Today we’re buzzing with Don R. Campbell, the notable and quotable real estate expert who has long been the go-to for advice on how to invest wisely in the Canadian residential property market.
Don is a founding partner at the Real Estate Investment Network (REIN) and successful author of many real estate investment how-to guides.
We caught up with Don when he was in Toronto promoting his new book, “The Little Book of Real Estate Investing in Canada,” and heard about who should be reading it and how it fits into his vast collection of other published works.
He also gave us his astoundingly well-informed opinion on the major markets for investment in Canada and the low-down on the infamous “population growth trap” in real estate investing.
We’ve also included some of the audio of our interview using modern technology. Enjoy!
BuzzBuzzHome: Why did you think now is a good time to publish “The Little Book of Real Estate Investing in Canada”?
Don Campbell: Well, “The Little Book of Real Estate Investing in Canada” is part of a 26-book series, “The Little Book of” and some of them have been written by Ben Stein and all the value investors around the world. And this is the first one that they’ve allowed real estate to be discussed because it’s mostly financial. It’s great that we were able to do a Canadian one because it’s a world-wide program.
So being book number 26, I decided to shake it up a little bit. This book is not only a compendium of stuff that I do, it has many personal stories — how I started in real estate, mistakes that I have made, the lessons that I’ve learned along the way and how to put it all together.
I’m very proud of this one. One hundred per cent of the royalties go to Habitat for Humanity so I’m not making any money on the book. We’re trying to push it over that million-dollar mark and we’re at $921,000 already. The initial goal was $20,000 so, nothing like shooting high, right? It’s very exciting.
BBH: Are you ever worried that the information that you’re providing in the book becomes dated a couple of months following publication?
DC: There are no dated numbers in the book. The book is designed so that homebuyers or investors can sit and ask the right questions and do the right analysis in that moment of time in which they’re sitting. They can read this in ten years and ask the same questions and come up with different answers obviously because the market will have changed. It’s so they can think and analyze. That allows people to make calmer, cooler, less emotional decisions when they’re buying a piece of real estate.
BBH: Where’s the book going to be available?
DC: Everywhere. All the regular outlets and Amazon and you know if keeps bouncing off of number 1 on Amazon already in all those financial categories, which is exciting for me because I’m sure Habitat for Humanity is always watching behind the scenes to see how my books are doing. So I’m very proud of that.
BBH: Do you feel that’s also a reflection of how highly viewed the Canadian real estate market is right now because so many people want to get involved in purchasing property?
DC: Well, it’s very interesting because if you look at the aging of the population and as we age and I’m just turning 50 so I’m entering into that thought process is where are we going to get our retirement “income.” So we’re looking at bond deals of next to nothing — 1, 2 per cent. We’re looking at the stock market, which is incredibly volatile. You can do incredibly well or you can completely, completely lose the plot if you start stock picking without any information.
So a lot more people are leaning towards, ‘Well maybe a piece of real estate would be a good thing to be because if inflation kicks in, that’s good for real estate and hard assets. Rents go up, values go up. Yes interest rates go up, but rents go up too. And that’s why we’re seeing people leaning towards at least having some real estate in their portfolio.
Someone asked me the other day, ‘So I’m going to give you $200,000 right now, what would you do with it?’ And I said, ‘For the next couple of years, here’s what I would do with that $200,000. I would take 10 per cent and put it aside for a sleep-at-night fund. Because the markets are going to be volatile and not just real estate markets but financial markets and there are going to be mixed messages coming out of Europe, US, Asia so it’s nice to have a bit of a sleep-at-night fund.
Then I would take about 30 per cent of that and put it into a good quality REIT and invest it in a market where there’s job growth and population growth.
And then I would take the rest and I would go and I would find the best city for job growth and economic growth and I’d buy a multi-family property.
And if I’d do those three things with that $200,000 and then just work for the next ten years to have that multi-family paid off, I’d be in a great position.
BBH: What’s your current assessment of the Vancouver market coming into 2013. How’s it going to perform over the next year?
DC: Buying in the Lower Mainland is going to be quite volatile, so there are a few things we have to pay attention to in the Vancouver market.
Number one is last year and the year before there was a lot of Asian money coming in, buying the higher dollar properties, $1.3 to $1.5 million properties which in Vancouver can be a 500-square foot apartment. I’m being facetious but, because of just basic math, it drove the average sale price up so everyone thought the whole market was really strong, just because the average sale price kept going up. But if you tore it back down, you would see that just because the high-end were selling lots. Well that high end has come off, 34 to 40 per cent, not price but the numbers of sales. You’re starting to see that come off, Just on basic math alone, you’re going to see average sale prices either stabilize or start to drop down.
And then when that happens, the psychology kicks in. Vancouver has the kind of mentality that everyone stops and waits and they’re gonna go, ‘Well, I’ll wait for the crash and then I’ll buy.’ You’re going to see the volume continue to shrink because of this psychology.
Counter that with an increase in demand because it’s still a great place to live. There’s still lots of people moving in out in Surrey, Maple Ridge and Langley out in the valley because they’ve got the new bridge. In Surrey, they’ve got brand new towers being built and they want to be the next centre, the next downtown. So you’re going to see the migration out along the transit lines and along the new bridge and Highway 1 because it’s more affordable, a little more ground-oriented lifestyle than in Vancouver.
And so you’ll see demand shrink. It’ll come back eventually in Vancouver, but not for the next year. So watch the outside core right around the surrounding area. Like if you were to say the GTA, it’d be the 905.
