Laurel Simmons: Hi everyone. I'm Laurel Simmons, a co-founder of the REITE Club, and welcome to the REITE Club podcast. Today I am here with Katherine Nelson-Riley, and our wonderful operations manager of the REITE Club. And today our guest is James Knull. Who is based in Vancouver and Edmonton. He is a realtor. He's got so much information to share with us, doesn't he?
Katherine Nelson-Riley: Absolutely. It was amazing and his wide diversity between how to read the markets, how to know where the next area to invest in and what's happening. And it was really fascinating to listen to him. And actually all he'll be hearing from me because there's some investment opportunities I'd like to discuss further with him.
Laurel Simmons: He's so enthusiastic about what's happening out there too, and you can tell that he really knows the market. He really understands Edmonton and Wow. He's got his finger on the pulse of Vancouver too and all of bc It's co it's really fascinating to listen to him.
Before we go to the interview, let's just ask everyone to hey, go to the REITE Club website when you have a chance and join us there. We have lots and lots of information for you. We'd love to see you there. So now Catherine, let's go to the interview.
Katherine Nelson-Riley: Looking forward to it.
Laurel Simmons: Hi James. Welcome to the REITE Club Podcast. It's great to have you with us today. You are from the West Coast. Are you in Vancouver right now?
James Knull: I am in our Vancouver office today.
Laurel Simmons: Okay, it's interesting time in real estate these days, but because you're from the West Coast and there's so much happening in this country and every region is different let's talk about, what's the best, what's the strategy now for cash flowing properties in Western Canada, specifically BC and I and you're also in Alberta. Is that correct?
James Knull: Yeah, that's right. We have an office in Edmonton, Alberta. We have an office in Vancouver, BC and we're more than thrilled to help everybody in Western Canada look at all kinds of different properties out here.
Laurel Simmons: Tell us what's happening? What, how do we cash flow out there? What's going on?
James Knull: The thing that everybody knows is going on right now is interest rates have gone up, which puts a squeeze on all things cash flow. And so we're really looking at different ways. To target and identify properties to ensure that they cash flow. So one of the ways to create cash flow and this isn't accessible to necessarily everybody, but it's to just increase the down payment.
The thing about a higher interest rate environment is More leverage costs, more money. We pay for that. In terms of higher monthly payments in Vancouver, we're seeing a lot of our clients just shift the entire criteria from properties where they're putting 20% down to properties, where they're putting 30% down.
That one move has basically brought cashflow back to a lot of the different properties we're looking at in all of Western Canada. That's the low hanging fruit. If we can't put a higher down payment down, that's okay. Let's talk about some other strategies. Cashflow really comes from a combination of either looking at additional ways to add revenue or ways to cut expense outta the equation.
When we look at cash flow, we want to target one of those two things, or ideally, both of those two things. First increasing revenue. That means increasing rent. In Vancouver, we have so many high end skilled workers coming to Vancouver that are getting accommodations paid for by their big, fancy companies.
We've got companies that have relationships with the Apples, the Googles, Amazon major film production studios, all of these types of companies are willing to pay big bucks for fully furnished executive rental suites because paying for something like that is still actually cheaper than the cost of a hotel room, and a lot more comfortable for somebody that's in town for a few months because they have. A living room, their bedroom, a proper kitchen, amenities.
They're living as part of the community where the accommodation is located. In Edmonton, same thing, same idea. Furnishing rentals does help boost the nightly rental amount as well. The big wave of inflation that really hit most of Canada last year is now starting to get to Edmonton.
Edmonton always lags a little bit behind the rest of the country. This spring, we're seeing rents go up by, $100, $150, $200 per door. And the nice thing about Edmonton is there's no rental raise restrictions. That means that if rent can go up by $200, it will go up by $200.
It's a deregulated marketplace as far as rent goes, which makes it a really good time to start looking at rentals in Edmonton because you can catch that wave of inflation that's currently hitting Edmonton to isolate and target properties where there's an opportunity to rent them for a higher amount, which actually is making up some of the cash flow gap.
