010 The Private Sale Podcast | Tips for Starting Out From an Experienced Investor
On a recent family gathering I was able to steal away some time to have a chat with my mentor (and father) Henry Svec.
Over 40 years of investing experience, we get into how he got started in real estate investing and how someone new to the game can break into the market in today’s world.
On a recent family gathering I was able to steal away some time to have a chat with my mentor (and father) Henry Svec.
Over 40 years of investing experience, we get into how he got started in real estate investing and how someone new to the game can break into the market in today’s world.
00:00 You’re listening to the private sale podcast, your house, your commission.
Joshua: 00:05 Hey guys, how’s it going today? I got a pretty interesting episode. I’m talking to an experienced private investor and he also happens to be my old man. Taught me everything I know and he has just a vast knowledge of investing, uh, and get how to get different streams of income to add to your cashflow. So we’re going to get right into it talking to Henry Speck. And here we go.
00:35 You’re listening to the private sale podcast where we interview top industry members to keep you informed and prepared for the unexpected goal is for you to have a successful private sale.
Joshua: 00:51 All right, I’m here with Henry Svec and it’s going to be a great episode because he’s my mentor in all things real estate and my father. Hey, how you doing? Wonderful. How are you doing? I’m very excited because you’re the guru and we can get into everything. How long have you been doing investing and real estate?
Henry: 01:12 Probably about 40 years now almost. And how did it begin? Well, uh, started with a really needing money. Had a couple of kids. I’m limited with my jobs because most of my jobs were like salary, so you’re defined. So when I got out of school I had a bond. I think I had five jobs at one point I was doing, I won’t tell you all of them, but I was doing all kinds of things that I still didn’t have any money. And then, um, when I was, I’ll tell you a quick story. So before all this, I was uh, working as a teacher in London, Ontario, and back in those days you didn’t, you didn’t use your card at the bank? Huge cash. So I went to the bank, Bank of Commerce to the account that take up money for groceries and I had just gotten paid, I think it was forty seven cents in the account because everything was taken out for mortgages and insurance and all that.
Henry: 02:06 So I called my wife Mary at home and said, okay, we’re where’d all the money goes to the idea? And so actually bought a groceries on credit card. Then we have one credit card and so I bought groceries when, then I realized maybe I should do something else. Supplemental income. There you go. So then I, uh, one first property I bought was a farm that was connected to my dad’s farm and I went to a credit union and a very nice man. He said to me, I’ll loan you the money and I had no job. I had no income. Then I said to him later, why’d you loan me the money? Like this was later. And he said, well, I knew where you were from and I knew you were good for it. So I loaned you the money
Joshua: 02:48 and that doesn’t happen anymore. Today. Banks are not relationship based. No. And in that, what was sad is that credit?
Henry: 02:57 Yeah, credit union became like a bank. So I worked with them for awhile and then they just sort of took over the whole banking idea and then it was difficult to get any loans for any real estate purchases. So that was hard. And then I’ve had some fortune one, one seller, I had to take back mortgage. He took a take back at 100 percent when I bought an office building in Windsor and I had a lot of porridge and along the way where people helped me through that kind of experience, so I was lucky and all the good bankers I should tell you, we had good luck with some bankers at different banks and they would eventually either quit or get transferred. So the good people left and then you’re left with people who are. There’s a lot of it rely on building a relationship with a banker.
Henry: 03:36 No, because they all leave every time. My standard joke was, every time I took my banker for lunch or breakfast, they get transferred so there was no sense. So then I started telling her, I said, there’s no sense in getting. Because they would start that way. We need a relationship. I said, no we don’t because you’re going to be gone. You’re going to go to school. They don’t even want a relationship. Everything goes to Toronto. So when you. When I would ask for a loan, right? I asked for a loan on the east coast to Hennigan edition. They said, I got a call from someone in Toronto and she said to me, we can’t give you the loan. It was a small one, like 200 grand because it’s efficient village. I said, well, I said, have you ever been out east? No, but we are.
