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episode # 190

How to Cash-Flow Positive, Save Thousands on Renovations & Partner Up for Success in Vancouver’s Real Estate Market with HGTV’s Todd Talbot

Hanging out with Todd Talbot has greater benefits than being the envy of every soccer mom (and dad!) across Canada; you can also learn from a seasoned and VERY strategic real estate investor! This week, Todd joins Adam & Matt to chat about failures, successes, motivations and lessons learned in the Vancouver market. We unpack his most recent purchase this spring, where and how to find cash-flow, strategies for working with trades & why some partnerships just don’t work. This is Todd sans make-up and hair and willing to share. He doesn’t disappoint!

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Episode Summary


 

Can you tell us about yourself?

I’m an actor by trade and the whole real estate thing started when my parents began charging me rent when I moved back home. So I bought my first place in Kitsilano and read a book my brother bought me about refinancing. I read it and everything started making sense. I began investing in real estate and got really into it. It became my hobby, my passion and then I found myself on a TV show on HGTV. Off camera, I’m still very hands on in my own portfolio. And that’s what I love to do. I’m a licenced realtor and I am doing my own investments and renovations.

What happens in real life is a lot less sexy than how you package it for TV. The show gives you a glimpse into the process and helps people get ideas and inspiration. But it’s not the real thing. The people in the trenches of investing in real estate will tell you it’s a very different process. It doesn’t get wrapped up in a one hour segment!

Your latest investment property in Vancouver

People always want to find a good deal. In my experience, the greatest opportunities are the ones that land out of nowhere. My wife and I partnered with another couple (who actually appeared on Love It or List It Vancouver way back in episode one) to buy a place together. We did our due diligence and negotiation, there was a long time period before we got possession, and then we did renovations. We just got the second suite rented out and it cash flows.

I believe in investing where I know; for me, it’s the safest route. We kept crunching the numbers (purchase price, carrying costs, renovation costs, rent we could get) and it seemed to work.

Is it a single family home in the city of Vancouver?

Yes. RM-4 zoning (multi-family zoning) so there are lots of options for the future. I want to hold for at least five years. Financially speaking, we want it to be a 5-7 year hold.

What shape was it in when you bought it?

I don’t suggest everyone going down this route but if you have experience with older homes, you can be more aggressive negotiating with certain properties. We got possession in June/July 2019 and were negotiating in March/April 2019. Tenants were moving out, which was part of the plan beforehand. We didn’t want to displace people. We would have walked away from the deal if that had been the case.

I’ve been doing this for over 15 years. I intrinsically get a sense of where things are at and just talking to people to understand the market better. The market is driven by a lot of factors but one of those is emotions. When everyone is talking and buying, you may have missed the window.

On the importance of location

The location is critical. We strategically looked for an area that would have the biggest swing. Part of it is a guessing game. We’re west of Main, which is an area I’m very familiar with. It’s a great area. Prices came down quite a bit and I think the bounce back is going to be stronger than other areas in Vancouver. I think the Main Street corridor is going to do better than some of the deep west areas of Vancouver.

I’m taking west of Main over Kerrisdale everyday, and even over Kitsilano, where there isn’t much room to grow. Kitsilano is problematic from a traffic perspective – it’s hard to get in or out of. It’s also more established. Kits has already done it’s thing. It might do another thing down the road but that’s a longer wait.

Between Cambie and Main is becoming the “golden pocket.”

Go to a city and look at where the artists are living. It’s not great that they get displaced but the artistic community creates a cool factor that other people want to be around. So investors want to be there too. You see money coming in, gentrification, renovating houses, cool businesses coming in, etc. It indicates where the next trend will be. We’ve already seen it in the Main corridor.

Right sizing and families in urban centres

It’s important to make sure that our neighbourhoods have that diversity. Not just in ethnicity but in ages, socio-economic backgrounds, families, etc. My mantra is “How are we keeping families in our urban centre?” It’s not for everyone but for families who do want it, we need to make it a viable option. We need to continue to address this problem.

