JF1338: How To Build A Passive Income Portfolio with Brian Persaud
Brian was a medical student in college before realizing that was the wrong career path for him. He would skip class and go to to bookstores, it was there he came across Rich Dad Poor Dad. After reading that book, like many of us Brian had the real estate bug. Years later, he’s a published author, public speaker, and real estate investor with his own portfolio as well as managing properties for other investors. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Brian Persaud Real Estate Background:
-Broker and Owner of Brian Persaud Real Estate Team
– He’s covered over 70 real estate topics on his highly acclaimed television show, “Inside Toronto Real Estate.”
– Continues to share his real estate expertise on shows including HGTV’s “Income Property.”
– Wrote the book on Toronto real estate, a best-seller on Amazon
– Managing single family residential homes to multi-unit apartment buildings, to hi-rise and subdivision development
– Based in Toronto, Ontario
– Say hi to him at https://www.brianpersaud.ca/
– Best Ever Book: Extreme Ownership
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Brian Persaud. How are you doing, Brian?
Brian Persaud: Hey! Amazing, thank you so much for having me on.
Joe Fairless: My pleasure, nice to have you on the show. A little bit about Brian – he is a broker and owner of Brian Persaud Real Estate Team. He’s covered over 70 real estate topics on his TV show Inside Toronto Real Estate, and he has written a book on Toronto real estate, and he is based in (obviously) Toronto, Ontario. With that being said, Brian, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Brian Persaud: Yes, I was in university, I read this book — actually, taking a step back… I was in university, my [unintelligible [00:01:56].29] parents want you to become a doctor, lawyer, engineer, so I signed up for like the free med program at UFT; by my second year I realized I had nothing in common with the people that were in my class, and it was like a really tough time because I did not wanna do it at all. So instead of going to class, I would skip out and go to bookstores; I came across a book called Rich Dad, Poor Dad. Have you heard of the book?
Joe Fairless: A couple times, yes.
Brian Persaud: Yeah, so what’s the biggest thing about the book? Passive income, right?
Joe Fairless: Yup.
Brian Persaud: So I wanted to get passive income so I could live this awesome life, and at the time, the best way I thought to making passive income is through real estate… So I got my dad to co-sign for a property, and I was making $1,000/month cashflow at the time while at university. And making $1,000/month, it’s kind of like you’re financially free, because you don’t have that much expenses.
So I was going to school, living the life, making $1,000/month just hanging out with my friends [unintelligible [00:03:06].00] So I’m like, “Wow, there’s some things to this real estate…”, so that’s how I got into it. And because I was so young investing into it, it led me to go to real estate clubs, people asked me to speak, I did speak engagements, it got me a book deal, it got me a TV show, I was flipping houses… And then I realized that you know what? Real estate agents make a lot of the money when you’re doing the deals, so I decided to become a real estate agent because I was really good at finding really good investment properties. So instead of investing and flipping it, I decided that hey, why not sell it to people and make them make money?
Joe Fairless: And going back to what you said, Rich Dad, Poor Dad book, the primary message is passive income… You’ve now shifted to active income, so how do you reconcile that?
Brian Persaud: I think for most people, instead of looking to get passive income right at the beginning, you should look up to build a lot of capital, so you could reinvest it, and then get passive income from that. It’s very hard for someone who’s getting into real estate to develop passive income just from having no seed capital at all. So you have to build up a nest egg, and then you could go after the passive income.
But reconciling it, now that I’m at a point where I’ve got a lot of passive income coming in, I enjoy the challenge of real estate and I think I would be bored just hanging out in Costa Rica.
Joe Fairless: Yeah, there’s only so many trips to the beach you can do. With the passive income that you said you’ve got coming in, what have you invested in?
Brian Persaud: You know what, a lot of people are like “Hey, get into stocks, get into crypto, weed stocks are amazing, I’ve got these great stock tips and mutual funds…”, and I just invest in buying houses, basement apartments, getting cashflow from them, and kind of sitting back and waiting for it to go up in value. That’s the only thing I do.
Joe Fairless: And then when it goes up in value, do you do anything to cash out some of that value and reinvest, or do you leave it there?
Brian Persaud: I kind of leave it there, because I used to sell a lot, and I kind of regretted all the sales that I made… So I just kind of focus on building up the wealth by keeping the properties, focusing on having the tenants pay down the mortgage, and then all I do is just work to be able to get more. And really, it’s we in Toronto — we’re able to buy three houses, and with the rental income in 25 years after you pay down that mortgage, you can be making 3k from each property in cashflow. That’s $9,000/month. A lot of people could live off of that. You don’t need to have that many properties to have the passive income to retire, so I don’t really focus so much on the numbers and getting a lot of property; I just wanna get a few really good ones that’ll cashflow a lot after I pay down their mortgages.
