PreConstruction Condo Pitfalls with Tracy Ma

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Podcast Transcription

Dave Dubeau [00:00:09] Hey everyone, welcome back to this episode of the Property Profits Real Estate Podcast. Have you ever thought about investing in pre-construction condos? Maybe you have. Maybe you’ve heard about other people that have done it. Perhaps you’ve seen all of these big numbers thrown around. Today’s guest is going to give you a different perspective, and it’s my pleasure to have Tracy Mar as our guest with the most. On today’s episode, Tracy is a very accomplished real estate entrepreneur. She’s one of these really smart people coming from an engineering background. And she got started in real estate investing, doing a lot of condo type deals at the same time, working full time. And I believe, if I’m not mistaken, Tracy, you’ve got twins. Is that right? Double trouble. So, yeah, all that kind of stuff. And now Tracy is a bona fide real estate influencer with a very, very popular YouTube channel, and she goes by the financial Nirvana. Mama. So, Tracy, great to have you on the show. Welcome.

Tracy Maacing [00:01:12] Oh, welcome. Thank you so much, Dave. Thank you.

Dave Dubeau [00:01:16] Yeah. All right. So we were talking a little bit before I hit record. Double check. Make sure I did hit record. Yes, I did. We’re good. We were talking a little bit before that about pre-construction condos. And we’re looking back and you’re saying is there’s something I could do differently in my real estate investing journey? It would probably be that so. First of all, if you don’t mind, for those folks who might not be familiar with investing in condominiums, especially pre-construction condos, what is that? How would you explain that to somebody who’s never heard about it before?

Tracy Maacing [00:01:49] Well, I think most people are probably familiar with condos, which are apartment buildings in a building. And then you share floor space. You share maybe some of the air conditioning costs. So you have condo fees when it comes to pre-construction condos. You could buy a condo before it’s built, like off of plans. Typically, you’ll find a big billboard in the middle of city with, say, hey, buy this condo here, make an investment with only 5% down. Like, that’s usually the way they get you. And so you could buy these condos off plan years before it’s built and you could lock in a price today hoping that the price obviously would be a lot higher when it’s built.

Dave Dubeau [00:02:35] All right. Perfect. So I know a lot of folks in bigger cities are very familiar with this. We see this all the time in Vancouver. I know this is huge in Toronto. I believe you’re based in Ottawa. I’m sure it’s big in Ottawa as well. So bigger centers definitely have a lot of this going on. And I’m aware of quite a few people who’ve actually made that work and who’ve made a pretty good return, an outstanding return, sometimes on their investment. However, I’m hearing I’m reading between the lines, you’re not a big fan. And if you if you could talk to your younger self, you would kind of move yourself away from doing that. Why is that?

Tracy Maacing [00:03:14] Because I think it’s a speculation game. Okay. So you’re basically hoping that the price of the condo is going to be obviously a lot higher than what you’re buying today. But as you can see in this type of market, which is we’re experiencing a downturn and interest rates are rising, we’ve got inflation going on and we’ve got a correction. Housing prices. If you did buy a condo at what it took for a builder to build it, which they obviously have to make a profit. So they would cost it out like as per what, building materials and labor costs and then add a little bit of a profit on top. And you locked in a price, say, in the peak of the market, say, 2021. And then you may not actually make any money, say, in 2023 when the is built, you’re not able to actually sell it to another person at a price that’s higher than what you purchased it. And there’s a lot of other costs involved. You have to pay. HST And if and I think another thing is like part of the strategy is not to think of multiple strategies. I think that’s a great way to mitigate it. I mean, you could, of course, get lucky, be in Vancouver, be in Toronto in a hot housing market, and of course, flip it, flip the property in two years’ time and then make it, which.

Dave Dubeau [00:04:37] Is the whole goal in the first place.