The next level up in terms of adding rent is going nightly rental. Short-term rental. Vancouver's a tough market for short-term rental because there's a lot of restrictions. Edmonton by comparison, is a very unrestricted market when it comes to short-term rental. That's your Airbnb, VRBO, etc. Those two strategies will help boost your cash flow from a rental perspective, from an expense perspective.
You can look at doing some self property management in Edmonton and Vancouver. We work with a lot of companies that will just do tenant placement, and so instead of paying 10% per month or whatever, maybe as low as 8%, but most property management companies charge 10% per month to manage the property.
What we're seeing a lot of our Canadian investors doing in Edmonton is simply paying to place a high quality tenant and then collecting the rent checks and doing the ongoing management themselves. That might not be a solution for the entire life of your entire portfolio, but with the market shift and with cashflow hard to come by.
It might just be the year or two where it makes sense to roll up your sleeves a little bit and do a little bit more on the management side. The other thing that we're seeing people gravitate towards, especially in Edmonton, is newer inventory. And purpose-built inventory. This is stuff that classically has a lower vacancy because it's newer, it's nicer, it's more popular, and we'll have a lower repairs and maintenance bill.
Because again, it's newer, it's got new home warranty, there isn't as much repairs and maintenance to account for. We know when we run our proformas, we put an allowance in for both vacancy and repairs and maintenance. Minimizing those two expenses by buying newer products or brand new purpose-Built rental, again adds to that cash flow.
Those are a couple of the strategies I'd recommend, just to sum them up, figure out how to boost rent by renting either furnished or for shorter terms. Figuring out how to raise the capital for a larger down payment. High interest rate environments are a dangerous place to borrow too much money and leverage too highly.
Then number three, minimizing the expenses we can control, which are your property management, your vacancy, your repairs. We're not gonna be able to lower the taxes, we're not gonna be able to lower the insurance. Those just, those are constant. Those are what they are. So let's target the ones that we can work on.
And those are most of the things that our clients are doing right now to still find cash flowing properties in this market in Vancouver, more money down is almost a necessity. In Edmonton. We can still put 20% down and blend in these strategies to find cash flow.
Laurel Simmons: It's interesting to me that you're talking about short-term rentals, the Airbnb, because a lot of places they're really clamping down on that I thought that was happening in Vancouver specifically.
James Knull: It really is in Vancouver, it really is, which means that in Vancouver we typically if we want something that's a little bit less involved, a little bit less difficult, we're actually going more towards monthly rentals. Really cool policy change update. In Vancouver, there was a law just passed at the provincial level that removed rental restrictions from strata condominium bylaws.
Which is really powerful because before strata corporations could limit the number of rentals in a building, or they could limit, no 30 day and above rentals or items like that. Now, the only restriction that's allowed is on short-term Airbnb rental. There's a whole collection of buildings in Vancouver that are now opened up to allowing this type of executive rental, which would be month to month.
It's a big deal. It's made a lot more inventory in Vancouver. Makes sense as rental product. So the nightly, the Airbnb rental, still pretty tricky. Heck of a lot easier in Edmonton, Alberta is the least regulated province for owners and landlords in the country. In Vancouver, we can still make it work, but it does make a lot more sense to do the monthly executive as opposed to the nightly.
Laurel Simmons: When you say monthly, so month to month now in Ontario, we talk about month to month really, you're talking about An annual tenancy and you're now, you're getting a Ontario's really restrictive in terms of the landlord tenant board and getting tenancy out and all the rest of it.
You have to be very careful here about renting something to someone on a month to month basis. And I think what you are specifically referring to is a midterm rental, which could be anywhere from one to six months, seven months, something like that. Not a year long rental, not a two week rental, but in that middle ground where you say the larger corporations the film companies, they need a place for their people to stay.
James Knull: That's exactly what we're talking about. Just to make sure we're all on the same page. I agree. We don't want to be signing paperwork that says there is a standing month, two month lease that really leaves the ball in the tenant's court. What we're signing is a fixed term lease with a set expiration date for the duration of their short-term stay.