Joe Fairless: When you define good ones, other than cashflowing, are there other factors that you look at prior to purchasing?
Brian Persaud: Yeah, I definitely look at properties that have upside potential – is it gonna go up in value? Even though when I plug in my numbers, I’m doing it like it’s only gonna go up 1% or 2% per year, but I wanna be able to beat that. Generally, the properties where I buy into go up 10%, 15%, 20% (last year they’ve gone up). So yeah, I want the cashflow, but I also wanna buy in an area that has some good upside potential, and we know how to spot that – where development is occurring, where transit investing is happening, or other big condo builders are building up the area, retail is coming in, Starbucks is coming in, all that stuff. I wanna invest in those areas, but still have cash, though.
Joe Fairless: You mentioned four things just a second ago: development, transit, other condos being built, and Starbucks. Any of those weighted more than the others, and anything else that you look at to see where an area could beat the market for appreciation?
Brian Persaud: To be honest, if you’re looking in the area and saying “Hey, this is a good area because Starbucks is invested in there”, you’re probably late to the party. Starbucks — the real estate people that work with Starbucks don’t take risks on neighborhoods, and they only go after doing a lot of research and the neighborhood is already established, then they come in.
When you’re looking at areas that are gonna go up in value, I guess the biggest thing that you have to look at is how cheap is it relative to the neighboring areas that are around it. For example, if you’re in an area that is surrounded by million-dollar homes, and that house is only around the $500,000 neighborhood, eventually that neighborhood is gonna start to catch up with the million dollar neighborhood, because folks are not gonna be able to afford a million plus; they’re gonna be able to go into the cheaper area and they start driving up the prices, they start renovating in the area, and that also drives up pricing…
So I generally look at areas where it’s close to neighborhoods or cities that are going through huge place appreciation. And you can find neighborhoods like that in anything.
Joe Fairless: Yes, you sure can… That’s a great tip for everyone when we look at properties. When you think of your portfolio and the purchases you’ve made, what’s been the least favorite investment?
Brian Persaud: When I first started to invest, I wanted to get as much numbers under my belt, saying “Hey, I’m the guy with 30 properties, I have 40 properties.” I wanted to be that guy, so I was rushing out to all these weird, small towns in and around Ontario, buying stuff, and those are the properties that had the worst tenants, didn’t go up in value at all, because they were in the middle of nowhere, no city was giving that ripple effect of high price growth… And they were so far away they were nightmares to manage, and you either have to pay someone to do it, or you’re gonna be driving there yourself to do the work, and if it’s like 3, 4, 5 hours away, it’s not fun.
So I used to invest in these small towns to beef up my numbers, to tell people (ego-wise) that “Hey, I’ve got all these properties.” Those are the worst investments. In fact, some of those properties after ten years haven’t even gone up in value at all, and I can’t sell them, and you just kind of have to keep them.
Other people who invested into them, they weren’t as fortunate as I was, and they foreclosed on it, walked away and screwed up their credit, because they were impossible to sell. They just don’t go up in value and they just couldn’t take the tenant problems.
Joe Fairless: When you look at Toronto relative to other markets that you’re familiar with, what excites you about Toronto?
Brian Persaud: One of the biggest things about Toronto that’s amazing is that it’s finally coming in its own as an international center. We produce the best baseball players in the world, the best singers, we have amazing restaurants, the best hockey players, obviously… So around the world we’re starting to be noticed, and as a result there is a lot of capital flowing in from other countries. And when you think of cities where capital is flowing in, what comes to mind? Like, for you, when you think of international cities, what comes to mind?
Joe Fairless: International cities where money is coming into it?
Brian Persaud: Yes.
Joe Fairless: I don’t know, somewhere in China?
Brian Persaud: I think of cities where money is flowing into it are cities like New York, London, Paris, L.A., Chicago… These are cities where because they’re internationally known, people want to bring money here, and as a result, real estate values are gonna go up significantly. I just don’t see that in other cities. For example, in Orlando, they don’t go up as much as we do, because — yeah, a lot of Canadians buy there and a lot of Australians buy there, but it’s not as well-known internationally, and as a result, the prices don’t go up as much. Kentucky – they have amazing music and everything, Memphis, everywhere, amazing places to live, great music scene, good jobs and stuff like that coming in, but they don’t have that international demand, and as a result, the prices don’t go up as much as they do over here consistently. That’s what is really exciting about Toronto – we’re a destination for investment.
