Table of Contents - Building Secondary Suites – Turn Your Single Family House into a Real Money-Maker with Rob Break
Dave Debeau [00:00:09] Hey there everyone, this, Dave Debeau with another episode of the Property Profits podcast, and today it's my pleasure to be talking with Rob Break. Rob, how are you doing today?
Rob Break [00:00:19] I'm great, Dave. How are
Dave Debeau [00:00:20] you? I am fantastic. So where are you calling in from this morning?
Rob Break [00:00:24] Well, I'm sitting in sunny Oswal right now, Oshawa, Ontario. That is about a half an hour, maybe 40 minutes east of downtown Toronto.
Dave Debeau [00:00:34] It's a lovely area. And I'm here in Kamloops and life's all great if you haven't had the pleasure of meeting Rob yet. Rob is a very accomplished real estate entrepreneur, is also a realtor, and he's a podcast and drops on a lot of interesting things with real estate investing. What we're going to kind of focus on a little bit more here today is how he takes single family homes and turns them into basically multifamily homes in the sense of adding a legal basement suite, two of them, as well as how he gets involved with student rentals. So we're looking forward to that. So, Rob, when we get started by how about if you just tell us a little bit about your background and how you got started in real estate investing in the first place?
Rob Break [00:01:15] Sure. Thanks. First of all, thank you for having me on. Dave, I really do appreciate being asked to be on the show, so thank you. Thank you again for having me. So I guess really the way that we started out was it was sort of accidentally, to be perfectly honest with you, we it's a funny story, too, because when my wife and I, my wife is from this town, I met her. She was going to school with my sister and I met her there. And then I decided, you know, we got in a relationship and I decided to move back to Australia with her. And one of the very first places that we lived in was a basement apartment down in sort of this muddy road. You had to drive through the back of the houses to get there. And I remember when we went to look at this place, I said to her, you know what? Like, we don't even need to go inside. He wasn't there yet to meet us. Let's just go. She said, no, no, no, let's let's go out and have a look at it. So we went in and we ended up liking the place, actually, and we lived there for a few years and we met some friends that lived right next door. And a couple of years later, we heard that the owner of that house where we had lived in the basement apartment, we were moved out and by then was looking to sell the place. And I didn't know legal, not legal, any of that stuff, but it turned out that the place is a legal two unit dwelling. So we bought that for, I think, one hundred and forty five thousand dollars. And that was how we started really. And that and, you know, just going from there and realizing that basically the rental income from the basement apartment, it more than paid for our mortgage payments. We had a bunch of money left over. And so then, of course, that's how you can get the bug real quick.
Dave Debeau [00:02:57] Oh, yeah, definitely. Yeah. It's it's very, very exciting. And it sounds like you stumbled into it. And how did things progress after that? Did you did you decide that that was a strategy you wanted to stick with? Or how did how did you get into what you're doing these days?
Rob Break [00:03:13] Well, then you know what? Eat what starts to happen is you watch and I think this happens for a lot of people. I don't know how many people actually go ahead and do it, but you see those shows on TV about flipping and you get really excited. So that was what we wanted to do next, was get into flipping. But what I actually found was if you if you try and look for at least back then, this is probably, I don't know, seven years ago or something like that. When I was looking for information on flipping houses, I started finding information more on flipping the purchase and sale agreement, which is otherwise known as wholesaling. Right. So I found a whole lot of information about that coming from the states. And then sort of just by chance, when I was trying to find some local groups here to sort of support that kind of thing. I ran across the Durham Real Estate Investors Club run by Quentin D'Souza, who is a great guy. I just I just interviewed
Dave Debeau [00:04:11] him a little while ago, so.
Rob Break [00:04:12] Oh, did you have a listen to that one that I listen to a few years, but I'll have to catch that one, too. Yeah, he's a he's a great guy. And and one of the things that actually turned me on to it was it said, I think one of the landing page said, can you buy real estate with no money? And at the time, like, I didn't have any money. So that appealed on off. So that did. Yeah, that really appealed to me. So I went in and I started learning about that. And I actually did a couple of years of wholesaling. I was a pretty good detective. And so I'd go to the real estate clubs and get mobbed.