Now, when I say short-term, I don't mean nightly. Again, we mean a multiple month stay. That's meant as a hotel alternative for a visiting worker executive. We also see placements of this sort for insurance claims. Very popular. Somebody has a whole bunch of bad things happen at their house, and they need a place to stay while the repairs are going on. This is a great option for that as well.
Katherine Nelson-Riley: All kinds of different things that they can even if it's your house is being built and you've got a, your house sold, the other one isn't ready, or if something falls in. Which is pretty cool. O one of the things that you're basically mentioning, I'm getting the idea that these are more along the lines of condos are our homes are single family. Maybe a duplex type of situation, but how does the, this dovetail into a multi-family? How is that market different?
James Knull: Multi-family is a great place to do some of this strategy because you do get economies of scale. There is a certain tipping point where you don't necessarily want to have dozens and dozens of identical units all for rent in one location.
At that point, you're almost competing with hotels, but one way to really boost cash flow in a, a multi-family building, like a 12 plex, is take a collection of those units and designate them as short-term rental or medium-term rental. If you hold 'em the whole darn building, nobody's gonna tell you can't do short-term rental in your building because you're in control of the way that building is operated, which is why it's much easier to do a lot of different rental strategies and standalone structures or structures where you own the entire thing.
Be that a house at the small end or a multi-unit building at the other end. I really do like multi-family as an asset class in Edmonton specifically right now for two reasons. Number one, lorens are inflating, which means that we can dramatically shift the net operating income on a building if we find the right building that's under rented.
Number two, there aren't any rental raise restrictions. So if you find the right building with the right rents, Laws surrounding landlord and tenancy in Alberta make it very easy to raise the rents by as much as you need to, and or give notice to terminate month to month tendencies if you can believe it.
If you give the tenant a 90 days clear notice in Alberta, that's sufficient for ending a month to month tenancy. So if you find an older it doesn't even need to be old, you just find a building. The majority of the tenants are on month to month. They're paying below market value. Within a year, it's very easy to have the rents raised on the people who are willing to pay market rent and or transition out tenants who aren't interested in paying market rent.
Very powerful time for multi-family in Alberta, in Edmonton specifically. That's why we're seeing a flood of capital come in from across the country who are asking us almost every single day.
Somebody's asking me what's going on in multifamily in Edmonton, because I think anybody paying attention to the macroeconomic picture sees that perfect intersection of increasing rents in an easy place to increase rents. So there's a really good net operating income versus cap rate play to add value to buildings right now in the Edmonton area.
Laurel Simmons: That leads to the next question then. What's the competition like for these buildings? Because if there's a whole bunch of people looking at it saying, wow, these are great deals right now there's only a limited number of buildings, right? We don't just snap our fingers and make them appear. What's it like right now?
James Knull: It is competitive. But there are, to put it bluntly, a lot of wannabe investors, which are people that are trying to tie up buildings who don't actually have the capital available to close on the building.
The multi-family realtors actually do spend a lot of time vetting the buyers to make sure that if they're gonna bring a deal to a buyer, if there's a high probability of that deal going forward. Mainly because in multi-family and commercial, the due diligence, the condition, period. Is a couple of months, whereas in single family, it's a couple of weeks.
A lot can happen in the market in two months, so it's a huge risk for a seller to tie up a property for two months to only not have the deal come together. While it feels like there might be a lot of competition, because a lot of people want a multi-family building, the pool of people that have the capacity to actually move forward on a short timeline is a lot.
Which means if you're serious about multi-family, you need to organize yourself to be a serious buyer, which is someone who, you've got your partnership group lined up and ready to go, or you've got your own capital ready to deploy. You can put that deposit down. You're able to close quickly.
You're able to do your due diligence in relatively short order. You know it's gonna be a problem. If you go around tying up buildings, what's next to no deposit, with no real plan on removing those conditions. There's a very small amount of multi-family realtors in Edmonton. There's ourselves and about four to six other groups depending on how you count it.
