Why the Best is in the West

By Robert McLeod

“The West wants in.”

It was the phrase that built a movement, helped make the Reform Party of Canada the Official Opposition and eventually led to Stephen Harper becoming Prime Minister. But lately it seems like that’s been reversed, and everyone wants in to the West. And no wonder, with the best economic fundamentals in the country and an energy sector that – sorry, environmentalists – is going to continue cranking out oil, jobs and wealth for at least the next 25 years; it’s about as sure a bet as you’re going to find. Now it’s your turn to make a bet of your own on that prosperity.

You know why you need to make that bet, too. Unless you want to subsist on a diet of cat food sandwiches and trips to the library, the table stakes for a comfortable retirement are at least $750,000 to $1 million – at least. And if you want to retire earlier, or take on more exotic pursuits when you pull the trigger on it, you’ll need more than that. With the stock market looking dangerously frothy and interest rates near zero, you’ll have to do more than dollar-cost averaging to get there.

Since you’re a REIN member (or considering becoming one), you already know that investing in real estate is a great way to move your financial football down the field. If you already live in Alberta, well, lucky you – investing in real estate here is relatively simple. But if you don’t, well, it doesn’t have to be that difficult either. Done properly, investing in real estate in Alberta is the Ron Popeil of investments – you just set it and forget it. It’s easy to finance, you can find it anywhere, there’s always going to be a buyer and everyone needs it – it’s dead easy.

Now, why go to the trouble of investing in a market that’s hundreds, or maybe even thousands of kilometres away from where you live? Because chances are where you live doesn’t offer the kind of economic fundamentals and investor-friendly regulations that Alberta does. The net migration numbers (high and going higher) don’t lie. The job creation numbers (high and going higher) don’t lie. The taxes (low, and in some cases non-existent) don’t lie. The vacancy rate (low, and can’t go much lower) doesn’t lie. And all of that is being driven by an industry that isn’t going anywhere in our lifetimes.

So, how do you get a piece of the action? You do it, first and foremost, with patience. Alberta’s been likened to the Wild West, and that’s not a bad image: people come here to seek their wealth, and the local authorities tend to stay out of their way while they’re doing it. But like the Wild West, you don’t really want to be a pioneer. Pioneers get killed by the locals. I’m not a pioneer. I don’t want to be a homesteader. I would be the guy who goes there once the railroad has been built, and build the hotel.

That philosophy is how I invest. I go into areas where there’s already infrastructure, there are already schools, there are already people living there, and I can already justify the rent. And I don’t buy the cheapest property on the block, or the most expensive – I buy the most liquid. I can validate that number against other sales, against growth in the area, and if I choose to sell it I know that I’ll be able to.

You also need to build up a team of people that you can trust, and who can act on your behalf. When it comes to buying investment real estate, most people think that product is the most important thing. It isn’t. In my experience, it’s the people that you build into your support team are the most important. There’s always lots of real estate to buy. That’s not an issue. There are always lots of tenants to find. That’s not an issue. But ‘good people,’ that’s much harder to find.

Using a local Realtor is a good start, but make sure your interests are aligned. There are more than enough order takers in the world. What you want to find is someone who sees things the same way you do. That’s why the first question you ask a prospective Realtor is how much investment real estate they own. If they don’t own any, that’s probably an indication that there’s a problem. After all, if you were at the dealership kicking the tires on a new Mercedes and the salesman told you he drives a Honda, well, that would probably set off your Spidey senses – and it should. The same is true of real estate.

But if you’re worried about finding the right Realtor to front your play, there’s another option that I’ve warmed to lately: rental pools. I used to be skeptical of them, in large part because they were aggregations of older product that had all kinds of deferred maintenance on them and were difficult to sell (because you could only sell them to other investors).

That said, I’ve seen (and, full disclosure, put together) some pools that are of a much higher quality and are far more liquid, and these can make a lot of sense for out-of-province investors. After all, let’s say you do find someone to take care of the administrative work that comes with owning an investment property. If it’s a property manager that’s dealing with two or three hundred clients, are they going to be properly motivated to be proactive about maximizing the cash flow coming from your single unit? And if you go the Realtor route, are they going to be there in a year when your tenant packs up and gives you notice that they’re leaving, or when you’ve got delinquency in the rent and you have to collect or sue the tenant?

That requires someone who’s full time on the ground that does that for a living.

In a rental pool, that’s exactly what you get. You’re dealing with someone who has a contract, managing multiple units in the same project, whose revenue is directly tied to the success of the pool. And because they’re probably managing other units, they’ll always be working on that list of prospective tenants. For an investor from afar who doesn’t have that team built up yet, something that’s in a pool with other like-minded investors makes the most amount of sense.

So, let’s recap. Yes, Alberta is the land of opportunity for investors. Yes, you can get a piece of the action. And yes, that action is going to last long enough to allow you to generate positive cash flow, pay down the mortgage and build equity – and do it over and over again if you so choose. There’s really only one question left: what are you waiting for?

Robert F. McLeod, CSI, CCC is the founder and CEO of McLeod Project Marketing, a boutique developer consultancy based in Edmonton, Alberta. He is also the Associate Broker for Re/max Real Estate Edmonton Ltd. Robert is a three time REIN Player of the Year winner and has been awarded the REIN Leslie Cluff Memorial Award. In 2011, Robert was an Edmonton Top 40 Under 40 with Avenue Magazine.  See more at www.mcleodprojectmarketing.com.