From Renting to Real Estate Millionaire, with Michael Dominguez
Welcome to The MapleMoney Show, the podcast that helps Canadians improve their finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.
Are you, or someone you know, trying to get out of renting and into the real estate market? These days, buying your first home can seem like an impossibility, depending on where you live.
Michael Dominguez is a successful real estate agent and investor who, along with his wife, owns more than 10 investment properties in Ontario. He’s also the author of a book, Armchair Real Estate Millionaire. Michael joins me on the show to discuss how renters can make the jump into the real estate market through house hacking and other means.
Across Canada, housing prices have skyrocketed, and not just in big cities like Toronto and Vancouver. In several provinces, and even some rural areas, the average price of a house has risen substantially. Michael explains why house hacking can be one of the best options for renters who are finding it difficult to buy their first home in expensive housing markets.
Michael also delves into what makes for a good real estate market. Many homebuyers have a bias and believe that just because a property is close to their home, that it’s a good place to invest. That’s not always the case.
According to Michael, you should always look for a growing market where there’s an increasing population, GDP, and labour force. If an area lacks these components, you should probably look elsewhere to invest.
When owning a rental property, cash flow isn’t always the #1 priority. If someone is drawing a steady income from a 9-5, they don’t necessarily need to rely on income from their investment property. The bottom line is that real estate investing is a business, and it should be treated as such.
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Episode Summary
- What is house hacking and how does it work?
- Differences between a legal and illegal suite
- 3 requirements for qualifying for a mortgage
- How parents can benefit from their kid’s real estate aspirations
- How to become a real estate millionaire in 10 years
- What makes a good real estate market
- Cash flow isn’t always #1 with real estate investing
Read transcript Are you or someone you know trying to get out of renting and into the real estate market? Depending on where you live, these days buying your first home can seem like an impossibility. Michael Domínguez is a successful real estate investor who, along with his wife, owns more than 10 investment properties in Ontario. He’s also the author of the book, Armchair Real Estate Millionaire. Michael joins me on the show to discuss how renters can make the jump into the real estate market through house hacking and other means. Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. This episode of the Maple Money Show is brought to you by Willful. Did you know that 57 percent of Canadian adults don’t have a will? Willful has made it more affordable, convenient and easy for Canadians to create a legal will and power of attorney documents online from the comfort of home. In less than 20 minutes, and for the fraction of the price of visiting a lawyer, you can gain peace of mind knowing you put a plan in place to protect your children, pets and loved ones in the event of an emergency. Get started for free at maplemoney.com/willful and use promo code Maple Money Show to save 15 percent. Now, let’s chat with Michael… Tom: Hi, Michael. Welcome to the Maple Money Show. Michael: Thanks for having me. I really appreciate it. Tom: You’ve got a new book out, The Armchair Real Estate Millionaire. I found it interesting because some of the topics you cover within it. The biggest thing I really liked up front was that you’re not only saying that you can get into real estate as an investor, but you can also just get into real estate, period. There are a lot of people in the Toronto and Vancouver areas where, if you’re younger and renting, it seems like there is a big barrier to entry nowadays. I couldn’t imagine doing it myself. Luckily, I bought my first place a long time ago and go with it with the increases. But how does someone start this change? If someone’s been renting for a few years and they just don’t see any chance of getting into real estate, where do they even begin? Michael: The Canadian market is not even limited to the big cities but also some of the smaller towns and suburbs around the cities. We’ve been seeing such a surge in pricing that anybody who’s “saving” for a down payment is simply falling further and further behind. It’s just so difficult to get ahead as a renter. There’s a term called house hacking I’m a huge advocate of. And honestly, house hacking has been around for 100 years. It’s been rebranded. Now, house hacking is more hip and cool. Just calling it hip and cool kind of shows my age. But house hacking essentially is where you live in one unit and rent out another. Or in some cases, it’s a single-family home and you’re just renting out a room or two within your house to generate rental income to help supplement your actual monthly mortgage. And if it is in fact a duplex, it actually could help you qualify for that property and allow you to purchase it that much sooner. Tom: With something like a duplex, how often can you find that situation where they’re both available for sale? Would this mostly be new builds because I’ll