Dave Debeau [00:04:46] And so again, for people that aren't really familiar with what wholesaling is that? And correct me if I'm wrong, but you will go out and find a good deal, get it tied up, get it under contract. Right. And then you would sell the deal to another real estate investor who was too busy or or didn't have time or the inclination to go out and find these good deals and. Depending on how much of a margin there was going to be for the end investor, you would charge a fee, right? Basically to to flip them, the deal is that pretty much all work?
Rob Break [00:05:19] I would. One of the things that I find is like I'll go to the clubs and people ask me about it. Right. They want to learn. They want to do it because it's fun and it's attractive. And if you can do it right, it's something that you can continue to do so, you know, when you don't have any money. But what I find that a lot of new people trying to do is they get really greedy. They hear about these wholesale deals in the states where people are making 20 grand off of a wholesale and that kind of thing. And so that's what they want to do.
Dave Debeau [00:05:48] You know, and I'm more familiar with like two to five kind of being the sweet spot.
Rob Break [00:05:54] Exactly. I mean, I think that the key is, first of all, to make it work, to prove to yourself that that can actually happen. And then maybe, you know, if the deal merits it, you'll make the money off of it. But typically, I tell people, you know, try and make like five to seventy five hundred dollars on it. But going back to your original question, let's just distinguish a bit about the difference between when a realtor does and what a wholesaler might do, and that is that they have to have the purchase and sale agreement in order to start shopping it around. Otherwise, you're acting as a realtor. And that's just you can't do that. And a lot of people don't really see the distinction between the two.
Dave Debeau [00:06:35] It's very, very important. I say here, I don't know if it's the same in Ontario, but here in B.C., you have to have what's called an equitable interest in the property, even if that's a dollar. But you have to have given the seller some sort of financial renumeration for the contract.
Rob Break [00:06:51] Yeah, that's right. And you're not selling the house. You're selling the purchase and sale agreement that you have that you have negotiated between you and the seller of the house. So I did that for a little while and I bought I did some flips in there and had a student rental for a while. And then I sold the student rental, not because I didn't like the student rental portion of it. It was more the age of the house and it was sort of one of those money penthouses who coincidentally, I think I fixed everything. This is what a lot of people do, too, is I fixed everything and then I sold it off to someone who I actually know. And the guy refers to it as his cash cow. So that's always nice.
Dave Debeau [00:07:34] Well, that we we learned from those lessons. All right. Yeah. So let's fast forward. So you went from that. Now you're focusing more on finding the correct me if I'm wrong, finding houses that can be sweetened, that you can take the basement, you can create a legal suite in the basement. Talk me a little bit about that. Why do you prefer that over, let's say, flipping or wholesaling?
Rob Break [00:08:01] Well, I'm at this point in time, I'm totally against flipping. I understand if maybe if that is someone's primary income source, why they would want to do that. But even as a realtor, like people say, well, wouldn't you make more money if your clients were buying Flip's? And maybe I would. But I know like and it's different in the different markets because the last flip that I did, let's just do some quick numbers on it, too, if that's OK. Yeah. Plus, I bought it for two hundred and thirty thousand dollars. I put about thirty thousand dollars into it and I sold it for three or five and I was the realtor on the other side. It was very forceful. It is a realtor. So I saved the commissions on my one side. So I made a roughly thirty thousand dollars something right in around there. OK, well if I had just done nothing with that place and sat on it for another year, I probably would have made a couple hundred thousand dollars.
Dave Debeau [00:08:58] So depending on the market, what's going on.