Henry: 04:11 People say it’s. I said, no, it’s a university town. It’s not on the ocean technically and there’s no fishing in the town of Anagen edge. We’re not giving you that long because it’s too far away and it’s too small. So that helps you go from a guy who gives you a loan on a farm when you have no income and by this time we probably had 10 properties and I’m told they can’t finance this ball. So what would you tell someone new, starting out, wanting to get into investing in real estate, real estate, investing in China, build a relationship with some kind of bank and I don’t think you got to treat it like soybeans and corn. There’s no such thing as a relationship. They will give you a low rate to get you in and then once they get you in, things changed. So just form a relationship and if you could just start, but we realized the relationship is superficial and fragile and it’s not really a friendship.
Henry: 04:58 It’s almost like being friends with someone on facebook. You think you’re a friend but you’re not because you don’t even know him. And that’s Kinda what it’s like. I think with banks it’s a commodity. It’s like soybeans and the old statement still goes, if you, if you have a small loan with the bank, they own you. If you have a large loan with a bank like multimillionaires, you own them. And that’s why the large corporations who have like hundreds of millions of dollars in lines of credit, they tell banks what they’re going to do. Basically. Small guys like us, we’re at where we’re at there hosel. Yeah. So what, what’s your investment goals now? Let’s shift a wallet. What do you, what kinds of things they looking for? What’s exciting? So I’m a lot older now. So obviously one of the things that we talk about is how do you preserve what you’ve created and how, what’s the best way to diversify?
Henry: 05:46 So the best way I like to look at is when you look at a farmer in Ontario, they’re probably going to grow corn, soybeans, wheat, because if it’s a bad year for wheat, you’ll have enough money from the corn to survive and so on. So in most people today haven’t been through 18 percent interest rates, we’ve had mortgages that I think 19 was the highest. So when I talk to people today and they say, well, interest rates won’t hit five percent. I’ll never hit 10 percent. I said, well, if you’ve lived through 18 percent, how do you make money? I bought my first real estate, I think with a 14 percent mortgage. So you’ve gotta have a plan for that, but you also have to have different streams. They call the streams of income today, whether it’s different jobs or different ways to, to make money so that you’re always protected just like that farmer because you don’t know what’s going to happen.
Henry: 06:30 You really don’t. And so, um, I think you need to have real estate. I think you need to hunt for properties that are going to provide you with cash flow. I think the biggest mistake people make is they think their house is an investment that they live in. What do you mean man? It’s not an. Well, unless you get to live under a bridge. You can never sell your house unless you pass away. You can never sell your house and move to another one and somehow make money because even if your downside. I know people who have sold their house and then they went to buy a condo because they thought it was cheaper and the Condo is actually more money than the house they sold because you always have to live somewhere. So if I were starting out today, I would probably buy a duplex if I had to live in something and run out the other half and keep the other half for myself until I build up the equity and with that you can kind of work some of the banks because you’re living there and look at all the possible lenders.
Henry: 07:22 Don’t just get nailed with one with one lender so that. That’s how I would start my real estate life if I was doing that today, but I was living in a place like Toronto. I would never buy anything because that’s crazy. Or Vancouver or even London, Ontario probably, unless I could find a really good deal. If you really dig, you can still find them for real estate. So then I would also look at some stocks because I believe in certain stocks. I would also look at other streams of income, like we do solar and other small businesses and then for fun we do some angel investing which is a lot of fun and just sort of spread it all around. That’s what I believe in today, but I think you can do just as we did it because even talking to a seller about a vendor takebacks.
Henry: 08:04 If I think back, my dad bought a farm when he was. I’m looking for different work. He didn’t have enough to buy a farm, so the person selling the farm gave him a vendor take back. So he did not have to go to a bank to buy the farm and that’s how he got around that problem because he would have never gotten a loan for this farm. Now is you got, you have, you have to just ask. You have to. So that to me, and then we talk about social lending, like lending loop. If you’re really hard up and you have a good product possibility, I think they’ll allow real estate loans or another platform like that. Something like that. Um, family and friends, uh, but banks are pretty much becoming. I heard someone say the other day that banks and some credit unions are very much like, they would rather, instead of giving you a loan, let’s say you needed 10 grand to buy an old pickup truck to keep your business going in, hire another person to, to paint windows.