see them listed where often they’re both not going to be available at the same time? Michael: Well, the cool thing is, the Canadian housing market is structured as such where unless they’re in the middle of a lease—and typically most leases are a one-year lease term, but if that tenant’s been there for more than a year, they’re in what’s known as a month-to-month lease. Let’s say you are putting a house on the market and you have a renter in both the upper and the lower unit, I could buy that property from you, and using a “purchase and sale agreement” clause, you can actually take possession and move into the property yourself. It may take more than two months. It might be three or four months before you can actually make this happen because we have to accommodate the tenant’s need to find a new property. But there is an opportunity to do just that. You’re not limited to just simply properties that are vacant. Tom: Now, when you talk about these multi-person dwellings, does this include things like townhouses? Is it just about keeping things close to you? I guess that’s a bit separate maybe? Those are sort of separate purchases that maybe don’t qualify the same. Michael: Well, depending on where the listener is, there are some markets. You’re more in the Alberta area where there are some newer build duplexes. But in Ontario and Quebec and even parts of Manitoba, there are a lot of homes that were built on fairly large lots. And in most cases, they have a full basement perhaps. In Ontario, we often are able to create a basement suite within that bungalow or that two-story home and then have that additional dwelling unit. In Alberta, I do know that there are some granny flats that have been built. And there are some purpose-built duplexes, too. But a townhouse has some limitations because they were truly built to be single-family homes. They’re far more difficult to convert into a second suite. So for you to get into that first home and buying a townhouse, even though it’s probably a cheaper purchase, it may not have the opportunities to add a legal, tenant/dweller sort of thing. Tom: What is the difference between a legal and illegal suite? I see this in listings and I’m not sure where the line is on that. Michael: That’s a great question. It’s one of these things that really irritates me. Even a lot of realtors don’t even know what, in fact, is legal. One of the myths out there is IMPAC, which helps to determine what the taxes are for your house and your municipal taxes, will go around door-to-door and ask people what kind of house is this? And, whether it was a previous owner or a previous tenant, it could have been 10, 20 or 30 years ago, will say, “Oh, yeah, this is a duplex. It’s got a renter upstairs and one downstairs,” so they’re charging you taxes as if it was a two-unit dwelling. That, in no way, indicates that it’s a legal property just because IMPAC is charging you tax-wise to be such. What determines that it’s legal is usually from a municipality standpoint. Each individual municipal government can make up a set of rules. And in the case of a legal two-unit dwelling, for example, this is the property that was built as a single-family home and over the course of its lifetime, somebody actually went through all the building permits required to meet the fire building and overall safety requirements necessary to have a legal separate dwelling. Essentially, if you think of it, you’re turning one big box into two smaller boxes with that second suite. And if somebody just kind of wings it, that’s by no means legal. I can tell you as a tenant, if you are in fact looking for a place to live, finding out if the property is in fact legal, think is essential because a lot of times people forgo the fire safety requirements because it’s expensive to do a lot of that stuff. That’s always great until there actually is a fire where somebody could seriously get hurt as a result of it. So I’m a huge advocate of having the property legalized. Absolutely. And I can tell you as an investor, it makes a ton of sense because not only are you raising your property value, you’re also able to refinance a property because of that secondary suite. And in a worst-case scenario, if something bad ever happens and there is a fire, you’ve got your butt covered. If it’s not legal, the city will come down on you and come down hard. There have been cases here in Ontario where landlords have been charged with criminal negligence and actually convicted and sent to prison for having properties that are not legal. And if somebody dies in your house, you could be either majorly fined or sent to jail. Tom: Well, yeah, I wasn’t even thinking jail, but I did think of the money side of it where even your insurance may not cover it or you end up in some kind of battle there where they’re going to fight you on it. Say there was a fire, even if there wasn’t a death or anything, but there was damage, if they find out you have an illegal suite, especially around fire codes, that would be a problem with your insurance at that point. Michael: It really is. And now, before I scare people off where they say this is too much work, I can tell you it is really few and far between. If you follow the rules, you can seriously benefit from going the extra mile and creating that legal suite. Not only can you get a better tenant profile, which is what I advocated in my book, the better the quality property