February 27, 2020

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Opinion

A real (estate) deal

Investment groups focused on buying properties mushroom as Winnipeggers seek profit from steadily appreciating housing market

Ben Schumacher Marketing</p><p>Dakotah Charron, left, and Garret Froese of Winnipeg Investors Club are carving out a successful living in the city’s real estate market.</p></p>

Ben Schumacher Marketing

Dakotah Charron, left, and Garret Froese of Winnipeg Investors Club are carving out a successful living in the city’s real estate market.

Garret Froese put his job as a child psychologist on hold, while Dakotah Charron gave up pursuing a degree in architecture.

And Garret Wong eventually called it quits on full-time work in health-care research.

Yet these three Winnipeggers have something else in common besides leaving promising career paths.

They all did so to carve out a living in the city’s real estate market.

They didn’t become realtors, rather, they are investors, deal-makers and property managers in the residential and multi-family market.

And they’re among of a growing number of folks who are members of private investment clubs focused on buying, selling and renting properties around the city.

"We’ve definitely seen an explosion in growth of these clubs," says Froese, 34, who now runs Froese Development Inc, employing three people part-time.

"Five to 10 years ago, maybe there was one of them around."

Wong, Charron and Froese are all members of the Winnipeg Investors Club, founded by Charron about a year ago. It’s one of a handful of local investment clubs listed on the networking site Meetup, most of which are focused on local real estate.

Indeed the asset class merits attention.

The average home price in the city has climbed by about 230 per cent since 2005, $137,062 to $321,346, based on Multiple Listing Service (MLS) and RPS Real Property Solutions data. The city’s real estate market — like its economy — is a steady growth proposition, says Wong, owner of Upper Edge Property Management Inc, who has been managing properties since 1999.

"Winnipeg is traditionally very, very stable in terms of property values not going up and down a lot like Vancouver or Toronto."

What’s more, many Winnipeggers are attracted to real estate investing—either buying rentals on their own or through partnerships deals—because it’s a tangible asset they often understand better than publicly traded assets like stocks and bonds, simply due to the fact many already own a home. Of course, it doesn’t hurt many have benefited from price appreciation in their homes, allowing them to borrow from the equity for a down payment on an investment property.

Also bolstering the case for real estate is it’s among the best performing assets globally over the long-term. A working study for the https://www.frbsf.org/economic-research/files/wp2019-10.pdf Federal Reserve Bank of San Francisco, for instance, from last year noted from 1870 to 2015 global returns on housing were 6.9 per cent per year after inflation, as opposed to 6.7 per cent for the stock market.

Investors also seeking a piece of the action have plenty of ways to invest, including in real estate investment trusts (REITs) listed on the stock market.

But Winnipeggers also have lots of options for a local approach, including buying long-term rental properties, Wong adds.

"Because Winnipeg is stable, and appreciation over the last 20 to 30 years has been ticking upward, it is the perfect locale for a buy and hold investing."

The next most common way is house flipping, which involves buying, renovating and then selling a property within a few months.

This strategy involves what’s called ‘forced appreciation’, in which improvements boost the property’s value leading to a profit upon sale.

"I won’t buy a house unless I can renovate it to increase the value of the home," says Froese. He frequently ‘flips properties’ and looks to purchase homes worth about $250,000 — the affordability sweet spot in the city.

Then he spends tens of thousands of dollars on renovations, aiming for a profit margin of about 10 to 15 per cent.

Charron, who also flips homes as well as renting properties, says one of the most attractive aspects of the city’s market is affordability, making it easier to get started. "People are interested naturally within our city because the pricing of housing is substantially lower than other markets across Canada," says the 23-year-old, who had been enrolled at the University of Manitoba before he caught the real estate bug two years ago.

One reason home prices are lower than Edmonton, Calgary and Vancouver is investors, nationally, perceive Winnipeg to be a sleepy market, says Jennifer Hunt, vice-president of research at The Real Estate Intelligence Network Inc. (REIN).

And certainly, "Winnipeg is a slow growing city in all aspects."

Investors outside the province typically ignore Winnipeg as a result, but that is changing, she says. Still a recent market evaluation by REIN points to obstacles preventing the Winnipeg market from experiencing price booms seen in B.C. and Ontario.

"Higher property taxes, the lack of infrastructure, and slow job and income growth are still prevalent characteristics of Winnipeg’s economic indicators," she says.

"It’s a slow-growing opportunity, but that’s just fine for many investors."

Long-term real estate in the city grows over the long-term between five and 10 per cent annually, Wong adds.

To local investors like Charron and Froese, this trait makes real estate is the ideal wealth-building investment.

Still they caution individuals need to get educated before investing.

They suggest attending one of the many real estate clubs to hear from expert speakers, learn about investment opportunities, and network with experienced investors.

Reading books on the subject is also helpful, including Rich Dad Poor Dad, by Robert Kiyosaki and Sharon Lechter.

In fact, Froese says the book got him started six years ago.

Additionally, REIN is a good resource, providing guidance on concepts like market influencers, which includes how post-secondary institutions and transit development positively affect prices.

Another must for newbies is relying on a team of professionals to guide them through legal, financial, taxation and other aspects of investment, Wong says.

"It’s not just about finding a property manager," he says, adding people investing in one or two properties can generally manage them on their own.

"Rather it’s about finding an accountant, real estate lawyer, insurance broker, mortgage broker, realtor and then maybe a property manager."

He also recommends reading the Residential Tenancies Act, and contacting the Residential Tenancies Branch to learn about tenant and landlord rights in Manitoba. (As well, for investment opportunities involving partnerships, he suggests contacting the Manitoba Securities Commission to learn more about the various criteria to legally invest in a deal.)

"A lot of people get into it not knowing what they’re doing, and that’s where the horror stories come from," he says.

"But assuming you can get through your first one without too many bruises, your second, third and fourth often get a lot easier."

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