How You Listen Is How You Hear

 

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It’s time to change the conversation about real estate in Canada, once again. However, this time it is extremely important—so important that it is going to be one of the main areas of focus for REIN and in this magazine throughout 2018.

You will begin to read and hear more sophisticated views; you will develop new and critical mental filters; and entirely new strategies will develop from this change of conversation. In fact, in this moment, I guarantee that if you don’t develop these new filters, don’t adjust your thinking and strategies, and don’t keep on top of the subtle nuances we will be showing you, 2018 will be a very difficult year for you. And, if you know me well enough, I don’t say that lightly. Here’s why.

It seems, on the surface, that the Canadian real estate market is swirling with contradictory forecasts and incoherent statistical analyses. And the cloud of confusion seems to be getting thicker. Our federal, provincial, and municipal governments have turned their spotlights onto the housing markets as they “don their capes,” hoping to look like heroes in the eyes of the voters. The legislation, both proposed and passed, is sending contradictory messages into the marketplace, thus adding further to the confusion. For instance, legislation that:

  1. Tightens mortgage qualification rules while stating the need for more Canadians to be able to afford their own homes.
  2. Reduces the ability to set market rents, while attempting to create more housing stock.
  3. Adds dramatic increases in development costs and extended timelines for new-build projects while decrying the need for more affordable housing supply.
  4. Announces “low-vacancy rate crisis” situations while delaying, denying, and creating disincentives, making it very difficult for property owners to add additional safe rental units such as laneway housing and secondary suites.
  5. Creates bylaw and regulative roadblocks (and, in some cases, stop signs) for individuals who wish to provide affordable and safe rental suites in markets where vacancy rates are nearing zero, while at the same time demanding more “affordable rentals” be built.

And these are just a few of the confusing government messages that will become even larger headlines as we enter 2018. Our legislators have turned a blind eye to the underlying demographic and economic realities in Canada, which REIN will be exploring deeply in 2018.

But let us ensure we are not casting stones while living in a glass house. We do make fun of, and get angry about, the hypocrisy of government actions and the echo chambers of thought our politicians live in. But, frankly, we all can get caught in our own rhetorical echo chambers, and when we do, this is where danger lies. And that’s why we must change the conversation, stretch our thought patterns, and ensure we are not thinking like the average consumer or getting caught up in the wrong focus.

How to Cut Through the Confusion, Starting Now

Given the swirling messages, the high prices of housing in many Canadian cities, and the inevitable mortgage interest rate increases ahead, what are the more strategic and sophisticated investors doing to cut through the confusion, the fear, and the rhetoric?

Simply, we have changed the conversation. The title of this article is a clue—how you listen is how you hear. And, in this case, it all starts with having a deep understanding of the facts, beginning with becoming very, very clear as to what industry you, as an investor, are in; what product you are offering; and who your customer is for that product. By doing so, you can adjust your personal filters to hear the facts from your position, not from that of a consumer.

Finding statistics to make you uneasy and worry is easy; they are mainstream and everywhere. For example, right now 95% of all the statistics, the headlines, and the forecasts we see are focused on one part of the market: the housing market. A market that, for the last five-plus years, has been gripped with fear and obsessed with the average price of property. A market that is obsessing about bubbles, affordability, and whether people can afford to buy a home. A market obsessed with the latest condo projects, off-shore buyers, and interest rates.

But what if you aren’t really in the housing market? What if, and this is true for most long-term investors, you are in a different market—a market in which the statistics are much less public and forecasts are few and far between. A market that is hardly ever discussed by the average consumer or mainstream media. A market that is truly driven by immediate supply and demand (daily and weekly, in fact). A market that, once you get clear, allows you to easily filter out the majority of the fear-inducing headlines or even use them to your advantage. A market that is aligned with demographics and is being supported by legislation. A market that is poised for an economic win.

It sounds like it’s time to get clear. It’s time for you to forever change the conversation and create unique thought filters so you can thrive in times of confusion and rise above the thinking level of the average consumer. 2018 will get even more confusing, so honing this skill, starting right now, is going to prove to be the tipping point between success and abject failure and anxiety. The shift begins now.

You Are in the Rental Market—Not the Housing Market

That’s right. Although a type of housing is what you provide, you, as a long-term buy, rent, and hold rental property investor, provide a specific style of housing—rental housing. Your product is a safe “box of air” that your customers temporarily use to house their families and their stuff, and pay you a monthly revenue to use your product. It really boils down to that elegance of simplicity. And once you grasp this reality, your whole focus shifts to matching boxes of air to your target customer.

You are in the rental market, not the housing market, and by making this simple shift your entire view of the world begins to become clearer. You now become a business owner, with a business focus on current knowledge and future projections; that is, knowing how many customers are in your target area and what their economic and demographic profiles are. You begin to make smarter decisions—not based on those consumer level “housing market” statistics but, rather, by focusing on your “customer” statistics. And often these will be contrary.

Although this article is just the first in a series of how to strategically filter and see, for the first time, what is really going on behind the headlines, let’s take a quick thought journey. Let us look at a couple of the confusing recent announcements mentioned above, and look at them through our new filter of identifying customer trends for our “box of air” business:

1. Tightening mortgage qualification rules. With this tightening: 

  1. The family economics combined with the large demographic shift we are witnessing will keep more Canadians renting, and for much longer.
  2. The purchase focus for those wishing to buy will move lower on the price scale and closer into your target price range for viable rentals. This will lead to making it more difficult for you to find properties in your strategic price range, which makes it even more important to develop a source and relationships for supply.
  3. Given this increase in demand in your price range, the value of your portfolio will be much more stable as demand outstrips supply in this price range, thus protecting your capital even as the “housing market statistics” begin to show a drop in “average sale price.”
  4. Of added benefit on the rental market supply side, this tightening of rules will dramatically reduce the number of unprofessional landlords entering the market on a whim, which means that, as rental demand increases, supply will shrink or stabilize. 

2. Reducing the ability to set market rents, while attempting to create more housing stock.

  1. For instance, this tightening of market rent rate rules has already pushed out, cancelled or converted to condos multiple thousands of proposed rental units in rental-specific construction projects as they make the new-build projects less viable on a spreadsheet. This means that demand for older rental stock will continue to grow as demographics and the realities of point #1 above begin to hit the market

Will 2018 be a smooth ride for property owners and investors? Most likely not. But the sailing will be much, much smoother as you adjust your sails to work with the prevailing winds while you set your compass to a different horizon, far from the direction in which consumers and unsophisticated investors are heading. There will be rogue waves along the way. There will no doubt be new frustrations to deal with, and sometimes it may even feel as if you’re lost in mid-ocean. But suffice it to say, we at REIN will be the lighthouse that guides you through. The bottom line is: How you listen is how you will hear in 2018. Let’s listen through the right filters, set our tack to avoid many of the storms and, together, let us change the conversation.

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