Tracy Maacing [00:04:39] Which is the whole goal. But you’re really timing the market and that’s what’s difficult about it. It’s like saying you’re timing. The stock market is exactly the same spiel. You’re like, okay, you’re hoping that in two years’ time it’s going to be just as hot and you may get lucky. And I did get lucky, you know, maybe once out of the several times I’ve done it. But I found that more times than not, I haven’t been able to flip it with a significant profit after paying taxes. All the occupancy costs, the construction delays. There’s a lot of things that could go wrong where at the time lives are no longer just two years. It becomes three years and three and a half years. Or the developer could get into a big, big problem with the building where they have legal issues, which is something I’ve always I’ve also experienced. And then it can become a nightmare to actually try to sell your condo in the middle of a legal battle. So those are the type of things that you can’t forecast. You can you can kind of, I guess, assume that it could happen. And then I think the best way is to come up with different strategies to exit out of the condo rather than just selling it.

Dave Dubeau [00:05:46] So what are some of those strategies or options for getting out of the condo if you’re not able to flip it right after it’s ready?

Tracy Maacing [00:05:53] Right. Well, what you could do if you did get into a pre-construction condo and you’re changing your mind. I think initially one thing that you could do to immediately protect yourself before you sign any papers is have the right to a. So then, yes, in the middle of it, even though you have this contract with the builder where you technically, you know, own this on this unit or could own this unit because you have to with the mortgage and all that, you could actually assign it to someone else right in the middle of it before it’s actually fully built. Another way you could do is when it is built, make sure that you can find a way to rent it out. Hopefully you’ve already checked the condominium rules where they allow rentals, not just long term rentals, but short term rentals. And then I’ll give you huge. Yeah, I’ll give you a lot of flexibility. So then you can Airbnb be you could do luxury longer term rentals to a corporate folks or you could do just, you know, traditional rentals. But that’s a way to build more cash flow in the event the market turns and you have to hold on to the unit.

Dave Dubeau [00:07:04] Yeah, very, very smart. Now, what’s what are the options typically, Tracy, if let’s say worst case scenario, you did one of these pre-construction condos, you got in at the peak, three years later, it’s built. It’s not worth or it’s worth about exactly what your you’re committed to. But then if you take into account GST, HST, whatever, you’re going to lose money trying to sell the thing. Is there an option to just walk away like would that ever be an option? Or is the developer going to sue you? If you don’t complete on the deal, they’re going to keep your 5% down, that’s for sure. But is that the option to walk away? That just really doesn’t make sense.

Tracy Maacing [00:07:42] Well, typically, it’s initially you put 5% down and then a year later, like you have an outing.

Dave Dubeau [00:07:49] That counts as a completion. Yeah.

Tracy Maacing [00:07:52] So there’s only rare times where I’ve come across a deal where you could put say initially they ask for 20% down, but because they’re upgrading the building and they’ve appraised the units at a much higher value, you’re going to get actually a little bit of cash back. So and it only cost me 10% down payment, but those types of strategies are super rare. Like I’ve not seen it in like almost a decade now. So times have changed. So traditionally the builder will ask 5% down the next 5% down to make up to 20% down. So if you do walk away, you’re walking away from your two terms.

Dave Dubeau [00:08:33] That’s a chunk of change that you’re walking away from. Yeah, it makes a lot of sense. That’s a fascinating idea. Hold that thought for a second. Hi there. This is Dave Dubeau. And real estate investors hire me to raise capital the right way y because most of them are stuck with too small of a portfolio and they don’t know how to attract investors and raise money for their deals. So I help them to connect, capture and close their ideal money partners. Bottom line, when you’ve got a deal, you’re going to have the capital to do it. So go ahead and book a no cost capital clarity session with me at Book A chat with Dave dot COM. Again, that’s book a chat with Dave dot COM. So Tracey, it sounds like that’s how you got your start in real estate investing. What did you transition to after that once you realized that pre-construction condos weren’t what you wanted to do?