The theory behind right sizing is readdressing the space that we’re living in. As affordability becomes a bigger issue, we need to redefine the “bigger is better” model. We need to build efficient spaces that are more cost effective so people can stay in the city. The trickle-down effect of this is huge: financially, for the community, for transportation, better building, environmentally, etc.

The housing industry is way behind the curve. In cars and in food, it’s being addressed. But in housing, we’re nowhere. We need to be proactive about the issues that are affecting us, especially the environmental realities. We need to create something where our lives are better because of the choices we make, not a sacrifice you’re making. Right sizing is asking what we can do to make our lives better. Instead of living in the suburbs with a commute and having a giant mortgage, what can we do to change that?

There is talk in the industry about people recognizing where they choose to buy and live is having a huge effect on their lifestyles, environmental footprint, time, etc.

Exactly! We stumbled on right sizing because of our children. This is a conversation that needs to keep happening.

In fact, these conversations factored into our latest investment. From a location standpoint, it’s on the bike route with everything nearby that you can walk to. Zoning-wise, there’s an exciting opportunity to get creative with this group of heritage homes in the future. It could be a progressive development. As a buy and hold real estate investor, you need to think about where we’re going. This is a retirement fund, not making a quick buck.

On pulling the trigger in an uncertain market

You have to believe in the future of Vancouver. There’s lots of scary stuff but you have to believe in fundamental supply and demand. Will people want to live here in the future? Are more people going to be moving here? If yes, then we have a housing shortage and a hot rental market. Interest rates are out of your control. You need to be aware of them but if you believe in great neighbourhoods and great product with options, you can’t go wrong.

On investing with a partnership and the importance of a team

We have a partnership agreement that, truthfully, we haven’t signed yet. We just haven’t dealt with it yet. We did go to a lawyer but I don’t typically do a lot of partnerships. The most important things are a like minded philosophy and work ethic. You need to trust these people. We also kept everything very professional and well-documented. We calculated sweat-equity.

We also have the same end game. That needs to be aligned 100% – you need to have the same goal. That is something that needs to be hashed out at the beginning. Full disclosure and open communication is vital. I even asked them if they were okay if I talked about the property on this podcast.

I resisted partnerships for a while because I wanted to be the sole decision maker and not have to carve up the numbers. But I’ve loved it! It’s hard to work in a bubble. It’s nice to have other people coming up with solutions together and dividing up the work. It can take a team to come up with the best ideas. Success is a function of the people you surround yourself with.

I’m licenced but I didn’t negotiate this deal. So we brought in someone else. I didn’t want my personal agenda to overpower anyone else’s in the partnership. Just like how actors have agents, it’s an emotional decision and it’s good to have someone in there who is a degree separated.

If you’re going to invest and renovate, you need a team around you that you trust. Everyone from a plumber, realtor, mortgage broker, electrician, etc. You have to trust their work and their price. So many people get involved in investing and they’re totally lost. It’s not an easy journey.

Another idea on the negotiation side: We walked into this house and there was so much stuff. So you can tell them not to worry about it. Make it easier for them! We saved on the purchase price by offering to dispose of stuff for them. The cost on our end is minimal and we saved a ton. It’s not just the cost of removing that people don’t want to deal with but it’s the hassle.

On the renovation process with a partnership

We started with a 50/50 split agreement – we’ll both contribute the same amount of money, time and effort. Money is tangible and easier to split evenly. But time and effort are harder. Everyone has different skill sets. Any decision was discussed in a group text.

Our main focus was moving fast. Getting from possession to rented as fast as possible was critically important. We didn’t want to fuss over an extra couple hundred dollars when our place was sitting unrented. Having a place sit empty was the worst outcome.

We trusted each other to go out and buy things. Together, we came up with ideas and resources that I wouldn’t have come up with independently.

