Thoughts for the future real estate investor [podcast]
- Konfidis Team
- Apr 7, 2022
- 22 min read
Investor Mindset Podcast, Let's talk residential real estate investing - Episode 4
In this episode of Konfidis’ Investor Mindset, we are joined by our special guest Michael Beckette, President of M3 Ventures. In this episode, Michael will share his journey along with observations and overall thoughts on the real estate market.
Tune in to this episode on your favorite podcast platform:
In This Episode We Cover:
Michael’s journey and how he got started in the real estate industry
Starting Mortgage Alliance Company and expanding brokerage market share
Thoughts on demand and supply in the real estate market and where it’s headed
From a VC perspective, where are companies putting their time and energy, and what problems are they trying to solve
Helping and supporting startups and the younger generation in solving customer pain points
Switching the balance of power from institutions to the consumer’s hands
Sentiments on policy changes that could impact homeowners and investors
Leaving a positive impact, contributing, and making things better
The live video version of this episode can be found here. View all Investor Mindset show episodes here.
Full transcript:
John Asher: Hello, and welcome to The Investor Mindset where we talk about everything residential real estate investing. In each episode I sit down with a special guest to dissect and understand more about strategies, to understand more about what people are looking for in real estate and how they understand real estate, and talk more about ways in which our hosts and guests and listeners are making a positive impact on the real estate industry. Today, our guest is Michael Beckette, president of M3 Ventures, and I'm delighted to be able to have him today. Hello, Michael.
Michael Beckette: Hi John, how are you doing?
John Asher: Very good. Very good.
Michael Beckette: Really excited to be here. Really excited.
John Asher: Awesome. Michael, for all our listeners, if you wouldn't mind giving us a little bit about your background, your journey, and just a bit more of the story of what you've been doing.
Michael Beckette: Well, it’s a long story because I’m getting old now, so I’ll try to make it short. I’m going to start after university. I grew up in Toronto and Montreal, went to a university in the U.S., and came back to Toronto. I have one real job in my life at a university that lasted for about six months and I realized that all the schooling and all the university courses have prepared me for something I really don’t want to do. So since then, I like to say I've had one real job in my whole life and that is to say that I've been an entrepreneur. I actually got involved in real estate and this was when I was in my early 20s, fresh out of university. A couple of buddies and I, used to buy properties in Toronto like south of Danforth before the Danforth area was really popular. Like we buy a semi for $65, we’d go in and fix things and sell it for $80 and we thought we had made more money than anything. That was my first realization that wow, real estate is not a bad thing. Because typical family growing up, middle class, lower-middle class. I mean, the idea is you go to work, you buy one house you live in that house for the rest of your life. I was never really exposed to real estate investment. I didn't really know any realtors in my family circle or any real estate investors in my family circle, so that was my first thing and I was just blown away making that little bit of what we and thought it was a ton. And I started taking a real estate course after that because when you start getting into something and then all of a sudden you realize, okay, I need to know more about this so that I can be more effective. Even back then, before I realized how important data is to make any sort of decision you want to find as much information as you can. So, I started taking the real estate courses and at that time, it was like three segments. You take the three segments and you passed. It really wasn't much about anything except your regulations and stuff. But my segment three teacher, and I'm going to share this and this is a personal story. After you guys hear it, I want you to forget about it altogether. My segment three teacher is a lady from one of the prestigious firms in Toronto. She's elegant, smart, classy, and I'm just sitting there in her class and she took a professional interest in me. Nothing ever happened, but I was so impressed and she's the one that actually convinced me that being a real estate agent is actually a great living. Again, never thought about sales or never thought about real estate. So by the time I was 25 years old, I was a Century 21 Real Estate agent in Toronto. I had my little gold jacket and to tell you the truth, it's probably the best thing that ever happened. Actually, this is the second-best thing that ever happened. The first best thing that ever happened to me was when I was in high school, I used to be a football player and I thought I was great. I was on the field all the time, you got a scholarship and went down to the U.S. I knew it was a problem because when I got there and they started calling me Canada and I'd be playing against all the fourth-year guys and it took me two weeks to realize that I was not O.J. Simpson and this is when O.J. Simpson was a good thing. I realized, okay, I knew I was average at this game. It was one of those life-changing things and the second one was, my gosh, sales you can make a good career in sales. That's when I started to get more immersed