value in my life that I’m going to have if I don’t some properties is these pieces of goals, right? So it’s, it’s a really a store of value. You’re not shaving off any slivers. And they said, what we’ll economy look like if it comes to gold, like is everyone going to have guns and stuff? No, that’s not how it happened in Yugoslavia. There was wars that was like starting the hyperinflation period during that, that period of time. It just means that everyone’s rushing around trying to get rid of their dollars as soon as fast as humanly possible. And if that’s the case, you want something else to hold your wealth, hold your purchasing power, protecting you financially.
So that’s kind of what the world looks like. Not everyone has guns and they’re running around shooting each other and less than, maybe it’s nerf guns were not knowing during those times is running around shooting their neighbor down the street or whatever. And then they said the value is some is, is uh, is what someone else will hopefully pay you for it, right? That you have this thing and someone else will hopefully pay you more. Yeah, that’s exactly the value for the entire history. Gold has been a valued precious metal. It’s a store of wealth so that, I’ll put it to you this way. I know of a family in Bosnia, the only way they got out of the country of Bosnia is during that period of hyperinflation, the priest took that a piece of gold from this family and an exchange for that gold.
They smuggled this family out of Bosnia for them. Think about that. That, so yeah, someone gave a lot of value in exchange for the goal that that is what goal does, it holds its value. That is so when they’re saying the only thing it’s only value is that someone else will hopefully pay you more for it. Yeah. That, that, that’s the whole thing. And then we have thousands of years of history that proves that people pay for its value. Right. Um, so anyway, I dunno, that’s what I wanted to do this year goal. It basically holds its value when everything else in the world is going crazy. So, uh, one of the best ways I like to think about it, when I talked to somebody about this and I’m like, I still don’t get it. I’m like, look, listen. And the 1930s if you had a one gold coin, a one ounce gold coin, you could probably buy a good suit for it.
Right? Right. Today in the year 2019 if you have one good gold coin, you can nice suit, you can get one nice suit. Yeah, that’s all. I mean it hasn’t changed its value. Whereas when you bought a dollar, like a good suit in 1930s with dollars maybe cost you, I don’t know what it would cost you back then, maybe 50 bucks, but now good suits going to cost you like 1300 bucks or a really good suit, right? Yeah, so the dollar has fallen in value used to take 15 now it takes a lot more than 50 whereas the gold coin kept its value. That’s it. That’s its purpose. That’s the whole game. So if anyone knows Tim Ferris and them know that we need to talk because he needs to be clear on that. He’s a good guy. He needs to get his act together. Anyway, that’s my rant on the, on the gold and silvers and above. Before we, thanks. Bev likes is looking at me like, would you just stop ranting about this shit anyway, uh, on the, on the, on the real estate market crash stuff, when you’re dealing with investors, do you, uh, is there a common thread that people are like, well Mike, I’m worried about this or I’m worried that, or is everybody
different? I, yeah, I think a lot of people are different. 99% of the people that are get me properties sold on exactly why the investors you work with it. We’re looking to replace income, have assets in their life. Is there a common thread or is it also over all the people also worried about their employment to like, what am I going to do if my employer player, you know, pushing me out or you know, what am I going to do for my children’s is a new one recently in the last few years that people are more concerned of how are my children going to be able to afford a house? Um, and then how are you breaking down there now? Like, if someone comes to you, are you working with their goals around cashflow appreciation to, is there a systematic way that you’d like to say, okay, let’s look at this.
It’s individual. So if cash flow is of most important interest to them, then that’s what we’re going to work on. And that’s usually where somebody is going to, maybe the husband or wife are going to pull back from their job or maybe the husband or wife have been recently let go so they need to replace that income with some positive cash flow properties. So we’ll look at that. Um, but yeah, it’s, it’s more of a personal thing that we figured out when we’re sitting down and chatting with one another. And then you investors that you work with now, are they surprised to see the multiple offers that you’re dealing with?
I don’t think so. I don’t think so. I think um, once, uh, it’s tough. It’s tough. Yeah. I find, cause when you told me five weeks ago that we’re seeing a couple offers, I was shocked. The shit really. I think if it was people looking in November, December and then maybe state out of the market for a bit and didn’t see this coming like you know, they uh, came out of the woods in the last two, three weeks. Yes. But for the people that you know, we’ve been working with over the past few weeks trying to get stuff, you saw it coming. Yeah. They’re not surprised, not surprised on it and yeah. Now that uh, hopefully though with the, with the better weather, you know, I see the flowers outside blooming, um, that we’ll get more inventory on the market. Yeah. I feel like, I feel like every spring we say the same thing, man, it’s getting harder.