My other rule is to always be there. I like to be on-site every day. And I’m not just hanging around; I’m in there getting my hands dirty and doing the work. For example with this investment, we had a plumbing problem. While my plumber is getting the materials we need, I’m going down into the basement and opening the floors, opening the panel, etc. I keep the process moving quickly so we can minimize the number of hours we need to pay the plumber and solve the problem faster. I’m also there to help make decisions.

On what renters want

It’s a fine balance between being conscious with money but not so far that you’re being cheap. We wanted everything to be clean and safe. Then practicality, longevity and cost-effectiveness were important. No one cares about top trends. Renters want a place that feels like home and functions well.

Our place is divided into a three bedroom unit and a two bedroom unit. I thought the two bedroom unit would be our gem but the three bedroom was way more popular, despite not having a living room. It was mostly three roommates interested, so financially it made more sense.

We like to include utilities and internet in our rental price so it makes it easier for renters. We want to make it as easy as possible for our tenants. People don’t want to leave easy. It’s the little things that make a difference.

You need to keep the end-user in mind. Who are those people and what do they want? Is it more important to have a dishwasher or a washer/dryer? Is it students or a family? Are you allowing pets?

On the tenant process

I think some of the hoops people make tenants go through are a bit ridiculous. I have never called a bank. I don’t know why people call a bank! We ask for three references but we don’t do criminal record checks, credit checks, etc. If you are so nervous about this tenant that you need to do all of these checks, than that’s not the right person.

My thing is that I have to meet everyone in person. It’s a partnership and I want to get to know them.

Have everyone come at the same time so you can create a sense of urgency. Meet them and get to know them, and then call some references. If you don’t have a choice of tenants, you’re likely priced too high.

I also have a studio apartment downtown (418 square feet without parking). I used to think no parking would be an issue but it’s not anymore. If I need to determine a price, I go to Craigslist and see what comes up. I ended up listing as the second least expensive in all of Yaletown and I still thought it was high. But I was inundated with responses!

(Pro tip: Also check out Padmapper!)

What are your plans for increasing cash flow?

We’re obsessed with storage as a culture. We need places for the stuff that we don’t use. So providing that space in the basement is one idea I have for increasing cash flow on this property. We don’t want to put accommodation down there so we’re planning to clean it up and rent it out as storage. I’m betting we get the same renting it out as storage as we would renting it out as a suite. And the cost to turn it into storage is minimal compared to turning it into a suite.

Ideally, it’s the tenants first who rent out the storage area, and then the neighbours. It’s a tight circle of people. We wouldn’t have a bunch of strangers coming and going as we’re not running a storage facility.

On another house I own, I rent out both sides of a two-car garage, which is another way to maximize cash flow.

On the love of houses

I love houses. I don’t understand why people invest in houses who don’t love them and who don’t understand them. I know it’s a problem when you’re trying to scale and buy/renovate multiple properties; you can’t be at all of them all of the time. But I love it!

It’s not for the faint of heart. It’s a high stakes game. It’s a lot of time and effort. And you have to love it.

Do not get into real estate investing or especially renovating if you don’t love it. You have to love it or else it will beat you down.

The Covenant House fundraiser

I’ve been supporting Covenant House for five years now. The event is called the Executive Sleepout. We sleep outside for one night to bring attention and awareness, and raise money for an organization that helps kids get off the street. Helping homeless youth in Vancouver and across the country is awesome. Hearing their stories is heartbreaking so this is the least we can do.

So we put on a party every year to help raise money for this incredible organization. This year it’s called Pillow Talk; it’s on Oct 17th and the theme is high-end pajama party. There will be a Twister tournament, live music and everything is sponsored so 100% of your ticket price goes to Covenant House (and you can get a tax receipt for the full amount).

5 Wire:

Favourite neighbourhood: Main Street

Favourite Bar or Restaurant: Britannia Sushi

Book you would recommend: get an audible membership!

Piece of advice you would give your 18 year old self: Buy property sooner!

Something you have purchased for under $500 that has changed your life: Patagonia Jacket

Tickets for Covenant House Fundraiser.

Find Todd on Instagram here: https://www.instagram.com/toddtalbot/

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