-Understand key strategies when it comes to real estate investing -Know what to consider when looking for a property with a good return on investment -Learn where to find qualified tenants and what renovations will maximize your return
There’s growing interest in investing in the housing market right now, but starting a portfolio in real estate investing can be challenging and many may even be wondering if this is the right time to invest, given the current climate.
In this episode, Scott McGillivray joins us on Smart Advice with his answer — don’t think about timing the market, instead, think about how much time you will be in the market. This episode is a goldmine for new and experienced investors alike, as we discuss the strategies Scott used to build his portfolio and key considerations you need to think about when choosing the right location and renovations.
Looking to step into real estate investing or want to review your portfolio? This episode can help inspire you to make better decisions! And for more valuable insights from Scott and Carissa, check out season 3 of Buying In.
Carissa Lucreziano: Welcome to Smart Advice, a podcast bringing you financial advice, investment strategies, and economic trends. I'm CIBC’s financial advice expert, Carissa Lucreziano. And today we have a special episode as we're revisiting a valuable conversation from our recent virtual event, Building Wealth Through Real Estate with Scott McGilvery.
If you're a current real estate investor, or if you've been thinking about dipping your toe into the market for a while now, this episode is for you. Whether your goal is to purchase an investment property or renovate your primary residence to create an income suite, there is no one better than my guest, Scott McGillivray, to dive into this hot topic.
He's a savvy real estate investor with hundreds of properties across North America, as well as a multifaceted entrepreneur. He's a skilled contractor, an award-winning HGTV host and executive producer. I've had the pleasure of working with Scott and his amazing team. And he is a great partner of CIBC.
Our conversation is action-packed with great advice and insights. We talked about strategies to invest in real estate, the best places in Canada to purchase a rental property and which renovations will provide the best return on investment. So get comfortable and get ready to learn from Scott’s years of experience.
Scott, welcome! It's so great to see you.
Scott McGillivray: Thanks for having me today.
Carissa Lucreziano: Yeah, I know our clients, Canadians are just waiting to hear what you have to say about investing in real estate and renovation. So I'm excited.
Scott McGillivray: One of my favourite topics so I think we're going to do well today.
Carissa Lucreziano: So let's go back a little bit. I know you bought your first property in university, and it just snowballed from there. How did you get inspired into the real estate market?
Scott McGillivray: Well, I would have to say I wasn't actually inspired, I was forced into it. Necessity is the mother of all invention. And I don't come from a real estate investing background, my family never invested in real estate, and I didn't go to school for real estate investing.
I actually was a student in university. I had rented a property, rented it from May 1st but over the summer before we moved in in September, the landlord sold the property and told us that we basically had no lease anymore. And in a bit of a frustrating manner, trying to find a place for the school year was next to impossible. There was nothing available. And I spoke to a realtor about helping me find a rental property and she was the one who convinced me to consider buying something and renting out the other rooms to my roommates. And looking at the math looking at the numbers, I realized it's actually cheaper to own a home with the mortgage, the taxes and the insurance than it is to pay rent in this city. If I was able to purchase a property, I could live there rent-free and the rent from my roommates would be enough to cover all of those expenses.
The big challenge was I had no down payment. And everyone that I knew that I asked basically thought I was crazy and said it was a bad idea and you can't do this. But it was funny because no one ever asked me about the math, which helped me realize that fear and opinion shouldn't influence your investing strategy. Fundamentals and math should influence your decision-making. It's actually quite a pragmatic decision when you look at the opportunity to own versus leasing in my situation at the time.
So I couldn't help myself but to kind of go down that rabbit hole. I was able to be set up with a mortgage advisor and we looked at my current situation. We did a bit of a financial breakdown and with the help of my real estate agent, realized that as a homeowner, I could put 5% down. I could still rent out all the other rooms and I could set up the closing date to align with the move-in date so that I would always have the rental income to cover the mortgage payments. So a lot of little tips and tricks things that I never learned in school.