Tracy Maacing [00:09:22] So the thing with my real estate investing journey, I actually didn’t do pre-construction condos initially. I actually rented out my own condo and then it worked out well, but then condo fees ate the cash flow and then gone to legal issues. So but I was able to make money off my first condo. And then what I took, I took that money and bought a triplex. Yeah. Triplex. And I was hoping to actually house hock meaning live in this beautiful. Well it’s not actually a beautiful home, but it’s in a beautiful location by the beach and have my other tenants pay down my mortgage unfortunately didn’t work out that way because I end up buying another home in that same year. Single detached home. Very small, two bedroom, one bathroom. And I did a year renovation, so I wasn’t able to house hack in this triplex. So in that same year, about two homes. And then because I was pregnant at that time with twins, then I had to rethink the whole thing and was like, Well, how do I invest real estate without being very involved? And that’s when I got into pre-construction condos, which is obviously not the thing that I would recommend. So it was.

Dave Dubeau [00:10:33] Like a good idea at the time.

Tracy Maacing [00:10:35] Right, right, right. Yeah. Because you’re like, Oh, they have to put 5% down, 5% down a few years. The price would be different. Yeah, it didn’t work out at all. So I prefer out of all the different types of real estate, traditional strategies, residential buy and hold strategies. I prefer the simplicity of units. So no more than two units in a house is max. I just think like for tenants. Yeah. Yeah. Duplexes. More tenants equals more problems. And even if you have a property manager, you still have to deal with it. So for me, having now like what was previously a very demanding career, kids live like it just didn’t make any sense. So I like simplicity.

Dave Dubeau [00:11:19] So you your portfolio is primarily single family homes and duplexes these days. Is that is that what’s focusing on? Yeah, very cool. Actually in and around Ottawa. Is that the primary market that you invest in?

Tracy Maacing [00:11:31] Yes. I mean, I’ve done the like any early. I don’t know if you’ve done this before, but in the beginning stages of your real estate investing journey, you always come across a video or articles that say top ten cities to invest in Canada. Right. And I got suckered in. I was like, okay, okay, well, which city is going to grow well? And it’s got a bigger has transit coming in and I would invest all across Canada. So now I realize after investing all across these different cities that actually I like Ottawa the best, which is the city I live in because I know it the best. So, yes, now I’m more, I think, concentrated mostly in Ottawa right now.

Dave Dubeau [00:12:11] Well, you know what? There’s a lot to be said for Ottawa Nation’s capital. No lack of bureaucratic government jobs, high paying jobs, all that great influx of people coming into the into the city as well. No, that’s a good market to be in, for sure. Interesting. Okay. So nowadays you’re focusing more on single family homes and duplexes, that sort of thing. But you still I mean, with a number of those, you still have to manage tenants and toilets and all that kind of stuff. Are you self-managing or do you outsource that to a management company?

Tracy Maacing [00:12:43] I’ve outsourced? I’m like part, part, part. So like I do have property managers for my for the ones out of outside of Ottawa. But if it’s inside Ottawa, if they’re me in my A-plus locations with A-plus, you know, type of tenants, like I’m self-managing because it really doesn’t take a lot of time, really. It’s actually my husband managing. I’m the back end. I’m like the one that’s like doing all the strategic thinking and then finding the properties and not even filling the filling the unit. But he’s the he’s the face. Let’s just say he’s a delegate.

Dave Dubeau [00:13:18] You delegated that. That’s.

Tracy Maacing [00:13:19] Oh, yeah. Yeah. We also got a wet I would say that’s a tip for anyone. If you are in a partner with your, you know, your life partner and you’re involved, you want someone to be always saying, like if the attendance asking for something, you’re like, oh, I have to check.

Dave Dubeau [00:13:36] I would, but Tracy won’t let me.

Tracy Maacing [00:13:39] Yeah, I would. But yeah. So the landlord, I have to check with the landlord like you. You have to play the property manager versus the landlord role or the owner role for sure.

Dave Dubeau [00:13:49] No, I’m very, very smart. Now, you you’ve done amazingly well with your YouTube channel and your whole brand, the financial Nirvana. Mama, how did that all come into play? And when did you decide to really crank that up?