you have, the better quality tenant you can attract, and it makes it an easier purchase. That’s where my “armchair” mindset comes into play, where you can spend a couple of hours a month—whether it’s two properties or 10 properties, you sit back and a year later the mortgage paydown has commenced and the values have increased. That’s where you build your long-term wealth as a whole. Tom: If someone wants to get out of this renting position and into that first place, whether it’s a suite on the bottom or in a duplex situation, how do they handle that? Do they deal with a mortgage broker? And is this part of that treated like an investment loan? Or is it all just a mortgage maybe with more relaxed mortgage requirements? What makes it different? Michael: The first thing I want to share with anybody who’s currently not a homeowner and is trying to build wealth through other means, whether it be equities, Bitcoin or whatever else, I’m not saying it’s right, I’m not saying it’s wrong, but real estate ownership simply offers an unfair advantage over other investment vehicles. Governments across the world advocate real estate ownership and they’re promoting it. And that’s not going to change. I’m a big believer in, “You can’t fight it, so join it,” sort of idea and this is a good thing to join. There are some things you are allowed to do when you purchase a home here in Canada. Really, there are three main components. And Tom, I’m sure you know most of these as well. First, you need to have a very solid nine to five income—a solid T4. Banks like consistency. Me, being self-employed as a realtor, was not thought of kindly because I was self-employed for many years until I was proven to be making it. But if you’ve got that steady nine-to-five job, that’s checkmark number one. Checkmark number two is a credit score. That Fido cell phone bill that you didn’t like paying because they billed you an extra $250 and you said, “Screw it, I’m not paying…” that’s going to come back to haunt you for a decade to come. So my advice is to go through and look at your credit score. Find out what it is, and if, in fact, your credit score isn’t to the satisfaction of lenders, there are ways to enhance it quite well. I’m sure you talk about this on a regular basis as well as talking about credit and credit score. It’s so easy when you don’t have a lot of credit that one or two bad scenarios can really affect your credit score. But let’s say you get your credit score into the high 600s or 700s or maybe even 800s which is awesome, and you’ve got a good nine-to-five income, the last component you need is the down payment. And that’s the biggest thing, the biggest hurdle that a lot of younger people are faced with, especially with the rising housing prices. The good news is, in Canada, you can purchase a home with as little as five percent down on the first half-billion dollar purchase. So if you’re buying a $500,000 property, five percent down works out to $25,000. Even if you add in all the other associated fees and taxes, you could be into that property for $30,000, $40,000 or $50,000 on that half-billion dollar home. If you’re looking to buy in Toronto, Calgary or Vancouver, that could be a significantly higher number and anything above half a million, you need to have 10 percent down. So an $800,000 or $900,000 home, you might need as much as $80,000 or $90,000. And your first reaction might be, “How the heck am I ever going to get that kind of money?” It’s a valid one. I’m a huge advocate of the “bank of mom and dad.” This isn’t like when you were asking mom for $2,000 for dance lessons or you’re in college and you borrowed $500 and you still haven’t paid it back. This, potentially, could be a real estate investment, a joint venture relationship with your folks. Give them an ownership stake. Give them the opportunity to have equity in one of the best investment vehicles in the world, Canadian real estate. You can be part owner, part tenant and potentially even pay them back. If you’re a parent listening to this, providing your kids with money when you’re in your 80s and they’re in their 50s, is a nice to have sort of scenario, but a kid in their 20s and 30s can really use a hand up of $30,000 to $50,000 as an investment. Not only will it help you in your retirement, but it can also really help out your kids. Tom: What if someone’s parents can’t help them out, though? What else is there? I know you can only receive money from certain people. I think it is a close family. You can’t just have your friend send you some cash but is there any difference there in this being partially a business where someone can invest differently? Or is it still seen that if you’re living in it, it’s still your primary residence? Michael: Well, honestly, someone like myself, who has had some financial success over the years, I don’t know if I’d necessarily be the guy, but I’m going to use me as an example. I can’t qualify for a mortgage anymore. Banks don’t like me. I’ve got too many properties. It’s funny because I actually loan out money privately so I’m on the bank for other people, yet the banks won’t give me money. If you do your research, you become a market expert. You get out there and attend local meet-ups, networking events and really become knowledgeable in this industry. Absolutely, there could be potential joint venture partners that you can work with that maybe can come out with the majority