Table of Contents
Podcast Transcription
Dave Dubeau [00:00:09] Everyone. Dave Dubeau Welcome to another episode of the Property Profits Real Estate Podcast. Now let me ask you a skill testing question. How many profit centers are there in a real estate deal? Is there one profit center? Two profit centers? Three for how many? While, according to my very special guest here today, there are actually seven different ways that we can profit from a really good real estate investment project. My guest is July Ono. I’ve known July since 2004. My goodness, I can still vividly recall when we met. We were chopping up boards and getting inspired and get juiced up at a TR vector event. And since then, July has done some amazing things in real estate. So when we first met, I believe July, you had your first little four plex on the go. And then since then you grew your portfolio to well over 700 units across British Columbia and Ontario. You’re an author. You’re very, very well-known in the real estate investing training space. So it’s my pleasure to have you on the show.
July Ono [00:01:19] Thank you, Dave.
Dave Dubeau [00:01:21] So, July, according to you, how many profit centers are there in a real estate deal? And I think you wrote a book about. Oh, look at that. Very. If you’re listening to this, July is holding up a good luck, a book called The Seven Profit Centers in Real Estate. If you’re watching this on the YouTube channel, you’re going to be seeing that right there. So seven profit centers you like. Before we jump into what are the different profit centers? Let’s just talk a little bit about why after years of looking around, because I know from your story that when you’re first getting interested in becoming financially independent, financially free, you looked at a lot of different options. Why did you pick? Why did you end up picking real estate?
July Ono [00:02:05] Well, you know, there are many, several different money mountains. And we chose real estate. My husband and I, because it is accessible to everybody, there are no restrictions. You don’t have to have a special degree. You can be an immigrant and not understand English. It’s just real estate is available to everyone, young and old.
Dave Dubeau [00:02:27] Wealthy people. It was easy for you to say July at a portfolio of 700 doors. Of course you could buy everything, everything and.
July Ono [00:02:33] Anything.
Dave Dubeau [00:02:35] So. So for people that don’t know how, where were you at when you first started investing in real estate?
July Ono [00:02:42] So I was broke. I was divorced. I was in an emotional shambles. I had to move back home to live with my parents in their basement suite. And so I my life fell apart. And so I’m going, what am I going to do with the rest of my life? The first half of my life just didn’t pan out. And so with some courses, the two potentials courses were amazing transformational events that to reset my financial thermostat. And from there, it’s like just putting into practice little things. And that’s why having a coach and Andrew Barbara Starkey, who was PR Vickers personal coach, is my coach and he’s been coaching me since 2002. You know, we just celebrated like 20 years together. Amazing. Amazing. And so I just do the little things every single day. And so little things incrementally add up. And so I didn’t think I was going to be a millionaire in a year and a half. I totally didn’t think I would have $124 million portfolio 17 years later. That’s just outrageous. Like, who makes those kinds of predictions? You don’t. And so totally far exceeded any of my expectations.
Dave Dubeau [00:03:55] But you definitely did not start with a silver spoon in your mouth. Well, that’s. Yeah. You started from behind, and you certainly accelerated, so. All right, beautiful. So let’s talk about the seven profit centers in a real estate deal. Don’t quiz me on them. I quite often go over this, but I don’t know if I’m going to have them off the top of my head. But what is the first one that you like to explain to people in which out of the seven. I know they’re all important, but which one would you consider to be the one we should be focusing on first?
July Ono [00:04:30] Well, they’re all in order of importance. Okay, so equity day one, equity day one.
Dave Dubeau [00:04:37] Equity day one. So you might have heard of that is instant equity as well or getting a bit of a deal on their property, is that correct?
July Ono [00:04:45] That’s correct.
Dave Dubeau [00:04:46] So what does that mean to you?
July Ono [00:04:48] I see so many people getting into a deal and they’re already ten years behind the eight ball and they don’t even know it going in.
Dave Dubeau [00:04:55] They overpaid for the probably overpaid.