If you get a reputation amongst those six groups as being someone who can't close, then you're not gonna see the deals as a top priority. The deals are gonna go to other buyers first, and then you'll see deals that have been picked over a little bit. I would highly encourage those of you interested in taking advantage of the multi-family wave that's about to happen in Edmonton.
Highly encourage you all to be deal ready. Good deals in any market, go quick, especially in a hotter market. And Being the kind of person who's deal ready makes you the kind of person who's actually gonna get one of these really great deals this year.
Laurel Simmons: Is it the same in Calgary? Is that same kind of market?
James Knull: Very similar market in Calgary. Calgary is typically a market that charges ahead of Edmonton, and so over the past 30 years, we've actually used Calgary as a lead measure for what happens in the Edmonton market. Similarly to how when we look at what's happening in Vancouver, the greater periphery, your Langley, your Seri, Victoria, sunshine Coast.
If the big gravitational center has a major move in the market, then the pocket communities, everything in that periphery catches up a few months later. Edmonton is in the periphery of Calgary. We've seen Calgary really take off. Tens of thousands of people are moving to Calgary. Calgary's market has started to grow and drive.
Edmonton is at the beginning, the very early stage of that growth cycle. It makes it really easy to invest in Alberta if you understand that if you're paying attention to Calgary, whatever's happening in Calgary will happen in Edmonton eight to 12 months later. So here we are, eight to 12 months removed from things really starting to cook in Calgary Edmonton's. At the beginning of that. And we're seeing a lot of attention from a lot of our sophisticated investors across the country.
Laurel Simmons: It's interesting that you talked about Colonna. Cause I was actually going to ask specifically about Colonna, in the Okanagan Valley, because there's a lot of beautiful properties there. There's a lot of people I have to live there. So you're saying also that with the spillover effect from Vancouver and I suppose calgary Edmonton is being felt there because it is in the middle, isn't it? Even though it's a different province from Alberta, it is in the middle.
James Knull: It really is in the middle, and that's a great observation. Colonna ends up being the in between resort vacation destination for people from Alberta. And some people from Vancouver, it's a lot more affordable than Vancouver. So Vancouver people see it as a budget option to get to wine country, do something really cool in the summer, it's four hours away, Alberta, it's like a whole nother world.
People from Alberta see it as more expensive but worth it. Right now there's a lot of development happening in Cologna that is vacation oriented, and we're actually going to be representing a project in Cologna next year. That is one of the first buildings that is completely zoned for unrestricted short-term rental capability, Airbnb rentals.
We're building a lot of investor oriented units for the kind of person that wants to own it and then use it a couple of weeks a year, and then have it as a cash flowing asset the rest of the time. This is the stuff that's going into Colonna. Of course, Colonna had a dip. Everybody had a dip when interest rates went up and everybody went into weight and sea mode.
The Colonna market. Followed the trend. It's not coming back as aggressively as Vancouver. Vancouver's already humming along our spring market. There's bidding wars, there's people going in there, things are happening, things are moving. It's not red hot like it was this time last year, but it's a very balanced Vancouver market that's charging forward Colonna.
On the other hand is coming back, but it's not hard charging yet. However, once the other markets stabilize, we're really prepping for Cologna to start taking off again, especially in those vacation sectors because so many people around Western Canada want a vacation slash personal use property. That also makes sense as an investment in.
Katherine Nelson-Riley: When you're talking about the different vacation properties and so on and so forth, one of the things that has just come into Ontario is the law for additional dwelling units. And a lot of people are putting those on to their properties or they're purchasing, knowing that they could do that at another point in time. So they're putting in their tiny homes or whatever it is, but it's specifically for doing short and midterm rentals. Is there anything like that going on out west?
James Knull: In Edmonton, a bunch of the zoning bylaws just got changed to allow for multi-unit dwellings on pretty much every lot in the interior of the city. So all of your core neighborhoods, , you can now buy a 50 foot wide lot and do something like a side-by-side duplex with suites in the basement, and then a garage with suites above the garage creating a six unit dwelling mid-block in the heart of the city. Really cool stuff. It's not necessarily intended specifically for short-term rental.