and learn more about real estate and continue investing myself on a one-off basis and with a couple of friends. But it was smaller properties at the time at $80k, $100k was a good type of property that you could buy in Toronto. From there, I got into leadership at real estate companies and started working for Canada Trust RE, which is part of the institution. That was probably the best exposure to management for me, great training ground, great learning ground. I think as a regional manager in Toronto, 20 different real estate branches in Toronto and just a great learning experience from there. Called a banker, he ended up being the Vice President of Operations of the master franchise in Canada which was owned by a guy from Nashville in the late 90s. In 1998, we decided we started a mortgage company and a lot of this came from my background at Canada Trust and the real estate side and understanding of how complementary the mortgage was. The mortgage enables real estate whether it's individual ownership or investment ownership, the mortgage is the enabler and how you use that enabler, can spell success or failure, whatever your objective may be. So we started a mortgage company called the Mortgage Alliance Company of Canada. And within a couple of years, I think the timing was just perfect. Again, I don't claim to be good, I can claim to be very lucky and very fortunate to have good people that work with me that I've known for years and years. The brokerage market share at the time we started was approximately 5% of the Canadian market. And right now the brokerage market share is north of 40%. So, we were part of that expansion and hopefully, we're a positive contributor to that expansion because I still believe a broker is the best way for anybody to get a mortgage because he/she is somebody who's looking out for your best interests. We grew across the country. Mortgage Alliance became one of the biggest brokerage companies in Canada. Long story short, we were approached by a group of investors, did a partial exit in 2014 and since then, we've acquired a number of other companies, and right now we're at an $80 billion volume under four or five different mortgage brands across the country and brokers are just continually growing market share in this space. And it's been a really good story and I’m just glad to have been contributed to the growth of that industry. So in short, that's my background. My personal background. I've got four daughters, the youngest is 27 now, so the fact that I have four daughters, you would just assume that I really don't have a lot of control over my personal life. I just essentially do what people tell me.
John Asher: Well, I have sons and the same situation. Listen, Michael, I love your background because if I think about the conversations that I have with the investors that we speak to, they are at each stage that you have described. Add a couple more zeros behind the purchase price of those properties and the sale, but they're at the same kind of position. So, I'm going to ask you a question around, thinking back to those early days when you were buying, fixing up, and selling. Thinking about data, and then thinking about the more experienced Michael Beckette and the recommendations that he might have had back to the younger Michael Beckette. Let's talk about supply and demand. From a demand perspective, when you think about investing in homes, what were looking for? Are you looking for positive immigration stories? Are you looking for a neighborhood? And how do you, when you mentioned data, what are you starting to think about?
Michael Beckette: In the macro, as an investor, this is just like one circumstance. There are a lot of different things, or a lot of different niches, and a lot of different expertise, and a lot of different things people are comfortable with. In my circumstance whenever I was looking for an investment, it was in marketplaces before gentrification. Marketplaces where there's a demand. Obviously, Toronto, I’m a Toronto person so I understand the Toronto marketplace fairly well. In the macro, you know what, I don't ever see Toronto prices going down as long as the economy stays the way it is and immigration stays the way it is in Canada. The market is brilliant for investment. Irrespective of what's going on right now. Even if there's a pullback as far as the number of units being sold. We've got immigration coming in which I think is a very positive thing for our entire country and in Toronto. We've got a shortage of homes, it's going to take years to fix. And, even though the government's talking about $17 billion for building a billion homes, it is not going to happen within the next six or eight months. I mean, this is going to take years to sort out, and even when it is sorted out, immigration is going to cover the problem. The government's talking about doubling the foreign investment tax. Okay, great, that keeps a very small percentage of people out of the marketplace. I like to think it's tinkering and tinkering really doesn't have an overall impact. The other thing about the real estate market is just a matter of time. Everybody needs to remember it's just a matter of time. The real estate market absorbs changes, sometimes it's a little bit longer than other times before they get over the hiccup but it's just a matter of time until the changes have been absorbed. On a personal level, the mistake that I made is selling those properties. I thought okay, this is great, we're making money. But, you know, in hindsight, the biggest mistake I've made was not finding a way to keep those properties.