Tracy Maacing [00:14:06] Well, it was is because I was in the thick of this investing journey, investing real estate. And I’m not a full time real estate investor. I’m someone who’s like, hey, I have a career, I have a family. And I found that any resources or books or courses that I would take, they’re always like more targeted to full time investors. And I thought that there was just a big hole and there’s so many things that I thought that I could help people with. And there’s a lot of misconceptions like, well, if you have your career, you have a busy job, you can’t invest in real estate or there’s always excuses. And I just thought, Well, I’m doing that. Like this is what my friends are like. My surroundings were like, and they were always surprised that I would find the time to do this. And I just thought, Well, I got to show up and help people. There must be other people in this journey. And I found that journey really lonely. And so to me, it’s like I just got to get out. I want to help people realize there’s. You can invest your money and make it work harder rather than you work harder so that you can take more time living your best life and not be sucked into this 9 to 5 grind. Because like now it’s like looking back. I mean, definitely it was a grind to do all that juggling real estate and investing and family and all that. But now it’s like, Wow, it’s paid off. And I don’t have to think, Oh, I have to find a job. I have these investments and it’s like you front end loaded your journey with investing and then now you’re, you’re actually realizing the profits. It’s being fruitful now. But I think I want to share that journey that it’s possible and that there’s a way where you don’t feel like when you’re in middle your forties, you’re like, Oh, I have to still go to my job, right? And pay the bills and all that. And I just want to show that that’s possible. The art of possible as a Canadian, as a female, too.

Dave Dubeau [00:16:04] Yeah, I know. That’s what I am. And the interesting thing is. You’re so right. So many of these courses and trainings are assuming that the person at the end is a full time real estate investor. Where my experience has been and we work with hundreds of masters over the years, is that the vast majority of them are part time real estate investors or full time working at their jobs, and they do have families and they got all this stuff on the go. So that’s a really interesting observation that most everything is catered towards this group that largely doesn’t exist because I would I would say the vast majority of active real estate investors are doing other things in addition to real estate.

Tracy Maacing [00:16:45] Exactly. And I think that for me, I would say in the beginning stages of my real estate investing career, I thought my end goal was to become a full time real estate investor. But then as I was going through my journey, I’m like, No, I don’t really want to become a full time real estate investor. And then I was like, That’s when it’s like, Well, I like having different careers. A Like having, you know, being with my family and all that. And I realized, well, you know, there’s a way to do it without committing yourself full time. You could just invest in real estate part time and make it semi passive because it’s not completely it’s not passive at all, obviously.

Dave Dubeau [00:17:23] I think I think the trick we need to figure out is there’s very, very little in life investment wise that is truly passive that’s going to actually make any money. So I think that’s a good observation. Tracy. That’s been a lot of fun and people want to find out more about you and connect with you and watch what you’re up to. What should they do?

Tracy Maacing [00:17:43] Well, they should head to my YouTube channel, financial nirvana. Mama is my handle. I also have a website same handle financial nirvana mama dot com. You can also get free real estate investing tool kit, which is to help you buy your first R next rental property or if you’re into stocks. I also have a lot of helpful, actionable steps about how to get into a stock investing and actually make it more passive compared to real estate investing.

Dave Dubeau [00:18:11] There you go through a make sure we’ve got all of those links in the show notes. Tracy, thanks so much. It’s been a lot of fun.

Tracy Maacing [00:18:18] Thank you.

Dave Dubeau [00:18:19] Everybody. Take care and we’ll see you on the next episode. Well, hey there. Thanks for tuning into the Property Profits podcast. If you like this episode, that’s great. Please go ahead and subscribe on iTunes. Give us a good review. That’d be awesome. I appreciate that. And if you’re looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there. There it is. The money partner formula you and get a PDF version at investor attraction book dot com again investor attraction book. Dot com. Take care.

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