Henry: 08:58 They would not give you that money, but they will take a million dollars invested in the stock market. And they’re becoming like, they consider themselves like financial experts. Yeah. One thing I’ve got to say is you really have to be sure of who’s giving you financial advice or anything you hear on this. You’re not going to do because what do I know? Right? You get to talk to your financial people. You have a disclaimer. It’s right now, but here’s the other, but here’s the other deal. I don’t get pitsa anymore because when these people used to sit me down, I get called up by the bank and say, Oh, we’ve got this expert coming from Toronto. They want to talk to you about investing. So I’d sit down and moment. I did this a couple times and I’d say to them, okay, before you start, do you have a credit card?
Henry: 09:37 Yes. See, do you have a balance? So ultimately your business. I go, all, I said, and you’re giving investment advice. Are you worth like four or five, $6,000,000? Oh, I don’t know. I don’t want to tell you what mindful. I said, well, we’re. This is over. I said, if you’re not successful and if you have a credit card balance, why are you giving me financial advice? And then they all get upset and they say, oh, well you’re not cooperating. And then I remember one bank sat me down and said, real estate, the worst investment you can do, you should not be investing in, really are probably pushing a product that mutual funds. And it was us, it was a bank of Montreal. And I said, well that’s funny because you just bought out a mortgage portfolio in Wisconsin. We did. The guy says, yeah. I said if you go on on the, it’s called the internet google email.
Henry: 10:22 Google who Globan mail and you’ll see they bought this huge portfolio of bankrupt and people who weren’t paying their mortgage because they thought they could make money. So they were investing in real estate. But they were telling me no, buy a mutual fund. So you gotta be really careful. I think the best thing to do is if you’re on a salary, you automatically live on a certain percentage, less of what you’re bringing in. So let’s say you bring in 3000 a month, live on 2,500, but that 500 isn’t for your retirement. Because that’s part of that $2,500, you’re going to have to be responsible for that $500 for your investment account and then you put that in an investment account and then you’re very carefully look at what you do with that. You might build it up until you have 10 or 15 and you buy a small building on where you live.
Henry: 11:05 You buy a very small property somewhere and that’s how you start, but you have to live on less than some people who live on 2000 or $3,000 income. Very difficult, but that’s what you have to do. That message has not changed over time. The biggest problem is when people make more money, they spend more, so I work with people who make a million dollars a year in cashflow and they spent a million two in the bank. Just keeps giving them more money and the more professional like doctors, sometimes lawyers, but mainly doctors, they can get loans on anything they want. They’re geniuses with anything. Genius. Real estate genius. This even though they’re really good at fixing a sore shoulder, they believed they’re geniuses at everything and that’s the biggest thing is realize what you don’t know and be careful. Yeah, it’s slowly build up the investment. And it’s a challenge though because see at different ages, so preservation of what you have is difficult if you don’t have anything.
Henry: 11:59 So what should you do if you’re 25 or 35 starting out and I think a big part of it is watch what you spend but you still have to enjoy life. So if you, if you suddenly have $500 a month coming off your $3,000 salary, you’ll adjust your 2,500 you will and you’ll probably even save on the 2,500, but it depends on your mentality and you have to separate needs from wants. The biggest problem we have today, you know, people say I need a new car. I drove beaders for a long time. People didn’t seem to want to buy beaders. They, they’ll buy a car and you know, $500 a month loan on the car. And that goes. The second goal is to, I mean if you’re not doing that, you’re not have a rainbow. The pot of gold there. Yeah, I mean, yeah, you gotta set goals and know what you want to do with that $500.
Henry: 12:48 So if we focus back to real estate long time to find the thing I don’t understand about real estate because I’ve never been able to do this. People buy properties and they think, okay, I will feed her every month because it’s costing me more than I’m bringing in cashflow, but someday it’s going to go up in value so I’m going to make all this money. I’ve never understood that because that may not happen first of all, and second of all, if you’re putting money in all the time, it’s not an investment. An investment by definition makes you money every month. Otherwise it’s a speculation. Now sometimes you’re lucky, like we were very lucky to have properties in cities that went up in value, even though we were going to keep them for life. The property values went up so much. We had to sell them. It was ridiculous.