July Ono [00:04:57] And so how do you calculate this? Well, when you’re looking at the cash flow of an investment deal, the net cash flow, not the gross the net, after all your expenses, that’s how much you have to multiply for ten years. Now, imagine paying that ten year amount upfront overpaying the deal. And so then people wonder why they’re always behind and they’re negative because they overpaid. And so do that one calculation to find out, is this a good deal or not? Some people get emotionally entangled with the investor, Candy, I call it. They’re looking at all the wrong things. You have to look at the numbers. They’re brutal. And if it doesn’t work, you have to have the discipline to walk away. And if you can’t walk away on your own, you surround yourself with a team who can walk away that.
Dave Dubeau [00:05:45] Will drag you away.
July Ono [00:05:46] That’s right.
Dave Dubeau [00:05:47] You can’t get away from the deal. Okay. So let’s back out, if you don’t mind. You lie because at the stage you’re at right now, you’re looking at quite large properties. But back in the day when you first got started, I believe it was a four plex up in Fort Saint John. So it was it was a kind of a smaller deal. And a lot of people that are listening to this are watching this might be kind of at that stage themselves. So let’s say we’re looking at a four plex or a six plex or something like that. What would what could that look like as far as trying to create this this equity up front?
July Ono [00:06:24] So you look at value add, you’re always looking for underperforming assets up to some degree. Perhaps there’s vacancies in the building, which means that when you’re buying a real estate, it’s not the assessed value or appraised value. It’s always a net operating income, how much it’s a business. So real estate is only worth however much rent is coming in. So that’s why you never want to sell a building with any vacancies in it, because it’s worth less. But when you have actual rent roles, projecting the income, actually showing the income, it’s worth more. And that’s the goal of every landlord to have as full a building as possible before you put it for sale. Which is why I’m looking for buildings before anyone lists them.
Dave Dubeau [00:07:12] Or they get they can’t fudge it. Things is easy. So if I’m understanding correctly and please correct me if I’m wrong, Julie, when you’re talking about upfront equity or I’m sorry, what was the actual term used for equity?
July Ono [00:07:24] They want the equity, they buy it. There’s equity in the property.
Dave Dubeau [00:07:27] So it’s not necessarily getting. Getting the property for less than asking price or less than appraised value.
July Ono [00:07:37] Not necessarily.
Dave Dubeau [00:07:37] Making sure that you’re not overpaying for the darn thing. Yes, it’s based on the actual numbers. What is your art? Okay, very good.
July Ono [00:07:46] That’s. That’s part of the equation. Yes.
Dave Dubeau [00:07:49] Okay. Very good. So trying to create that that Equity Day one, what would be the second profit center that’s second most important to you?
July Ono [00:07:56] Leverage. Leverage.
Dave Dubeau [00:07:58] Leverage. That’s a wonderful world. What does that mean to July?
July Ono [00:08:02] It means buying more with less money. Let’s face it. I have stocks and they take 100% of my cash. They won’t let me leverage it. I can’t borrow money. Well, you can kind of. But really, who goes to a bank to borrow 80% and you put 20% down? You’ll give me all these stocks, really? Dollars and stocks. But you can do it every single day in real estate.
Dave Dubeau [00:08:26] All right. So it’s using the banks. It’s leveraging the bank’s money. They’re going to finance the property for you. They’re going to give you a mortgage. You’re going to be able to get into that million dollar property for 20 or 25% down and the bank puts up the rest. Is that what I’m understanding?
July Ono [00:08:40] That’s correct. Just imagine you’re putting, let’s say, 25% down to buy an asset, but your return is based on the 100% value of the building. So your money is already increasing its leverage four times.
Dave Dubeau [00:08:54] Yeah, that’s huge. And so many people don’t quite understand that that is that is one of the biggest benefits of that is overlooked.
July Ono [00:09:03] People just don’t understand the leverage portion.
Dave Dubeau [00:09:06] All right. Very good. So we got Equity Day one. We got leverage. What comes next?
July Ono [00:09:11] Cash flow. Yes, cash thing. But it’s number three.
Dave Dubeau [00:09:16] Why is it number three for you? Because we hear so many of the guru say cash flow, cash flow, cash flow, cash flow. Why is it number three on your list of priorities?