Rob Break [00:09:00] Yeah, but in that circumstance I definitely would have made probably a couple hundred thousand dollars. And I'm not saying that's always going to happen, but what I've realized is long term investment sort of for me that's where I want to be. And the deal that I was shopping at the investor clubs would be something that you can at a secondary suite to. I've always realized that that is what the investors are looking for. So when I started once I built enough capital to go out and start buying things myself, that's exactly what I ended up looking for, is something where I can add a legal base, an apartment to it. And there's a multitude of reasons for that. But the number one is, of course, that you can then put a little bit of money into it or maybe a lot of money depending, and somewhere roughly between like seventy five and one hundred thousand dollars, let's say now. And you can create a legal secondary suite and then refinance the property and potentially pull a lot of that initial capital investment back out and carry on and put it into the next property.
Dave Debeau [00:10:03] That's very, very smart. So now I've got an associate, a friend of mine who. Focuses on sweetheart single family homes in and around Edmonton, and when he first got in the game, he didn't give a crap about legal versus illegal sweets. So tell me your take on that, because I know know different areas have different stringencies about that. Why do you think it's just because bottom line, you can probably put in an illegal or on nonconforming weed a lot cheaper than a conformists. Why do you think it's worth the extra money, time and effort to make sure it's legal?
Rob Break [00:10:39] Well, to be honest with you, I would tell someone that's going to flip the house because you don't know. First of all, No one, it depends on what the use of it is. Right. Like, if somebody has their mother or or extended family in the basement unit, you know, that's OK. Right. So there's there's nothing against that. They're living as a family and they've just got their own separate space. But when you're renting it out to two separate families, potentially people that don't know each other or have any contact really with each other, potentially, then you don't know what the other people are doing in their place. Right. So the main concern is safety and the liability of something that might happen in the property. So, you know, we've all heard that illegal street sometimes. I mean, I think there was a big case in Toronto not too long ago where the house burned down. My landlord ended up doing jail time because it was not legal. That's an extreme circumstance, right?
Dave Debeau [00:11:35] Part of me probably someone passed away or died in that situation.
Rob Break [00:11:39] I believe so. But I mean and I think that that's more the the most important thing. I mean, the other thing you can get shut down or you can be made to conform with the bylaws. But the really the main concern is safety and and your liability, right?
Dave Debeau [00:11:56] Yeah, I know. And I know I've my acquaintance of mine here in Kamloops actually had a nonconforming basement suite and some of the neighbors complained about his tenants. And that's exactly what happened. The bylaws came and shut him down and he could no longer it's no longer a cash flowing property because it really resonated. What you said there about flipping and the fact that you prefer the long, you know, you made 30 grand on that flip. But if you had sat on that house, you would have made two hundred grand over. The same thing happened to me, man, when I wasn't going flipping was going to rent to own deals. And same kind of thing happens. Right, because because you kind of lock in your price at the end of two years. And then if the market's going crazy, you're missing out on tons of equity. So, yeah, I'm with you. I'm into the longer term buying old stuff I saw.
Rob Break [00:12:43] And you know what? Like, I think the majority of investors are are there to like especially with rental homes. Don't get me wrong, I think the majority of them are there to see the type to buyers succeed. But I mean, it's really hard and I've never done a rent to own, but I can see where it would be really hard to to not want to maybe just see if there's something that you could do to get out of that. If you see something where you were, you like there's potential to leave a lot of money on the table and something like that.
Dave Debeau [00:13:13] And there are some there are there folks that said there are buyers up for for failure to turn and burner's. Yeah, I hate that. So there's brings down the whole the whole business. Yeah. And then the other thing that I really love about what you're talking about is, you know, you kind of get the best of both worlds because, you know, with with rent on the big appeal there is you get a lot more cash flow than with a traditional rental. But so are you now because you've turned one one rental into two rentals and your cash flow has has gone up not double. It's gone up exponentially because, you know, you've got a single family home. You're lucky if it's cash flowing at all. But there you have you put in a legal suite and you get an extra whatever, eight hundred nine hundred eleven hundred bucks a month. That's where the profits are.