So a little bit of a trial and error, but I was able to use part of my student loan, which was paying my rent and my tuition at the time. I used a portion of it as a down payment on a house that I bought for $117,000. So my down payment at 5% down because it was my primary residence. Along with the first and last month's rent from my tenants. I needed about $6,500, $6,000. And it was the scariest thing I had ever done financially in my life, most money I ever spent. And everyone thought I was crazy but it was probably the best thing I ever did.
Moving forward from there. At the end of that school year when I went to renew my mortgage because I did a one-year mortgage at the time, I realized that I built some equity into the property and I was able to refinance it, pull equity out and purchase two more rental properties based on the demand of some of my other friends who needed places to live. So I had the demand. I had the tenants. So I created the supply by purchasing properties. And I just repeated that.
I had 25 properties by the age of 25. And when I got to right around 100 properties, I realized this is what I am going to do. I love it. I've got a system. I mean, there was a lot of learning along the way but it was all well worth it.
Carissa Lucreziano: Yeah, I'm sure there was a few bumps along the way, to say the least. But doing your homework and doing the math really seems like it set you up for that success.
Scott McGillivray: Honestly, looking back, the advice from the service providers and the professionals and the financial advisors is what got me past the fear and into the actual business. And thankfully, I didn't let unanswered questions stop me from doing something that was one of the biggest financial opportunities in my life.
Carissa Lucreziano: Which so many people do today. So the environment today is a lot different than when you started. And one of the biggest questions Canadians have, and I hear, you probably hear a lot too, is now the right time to buy? Are there still opportunities out there?
Scott McGillivray: The number one thing to consider when starting a real estate investing career is how much time am I in the market. It's less about. Everybody's trying to time the market. I always say it's not about timing the market, it's about time in the market first. Meaning the sooner you can acquire properties and the longer you have a plan to keep them in profit, the better off you will do.
So that takes priority over all the noise that's going on in the space because there's going to be a buyer's market, there's going to be a seller's market, there's going to be a flat market, and then it's going to repeat itself over and over and over again. And the key to being successful in real estate is to know what to do in each of those markets. There's no such thing as it's time to get out of the market. If it's a buyers market, I'm building my portfolio. That's a great time for people to get into the market because typically you have an advantage in a buyers market of negotiating lower prices.
Now, on the flip side, there might be something that's influencing that market like interest rates. There's always that excuse, interest rates are higher so maybe it's not a good time. But you date the rate, you marry the price. So when you're purchasing you're locked into that price, that's how much you finance it for. The rate is going to change. I promise you the rate is going to change, it always is changing. And typically when the rates are going up, that's a great time to get a good price point. When the rates are going down, that's a good time to refinance. So there's an opportunity, when it's a buyers market, you're building a portfolio or you're starting your career in real estate investing, it's actually a great time in the current climate that we're in,
There's a lot of confusion. People have a lot of anxiety. There’s a lot of noise out there. People are getting their real estate investing information from ten-second social media posts, with completely unqualified information behind them. People can claim to be something but there's no verification on it. So it's quite fascinating to see that real trends are coming from unqualified information, which is kind of scary.
But the reality is those who are sophisticated investors, those who take the time to learn the fundamentals about not only their primary residence but other properties as investments, will have a massive competitive advantage. And if you can block out the noise and be pragmatic about what you're doing, you're going to win and you're going to win large.
And I would say that the biggest opportunities that I have had in real estate have always been when there's talks of a recession or a pandemic, or a financial crisis or Y2K. Like whenever there is this disruption in the market and people become ‘financially paralyzed,’ I call it, they stop investing, they stop making big decisions. That's when the best opportunities are available because there's no one else in the way.
So I'm actually kind of excited about the market that we're in. Because if you got a sharp pencil and you've been smart and maybe have some equity in your home or some investments, you can make some really critical decisions right now that will have a massive impact when that market starts to shift, which we always know it will.
Carissa Lucreziano: And ignoring the noise is the hardest thing to do. Like even family and friends are like ‘No now's not the right time to buy.’ You really have to, like you said, just take some time to really research, look at your own situation, understand what financial situation you're in, and look at the opportunities in front of you.