Henry: 13:25 The cap rates went down to like two or one or less, right? You’ve got to soa but you don’t expect that you buy it with the cashflow, you know, initiative and that’s what’s going to happen. So sometimes you have to adjust, but just buying something in Toronto like an a minus cap rate or Vancouver is lunacy. I don’t understand how people and then they buy it to live in a one point $8,000,000 starter home. Like, are you crazy? What’s the, what’s the deal? So back to investing. That’s kind of what I think. You have to be careful with the money you have, but then you have to have a plan about what you’re going to do is what you can. And you’ve got a book coming out soon. Let’s get into that. So I’m just finishing it up. So 10 years ago I wrote a book about a fictional couple who lived in Toronto, hated their life and look to change their life and they ended up investing in real estate and some other things.
Henry: 14:18 And I tell the story and the question is, if you took their advice 10 years from now, where would you be in? What would you do with the money? So the title is shrink money advice 10 years later, what should you do now? So this couple, I’ll tell you, I’ll tell you what. So there’s couple is, uh, is living in. I’m in Toronto, he’s doing one job, she’s doing a job where she travels and she ends up going to Winnipeg and really she supposed to be in Montreal or someplace. So she’s, she’s really upset because she’s there and she doesn’t know. She started her. Life’s crazy and his life’s crazy and they’re spending more money than they’re making and they hate their life, but they live in Toronto and they think they need to get out of it. So the question is, what are they do?
Henry: 15:01 How do they get out of it? So they meet a nice couple, uh, in the country. They ended up buying a house in the country, still kind of struggling and not knowing what to do. And this old couple, which is typical for these kinds of books, take them out for coffees and stuff and try to teach them a lesson to teach them a lesson. Teach them how they got to where they were because they were like that when they were younger. So the story goes on and on and then, and then they do certain changes and I won’t tell you anything. But anyway, so then there’s all these messages of what, what the older couple couple tells them they should do and it’s, it’s fault you can follow it. So the question is, if you did that, um, what would have happened 10 years later, which is now because I wrote it 10 years ago and let’s just assume they made a lot of money, if they followed that advice, what should they do now with that money, which is kind of what you were talking about, about what I would do today.
Henry: 15:47 So it goes through and very specifically talks about how they diversify even what stocks they buy. Um, and there’s also a part on private lending because they actually become banks and loaning money out to people. And how do you know who to loan money to and what their life becomes after they leave this next stage of their life. And one not too surprising factors. They invest heavily in Nova Scotia. It’s one of their real estate things was a bit of a blueprint, like a 10 year plan. Yeah, it’s a plan and it’s very specific. But it’s also. I mean, people have to adjust it based on that reality of course. But um, you know, like let’s just say if they bought a condo 10 years ago in Toronto for 300, I think it was too 80 or something, was the price because we went with accurate numbers today.
Henry: 16:32 That condo is like seven something. So just on that one example, after they paid their capital gains tax and all of that, they had this cash leftover in. They pay their taxes. What do they do with that money? Because they can’t buy anything in Toronto. Right? Because it’s appreciated so much. Even though they had cashflow decide to sell it. And then they take that money and they go to Nova Scotia and then they also invest in other ways. Which is sort of the message of the book and the title, a shrink money advice 10 years later. What should you do now and where can you get it on? It’ll be on Amazon, but you get an a copy hopefully before Christmas and I’ll link it through you and you can tell people how to get it for free even. Alright. Is there anything else we should get into?
Henry: 17:13 This is great. This is like the new for new investors. I think you have to find a, a community, like there’s always a investment of possibilities available, but if you live in Toronto they’re probably aren’t, aren’t there? There isn’t a place where you can go and do that. So you need to find communities. And I, I’d say one of the most important things is property management. You start with property management. I mean if you don’t have property management, you can’t buy a property unless you live in, in the town where you’re doing it and then you should get involved in that yourself. And also do your numbers conservatively. People often buy real estate and they expect, you know, I’m going to make five more bedrooms, put it, you know, no ticket for worst case scenario and see how you’re going to do that and be really creative with how you finance these purchases because that’s one of your biggest expenses was a great points.
Joshua: 18:01 Thank you so much. Thank you. Great talking to you meant. All right. Thanks for checking out the private sale podcast. Remember, if you’re doing any investing, make sure you check in with your advisor to make sure you are making the right decisions and if you have questions about investing in real estate, you can always reach out to us at [inaudible] dot ca and we’ll try to get those answered for you. Take care.