John Asher: Yeah, well, if only you'd had a mortgage broker that you could have worked with. Alright, so that's very interesting. Let's talk about supply-side a little bit. You know, where do you see construction or what do you see as far as… A common theme that we've always talked about is that there’s a bit of a mismatch in what is being built versus what people want to live in. And do you see that as well? And I'm not trying to lead you with this question, but I'm just kind of curious, like, what do you see from the construction perspective? Do you see that there's going to be new supply?
Michael Beckette: I just didn’t mean new supply in single-family residential or mixed unit sorted it out, right? There is, but this is going to be a longer-term solution because builders have a lot of regulatory hurdles before they can start developing parts of land. When you've got all sorts of supply issues going to be sorted out, that's going to take some time. So, I think this can be developed with it. I am not sure that the 500 square foot condo downtown is going to be sustainable as it has been over the past number of years. I'm not sure that you know, paying $700k $800k, for a 500 square foot condo, I think that there's going to be other opportunities that are going to be more attractive to people. You know, from my work now in M3 Ventures, I know a lot of young people were developing technology, and a lot of those young people lived in those 500 square foot condos downtown. I got to tell you the past two years, they have all learned that they don't want to live in a 500 square foot condo downtown. I think we've got to create other lifestyle opportunities for people that are going to be enduring and allow them to migrate their life within the same sort of environment a little bit. Every time there's a change in your life, you don't necessarily have to move, it should be flexible enough to allow some change without a huge milestone.
John Asher: And we certainly saw that COVID, I mean we could study COVID forever and I'm always getting tired of talking about COVID. But what COVID did teach us was anybody that was working in an office all of a sudden, needed to have a home office or some sort of space to work. And I know, you know, even in my own house, everybody staked claim very quickly to all the rooms and I was left at the dining room table. That doesn't work. So, you know, if you are in a 500 square foot condo and you’re with your partner. Where do you stake out your claim? Not a lot of square footage there. But I do want to talk about your ventures, this role that you're in now. Because I find this to be really, really interesting. You know, we can talk about being an investor we can talk about the marketplace. I agree with you. We are in a very positive environment for investing within the GTA. There are so many signals that are positive. There are a number of companies now though, and new companies that are coming, that are trying to help either the buying process or the understanding process. So, my question to you is because you see this every day, where are companies starting to put their time and energy and resources and what problems are they trying to solve for homeowners and prospective homeowners?
Michael Beckette: That's a really good question. There's like a longtail answer and a short answer. So, let me start with the process of real estate. It is still one of the most cumbersome things that we have today. There are a lot of companies, there are a lot of organizations right now working on refining the consumer experience so it's not a painful process. You're getting rid of all the different confirmations that we have to go through; we get all the different data that we have to go through, all the contracts that we have to go through, and giving somebody visibility on the whole process because we don't want to do things that frustrate people the most is when they don't know what's going on. So, as far as the consumer is concerned, a tremendous amount of money is being spent trying to make that user experience from searching, identifying, and acquiring to closing. Trying to make that as easy as possible and they've made some great strides but in my mind, unfortunately, there is a lot of legacy in this business. Like there's a lot of big players that have made major investments and those major investments to get them to say, well, you know, that's not fast enough, where, you know, six months old data is not really good enough for us anymore to get them to get that sort of thing is, is a challenge. That's more of like a long tail sort of solution. The more short tail that I see is looking at the real estate market, and one of the reasons I love Konfidis and what you're doing is because you're such a data-centric company and to me, data drives really good decisions. Data eliminates risk. Data gives people comfort in what you're doing and I really love that. If you apply that to some of the things that I see right now where people are trying to help democratize real estate investment so you don't have to have your 20% down to invest in real estate or you don't have to get you and your brother and three friends to go together and buy. I think the average price is $800,000 now across Canada. I mean it's like crazy.