July Ono [00:09:25] Because everything cash flow stays either positively or negatively. Okay. Cash is going in or cash is going out. It’s moving. So that’s what they didn’t clarify. It’s flowing, but is it flowing into my pocket or is it flowing out of my pocket? You’ve got to understand. And so I’ve looked at so many deals, not just for myself, but for other people that I’ve mentored, and they come to me with the deal, right. O July, they’re still cash flows and they’re so excited until we start to go through all the expenses that they missed in their summer. But spoiler alert, that spoiler alert is instead of the $2,000 a month positive cash flow, it ends up being, you know, they’re coming out $500 per month out of their pocket just to foot this thing. And they’re just so many things are. Realtor Sorry, this is not nothing against realtors. I know that you’re in your business to sell, buy or sell property, but your business is not about giving investment advice. And so I just tell people, be very careful where you get the advice from because yes, the realtor really wanted to sell this building and only mentioned one profit center. The rent. That’s it.
Dave Dubeau [00:10:37] Yeah. Big difference between gross and net, that’s for sure.
July Ono [00:10:40] Yeah.
Dave Dubeau [00:10:41] So, okay, so cash flow, what’s when you’re looking at a deal or when you’re helping somebody look at a smaller deal? Again, we’re looking for six, eight unit type properties. What’s kind of your rule of thumb when it comes to cash flow, positive cash flow?
July Ono [00:10:56] Well, we used to look for, you know, 8 to 10%, but you can’t find that anymore. That was way back before. So and even then now trying to find a seven carat building is really, really challenging unless you go into the Maritimes. And so if you’re looking into a lower mainland situation with British Columbia and Alberta, well, if you can find anything from 4 to 5% return on your money, that’s pretty good. But remember, that’s only one profit center.
Dave Dubeau [00:11:24] Yeah, you’re talking about cash on cash return that right? That’s right. Yeah. Okay. All right. Very good. So, cash flow. So that’s the third one. What’s number four? Wow. That’s another fantastic idea. Hold on to that. Dr. Sack will be right back. Now, are you a real estate investor who’s run out of cash or credit to grow your portfolio? Are you looking to grow your portfolio using other people’s money and raising capital? Well, I want to show you how to raise six figures or more in six weeks or less at my upcoming Investor Attraction workshop. You can get your ticket and find out all about it at Investor Traction Workshop dot com. We’re going to spend a full day taking a deep dove into this roadmap that I’ve used to raise millions from ideas and I’ve helped other people, just like you, cumulatively raise hundreds and hundreds of millions of dollars for their deals as well. So again, you can check that out at Investor Attraction Workshop dot com. And as a loyal listener to the podcast, you’ll get 50% off your ticket when you use the discount code podcast. That’s right. Discount Code podcast at Investor Attraction Workshop dot com. See you at the next workshop.
July Ono [00:12:29] Principal pay down. Everybody forgets this. Your tenants are paying your mortgage down. There’s, like, you. Your net worth is growing every single month because your liability is being reduced and your equity portions increasing. Now, get this. When you look at your amortization schedule and you divide that into you’re the money that you invested. Most mortgage paydowns are in the 5 to 6% return range.
Dave Dubeau [00:12:55] Wow. I’ve never actually crunched that number. That’s fascinating.
July Ono [00:12:59] Even if you have zero cash flow, you’re still getting a return with the principal pay down. So it’s like, wow, that was really enlightening when I saw that number going. What? That’s more than the cash flow I’m getting from the property, the mortgage paydowns more.
Dave Dubeau [00:13:14] That is fascinating. So if you combine that, so even if you’re getting kind of a mediocre return on your cash flow of its three or 4%, but you combine that with the seven or 8% with the mortgage paydown, now you’re starting to get close to those double digit.
July Ono [00:13:28] Exactly. It’s very exciting. Just those two profit centers alone.
Dave Dubeau [00:13:32] Yeah, exactly. So. All right. So mortgage paydown, that’s beautiful, because that is one of those things that’s just happening in the background. You don’t have to think about it. You don’t have to, you know, focus on it. Every time your tenants are paying the rent and you’re paying your mortgage, that’s just kind of naturally happening. So fantastic. What’s the next property? Yeah, go.