Scott McGillivray: This is a great time to self-assess. And maybe even re-educate yourself a little bit. Have the real conversations about money, about real estate. Talk to your partner, talk to your parents, talk to your kids, talk to your financial adviser. Be a sponge for this information because it is so valuable. If you curate all the information, I always say, you can do almost anything, right? No matter what your educational background is, no matter what your experience is. Typically if you have the right service providers, and you have the right network of people around you, or you just try to connect with those people, they will be a wealth of information.
And you have to, I think a lot of people need to switch their mindset from, ‘I know everything and everyone else is wrong’ to ‘Maybe I can learn something new today and I'm going to ask some questions and I'm not going to be embarrassed about asking them.’ Because you'd be amazed at how successful some people can be just by asking questions that everyone else is scared to ask. They think they’re going to look silly. It's so ridiculous. It's never a bad time to learn something new or to re-educate yourself on how things work now.
Carissa Lucreziano: And so like, I was surprised that 44% of real estate investors in Canada actually own their rental properties outside of where they live. So what cities in Canada and in the US are best to invest in?
Scott McGillivray: So great question. People often ask, ‘Where should I invest?’ But what you invest in is just as important as where you invest. So within cities, there are better areas, better neighborhoods, and even better streets so you got to do your homework. But typically, nationally and internationally, I invest primarily in North America, in fact, exclusively in North America. Canada and the United States, a little bit different for sure.
In Canada, I typically am looking at secondary markets. So I'll find a primary market like Toronto, and I'll invest in Hamilton, Guelph, Kitchener, Waterloo, King City, Oshawa, Campbellford, Frankford, Marmora, even tertiary market. So I've got a lot of properties in Ontario, it's where I started. So the bulk of my portfolio still resides there. But I love doing this all across the country, whether it's Calgary. I love the Calgary market. It's a good cash flow market. It hasn't been the best appreciation market but cash flow has always been great.
Monkton New Brunswick has been a huge growth market and just outside of Monkton, New Brunswick, Ottawa has always been solid. The fundamentals there are fantastic. British Columbia, a little trickier. Vancouver Island, great opportunities on the island. And just outside of Vancouver proper, we've seen some tremendous returns. So coast to coast, even Halifax, which I should have mentioned. I don't have any properties in Halifax, but I should have bought properties in Halifax because I've always recognized it as a good East Coast opportunity.
What you need to start thinking about is looking just outside some of those larger markets. It's nice to have an anchor draw, like at Toronto, for instance. But then it's everything within two hours where some of the biggest opportunities are because that's the path of growth. You don't necessarily want to buy something that's already mature. You want a market that's still maturing. But within that market, it's even more important to look at the fundamentals.
So there's two communities, might be 45 minutes from a large urban center. Which one's going to be closer to the airport? That's probably going to be helpful. Which one has a hospital? That's important as well. Which one has a post-secondary institution? Those are where you're going to see, almost nine times out of 10, more growth, more traffic, more population growth as well because typically, students will gravitate towards where they went to university, get good jobs, and continue to build those communities.
Now, if you want to get really granular, which I do suggest when you're starting because you want to get a win out of the gate with real estate. For instance, when I got started, when I was looking for my first property, I needed something. It was a university town, it was within an hour and 20 minutes of Toronto so I was thinking, okay, so far, so good. But I couldn't afford anything that was within walking distance to the university. Way too expensive. Those properties were legacy properties, they had been in families for 50, 60 years, some of those properties.
So I was like, okay, let me find something that's on the bus route. Then I found still it's cheaper than walking distance but it's still I'm over $200,000. Like, I can't afford these properties. And I was thinking about myself as well. Like how long. I don't want to take two buses. That was too far for me.
And I happened to go to the city because I noticed where I lived, which was at the last bus stop, it looked like they were building another bus stop. So I went to the city and I said ‘Is there a new bus stop coming?; and they said, ‘Actually, there's four or five new bus stops being put on these routes.’ And she gave me a map, the woman at the city gave me a map and marked out where all the new bus line extensions were going to be.