of the down payment. You qualify for the mortgage. You’ve got the credit score and you have a part ownership stake in it. There is no rule that states that you have to own 50 percent or 90 percent or 10 percent. The returns could be whatever you want it to be. You work out a deal that’s good for both of you. This can absolutely get you involved in real estate at a real level and actually living in your own investment. As long as it makes sense for both parties, I think go for it. Tom: If someone’s doing this, they get set up like this, what’s the next thing? Are they looking to improve that property? Should they be looking at an additional property once things are moving? What’s that next step once they feel like they’re in a place, they’re sharing a place with someone with a renter, what do they do next to continue this? Michael: Here’s the first thing I want to share with you. When you listen to a lot of podcasts, you’re going to be hearing interviews of people that have got 30, 50, eight billion properties. At the end of each of these podcasts, you applaud them but say, “There’s no way I can replicate this. It’s just not possible to replicate this.” A lot of them took on significant risk to get to where they are. The cool thing about Canadian real estate is, if you can get three investment properties into your portfolio that are worth half a million dollars or so, if it’s in a growing appreciating market at around four percent a year—and, by the way, the greater Toronto area has been growing at around six and a half percent a year since 2000. So four percent is certainly not an unrealistic expectation in a good market. If you get three of those properties and just simply hold onto them for a decade, you are a millionaire as a result of that. Why I brought that up is because a lot of people, when they buy their first property, they’re anxious to jump into their second one too soon. Even if it takes you a year or three to get that second one, if you’re in your 20s or 30s right now… I bought my first investment property when I was 42 and by the time I was 53 I had the portfolio I’ve got now. If somebody’s starting at the age of 35 or so, they’re light years ahead of where I was at the same time frame. If you can get that second or third investment property by the time you’re 40, just hold onto them. I don’t want to dismiss your question. All I want to say is, you don’t have to get 30 properties to really make a significant difference in your life. Once you become knowledgeable and get that level of expertise, assuming that your property is growing in value because you’ve found ways to enhance it to improve the value, if you purchased it with as little as five percent down, it’ll take a long time for it to appreciate the point where you can refinance at and get a significant amount of money back because the bank will only refinance it up to about 80 percent loan to value. You’re likely not going to get money for a little while. But if you do buy a property and then add the suite on to it yourself and do a lot of other things, absolutely. There are opportunities to expedite your process and get to that next level even faster. But if you become a true market expert, there are ways, there are real ways. There are people that we talk about in my book where they’ve actually used other people’s money to grow their portfolio. Even if they only want a percentage of many of the deals, they’re getting ahead. Tom: When you talk about being a market expert, do you mean literally focusing on a market where if you’re going to look at multiple properties, keep it to one little town? Michael: One hundred percent—and I’m going to use Ontario as an example, but it could apply anywhere. When I bought my first property it was in Coburg, Ontario. My second property was in Oshawa. Before too long, I was buying in Orillia. I was also looking in Windsor because that’s what everyone told me to do. In Alberta, it’s the same thing. You could be buying all Edmonton, all over Calgary and every place in between. The more you spread yourself out, the less knowledgeable, and the less of an expert you are in one particular area. My mentor was not only was specific to one town, he also actually went on to being “one village” of one town. That was his level of expertise. He knew every pothole in that entire community. He knew it as well as anyone did. When a property came out that was not in his market expert area, even if it was a decent deal, he would take a pass. Again, this is not like buying a baseball card. It’s not like we can buy an unlimited number of houses. You’re likely limited to one new investment purchase a year or maybe even every three or four years. You don’t need to rush into the first opportunity that comes your way. If you can get two, three or four investment properties all within a short distance from each other and you know that market as well as anybody else, not only do you have a good team around you of property managers, contractors, mortgage brokers, realtor and you’re working all the way through, you just have that level of expertise for everything. Tom: Well, I’m thinking, too, if you keep it all in one closed area and you’re in that area before you even at the stage where you can build a team, at least you’re on the ground. You can do some of the things yourself. You can deliver that new washer or whatever someone needs. Michael: Yes. Now, just because it is