John Asher: Or more, yeah.
Michael Beckette: They're trying to democratize it so that if I've got $2,500 or $5,000 maybe I don't go into a mutual fund, maybe I put that money into a real estate investment that somebody is taking care of for me and managing the property. And if enough people get to that point, that $2,500 is in an environment that's more liquid. So, you can actually, you don't have to sell the property to sell your $2,500 stake which is hopefully now $3,500 or $4,000. That's the democratization of real estate investment to me, I think I'm excited about things like that. I'm excited about the way, Konfidis is approaching identifying opportunities like this, in approaching real estate from the point of maximizing the revenue value of each asset. Back in the early 80s, I couldn't figure out it's not about capital in selling the thing and making $10k. It's maximizing the revenue-generating opportunity and holding on to it longer so that you get a bigger capital return. It’s the customer journey and acquiring, which I think is going to continue. I mean, people want to buy properties in the GTA marketplace and the Golden Horseshoe. I think we're going to be great for many years as far as the individual owners are concerned, as far as the investors are concerned that I think might be a shorter opportunity is democratizing investing in real estate.
John Asher: Well, thank you for the nice words. I wasn’t looking for that but thank you, I'll always take that nicely. It's interesting because when we talk to people, they desperately love the idea of investing. And they'll come to me and say, but John, my equity investment budget is $25,000. And immediately you begin to see that you've been priced out. It's so difficult to be able to make that work, you know, so the idea that democratization, the ways in which you can enter into the marketplace as a true investor are, they're slim. You know, at the end of the day, it's kind of interesting. People want the asset class they don't want the process to get there.
Michael Beckette: Exactly, exactly. And real estate outperforms just about any investment over the past 10 years.
John Asher: You know, we often talk about peak to trough kind of pullbacks. The great recession 2008, 2009, and peak to trough and real estate was 4%. My personal equity portfolio might have been 35% to 40% depending on the day.
Michael Beckette: Exactly, exactly.
John Asher: And, you know, maybe that's one part because it's less liquid maybe it's one part, you know, the asset class itself. But ever since those days, you know, it has been this, how do we find a way to get people into this asset class to truly make it accessible? So, I find that very interesting that's what you're seeing on the VC side. I love the VC side because it's just, it's so open, and it's thoughts and ideation. And it's just, you know, it's trying to map out what could be possible. Probably one of the biggest pitfalls is the build a better mousetrap might not be the real long-term solution, but breaking right through, to have the ground shaking change. What is the ground-breaking change event for you? Because I do see people really struggle with all the processes and the steps and the places where you can fall down. What is the true breakthrough?
Michael Beckette: As far as real estate is concerned, again democratization is important, I think if we can get real estate into an investment asset class that people see just like they see mutual funds or other equity investments. And building some liquidity in that, perfect for the investors, perfect for the real estate market, and perfect for people that analyze the real estate market. The other thing I see, the real breakthrough in my business...so, before I talk about that, I’m going to talk about something else that you mentioned before and I'm sorry for this.
John Asher: That’s okay.
Michael Beckette: I've had the good fortune to work with some great people to build an enterprise technology that does a lot of volume and connects with lenders and insurers and all sorts of partners. And it's a real enterprise system that has some great technology practitioners and architects. Fabulous, but I have never seen the enthusiasm and passion that the individual entrepreneurs that are working in their 500 square foot condos, they're working in the DMZ they're working at you know, 10 Dundas. They work out in places like this. You can't compete with that sort of passion. You can't compete with that sort of focus. So as far as we're concerned, yeah, we got this big enterprise technology, it does a whole bunch of stuff, but if you want new stuff you've got to work with the new folks. They’re faster at this stuff and more passionate about this stuff. So that's what makes me really excited because I get to work with these kids, like all day long, all day long. So that's really exciting in recognizing the fact that we're good at what we do, but if we're going to progress, we need to bring these folks into our ecosystem, which is like really, it's good for the consumer. But to talk about what I wanted to talk about before, I think the big change, or the biggest change in financial services in general, is switching from institutions having the power to consumers having the power. I'll explain what I mean, right now, if I want to do anything, if I want to invest or buy or if I have to apply for this. The institution goes and checks your credit and they check my bank account and check my NOA. Why does that have to happen? The power should be in the consumer's hands to be able to access all their information, and if they want to give it to you as their loan officer, whether you're buying a car, insurance, whatever it happens to be, it should go, here it is on their phone. There is verified information about all the things that you need, but it's up to the consumer. And the consumer knows what's going on all the time. Not, if you know you go get a car loan, they're going to pull your credit, you don't know what it is, you don't see the report. You don't see this and you're either approved or declined. But I think the big switch is the power eventually ending up with the consumer and in our market space, if somebody wants to buy a property invest in real estate, they already know the information, or the service providers already know their information. They're all under security protocols and see that they can't share this information without the authorization of the person whose information it is. So why not let that person whose information it is be the one that shares the information? Like why do I have to authorize you to go check, when it's my information you're checking so I'm just going to send it to you from the source. I think that's going to be a big shift.