So I bought where the new bus stop was going to be and the price points of those properties were a good 25% less than those that were already in the established bus lines. And that's why by the time I bought it and the bus route came down there, I had seen double-digit growth in a market that was only growing in single digits.
So you have to drill down to understand where the rental market exists, where the infrastructure is going to be, where the growth is going to be and that's about doing in your homework.
Now in the United States, things are a little different. I do typically target urban centers, mainly because I have a little more control and price points are still reasonable in a lot of those urban markets. The state of New York has been a big investment for me. Florida is probably the second largest state in which I invest. The Florida market has been super healthy. The rental market there, you can do short-term or long-term. The student rental opportunities in Florida have been fantastic. You have to make sure that you can get the right insurance because the weather is really tricky.
But also remember that some of these, in Canada financing is a national thing. In the United States, financing is a very local thing. State by state, it's very different. In some states, you can actually get financing in Canada, believe it or not. And in other states, you have to get financing, either within that state or locally, which can be challenging and the structure is different. But Texas, I like the entire state of Texas for investing, to be honest. California can be pricey, but I think there's still in Northern California, some really good opportunities.
But it really comes down to your comfort level. What's the purpose of your purchasing? Are you buying for cash flow? Are you buying for personal use as well? Is it a short-term rental or a long-term rental? You got to consider all these factors.
Carissa Lucreziano: So let's talk a little bit about purchasing property. Now today, in this environment, there's more trends around not just buying it solo but looking at how do you partner in an investment property. It's a partnership. So IPSOS found that 51% of Canadians are looking to buy with family or friends. And so it's a little bit of a different story than either buying alone or maybe with your spouse or your partner. What are some of the things you need to consider?
Scott McGillivray: That's a really interesting statistic. And I'm not surprised because even when I got started. I bought my first one on my own. Then I bought the next two with one of my roommates actually because we realized I realized I could buy one more on my own, or I could buy two with someone else and maybe it'll be more interesting. And one plus one can equal three in real estate if everybody brings everything they have to the table. Because it's exciting, you motivate each other, you push each other. So there is a huge opportunity, especially in real estate investing.
I would go as far as saying that when it comes to real estate investing more people partner up than when it comes to home ownership. However, I have seen the trend in home ownership, joint ventures, co-ops, people purchasing with friends, people purchasing even with strangers to live in a two-unit property, for instance. Parents buying with their children. We see early, what I call early inheritance. That is the parents pulling equity out of their home and lending it or giving it, gifting it to their children.
Carissa Lucreziano: Very big trend.
Scott McGillivray: Yeah, as a downpayment. So it’s, I love seeing collaboration, but I also get low-level anxiety because I have had partners in real estate, not all of them have been perfect. And most people think that if it's a family member, or a friend or a spouse that will just do this and everything will be okay. It can be okay, but you need to set yourself up for success.
So having a real conversation. If you're purchasing a property with somebody, number one, you need to take this seriously. You need to talk about your goals. Are you aligned on what this property is supposed to be? What it's meant to be? What the renovations are going to be? Long-term, short-term, what if one wants to sell and the other doesn't?
So you have to decide early, who am I buying with? Are we aligned on our goals? Do we have an exit strategy agreement? And how does the money work? Because that's really important, right? One person puts in more, one person puts in less. Whose name is on the debt? And what happens if there's equity later?
It's a one or two-page document to have what I call a ‘joint venture agreement’ with your purchasing partner. Whether it's your friend, your sibling, or a complete stranger, there's nothing wrong with spending a few hundred dollars upfront to make sure that you've got a document in place. You know, when you own a piece of property, even if it’s your primary residence, you got to take it seriously like a business.
Carissa Lucreziano: Yeah, and whether it's with family or friends, it doesn't matter if the ultimate goal is to earn money and appreciation in the property, you're going to want to have that in store so good tips.
Being a landlord. So you've been a landlord for 20-plus plus years. How has that changed? And what does it feel like to be a landlord today?
Scott McGillivray: The calibre of your space will dictate the calibre of your tenants, I've been saying that for 20 years. And you will set the tone of the relationships so be careful how you act when you rent your places and how you show your places. Like if your space isn't the place you would want to live, you're probably not going to have a great experience with your tenants. So the higher-end, well-kept rental property market is probably the most lucrative. It's the one where people have the best experience.