Of course you can do it, but there's nothing mandatory about it. There's really no incentives for doing it. It's just part of a repertoire of rental. The real intention for the city is that Edmonton is a city of urban sprawl. There's a lot of houses, there's a lot of prairie field getting turned into houses every single year.
Edmonton wants to stop that from happening because the further from the center you get, the more expensive the roads get, the more expensive water lines, electrical lines, sewer lines, the infrastructure cost of Edmonton is so high. The city of Edmonton actually has about two to three times higher municipal tax than Vancouver because there's so much expensive infrastructure going towards supporting so few actual properties because of the urban sprawl.
City of Edmonton recognizes this is a really unsustainable way to build a city, and so they're making it very easy to build more dense properties towards the center of the city. This is something our investors are really targeting as well because you can buy a really cheap house, which means a really cheap piece of land and add a ton of density to it.
We're seeing, $300,000 to $350,000 houses getting knocked down with brand new six unit purpose-built rental inventory getting built in its place. That cash flows like crazy, and because its brand new, attracts a really nice tenant profile, which is perfect. Just in time for 500,000 new Canadians coming in 2023.
A lot of them are gonna come to Edmonton. And I'll tell you why this is a really good one to think about. As we examine the Edmonton market, Edmonton is one of the best places for new Canadians to land in the entire country. And the reason for that is, number one, it's very affordable. Edmonton's consumer price index is one of the lowest in the country.
What does that mean? It means that the average income. Compared to the average mortgage payment and the average rent, that ratio is really spread out. So you know, as a household, you don't need a large portion of your household budget going towards paying the cost of putting a roof over your head and having a place for your family to live.
Great. It's very affordable. Number two, it's very blue collar, which means there are a lot of jobs that pay very well that don't require extremely good English skills. Great place for a new Canadian. You can get a really nice paying job in Edmonton that pays you very well for your skills. As you adapt to the Canadian culture, then you get paid more than enough to put a roof over your family's head and food on the table because of the low cost of living.
As a result, big REITs are coming in and building high rises that are rental only all over the city. Pretty much every new high-rise that's been built in Edmonton in the last three years has been purpose-built rental, high-rise inventory. It hasn't been. Purchase per unit condo inventory.
Then for us, little guy, normal investors, people are coming in, buying up these lots in Central Edmonton. And then purpose building really nice rental inventory. That's the perfect place for new Canadians to land as they get there. Nice paying jobs and get used to being in Canada.
Laurel Simmons: That's pretty awesome.
You're right, it's, we are getting a lot of new people coming in and they need a place to live and sounds like Edmonton's a really great place, although, I feel sorry for people who go there from the southern warm climates to Edmonton in the winter. I'm sorry, I just gotta say that.
James Knull: Hey, it's pretty cool going on Instagram and seeing new Edmontonians. See snow for the first time in their lives. We see it as a cold burden to bear. But, watching children from all over the world play around in waist deep snow because they've never seen it before, is actually pretty cool. That wears off after a few years, but they should think it's fun when they get here.
Katherine Nelson-Riley: I was gonna say a few years.
Laurel Simmons: Exactly. Okay. James, it's time for the lightning round. So these a four questions we're gonna ask. They're not difficult. At least I don't think they're difficult. Say whatever comes to mind.
I'll start with asking the first question. So what's the most important piece of advice you've gotten about real estate investing?
James Knull: I would say the best piece of advice I've ever gotten about real estate investing would be respect, leverage. So many people out there are all about 0% down. Borrow every penny, use other people's money, leverage it to the hilt, but every dollar you borrow comes at a cost of a monthly payment.
It puts you on a very unstable foundation to absorb a market shift. If rents go down, if prices come down and we're in a market right now, that could shift. So anybody out there who's got a big portfolio of properties that are with 100% borrowed money if something shifts a little in the market because of inflation over here, or a war over there, and all of your rents go down by $50 a month per door. You've got a house of cards built on very expensive debt that could be very problematic for you. So be very careful with leverage. Just because you can borrow more money doesn't mean you should.