Rob Break [00:13:56] Yeah, for sure. And and also, I mean, it's, I would say this extreme case and it's probably pretty hard to find now, but not only do you know what's behind the walls, because you've done a lot of the work yourself, or at least you're managing the crew that's doing the work themselves. But, you know, the that the power of pulling that money back out. Right. And using it to to move forward is great. Like on our first on the first two that I did. And Dave, look, it's it's that was a while ago. It's it's pretty hard to find something like this now, but I would say you could still probably do it. The first two that I did, we managed to pull one hundred percent of our down payment and our rental costs back out of it. So we essentially had both of those. Yeah, both of those houses. No money down.
Dave Debeau [00:14:46] Nice. Nice. Yeah, that's that's the goal. That's what it's all about. So here's a hypothetical question. But knowing what you know now, if you're going to do everything over again, starting from scratch, would you do anything differently?
Rob Break [00:14:59] See, this is kind of a trick question. I know it's going to sound a little bit like a hokey answer, but to be honest, it's one of those things where and everybody does it now because you. You are in the market that you're in. We only live in the present, right, so people have a tendency to over analyze what a good deal might be. So, I mean, for me, if I could go back, there is a lot of deals that I passed on because I thought that they were asking five or maybe ten thousand dollars or something like that too much. And again, like I would say, if you're out looking at three houses, you can only buy one. And the way to do that is to analyze which one you think is the best at the time. But if I can go back, I think I would I think I would more focus on the neighborhood that I was investing in and not necessarily 100 percent on the rental numbers that I thought I could get.
Dave Debeau [00:15:50] Or the price.
Rob Break [00:15:51] Yeah, or the price of the property.
Dave Debeau [00:15:53] You know, I can first person that's told me that that seems to be kind of a bit of a common theme. I've experienced real estate investors. Is that whole idea? Yeah.
Rob Break [00:16:04] Yeah. What I tended to do was buy the cheapest property, not necessarily the best area. And and I think that there was a lot of deals that I passed on that were, you know, if I look back on them, they were fantastic.
Dave Debeau [00:16:16] But of course, hindsight reflects on what kind of a tenant you attract as well. What kind of all that kind of stuff? Very, very well said. Well, thank you for sharing that. We're almost out of time. Time flies, my friend. I think we'll probably have you back on another episode, but I know you do a podcast as well. So tell us a little bit about that and how people could find out more about Rob.
Rob Break [00:16:35] Rick, OK, yes, sure. We do a podcast semi monthly. We depending on when you listen to this, is may or may not be true, but in general, we put out one on the first one on the 15th of every month. It's called the Breakthrough Real Estate Investing Podcast. And myself and Cindy McCain from the other side of Toronto run the show. And we just interviewed him, a bunch of guests. And we talk about real estate and we do a little bit of a longer form than than what you're doing here. So most of our interviews are roughly an hour long, something like that. We try and dig deeply into things as much as you can. I mean, it's pretty tough to do. A lot of people complain that they don't get all the answers, but you can't even get all the answers in three day seminars or or two year courses. It's an ongoing learning process. So that's what we're trying to do every day.
Dave Debeau [00:17:26] All right. What's the URL for finding out about that
Rob Break [00:17:29] breakthrough RCI podcast?
Dave Debeau [00:17:30] Dossie Perfect. Rob, it's been a lot of fun. Thank you very much for sharing your time and your wisdom on the call today.
Rob Break [00:17:37] Yeah, thanks, Dave. I really did fly by. All right. Take care. Oh, one more thing before I let you go. I'm sorry. I meant to mention we would love to have you on the show and on the show. That's great. OK, so
Dave Debeau [00:17:50] a little bit about our Shake the tree and find my partners and raise some capital.
Rob Break [00:17:54] Perfect. Yeah, that'd be great. OK, well I'm looking forward to it and I'll take that as your accepted invitation.
Dave Debeau [00:18:00] Thank you very much. All right. Everybody here talking eckstut. OK, bye. Well, thanks very much for checking out the property profits podcast. And you think what we're doing here, please head on over to iTunes, subscribe read us and leave us to review. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom Ticker.