Carissa Lucreziano: How do you find tenants? Like, how do you get connected to that network of tenants? Again, very different than it was several years ago.
Scott McGillivray: So to be honest, my first property was 23 years ago. And I knew my roommates needed a place and myself. I was my own tenant, with my friends, so that was different. And then after that friends who had come to visit us, and it was all word of mouth. They saw this place, they're like, if you have a vacancy, let me know.
And I started to build. I would write down people's names and phone numbers, how many they were and their gender. And I'd be like, so I got three girls that need a place, and I got four guys that are looking for a place. And I was trying to match people up or build like a lead list back in the day. And then I would call people, ‘You still looking for a place?’ once, I would find one. And I would match up my lead list with certain properties, right? This group of five girls looking for a five-bedroom house. I go look for a five-bedroom house. I'd call them and say come and see it before I would even put in the offer. I'd do like an open house with my tenants.
And then obviously, as you scale, you need to go out to market. And there's a lot of different platforms out there. And it depends if you're looking for long-term or short-term. Typically local platforms or well-recognized international platforms are the best. We don't put out classified ads and typically don't list on some of the more one-and-done type platforms, we're looking for qualified renters.
In the short-term space, you've got, Stay Up or Airbnb or VRBO. Those vet the tenants before they even get to connect with you on the platform. So they have to provide credit checks or background checks. And they have to have ID and a credit card, which does a lot of the heavy lifting for you.
Now, the reality is we're governed as landlords by The Landlord and Tenancies Act, and you can't make any human rights violations when looking for tenants. So there are really only a few things you can do legally to choose your tenants. Otherwise, it is the first competent and viable person who's willing to sign the lease and pay the rent.
At this point, I've got property managers. I've probably got 30 property managers in different markets, who some of them will manage three properties, some of them will manage 300 units. And then I have a property administrator who manages my property managers who manage my properties. And each one uses certain platforms. It's a system but some of them are using short-term, rental platforms and others are using long-term.
Carissa Lucreziano: And you get the expertise.
Scott McGillivray: I trust my property managers in those local markets. It’'s on them, right? You got to remember, when you're a real estate investor, the number one service provider who needs to be most aligned with you is your property manager. You have the same goals. The more rent you get, the more their fees are. The less hassle with tenants, the better for you, the better for them, right? They want your properties filled. There is nobody that is more aligned with you and your properties than your property manager.
And then you build out your service provider network from there. You can't be the expert on everything. And even though when I started I was the contractor and I was the property manager and I was the renovator and I was trying to figure out the finances. And now, as I grow, I realize I need to be the real estate investor, which entails certain things. I have to be preparing for financing and make sure that the reporting is in good shape so that I can grow my portfolio. I need to be exploring new markets, looking at a lot of data. That's my expertise.
I work with trusted realtors. I work with professional property managers. I work with lawyers and contractors.
Carissa Lucreziano: Financial institutions.
Scott McGillivray: I was gonna say, financial advisors and mortgage advisers. I work with both of them, right? So financial advisors helping me with some of my larger lending opportunities and my mortgage broker is working on individual properties and sometimes the financing is different.
And you do need a financial advisor because if you're interested in getting into real estate investing, acquiring your first property is not rocket science. I can pretty much help somebody purchase their first property within about an hour or two of a conversation and they can do it quite well. Getting your second, third, fourth and fifth property, if you don't buy the first one correctly, you're in big trouble.
If you don't have a relationship with a financial advisor, it's going to be incrementally more difficult to buy more properties and you will get stuck. The key in real estate is understanding how to buy the first one properly and working with a financial partner so that they understand what your goals are and your income and your debt and your reporting and your tax filings. All these things need to line up and organized so that you can grow.
So sharing your goals and being clear and transparent with your partners, your service providers, your financial adviser is really the key to being successful in this business.