BBH: A lot of attention has been paid to the Calgary market especially in 2012, probably 2013 as well. How how is the Calgary market?
DC: The Calgary market is the Goldilocks market of Canada. It’s not too hot, it’s not too cold, it’s just right because the economic fundamentals under it are – the population growth and the job growth and the transit and just the average incomes increasing – have all been playing along just beautifully.
It’s performing exactly as it’s supposed to be based on the underlying economic fundamentals. So the luxury market has done incredibly well in the last six, eight months which means that the business leaders in Calgary are starting to see some long-term positives for their businesses because that’s where a lot of the luxury market buyers are.
In Vancouver, a lot of the luxury buyers aren’t residents and that’s the difference between the two markets: you’ve got the luxury market in Vancouver took off and then the tap turned off when the foreign money stopped coming in. In Calgary, that luxury market’s driven by business owners and professionals that live and work in Calgary so it’s much more stable.
If you were a university professor, this is the market you’d use as your example.
BBH: And now focusing on the Toronto market, a lot of the 2012 recap numbers came in just in the past few weeks for the new development market. What do you make of the fact that the number of new high rise units currently under construction in the city outnumbers low-rise units three to one?
DC: Well that’s just a direct representative of land value because the underlying land per acre that you pay in Toronto is so ridiculous that to buy that land and then to develop a low-rise just doesn’t make financial sense. So your job is to get as many units on that land. So that’s one of the key things. But you look at the Mimico’s and the Leslieville’s and up as you go east, it’s quite amazing for the demand for the ground-oriented.
Because what we’re finding is big demand for downtown condos – Vancouver but mostly in Toronto and there’s big demand and there’s lots of people who are buying them and they’re moving down and they’re in their 20s and they’re having a great time and the market’s going up and they feel like geniuses.
And then all of the sudden, they fall in love and start having babies. And now your 800-square foot condo is really not the best — I don’t want to be judgmental — it may not be the most appropriate size of property to raise your children. So after a couple of years of screaming and yelling and running around and your neighbours all getting mad at you, you finally have to look around and wonder, ‘Where are we going to bring up our kids?’ You start looking for schools, you start looking for transit, and you start looking for more ground-oriented because a lot of the condo towers, you know, if you have kids running around the hall, you’ll get booted out.
So you’re going to see this transition. Right now, there’s lots of young professionals and the office market’s super hot because the companies have decided, well we might as well be where the talent is and so you’re seeing that happen.
So that’s supporting that condo market right now. But that resale market in a couple of years is going to be – you’re going to find such great deals because those families, those young cohorts – I think there’s now more echo boomers than there are baby boomers in downtown Toronto. So what happens with echo boomers is suddenly the nesting urge. We all do – of course I thought I never would but you get the nesting as you get a little bit later in the life and you start to look around at maybe other better places to raise kids and where you need to live to raise kids and still be following transit because your job’s still in downtown Toronto.
BBH: What is the population growth trap in real estate investing?
DC: Well, it’s really quite interesting. In the little book, I give you a bunch of questions to ask. One of them is, is the population growing or shrinking? But unfortunately a lot of people look at that question and they go, ‘Oh yeah, it’s growing” And that’s their decision. They forget about the other twelve questions. They also forget about peeling the onion around who is it that’s moving in.
So it’s very interesting. The population trap is, Census Canada put out their latest population trend for all the towns across the country. It’s 134-pages. If you really need to get to sleep, it’s a great read. But in there are these cities and towns where the population is growing and so unfortunately a lot of investors and homeowners and homebuyers say, “Perfect, that’s going to be a market that’s going to take off'” And that’s not true because if they’re moving in because of job growth, they’re moving in from other regions, it’s generally a younger crowd that’s moving for a job. At 50, I’m not moving for a job generally.
So the younger crowd moves in, rents for awhile and sees if this job is any good, is this town or city any good, do we want to live here etc… And then that cohort begins to buy two or three years later after living in that area.
There are other towns and cities, generally towns, where the population’s growing but it’s the people’s whose incomes are now flat. Their career path is now towards retirement. Therefore, the moving up process isn’t going to occur. In those markets, where it’s mostly the retirement people, what we’re finding is that there’s a spike in demand on the resale and the new homes, but the rents and the vacancy rates don’t move. So from an investor’s point of view, it’s a waste because eventually that value will start to cap out. And your rents haven’t moved even though the property values have moved. So it’s really, really important to not just chase the population growth but really peel the onion to find out who it is that’s moving in and why are they moving there.
BBH: Speaking briefly about the doom and gloom aspect of the Canadian real estate market — would you say that the media are being too negative when it comes to looking at the condo boom?
DC: I think they have their own heuristics. I think they have their beliefs. And then they go find…you can go find data to support anything nowadays with the internet. You can find some blogger out there that’s got all the data put together that it’s all sugar and light. And there’s another blogger, one more keystroke and it’s the world is going to end.
So I don’t blame the media. The media’s got to do what they’ve go to do. They’ve got to sell papers. I think it’s important for Canadians to look at the Pollyannas of the world and kind of discount that. They also should discount the world is going to end guys. Find the truth in the middle.
I’ve been investing for a long time. And since the 80s we’ve had giant ups and downs. We’ve had inflation. I’ve paid interest rates of 16 per cent on my mortgages. And truth is, I’m still doing okay.
You weather the storms. One of the chapters in the book is about how to build a portfolio that weathers the storm. Because there’s always going to be storms. The problem is people get all freaked out about them rather than just deal with them.
Thanks for buzzing with us Don!