When 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.
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”
Every 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:
- 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)
- The top 1% who in 2012 had a 19.3% share of US national income (up from just 7.7% in 1973) and
- Everyone else (the remaining 80% of the population).
The strategies I use help the “everyone else” group whether they are 25 or 75.
- Owning your own home
- Owning some residential rental property
- Owning some commercial property to diversify your portfolio, and
- 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.
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.