Carissa Lucreziano: Let's now transition to all things renovations where I know you have a ton of experience. This is something that Canadians are really interested in doing. The stats are still really high on those that want to renovate. But the reasons behind renovations as we talked about differ. So some are renovating to just create different spaces in their home or what you call forced appreciation. Or really thinking about renovation smart renovations to earn income.
Let's just talk about that. We know that renovations can add a lot of value to a property. Kitchens, bathrooms, I've heard and we've talked about in the past, they sell properties. But what are the best renos to think about if you're starting to prioritize? For maybe your principal residence for that appreciation, as well as to get the maximum rental income.
Scott McGillivray: That's a huge one. So let me start at the beginning. I look at every renovation as falling into three potential categories. So there are renovations that need to be done. The roof is leaking. There are renovations that add value to your home. Upgrading kitchens, curb appeal, smart neutral choices. And then there are renovations that you want to have.
And it's really a balance on all three. One is about preserving the value of your home. One is about return on investment in your home. And the last one is about return on lifestyle. And it's a balance between all three. And there's nothing wrong with any of those renovations, those are just the three buckets that I put them in, right?
And unfortunately, you're not usually given the option with the need to have renovations. It's like the plumbing is broken, the roof is leaking, there's a crack in the foundation. You need to take care of those things because if you don't, you're actually depreciating the value of your home exponentially to the point where it could cause catastrophic value erosion. We don't want that. So needs, you gotta be ready for needs to have and that's why you have insurance as well, right? It's important to have insurance. So need to have those, aren't your choice.
Let's talk about the decisions that you do get to make on your home, which are the return on investment decisions and I'll tell you the top renovations where you're going to make money by doing these things to your home. And they can be simple, small things for those who are on a tight budget, and some of them obviously much larger. But you're not going to tackle a completely dilapidated home that needs everything redone if you're on a tight budget.
But if you're really aggressive, and you want to have what I call built-in equity to a home, you're going to want to buy something that is a little less maintained, maybe a little older that you can get at a reasonable price point. You're going to want to focus on the key areas of the home that are going to turn it from a house to a home. That's gonna make you feel good, but even if you do go to sell it, you're gonna get back the purchase price, you're gonna get back your renovation price, and you're gonna make a profit on it. That's why a lot of people get into flipping or short-term investing options.
And when it comes to adding value to your home, some of the simple things you can do that have a huge impact are number one, curb appeal. You'd be amazed that over and over and over again, improvements on curb appeal have the highest return on investment for several reasons. Number one, it's the first impression that people get. It's typically the cover photo of any listing. Most people will make a first impression decision within seven seconds as to whether or not they want to live in this house, which means they haven't even made it in the front door yet.
So you have to take that into consideration if you're preparing your home for sale and it doesn't have to be a huge investment. A lot of these things you can do by putting some sweat equity into changing out the hardware on your front door, putting in new lighting, even putting in new numbers on your house. Super basic!
Carissa Lucreziano: A little bit of landscaping, couple trees, shrubs.
Scott McGillivray: Get into the landscaping. Get into a little bit of hardscaping, if you have the skills. New lawn, fixing up the grass, cleaning and painting the windows and trim painting the exterior of the home. All of these are in the few hundred, a few thousand dollars range. Nothing here is extraordinarily outrageous and it can have a huge difference.
I've seen houses where people have purchased them and come in with two or three family members, trimmed all the bushes, raked all the leaves, moved all the garbage and the junk, changed out hardware, painted the door, scraped the windows, cleaned the windows, uncovered the walkway, blown the leaves and it looks like a completely different home in a day for under $1,000. So you can do things like that.
Even painting the interior, updating the trim. So if you're missing trim, some homes have very minimal trim, basic trim or beaten-up trim. Very simple. Refinishing floors, right? Or doing floors over floors. A lot of the new types of what we call floating floor applications can go right over the top of your existing floor. It's beautiful. It can be done. Upgrading hardware and fixtures within the home, faucets, light fixtures, appliances, countertops, cabinet hardware. The things that people interact with.