Katherine Nelson-Riley: Good point. Really excellent point. James, if you could tell your 18 year old self something, what would it be?
James Knull: I would've been to diversify my portfolio a little bit more. I was all in on Edmonton and for the first 10 to 15 years of investing. I bought all Edmonton property all the time, and Edmonton has been a good producer for cash flow. But boy oh boy, I sure would've. I have properties I bought in Edmonton in 2010 for $350,000 that are worth maybe 4400,000 now.
If I had bought one or two properties in Vancouver for three 50 back then, they'd be worth 1.5 million now. It's a really good piece of advice to diversify. Put some instability, cash flow markets, some in growth markets, spread it around. I followed the idea of being a geographic specialist own the block. But in retrospect, I wish I would've owned a little bit of more different blocks.
Laurel Simmons: Fair enough. All right. Here's a question that I bet you don't get asked very often. What's your favorite type of reading fiction or non-fiction?
James Knull: I actually alternate between a fiction book and a non-fiction book. I really enjoy reading fun books. I like science fiction quite a bit. I like futurism books. But I do try to nurture my brain a little bit through business books and process books and improvement books. So I just, I rotate one, one then the other.
Katherine Nelson-Riley: Awesome. That's always good. You have a stack of books by the bedside table and one by your favorite chair in the living room and, how it goes. Last question. What is the one attribute that has made you successful?
James Knull: I think it's consistency. A lot of people give up too early, and that is something I see all the time, both from realtors, from real estate investors. Just consistency. It took me, gosh, over 50 different conversations with people to get my first joint venture partner. For a lot of people, the idea of spending a year having 50 people say no thanks. That's a tough thing for a lot of people to push through. And I said, you know what? Eventually somebody's gonna say yes. So I just stayed consistent and sure enough, eventually people started saying yes and that got it all rolling.
Katherine Nelson-Riley: That's really inspiring because, it's the tenacity to have that consistency, which is a huge is something very huge and a good message for everybody to remember. So thank you.
James Knull: Thank you.
Laurel Simmons: Alright, James, how can people reach you? What's the best way for people to reach you?
James Knull: I'm an email guy, so James@mogulrg.com. And of course, I love social media, so look me up on Facebook for James Knull, or if you're more of an Instagrammer. It's at MOGULRG. That's our company page, so get connected. I love being part of the real estate conversation and we post all kinds of cool conversations and tidbits about real estate all the time.
Laurel Simmons: All right. That's great. Thank you very much. And hey, I hope everybody that's been listening is at least takes a look at what's happening out at out West because there's, this is such a, the diverse country and there's so much stuff happening all over the place and it doesn't matter what the market is like, there's the best time to get into real estate investing is right now. It's always the best time.
James Knull: That's right. Yeah. It's real estate is something you wanna purchase and wait, not wait to purchase.
Laurel Simmons: Okay. On that note, we will end it. Thank you very much. Bye.
James Knull: Thank you guys. Been a pleasure.
Katherine Nelson-Riley: Thank you, James. Wow. What an awesome interview. I know it's only 30 minutes, but we certainly could have gone on much longer. The information that he shared was phenomenal.
Laurel Simmons: I know James is a wealth of knowledge and it just makes me wanna invest in the Edmonton, like right now. And I also found it really interesting about Vancouver. How the laws are changing and the regulations over the condominiums and what you can do in homes in terms of short term and midterm rentals. That's really a really interesting place. The midterm rental.
Katherine Nelson-Riley: Absolutely. And what was really cool too, is he actually made sure that he gave us an idea of how investors can make sure to organize themselves, to establish themselves as serious buyers so that they're ready when something pops up and it is ready. They're ready to go When they find a property that's a good fit for them.
Laurel Simmons: Exactly. So on that note, I think we'll wrap it up. So what do we say to people, Katherine, about the REITE Club?
Katherine Nelson-Riley: Come grow with us and customize your life.
Laurel Simmons: All right, everyone. See you and hear you and talk to you at our next podcast.
Katherine Nelson-Riley: Thank you everyone.
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