A Mistake That Cost An Investor $242.5 Million Dollars

hockeyWhen Spirepoint’s co-founder, Paul Blacquiere, asked me to write an inaugural article, it gave me an opportunity to talk to a new audience about a subject I am passionate about…

Helping the great majority of Canadians and Americans not covered by defined benefit pension plans provide independently for themselves and their families.

Twenty years ago I had a plan that seemed likely to work.

  • I had taken over a small real estate company
  • Grown it from annual revenues of $350,000 to $120 million in nine years
  • Bought an expansion team (the NHL’s Ottawa Senators) for $85 million, and
  • Built a 20,000-seat arena (now called Canadian Tire Centre) for $240 million, which was sitting on a square mile of land (600 acres) that was going up in value, fast.

 

Fate Intervenes

But the Canadian dollar decided to go from 90 cents US to 62 cents, and NHL payrolls went from $6.5 million CAD when we purchased the team to $55 million USD (around $86 million CAD) a decade later.

The team went bankrupt in 2003 and was sold to its current owner, Eugene Melnyk, for $120 million. Oh yeah, that included the arena and $13 million in playoff revenues sitting nicely in cash on the team’s balance sheet from a long playoff run that year.

 

Buy High, Sell…

This strategy is called buying high and selling low; it explains why I work as a real estate broker, keynote speaker, coach, mentor and author who will have to work til he dies.

It also explains why I keep in my briefcase a note to self, which says,

“IT’S REAL ESTATE, STUPID”

Three times.

wall streetEvery time I think about investing in professional sports, tech companies, sign companies, toy companies, low return CDs, GICs, RRSPs, TFSAs, t-bills, IPPs, mutual funds, stocks, bonds, (all of which I have done), my wife makes me read the note again, out loud.

I think wide and varied experience, successes and failures, have given me an opportunity to be an effective teacher/coach/mentor. At least, that is what people I coach tell me. Thank you for that.

In a Bank of Montreal poll, 34% of respondents said their retirement “plan” is to win the lottery. Some plan. Almost as good as my old plan.

 

Doing Everything Right?

I have a client (he’s 72) who came to see me recently and said, “Bruce, I’ve done everything right, everything my financial advisor told me to do. I own my own home. It’s worth $600,000. I’ve paid off the mortgage. I’ve saved for years so I’ve put $700,000 away in my RRSP.”

“Now he tells me that when I turn it into a RIF (a retirement income fund, sort of a reverse RRSP) this year, my wife and I will have to live on $15,000 per annum because we both come from long-lived families (over 90 for men and women) and don’t want to outlive our money.”

What to do?

 

3 Classes of People

Developed nations are basically divided into three classes today:

  1. People, mostly government workers, with defined benefit pension plans, which take all the risk out of their retirement (about 20% of the population fall into this category)
  2. The top 1% who in 2012 had a 19.3% share of US national income (up from just 7.7% in 1973) and
  3. Everyone else (the remaining 80% of the population).

The strategies I use help the “everyone else” group whether they are 25 or 75.

 

The Strategy

luxury houseIt is based on acquiring real estate assets in four categories

  1. Owning your own home
  2. Owning some residential rental property
  3. Owning some commercial property to diversify your portfolio, and
  4. Owning some land

By the way, the 600 acres around the Canadian Tire Centre that I bought in the early 1990s for $7.5 million is now trading for $450,000 to $700,000 per acre, which translates into more than a quarter of a billion dollars.

Unfortunately, it is now owned by someone other than my family and I since it went with the bankruptcy estate of the team. Oh well.

 

Model The Wealthy 

I did some research a few years ago and you know what I found? Out of the 100 richest families in Canada, 61 of them had all or substantially all of their wealth invested in real estate.

church crossWhat do the Holy Roman Catholic Church, Emperor of Nippon and the House of Windsor share in common other than they are long lived institutions?

They all have the bulk of their wealth in real estate. (Their long institutional lives may also be partly explained by that correlation as well.)