I remember for a while when I was selling some of my rental properties, we tried to do those quick upgrades. Not a huge investment, but preparing it for sale. And I realized that some of the most important upgrades are the things that people touch during an open house. So the door hardware and light switches are the main things that people touch during an open house. So we would go through and change out all the light switches to make sure they were new, clean, the decor, they look brand new. It's like ‘Oh, nice, I'm touching that’ and the doorknobs.
Carissa Lucreziano: Nothing worse than seeing a yellow light switch and then walking a little bit down the hall. And you have a white one.
Scott McGillivray: Yeah, those are really simple. Anyone can do these and they have such a huge impact. You're gonna get multiples on your investment with those. Now, they're small amounts. So painting your house, you might spend maybe $7,000 and it might add $15,000 to the value of your home so you've doubled your investment but it's still only $7,000.
When you get into bigger things like kitchens and bathrooms and changing things to open concept, now you're spending 50 to 100 grand but you're maybe adding $125,000 to the value of your home. So even though the upgrade is marginally less, quantitatively, it's a bigger number.
So kitchens, obviously, one of the first things that people are going to look at. Windows and doors. You want to consider windows and doors because one of the tips that I give a lot of first-time homebuyers and real estate investors is to do a property inspection. And anything that has depreciated beyond its life expectancy, like a window, for instance, that's 35 years old. And it's really easy to know if it's 35 years old because, within the panes of the glass, the year that that window was made is always written. So you can go into a house, you can look in the window and find the date that it was made, 1982. And you can ask for concessions. Even if you've got an accepted offer with an inspection. You can say, ‘Look upon inspection, I realized these windows, they're old. They need to be replaced. They're not efficient. And you can actually save money on the purchase price.’
Carissa Lucreziano: I did that the sunroom had a five-year life left and we were able to do the same thing.
Scott McGillivray: See, that’s very smart. You must hang out with some amazing people.
Carissa Lucreziano: Yeah, you. I do, right now.
So you mentioned about a budget. So most people are on a budget or a fixed budget or create a fixed budget for a reno. It's like a, you know, a project. How do you stay within that? And is there always that contingency that you should plan for?
Scott McGillivray: It is really hard to stay on budget, especially with a larger renovation where you don't know everything yet about the property. Behind those walls? Who knows, we're going to find out. Typically, when it comes to the finishes and the furniture, you need to have a budget. For any renovation, you need to have a budget.
And then I would always plan for a 20% contingency that is going to get spent on things that you may not even be making a decision on because you're gonna have a building inspection and they're gonna say this installation is no good, you need to spend $5,000 on installation. Or you're gonna open the wall, there's an electrical issue. Do you really want to go ahead and close that off and live in a home that's got an electrical issue? Absolutely not. And you also don't want to be in a situation where you can't afford to do it.
So scale back what you know you're going to do to make sure that you have a 20% contingency to tackle the things that have to be done so that you can live in your home with peace of mind.
Carissa Lucreziano: So there's a lot of trends, I want to talk a little bit about them. Trends in urban areas for laneway homes. And in rural areas trends along the lines of building cottages or tree house-type structures for rental. How are people doing this?
Scott McGillivray: There's definitely been a trend into simplifying, I think it is when it comes to real estate. I see. I don't know if this is a trend as in, it's going to be like this forever. I don't know if this is a trend or a transition. Because a lot there are a lot of trends in real estate, right? And some of them come and some of them go and some of them are a little stickier than others.
But I think there's an actual transition happening in real estate right now, especially in North America. Because you have to take the example of, let's say Europe, as a template for what North America will eventually evolve into real estate-wise. It's very different right now, but you're starting to see a lot of similarities where world-class city real estate doesn't transfer very often.
Most properties are owned by long-term owners and investors and the majority of newcomers and young folks end up renting either for a good portion of their lives or their entire lives. And if somebody is going to own, they usually start with a condo or something small, and there's less, I would say possessiveness to it, than you own a house, you cut your grass, you've got your fence.
I have a lot of people who work for me and when we travel on the weekends, for instance, they'll rent out their apartment for two days. Something that I would have never done when I was 22 years old. But for people who are spending as much money as they are on such a small amount of square footage, it's a normal thing.
