What Is An Accidental Real Estate Investor?
Not everyone sets out to be a real estate investor. Sometimes it happens by accident.
I've found it a little hard to stay motivated to write consistent blog posts lately. Most of my posts are written in my head while at the gym, basically from start to finish while working out, then I head home whip open my laptop and get it all down in writing in a couple hours. I'll often stew over ideas for weeks and one day randomly while in between bench press sets, get an idea from either some stupid news report or some event that happened on a deal I worked on recently or a client I had an interesting conversation with, and the post almost writes itself. My gym time is also "me time" - it's where I gather my thoughts, relieve stress, plan my day, and get my energy levels up. Not having access to a gym for literally months has been tough. Really tough. It's affected the way I sleep, the way I eat, my motivation, energy level, stress levels...I've resorted to doing pushups in my living room each morning while doing bicep curls with my vacuum cleaner. What a world.
I thought I'd try something different this time and tell a story. This is a true story about Adam and Clare - a married couple who, through life events and fortunate timing, ended up as real estate investors. They are not an evil corporation or slumlords looking to take advantage of unsuspecting tenants. They are everyday, hard working professionals who decided to take a risk and put their money to work in the city they love, and crossed their fingers that it would work out. The media likes to lambast real estate "investors", turn them into nameless, faceless monsters trying to take advantage of unsuspecting tenants, looking to turn housing into a commodity for profit. That's just not that case. More often than not, they're just normal people who just happen to own real estate. Here's their true story.
Adam was an obsessive saver. He spent 8 years as a working professional living at home after graduating from university. He was fortunate to start his career with no student loan debt and made a decent salary - almost all of which he saved (a huge benefit of living at home). After 8 years of aggressive saving, he bought his first bachelor pad in downtown Toronto just before he turned 31. He then lived on Ikea furniture and ate pizza in front of the TV most nights. And he loved it.
Clare didn't come from a well-off family. She didn't have the luxury of living at home and rented sketchy apartments throughout Toronto while sometimes commuting great distances to get to work. She didn't own a car, took public transit, and found ways to earn extra money where she could by doing freelance contract work, oftentimes working well into the night before getting up again to head to her "regular job". After years of saving and hustling, she finally had enough for a down payment on a small 1-bedroom condo, took the plunge, and got into the market as quickly as she could.
Several years later, Adam and Clare met and, well, you probably know what happened next. Clare was so enamored by Adam that she just had to be with him forever! Clare will tell you a different version but I digress :) As their relationship got more serious, the conversations about where they would live together came to the forefront. Two people living in a 1-bedroom condo was doable but the practicalities didn't make sense. There wasn't enough closet space in either of their places and Adam worked from home and needed some sort of office space that wasn't just a desk in the living room. And Adam really wanted his own bathroom. You know, for the sake of the relationship!
The decision to upgrade to a 2-bedroom condo was made but would they each sell their current places and buy a new one together? Or just sell one of their places? But who would sell? Luckily for both, their careers had taken off and the idea of keeping both units as rentals started to make sense. After chats with a mortgage broker and some crafty refinancing, it looked like keeping both places could be feasible. Both Adam and Clare believed in real estate as a "forever" investment and if they didn't have to sell to move up the property ladder, they would try to figure out a way not to. And they did. They refinanced, upgraded to a 2-bed/2-bath condo in the same neighbourhood, and each rented out their original 1-bedroom condos. Clare got her own closet, Adam got his own office and bathroom, and life was good.
Fast forward 6 years. Both Adam and Clare's careers continued to take off, the real estate market continued to increase (with a couple bumps along the way, as markets do) and they were fortunate to have amazing tenants at each of their previous condos. Then the pandemic hit and a little panic struck in their minds - what if their tenants couldn't pay the rent? Or what if they just decided to stop paying altogether? The realities and risks of owning rental properties suddenly became front and center and hard conversations were had. The truth is, Adam and Clare would be seriously hurt financially if their tenants stopped paying rent. They knew this risk from the start but in a market like Toronto, nobody ever thought for a second that you would ever be without a tenant, let alone try to plan for a pandemic where tenants were effectively told by government not to pay their rent if they felt uncomfortable financially. Landlords were left high and dry and Adam and Clare were watching it unfold all around them. It felt like the market froze and they were left without options, other than to wait and see what happened. Then the first of the month came and they got their rent payments. Then the next month came and the rent was paid again. Agreements were made with their tenants to keep everyone happy and life went on. Hope for the best but prepare for the worst - that's how they spent most of 2020 when it came to their rental units and working with their tenants. It was a scary lesson to learn but no investment is without risk, even something as seemingly bulletproof as Toronto condos.
This story has a few more twists and turns but the point was to really illustrate how everyday people people end up becoming real estate "investors". In fact, Adam and Clare are not what I would consider "investors" in the traditional sense. They did not seek out rental units based on their cap rates or ROI. They did not buy up entire floors of pre-construction projects with the intention of flipping them as assignments for a quick profit. They just lived their lives, saved aggressively, got into the market as soon as they could, rode the wave, refinanced when it made sense, and kept investing.
A big takeaway here is also something that I forgot to mention - at no point did Adam or Clare try to time the market. They didn't wait for prices to drop (which they never did) or complain about how competitive the market was or how "expensive" it was. And at each point in their journey, they actually purchased at the peak of the market at that time. Clare had literally hours to make the decision to buy her condo. Adam competed against 4 other buyers when he bought his place. And when they bought their new place together, the market was at its then all-time high. Had they waited for prices to drop, they would have never bought. The smartest thing they did was buy when the timing made sense for them and dealt with whatever market they were in at that time.
So there you go. The story of the Accidental Real Estate Investor. Everyday people living their lives, choosing real estate as one of their financial goals, riding the market, and reinvesting. Yes, it takes some luck. Yes, it takes time and discipline. And yes, it takes (a lot) of money. And I admit, it's not feasible for everyone. But if real estate investing is your goal, I really think you just need to get into the market when you can and see where life takes you from there.
Have you checked out my previous blog posts?
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Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)