John Asher: That is a big shift. Because, you know, you talked about the financing being the enabler but it's interesting because when you have that roller coaster of emotion, you know, the agent in the process can help you find and evaluate, and then the financing becomes that euphoria moment of we can do this. But to your point, why should you even walk into a transaction not knowing if you can do it? Not knowing your information? Not knowing if you're eligible or ineligible?
Michael Beckette: Not knowing the property, not knowing the credit, not knowing how much you can actually afford, not knowing what the property taxes are going to be, not knowing what the heat and hydro costs on this property are? Not knowing what the school is like down the road. All this stuff should be readily available and you know, essentially controlled by the buyer. You should know this.
John Asher: It's funny because people used to always describe to me like John, you don't understand. When you buy a home to live in, it's an emotional process, but when you buy a home to invest in it's not emotional. That's not true. There is a whole rollercoaster of emotions in this. “Can I do it? Will it work?” That's a real problem like you shouldn't have to feel that way. Especially when it comes to your own information. So I totally agree with you. Going back to, but I do want to actually go back to what you started with, the role of the VC. In my personal history, I've worked with some pretty big organizations and at different moments we always thought about well, we will do the ideation, we will come up with the ideas because we understand all the legacy issues. Then what ends up happening is we end up going right down the old tracks that we went down before and are so afraid to branch off and really trying to risk it, because what becomes interesting is the company changes to asset preservation. Maybe they push out a little bit of extra resources to try and take risks. But you always get caught in the same kind of thinking, that was that's what we always found. And you know the person working in the 500 square foot condo, doesn't know that legacy, doesn't care about their legacy, sees and understands the problem so very clearly because they either lived it or experiencing it. And they're simply trying to find that solution. So I guess what I'm trying to say is congratulations on helping and promoting new companies as they try and solve some of these problems.
Michael Beckette: What I've always found, this even goes in any charitable considerations or things that people are doing. You're the one that goes out, you think you're helping other people. Right? But in actuality, it's all coming back. Like I feel the same with these companies that we work with, whether we acquire them or we just nurture them, you know, I think I'm helping them but I'm the one that's getting all the infectious enthusiasm and excitement back. I want to tell you one story about emotion, so this is like a long time ago. We have to recognize that emotion does play a factor. This was like years ago and as someone who was selling real estate in Scarborough and at that time, I think I was the first broker to sell a property in Scarborough north of the 401 for more than $300,000. This was like, Oh my god. So I double-ended the property and because one of the neighbors a few houses over side of the street bought the property and they had their house for sale and to do the other things, I sold their house and I sold it to somebody I knew. They bought the house and they just love the house and the house was beautifully decorated and all different shades of green. I mean, when you went into this house, it was absolutely, impeccably decorated. This is the backup. Impeccably decorated so they love the house. They bought the house and I went to visit them about two months later and all the beautiful green is gone, all the beautiful stuff is gone. What happened? They said well, we love the house, but we don't like the green. This was this beautiful, immaculate place that I thought that they bought because when you went in it was spectacular, it was not like overdone green. They bought it, they liked it because it was beautiful, but maybe they don't like the green and so they changed it. Emotion is a beautiful, and hard to understand thing. So sometimes the best thing to do is have as much data as you can and sort of see what happens
John Asher: Well, you'll be sure to know, don't sell them any more green houses. It’s sort of the answer to that one. Yeah, listen, you know, it can be something as simple as the green walls that turn somebody off and they just walked right back out. We saw a house that had a yellow door and the person I was with was like, “Oh, I don't like this house”. But you know a can of paint and about an hour and a half and that problem was solved. Okay. Let's take a little bit of a different path here. So, big picture, big macro, things that are top of mind, and top of your mind as we move forward, whether it be government changes or policy changes. We talked a little bit about making policy that maybe is impacting the fringes, but I'm very curious about what you think are real policy impacts that will impact investors and homeowners.