And the crazy part is we all say how hard it is to get investment properties in year 2019 compared to the year 2009. Like that’s something we talk about in here all the time. Sure, sure. My question to all of us is what happens in the year 2029, right. For sure. The last 10 years went by with a snap of the fingers in 2029 when we’re sitting here chatting about this stuff, are we going to look back on 2019 and go honey, well hold on a second. If we knew that the Canadian market was the place to be, this much population growth was coming in here, that there might be a correction, but if we’re smart we can get through it and survive. If we have properties that pay for themselves. Right. Why did we not load up harder? And this is a question I’m asking of myself too, you know, we’re buying the new commercial stuff for a rock star and then Nick and I are back in the market for some other stuff.
As soon as we get through that it’s like, hmm, did we really go too easy? Like I guess my question is if we see this population growth coming here, are we all missing the opportunity by not be putting by not even going harder? You know, and I know if you’re listening to this podcast and knowing our story, you think that’s a very self serving thing to say and yeah, I can understand that because we own a real estate brokers, but I’m being genuine and sincere. Like, yeah, for sure. We missing like the opportunity of a lifetime here. Like is this Toronto’s moment that we’re 10 years into a beautiful growth cycle, but we’ve got another 20 years left to go. Right. You know, and I guess time will tell. So Mike, we’re going to have to come back here with Tequila. Don Julio, 1942 preferably in 10 years.
Anything else we want to share? No, I think, I think, uh, um, something that’s been interesting too in the last, I think this year particularly, I think the $2,000 rent until price has that, that, that ceiling’s been broken. Like it’s not uncommon now for, I know in short, describe the home, like what kind of single family? A three bedroom, maybe one or a two bathroom bungalow in about, uh, yeah. Uh, Cambridge, Kitchener, Hamilton, St Catherine’s, you don’t prop properties that we’re paying for 400, 450,000 for, uh, most rents are 2000 plus to rate rent straight. Rhett, just straight rent plus utilities. Like I know that’s, you know, the co the norm for Toronto, it’s, it’s 2000 plus, but it hasn’t been like that, um, for these outlying areas and uh, yeah. So it’s not uncommon now for us to be, to give everyone perspective, what was it three, four years ago?
Uh, 1650 1700 root growth. It really is. Yeah. Not percentage wise. That’s a, yeah, absolutely. Yeah. That’s crazy. It’s like a dollar 99, $2. Our rent to own on the same and I know we’re doing the reason I, I’m going to say we’re doing less rent to owns with investors just because most investors never want to sell properties and more like forget it. But if you were to do a rent to own that means on that house, you’re going to get 23, 2150, 24, 24 50. Yeah. 25, 26. Yeah. I know somebody in here is doing one, a little higher priced home though. And I know they did 27 50, I believe. Right? So, um, and one of, uh, I, I know a bunch of people in here who are doing rent to owns, um, we’re, we’re finding tenants for those so quick because, um, people can’t qualify for the lending because the banks have made it so difficult and we have less investors doing it less so there’s less people in Ontario doing it because more are doing longterm buy and holds stuff as investors yet as investors.
But the rental, it’s still a really nice strategy. It is. Right. And like in the realm of fairness for everyone, the investor and the tenant, right? Or you’re not like charging some insane amount correct. Of Rent and stuff. So it kind of works for both sides. 100%. Yeah. It’s a good strategy still. Yep. All right. Thanks man. Okay. Tequila shots all around. Hey everyone, it’s Tom crowds against. Hopefully you enjoyed that episode and a, if you are listening to this and you want to check out some real estate, uh, education for yourself, you can come to our class and register for that. I’m stumbling all over myself here@canadianrealestatetraining.com that’s www.canadianrealestatetraining.com. That class that we give is always full. It’s an introductory class to real estate investing. Nick and myself are there. We stay around
after the class to answer any questions. We really enjoy giving that class. We’ve been doing it for a long time. So you can checkout dot class and get registeredFord@canadianrealestatetraining.com that’s it for now. Until next time. Your life, your terms.