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episode # 123

This Lamb Gives Great Investment Advice with Brad J. Lamb

Brad J. Lamb is one to watch: he made his first million in real estate before moving out of his parent’s basement and has not slowed down since. Brad subsequently opened his own real estate brokerage, amassed an enormous personal real estate portfolio, starred in HGTV’s “Big City Broker,” founded a development company with holdings across Canada, and, oh, you know, sold 24,000 condos in the GTA! Brad sits down with Matt & Adam for a wide-ranging conversation on how to be successful in the world of real estate. Among many other things, find out where in Canada Brad would buy right now; his best advice for aspiring real estate moguls; and why the residential condo is still the best investment vehicle out there. Not to be missed!

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Episode Summary


 

About Brad:

Brad took mechanical engineering at Queens University, in Ontario. He realized in year three it wasn’t for him, but still finished. He planned his exit from engineering and got his real estate license. Brad had been buying real estate in the four years he was an engineer and loved it. He went from being a small to medium-sized investor, to becoming an agent and broker, to doing lots of work for developers as their brokerage rep and advisor. In the early 2000s, he decided he knew more than they did and became a real estate developer, himself.

On how he became interested in real estate:

Brad has always been a salesperson. As a kid, he would buy and re-sell everything, such as ice cream sandwiches and freezies, and he would hold fairs, barbecues, and movies. He always liked real estate and would sketch malls and buildings as a kid. In his second year of university (1982), Brad rented a house with some people and at the end of the year it went up for sale for $55,000. They had been paying $900 per month rent. After doing the math, Brad realized the net income was off the charts. With 10% down ($5,000-6,000), you could make $4,000-5,000 per year, pay off your mortgage, and hope for the best in terms of capital appreciation.

Brad saw how easy this was and so convinced his two brothers to form a company with him. They bought a townhome in London, ON for $32,000 and rented it out for $800. From that point, Brad bought and sold more and more real estate. Because of his interest in sales and his engineering job being sales-oriented, he got a real estate license. He asked his agent at the time how much commission he made off him in commissions that year—it was $70,000. From hearing that, Brad knew he didn’t want to continue making $50,000 as an engineer. He figured he’d represent himself, but after going to real estate school and seeing people struggle with calculating mortgage payments, he saw the opportunity right in front of him.

On advice he would give to aspiring real estate moguls:

Take it a step at a time. in 1988 when Brad left his job, he never considered he’d be where he is today. This took time, after he sold real estate and made money. He became a millionaire and set the goal that he’d be a billionaire by the time he’s 60. Setting goals is great, but it’s alright if you don’t reach them. He would always take as much money as possible from his earnings and not necessarily live simply, but he lived with his parents until he was 31 and moved out as a millionaire. In 1990, this was a lot of money. Brad only attained it because he held onto every dollar he could and invested in real estate. He had a crappy car and didn’t spend a lot. Brad realized the sooner he did this at a younger age, the longer he’d have to earn money.

When he worked for developers on 200-unit buildings, he’d buy four or five apartments and would struggle, as this required about $200,000 in down payments. The developer was shocked that he was buying so many units, but the math made sense: units sold for $160,000 with 5-5.5% interest rates, and they would rent out at $1,200 a month—it created positive cash flow, and each year the market went up as prices increased. Brad started out in condos and did not want to be a slumlord—he’d rent to young professionals who paid on time and wouldn’t constantly call him.

So, his advice is to do whatever you can to get your money in the system without taking too big a risk of over-investing. It’s a balance. You’ll always feel like you could have done more—in hindsight, Brad sees billions of dollars he could have made if he didn’t hold back. But, there could have been a deeper recession or other circumstances that would have held him back from where he is today.

On whether he would invest in properties prior to buying a principal residence, or vice versa:

When you’re starting out in your twenties, you can never afford what you want. Brad’s friend was renting a really nice apartment downtown and owned a BMW, while he lived at home until his dad kicked him out. During this time, Brad saved a ton of money and bought and sold about 30 properties. He became very knowledgeable and seasoned in real estate as he gained this experience. He could analyze quickly and didn’t second-guess himself, which many people do.

In 1988, Brad bought a condo from floorplans for $101,000, in Toronto at Jarvis and Gerrard, close to where hookers would hang out. He didn’t care, as he knew it would eventually be worth more than he paid. In 1990, he moved in with a $75,000 mortgage. It took him eight years of sacrifice by living at his parents’ home. Maybe in BC, people need to buy a place close to home and rent it out for awhile to build a nest egg. It’s not your birthright to get a degree, a fancy job, and a nice condo or house—you have to work hard and earn all these things.

On some of the biggest mistakes he’s made throughout his career:

Brad waited too long to leave the brokerage he worked at. He was the number-one business generator there, with a big name, and felt loyal to his boss. Loyalty is okay, but there’s a time in everyone’s lives when they need to do something for themselves.

He also missed some opportunities. For instance, in 2001 he bought a 30,000 square-foot parking lot not far from his office with two other people for $3 million. Two weeks later, they flipped it for $3.35 million. Brad thought the $100,000 profit was great, but today that parking lot is worth over $100 million and can accommodate over 500,000 square-feet in density. Brad has made this same mistake ten times in his life. He could have done more and somewhat regrets that he didn’t. However, if he had done more he may not be where he is today. Maybe tenants don’t pay rent on time, a chain of events leads to defaulting on a mortgage, etc.