July Ono [00:13:53] Ahead. Okay. I love looking at my annual mortgage statements because that’s when I update my net worth statement. Yeah. So liabilities getting less of my equity getting more. So it’s a really a great boost for your self-esteem when you’re seeing your net worth increasing every year.
Dave Dubeau [00:14:09] Do you mind if I go on a little tangent here with you, July? Because we were, we were just having a conversation for very different video. And you’re talking about when you first set your goal to become a millionaire, it was a ten year goal, but you made that happen in like 18 months. So what did that look like? Obviously, that was buying investment properties, using leverage, using all the different profit centers that we’re talking about. But what made the biggest. Increase in your net worth in that short period of time.
July Ono [00:14:41] Oh, my goodness. I would say networking.
Dave Dubeau [00:14:44] Networking. But I mean, out of the out of the profit centers of the real estate that you were actually involved in, what created that.
July Ono [00:14:51] Equity day one?
Dave Dubeau [00:14:52] Equity Day one. All right. Who is buying?
July Ono [00:14:55] Buying?
Dave Dubeau [00:14:55] We’re buying. Right. So you’re buying properties that were under underperforming, undervalued.
July Ono [00:15:02] Undervalued frequency.
Dave Dubeau [00:15:04] Oh, okay. And then you were you were increasing the value by making them performing.
July Ono [00:15:09] Oh, yes, definitely. And all of a sudden, you take a less than great investment, do turn over, renovate. You know, once you renovate, you can charge more rent. And now you have better tenants, a nicer building. And all of a sudden, the equity value of that properties increased 20%. Yeah. So even with a with very minimal amount of money, you know, you’re doing that basic.
Dave Dubeau [00:15:31] And fast and that’s, that’s how you do. It’s about. Okay, fascinating. Okay, good. Back on track with the profit centers. All right. So we talked about mortgage paydown. What’s the next one?
July Ono [00:15:42] Tax benefits.
Dave Dubeau [00:15:44] Tax benefits. Oh, that’s lovely. We’re in Canada. We love tax benefits because we submitted our taxes. So what does that mean to you?
July Ono [00:15:51] Well, you know, people don’t realize that when you’re running a business, you actually get to deduct expenses. There’s direct expenses and indirect expenses. And this is something my father did not understand, which is why real estate confounded him for most of his life until the last three years of his life. When he became a real estate investor, I frankly forced him to be an investor against his will. But guess what? He finally got it. And so what this means is he was a brilliant mechanical engineer, just did not understand real estate. And so taxes, you know, when you’re borrowing money from the bank, all those mortgage payments, the interest portion, there’s the principal portion, an interest portion. So the principal comes down, the interest portion goes to the bank. But you can deduct that as the cost of doing business. Imagine the interest portion of your mortgage payments is tax deductible. So it’s like it reduces your taxable component and then you can depreciate the building. This is something I highly recommend you talk to your tax account with because this is a big conversation. Should I take depreciation or not? Because when the building sells, you have to pay the recapture of the tax back to the tax man. It’s an.
Dave Dubeau [00:17:07] Maybe it might be a temporary benefit.
July Ono [00:17:09] Yes. So it’s like art piece. You’re sheltered for a little while, but you still have to pay it back. So that’s why you have to make the call. Should I or shouldn’t I? And that’s a conversation you have with your tax accountant to plan what you’re doing with in the future with your money. I can’t give you that advice. Everyone’s different. Yeah. Or the tax benefits. And so that’s why it’s great because all of a sudden if you’re borrowing money for the investment, offer a line of credit. For instance, that line of credit payment, you can deduct it as a cost of doing business. If you don’t, you’re not going to cash. And a lot of investors, they use leverage. Why not? If you can borrow money from the bank, why not? Why use your cash?
Dave Dubeau [00:17:48] Makes a lot of sense. Okay. I’m easily distracted, so I’ve lost track of which.
July Ono [00:17:54] Now we’re on the profit center. This one station.
Dave Dubeau [00:17:57] I’m sorry.
July Ono [00:17:58] Appreciation.
Dave Dubeau [00:17:59] So normal market appreciation. So, you know, we as homeowners, you’ve probably seen this. You probably pay very close attention to this. You’re seeing how much or how little the value of your home is going up over time. That’s what you’re talking about here is natural market appreciation, is that correct?