Carissa Lucreziano: It's an interesting mindset.
Scott McGillivray: It's actually a healthy mindset. And this is why I think it's an actual transition, especially in urban centers, is that people are taking their properties a lot less personal. It's an investment, they need somewhere to live, they're keeping it basic, keeping it minimal, and renting it out when they're not there. Maybe they go on vacation, and they rent out their property while they're on vacation to offset that cost. It's actually kind of genius when you think about it. But it's a huge mindset change for a generation of people who never had to do that, or never thought about it.
What we are also seeing as you look at people who do have more property in urban centers, or close to them is that they're exploiting them better. They're maximizing the space that they have. They're doing laneway houses, they're doing granny suites and granny flats. People who are aspirational and want to have a vacation property are doing it by leveraging the rental market and the demand that comes for those while they're not using it so they're able to monetize it. And the platforms that exist now that allow you to do this professionally, they weren't even around 15 years ago.
If you wanted to rent your cottage 20 years ago, you put an ad in the newspaper, and you waited for a phone call and there was a lot of work to do. Now you've got these pre-built templates on these digital platforms where the hosts and the guests are all vetted. A lot of the work is done, everybody's matched, the money is exchanged. It's very seamless. Technology has completely changed the way real estate is owned and rented.
Carissa Lucreziano: I know you have several projects on the go and you just wrapped up the Buying In series, which I was so thrilled to be a part of. It was so awesome. For our viewers who are looking for more and more tips, more on what you and your team are doing, what's next for you?
Scott McGillivray: Well, first of all, thank you for helping us with Buying In. It's amazing to be able to help people achieve something in a very short period of time that may have been a struggle for them for a long period of time. A small renovation, a small tweak a piece of advice that has hijacked their opportunity to take advantage of something for years. So you and I partnering up going out and working with homeowners on Buying In was just a really nice way of helping people to buy into this idea that they've had for a long time and help them execute on it. So I think that's important.
It really is about being aspirational and also going for it. It's like you got to just go for it and that's what I what I love to do. It's the motivation that I have to continue to do the shows as well. So we're in multiple seasons of multiple shows on renovating homes and investing in real estate.
Vacation House Rules, we're doing two more seasons of that right now. It's exciting because people are learning about the opportunity to kind of have your cake and eat it too. Own a vacation rental property but be able to afford it because you're only using it maybe 25% of the time. So people are renting it out the other times.
They're making money by owning properties. And they're starting to see it gives them a long-term goal. A lot of people are thinking I buy this now, knowing that price points go up in the future, and I'm paying it off with rental income so that when I do want to retire, I'll have a paid-off vacation home. Versus trying to retire and then figuring out how to get a vacation home realizing you're going have to work for another 15 years.
Carissa Lucreziano: How fast does 10 years go, right?
Scott McGillivray: This interview has been ten years.
Carissa Lucreziano: It’s been so great! Like I could talk for another 10 years.
But just thank you so much for being part of the event today like talking about real estate and investing in real estate. It's such a hot topic and it's so important to Canadians. And all of the tips that you gave on renovations, how to do it, what to think about. These are real considerations that Canadians need help with and need inspiration and that's you know what you do best.
Scott McGillivray: It's important that we have these conversations because a lot of people don't realize that the opportunity to take advantage of their biggest goals is right at their fingertips. I think people still have old-fashioned thinking about new ideas. And things have changed and you can have real conversations and get real answers in real time. So if we can disarm people on being fearful and actually going for what it is they want to achieve, we can give them the path to success. Just got to ask the question.
Carissa Lucreziano: Absolutely. Thanks so much.
Thanks for listening to this episode of the Smart Advice Podcast. If you're interested in learning more about trends in homeownership, listen to our June episode with CIBC’s Deputy Chief Economist, Benjamin Tao, on renting versus buying. And if you're a first-time homebuyer or you have one in the family, our most recent episode on the new tax-free first home savings account is for you.
To make sure you never miss an episode, subscribe or follow on your favourite podcast platform and visit us at cibc.com/smartadvice for more great advice.