On opportunities to cool markets, in terms of government intervention:

In 1991, Bob Ray was elected and completely ruined the Ontario economy. Four years later he was out, and Mike Harris was brought in. In BC, there is a coalition between a socialist party and a green party—a green party should never be in power. Brad feels a green party’s job is to force change through some power and lobbying efforts but having them or an NDP/socialist party in power anywhere in the world is just stupid. BC will suffer while they’re in power, and Brad is sure they won’t be re-elected. BC and Alberta have gone too far left. As well, Ontario had the most left-wing premier in its history. She was an NDP radical who did terrible things to the economy and real estate industry. The real estate market will not strengthen in BC under the NDP; it would happen under a liberal or semi-right-wing party. Alberta’s election is in a year, so things will change in a big way.

Currently, the four best markets in which to buy real estate are Calgary, Hamilton, Ottawa, and Montreal. People in BC should buy in these markets, get someone to manage the property for them, and bring back the profit to BC in two to three years’ time. Those markets are all poised for, at some point, explosion of value and growth—they’re way too cheap. Vancouver and Toronto have run [their course] and what’s happening is what’s necessary; otherwise, both cities would have blown up. There will be a retrenchment, which we had in 2008-2009: an 8% loss of value before the markets started up again.

We’ll see something similar, which may last a bit longer in Vancouver because the government is completely anti-development, anti-real estate, anti-wealth. Everyone points their finger at developers—you have massive, “nimbyous” networks, but all NIMBYS* in government cause their own problems. If Vancouver had added ten stories to all the buildings restricted to 28 or 32 stories, what would have happened? The city would not explode. In fact, it would have added tens of thousands more apartments which would have kept pricing in check. But we can’t go back. You’re never going to get a 300-unit building knocked down to build a bigger one—300 owners will not agree to that.

Vancouver and Toronto have doomed themselves. If you increase supply of a product, price will obviously level-off or fall. If you’ve been restricting supply, as government has, how can you expect prices to do anything but rise? Toronto will never be a place for first-time buyers, unless first-time buyers get help. It’s all government meddling that caused this—look at what councillors and mayors have done in Vancouver over the past 30 years to prevent density.

On the market and type of property in which Brad would invest $1 million:

Most people can’t buy commercial property because it’s troublesome to manage from a distance. In Calgary right now, you can buy a condo in a fantastic building for $550 per square foot. Calgary was more expensive than Toronto in 2007, so that tells you where things can go. Brad has many condos in Calgary and Ottawa and, at one time, Montreal. He was so sick of the pro-tenant situation there that he raised $1,000 or $1,100 rent by just $5, and a tenant said they were leaving. Brad developed a building with partners, spent a lot of time there, and saw the city changing, but he could never get any more rent. He sold everything only to see the city catch fire over the past year—they have the right premier, the right mayor, and there is a lot of civic pride. They are tiny with not much room to grow, and tough about density.

Of the three, Ottawa might be the weakest because it’s a government town, though Brad likes that this makes it stable with small, not wild, increases. The city will grow because Trudeau will be around for a long time—he’s young and people like him. Calgary is prone to swings because of the oil, but Brad likes it because since it’s been hammered so badly already, there will be an upswing. Brad likes Hamilton because it’s a cheap city and people are seeing its opportunity. It’s distinct and will be affected by the sprawl of Toronto. In all cases, he would buy floorplan condos (not existing condos, as someone’s already made money on them) because you can buy at 2018 prices, put 30% down, and close at a 2023 value, then make money as a landlord at 2023 rents, too. You can make rental income in these cities, unlike in Vancouver or Toronto.

On the one book everyone interested in real estate should get:

There isn’t just one book. Brad wrote The Condominium Millionaire. It’s run for condo investors within each city Brad’s worked to show people that they can do this. They’re about to update it with new numbers, as it’s been two years. You don’t want to overthink it—it’s not complicated. It’s 25-pages long and will show you what you need to do. You can also apply the fundamentals to buying a plaza or apartment building.

The reason Brad feels condos are better than other types of investment properties is because when you buy a plaza, or an apartment, office, or retail building, you’ll only sell it based on the cap rate on income. If cap rates are 5%, you won’t get more than that on your net income. Condos can sell for cap rates, but 99% of the time you sell it as a single-family home. You buy from a developer on a cap rate program, which could be positive cash flow year-one from the standpoint of setting off how much you pay down on your mortgage. For instance, if you lose a grand or two per year but you’re paying off $8,000 on the mortgage, it’s not cash flow but you’re still up $6,000 per year. When you sell, it’s to an end-user who doesn’t care about cash flow, cap rate, or price per square foot—they care about whether they can afford it. So, you can buy it cheap based on rental fundamentals, and sell it as a single-family home at the highest valuation possible. It’s the only real estate you can do this with.

People bought condos in the building Brad’s completing now for $530-540 per square foot. They’ll close in a few months and can then sell for $1,125-1,150 per square foot. On a $250,000 small condo they’ll put, say, $65,000 down and pull out $320,000 when they sell. However, Brad doesn’t suggest they sell but instead re-finance and buy another two condos. Take 25 years to pay the mortgage off, and the worst-case scenario is you own a condo outright.

On how the 2007 This Lamb Sells Condos ad came about:

Years ago, Burt Reynolds did a big Cosmopolitan spread, lying naked on a fur rug, horizontally with his head on his arm. Brad thought it was funny and it caused huge uproar at the time. Brad Pitt was considered really sexy and popular then, so Brad had the idea to lie down on his logo (which is like a table) with a caption stating he’s no Brad Pitt, but he sells a ton of condos. It caused an absolute uproar. Ad agencies called him and said he should be arrested – yet, they called him!

From there, Brad started thinking about weird ads, which is where his head on a lamb’s body came about. This year, he’s back with a scuba-themed ad which states, we go to great depths to find your perfect home.

To find out more about Brad, what he does, and his book:

Brad’s book is free and can be obtained by emailing info@torontocondos.com. New versions for Ottawa and Toronto will be printed soon.

 

*NIMBY stands for Not in My Backyard.

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