July Ono [00:18:17] Well, that’s natural and force appreciation. So I’ll get to that in a minute. But, you know, most people focus on appreciation and this is just investor can be I don’t rely on appreciation to help the portfolio. You just can’t say, oh, I’m going to buy this and hope it goes up in value. No. So you don’t ever want to trust hope to make your building work. So. Market value. Yes. You make sure you have the right location. The timing is right and you have the ability to at least manage that component. But you can also force appreciation on the building by making improvements. Curb appeal, changing of the tenant demographic profile. All these things can add value to your building through appreciation. And so I don’t like people that flip because they’re anticipating a guaranteed return in a year. Well, who can. Who can guarantee the future? Sometimes it goes the other way and you have to hold something. You know, I did this I did a flip in South Carolina just before the market crashed in 2008. And guess what happened? And people there just before they were flipping every six months making a 50,000, $100,000 gain. And so you just get on the bandwagon. Well, I ended up holding on to those properties for ten years and the market never really returned.
Dave Dubeau [00:19:39] Yeah.
July Ono [00:19:39] We broke even because of these seven profit centers.
Dave Dubeau [00:19:43] Yeah, well there’s and there’s, it’s not just flipping. I see a lot of pretty much anything that speculation, that’s what they’re relying on. So pre-construction condos are a big one. I mean, just last year, so many, several acquaintances of mine were, you know, touting how brilliant they were because they’re getting into pre-construction condos in around the GTA. Well, that’s great until it ain’t great.
July Ono [00:20:07] Yes, that’s right. So they’re counting on appreciation to bail them out. That’s really dangerous.
Dave Dubeau [00:20:14] And they’re counting on interest rates not increasing and they’re counting on all sorts of things. So, yeah, it’s and I’m embarrassed to say I’ve I have been involved in appreciation based type strategies and they bit me in the butt as well. So yeah, I’ve, I’ve kind of all learned.
July Ono [00:20:30] We all do it. We all learn. Okay.
Dave Dubeau [00:20:34] Okay. So appreciation and you’ve combined two appreciation. You’ve combined kind of natural market appreciation, which tends to happen over time. And you’ve also talked about forced depreciation, which if I recall correctly, that was kind of the secret sauce that allowed you to create that million dollar net worth in 18 months is buying an underperforming property and forcing up the value by making it perform. So that’s that is huge there. What’s the seventh profit center?
July Ono [00:21:02] Last profit center is re-invest your equity. And so most people just take their equity out and maybe buy doodads, you know, buy things on.
Dave Dubeau [00:21:11] Vacations, travel the world, buy nice.
July Ono [00:21:15] Yeah, great. It’s all great. But it’s not, it’s not adding value to your life. So do that with your cash flow. And so when you get capital gains, God forbid you actually buy things with it by passive income with your equity. That’s the highest and best thing you can do with your capital. Capital is scarce. It’s rare, it’s precious, actually. And so when you have it, you hang on to it by investing it so that it makes more. So be careful spending your money. We spend our cash flow from our investment. We don’t spend our equity capital. That’s something we learn from. PR Always have your financial freedom account and you always putting it towards assets that will pay you.
Dave Dubeau [00:22:00] Yeah. Very, very smart. And yeah, I love that. And it’s basically it’s get your keep your money working for you. Yes.
July Ono [00:22:10] Absolutely. Yes. Yes.
Dave Dubeau [00:22:11] Fantastic. Well, July, this is absolutely fascinating. Always, always, always love talking with you. If people want to find out more about you and perhaps even get a copy of that good looking book, you want to flash that up on the screen first thing?
July Ono [00:22:28] Yeah. So you can call me at 6048302438 and go on my website for people.
Dave Dubeau [00:22:37] That’s right. So you can also find it in July ono dot com and she’ll trade it to you for your name and your email address.
July Ono [00:22:45] Thank you.
Dave Dubeau [00:22:46] All right. Thank you so much. Light and everybody. Thanks for tuning in 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 screen, please go ahead and subscribe on iTunes. Give us a good review. That would 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 get a PDF version and investor attraction book dot com again. Investor attraction book. Dot com. Take care.