 

Real estate is a business model for dummies, me included. Once you own a great building in a terrific location, no one else can (by definition) locate there. You’ve squeezed out your competition.

If the city around you keeps growing, more people want your product and you didn’t have to do a thing.

But it isn’t work-free. People often say they want to get involved because it’s “passive income”. That’s incorrect. Every business, including real estate, requires care, attention, passion, patience, vision, differentiation, effort.

If you are prepared to do the work though, put together a good team and get a mentor, real estate is for you… all of you.

Follow me

Bruce M Firestone

B Eng (Civil), M Eng-Sci, PhD, Ottawa Senators founder,
Century 21 Explorer Realty broker
at www.brucemfirestone.com
Bruce is an entrepreneur, real estate broker, developer, urban guru, columnist,
and keynote speaker. He is perhaps best known as founder of the NHL’s Ottawa Senators and Canadian Tire Centre, a world-class sports and entertainment venue.
Bruce M Firestone
Follow me
  • Thanks Bruce, again. Your contribution to this city goes on and on. Splendid article. The light you shine on real estate investment and how to approach it wisely is a true gift to us in the 80% club!

    • Bruce M Firestone says:

      You know a lot of people don’t like the 1% class but maybe they should object to the 20% one too. Best, Bruce

  • Tell your friend “man was made to work”
    It will do all of us good. All of us.
    I and we your readers know with your
    experience if you live to 71 or better yet 91
    you will recoup all your temporally lost
    Investment.

    The elders – They have a realestate mentor that knows
    they can come up with about one million
    cash equivalent – $ 600K home and $700K in self
    directed RRSP.
    Their mentor can help them find
    A safe 5% return on realestate.
    $50K return on safe secure realestate.
    And still have their home and $700K RRSP.
    Good thing they know you and Paul.
    Good Luck to them for the next 30 years.

  • Gord Gonske says:

    Yes, it is work but what are the options, live on $15,000 a year, I don’t’ think so. To some the 40-40-40 plan (work 40 hrs per week for 40 years and hope to make it in retirement on 40% of your past wage) is what they rely on but as you write, real estate offers a better plan for most. Glad you rose above the challenges. You are an inspiration to many. Thanks.

    • Bruce M Firestone says:

      40-40-40 sounds about as promising as Freedom 55.

  • Real Chartrand says:

    Good article, it goes to show you that even if you get knock down you can still get up and make it in real estate. I strongly believe in his concept of diversification in real estate. Also passive income is great, but like Bruce you still have to keep an eye on your investments.

    • Bruce M Firestone says:

      The Japanese say, “Fall down 7 time, get up 8.” Cheers, Bruce

  • Mike Storm says:

    Hi Bruce,

    Great article, and congratulations on your grit and resiliency!

    As I’ve read and been told on more than a few occasions…..”fail forward” and “sloppy success”…both great strategies to keep us growing.

    Thanks Bruce and Paul,

    Mike

    • Bruce M Firestone says:

      Love the concept of “sloppy success”, Mike. I call it splashing around and getting wet before u go in for a full body swim!

      Best, Bruce

  • Tim & Josie Robinson says:

    Excellent article!! Thanks for sharing and have the gumption to be real about it. We respect even more! and this article now helps us teach our children too

  • Dave Nabi says:

    Great advice. It is hard strategic work but buy low sell high is the best strategy. To paraphrase Wayne Gretzky; if you don’t invest in real estate today, you will miss the next market opportunity to make money.

    As an original Sens STH I was appalled by the way the Ottawa 1% and business community resisted helping you in both 1991 and 2003. Yet you have continued to encourage entrepreneurship and people here with excellent activities, humour, and learned advice. Your destiny was community builder, even if a billion shy in the wallet. Congratulations.

    • Bruce M Firestone says:

      It’s pretty cool that the land we bought for $7.5 million is now trading at 1/4 billion.


  • >