close to your home, that in itself doesn’t make it a good market. In Chapter three of my book, I look at the long-term, real estate forecast and we determine what makes a good real estate market. Obviously, on this podcast, we don’t have enough time to talk about everything, but essentially, a growing market includes an increased population, increased gross domestic product in that market, an increased labour force. If you’re seeing that all happening in your market, there’s a pretty good chance that this is a place that you want to invest in. If you happen to live in an area that you grew up in but it doesn’t have those components, I would seriously look at investing in a market that does versus the one that’s closer to your house. Tom: You mentioned the team of professionals once you get to that point where you’re looking to scale this. How do you put that team together and what does that look like from a profit standpoint? Because it seems to me that cash flow could be tight on these. Right? If you’re getting a mortgage for 95 percent, are you really making much more than that on rent? Or are you just hoping to gain ten10 years down the road on the value of the property? There are two questions there—the cash flow side and the team side. Michael: When it comes to cash flow, you’re absolutely right. If you’re younger and just getting going, there’s a pretty darn good chance that cash flow is not the most important component. I know that a lot of the books I’ll talk about say cash flow is king, and there’s some truth to that. But at the same time, if you’ve got a property that simply covers itself and maybe offers you a couple of shackles on top, but nothing you can retire on. Honestly, until I was 55, my number one focus was wealth building and not cash flow because my nine-to-five job earned enough money that I could live on. That was the most important factor. And I would bet you if you’ve got a solid nine-to-five job, an extra $200 a month—is that really going to make that much of a difference? Not necessarily. Don’t get me wrong, I don’t want a negative $200. But if I can have something that’s up to twenty $20 or $50 and it’s building me wealth, it’s something I’m going to consider for sure. One of the things that frustrate me is a bit of a myth. It’s where people say, “I want to build my portfolio before I build my team because I’m afraid to reach out to these guys until I’ve got a little bit more credibility.” I think you’ve got it wrong. You should be getting out there, meeting people, interacting, networking and essentially building your power team prior to building your empire because they’ll help you grow. One of the things I say in my book is that “you become the collective of everyone’s knowledge” in your power team. If I’m going to hire a realtor, for example, I want a realtor that’s done this before. They own properties themselves. They work with investors. They’re going to introduce me to other investors. And those investors are then going to introduce me to plumbers and electricians and contractors and handymen and mortgage brokers. It goes right down the list. Once you’ve built that team, it’s easier to move forward and you know what you’re getting into. Even if your level of knowledge is at expert level or if you’re just a novice when it comes to the construction of a property, you can do this. You can’t just wing it on a weekend and figure you know what you’re doing. This takes a little bit of time to get there. But once you become really knowledgeable, it can make a real difference. Tom: And with most of those positions on the team, other than maybe property management, none of these are recurring expenses. If you have a realtor or broker you like, that’s basically it. You have their contact information so the next time you’re ready to buy a place, you can reach out and work with them again. Like I said, property management is probably the only one I can think of where you’re actually committing to an additional expense. Michael: Property management. I know a lot of fantastic property managers and they really can make your life easier. Especially as your life gets busier, they could be there to help supplement and support you. But if you’re getting started, again, it all starts with the property you buy. If you do what I did and what so many of my friends did and purchase a property because it’s cheap, in the worst neighbourhood in town, is in the worst shape where all the houses around it are also pretty crappy as well, there’s a pretty darn good chance that even if you fix it up, you’re not going to find a really solid tenant. That tenant’s going to become a pain in your (let me say) neck. And that’s going to make you want to either sell the property or hire a property manager. If you just do things a little bit differently… It might cost you a little bit more but if you buy a quality property in a great neighbourhood—I’ll use an 80s movie reference; you take your DeLorean 30 years in the future where that neighbourhood’s still going to be a great neighbourhood, you’re going to attract that superstar tenant. And actually, let me flip it over a little bit. If you’re looking to buy your first place and you’re struggling, you are the same as so many other Canadians today. We’re able to attract now. It’s not like the old days where tenants are people on social assistance with seven kids, three dogs and two ferrets. Those aren’t my tenants