Michael Beckette: All the things that we see coming out of the budget, even, you know, the financial commitment to new houses, I don't think that that's going to affect it because the way I see it, the growth in this area is going to overcome any of those changes. We talked about increasing the home for some homebuyer tax benefit, like $30k or something like that instead of $15k. I mean, like we saw how well that co-ownership thing worked that they launched a couple of years ago. I think that the real estate market will find a way to survive. And I said it's just a matter of time how long it takes, in my opinion, to overcome the tinkering of the government. The only thing I think is if it's going to be a significant impact is affordability from the perspective of rates. And if real rates go up to 5% or 6%, we're going to have to challenge then. But I don't really see that happening and to me, that's the most impactful thing, everything else is sort of tinkering.
John Asher: Right well, listen, Michael, let's leave it there. I really do appreciate your time and energy and, you know, we got to meet each other as we as a company were sort of budding and you know, your guidance and help has been exceptional on that side as well. Really appreciative. When I think about, our investors, our group, and the people that we talk to every day, they have very similar questions around what are the long-term implications of this area? Where are the supply issues going to emerge? Or will there be interference and political interference or policy interference? And I'd really like your words around only a matter of time. I can think of an example when we had the double interest rate test that introduced and almost killed 2018. And fast forward the clock, 12 months, and that became a non-issue. So that story becomes repeated, going back 10 years, 15 years, 20 years it's the same repeated story. We do live and work in the GTA environment that is, as you said, very quite positive. And we look forward to working in this industry for a long time to come. Last question. When, and I know you're never going to retire, but someday when you walk away, what would be the lasting legacy impression that you would like to give?
Michael Beckette: Well, I've been very fortunate that I’ve been inducted into the Canadian Mortgage Hall of Fame and I received a Lifetime Achievement Award. I figured it was their way of telling me to go home now. What I decided, no I'm really enjoying myself and having a lot of fun. I think that the only legacy, I think that's really important to me…the most important, obviously it's my wife and my kids and my grandkids and that sort of stuff, is leaving a positive impact. There's no point in being here whether it's your personal life or your business life unless you've improved the lives of the people that you've been associated with or you've improved the business that you've chosen to partake in, or you've made some contribution. Human beings are not built to be takers or just profit. We’re built to contribute, we’re built to give, we’re built to try to make things better. So whether it's your personal life or whether it's your business life, the satisfaction comes or the legacy comes because you said, “You know what? I made that happen, I was proud of that positive change. I was part of the growth of this business.” Or you know, when your kids do something and make you proud. You know, I didn't do it but you know, maybe they heard something over the past 30 years that have impacted their decisions. You can't take credit for anything, but you can take pleasure in seeing the change.
John Asher: That's awesome. I'm going to leave it right there. Michael, again, thank you very much for your time. It's always great getting to talk to you and if we were together right now, I'd be taking one of those big hugs.
Michael Beckette: We’ll see each other soon. Thanks very much. Take care.
John Asher: Great, thank you very much.
Michael Beckette: Bye now.
Ready to start the process of buying a real estate investment property?
Try out Konfidis, a real estate investment company that identifies and vets the top investment properties in the market today. We've developed a simple way to invest using big data, cutting-edge technology, plus our team of experts to help you outperform the market.
Talk to us today about our Top Reviewed Investment Properties of the week.
Comments