any longer. I’m renting to people with a credit score in the 700 to 800s, sometimes with incomes over $100,000 between the two of them. Maybe with a kid, a puppy or whatever. These are really great people that are maybe two to five years away from buying a house but they’ve got to live somewhere and I want them to live with me and they take care of the place. In some cases, the place is in better shape three years later when they finally move out. That’s the kind of tenant I want to have. And yeah, I could have a property manager, but honestly, every 6 months we have to bug them because they haven’t reached out to us in so long. That’s the kind of tenant I like to have. Tom: If you don’t have a property manager, what’s this look like from a time perspective? Are you constantly getting calls from tenants? I guess sometimes it depends on the quality of the tenant on how much of a hassle they might be. Michael: I always joke about this. Uncle Larry has told you that a friend of his said he used to own properties and was getting all these midnight phone calls. This is the worst decision you’re ever going to make, to buy a property. I can tell you if you hang out with 20 investors, you’re going to get 20 funny stories about stupid things that tenants have done over the years. But then as an investment realtor (as I am), I will then ask these 20 investors, “How many of you would like to sell this property because we’re looking for new listings right now?” Then you hear nothing but crickets. There is nobody that wants to speak up. The reality is, is that you’re going to have one or two incidences that are going to question your sanity of being an investor. But that’s what the whole armchair mindset is. Some of the success stories I have in the book are people that have as many as 10, 15 properties or as little as two properties. In some cases, they’re spending two or three hours a month on their investment portfolio. They’re just simply collecting the money and depositing it in their accounts. Maybe they get the odd phone call. I ask how many midnight phone calls they’ve had and many of them reported as being zero over the course of five years. Some of them have had one or two. But in most cases, it’s a legitimate reason. They always say, “I don’t want to bother you, but I’ve got a major leak happening right now.” Well, I kind of want to get that phone call. They’re not calling because their light bulb went out or something like that. It just doesn’t happen when you’ve got a quality tenant. They respect your nine-to-five time frame. It hasn’t been as difficult as you might think it is. You don’t get the midnight phone calls. You don’t get the worst-case scenario very often at all. You just don’t. Tom: Is there anything else that someone looking to do this should know about? Is there anything they should be prepared for? Michael: Well, I kind of alluded to it already, but the “armchair’ doesn’t necessarily mean absent from any responsibility whatsoever. There are things that one needs to do. I call it a side hustle but, I don’t want to be driving for Uber Eats or building scrunches on the side to make a few extra dollars. This is a part-time job, a part-time side gig that will make you a millionaire. And it’ll make a huge difference. There are certain tasks that one needs to do. I like to go to my properties every 6 months and do semiannual reviews to ensure that the smoke detector batteries have been changed and the furnace filters have been replaced and just sort of ask them how everything’s going and finding out if there was any major issues that have happened. There are some tasks that need to be done. But I can tell you that if you take care of your maintenance and don’t allow it to defer into another year, this becomes a pretty, seamless operation. I will tell you, though, this is running a business. You are starting a business and you should be treating it like a business. You’ve got clients like a business. You’ve got income like a business. You’ve got taxes like a business. This is a business. It can really make a huge difference in your life. Tom: Well, thanks for walking us through all this. Can you tell people where they can find you and the book online? Michael: Sure. The book is, Armchair Real Estate Millionaire. It’s available on Amazon.ca or Amazon.com and it’s also available on Indigo. It’s also on my website, armchairrealestatemillionaire.com as well. You can also reach out to me if you’re interested at infoatarmchairrealestatemillionaire.com. I really feel strongly that this is a very doable thing. I was that C and D student in a university in high school that kind of figured it out along the way. You’ll see a lot of self-deprecating humour because I was not the guy that you’d be thinking in high school was going to turn out to be a multimillionaire, but it sort of worked out that way. Tom: That’s great. Thanks for being on the show. Michael: Thank you. Thank you, Michael, for the great advice on how to make the jump from renting to homeownership and for explaining why real estate remains such a great investment. You can find the show notes for this episode at maplemoney.com/162. Thanks, as always, for listening. I really appreciate the community we’re building both on the Facebook Group and the personal messages and reviews I’ve received. I look forward to seeing you back here next week.
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