Joe Fairless: When you think back to your investing approach and you are to give advice to others, what would your best real estate investing advice be?
Brian Persaud: You have to really understand the numbers of things. If you’re investing in a market, you wanna be able to look at it on the map or on Zillow or whatever, and instantly know generally how much that property is going to cost – market value – and also renovation costs… You wanna be able to calculate in your head how much it would cost to renovate in a way that you need to be able to either flip it or rent it for the amount that you want.
So that’s really important, knowing your numbers, and I think the only way you do that is you have to get dirty analyzing properties on your spreadsheet or on your calculator, going out to see and talking to tradespeople and getting estimates, and after you see enough, you’re gonna be able to calculate things in your head. And what happens when you’re able to calculate things in your head? You’re able to do things a lot quicker, so you’ll be able to move a lot quicker than a lot of investors because you see these opportunities and you’ll know what’s an opportunity and what’s not instantly.
Joe Fairless: Any approach that you’d suggest for how to run the numbers?
Brian Persaud: Well, there’s two factors in the numbers – there’s the cost of the property; in order to do that, you have to know the neighborhood that you’re investing into, [unintelligible [00:13:22].01] You’re going to have to know what’s the renovation costs in the neighborhoods, you’re gonna have to get a lot of renovation estimates and you might wanna sit down with a spreadsheet [unintelligible [00:13:33].06] what’s the cost per square foot for installation of flooring, and what’s the cost for putting in a kitchen; you’re gonna have to know all these things, so you’re gonna have to talk to the tradespeople who do that.
Then the second step is you’re gonna have to know the income, what kind of rents you’re gonna be able to get in that neighborhood and what will you be able to push the rents to. The market is not currently saying that you can get rents for this amount, because a lot of the spaces that we rent out, we push the envelope on getting high rents, because we make really awesome spaces. So you’re gonna have to know those two things really well.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Brian Persaud: Sure.
Joe Fairless: First, a quick word from our Best Ever partners.
Joe Fairless: Alright, Brian, best ever book you’ve read?
Brian Persaud: Oh man, I read so many books… What comes to my mind — I guess Rich Dad, Poor Dad, because I mentioned it… But it’s so basic. I think we have a lot better books out there, but Rich Dad, Poor Dad is the one that comes to mind.
Joe Fairless: What’s a more advanced book that you can think of that’s been helpful?
Brian Persaud: A book that I’ve read just recently that I really enjoyed was Jocko Willink, Extreme Ownership. That is a really great book if you wanna be able to be a go-getter, be a leader; you’ve gotta read that.
Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?
Brian Persaud: A mistake that I made on a transaction – when I’m looking to buy a place, forgetting to put in the appliances in there, and the seller takes them all away.
Joe Fairless: Best ever deal you’ve done?
Brian Persaud: Real estate-wise, I found a property that was really hard to sell, in a really Chinese-friendly neighborhood; the house had bad feng shui, no one wanted to buy it. We found an Italian couple that wanted to buy it and we made $100,000 in a couple of weeks because everyone was avoiding the property.
Joe Fairless: What’s the best ever way you like to give back?
Brian Persaud: I really like to encourage a lot of people on social media. There’s a lot of negativity on social media, people complaining about things, so if I were ever to see some people doing anything, I would really try to encourage them, send books their way… The biggest thing we have ever done – me and my partner – is we have sponsored a family from Syria that came to Toronto [unintelligible [00:16:36].29] We were really happy about that, we were proud about that. One of the biggest ways that we can give back is sponsoring an entire family.
Joe Fairless: And how can the Best Ever listeners get in touch with you?
Brian Persaud: You can google me, I’m pretty active on social media – Facebook, Instagram… Just google Brian Persaud and you’ll be able to find me.
Joe Fairless: Brian, thank you for being on the show and talking about your investing approach, how you run the numbers, how you identify different areas to invest, in particular making sure that they cashflow, but then look for potential upside, so that the appreciation beats other areas in the market. And things you look for – new developments, transit, other condos… You said if Starbucks is there, it might be a little too late, but look at areas that are next to where there’s a lot going on, or just next to really nice neighborhoods, and you might get the flow from the first neighborhood to your neighborhood.
And lastly, buying a lot of properties might be good for the ego, but bad for the balance sheet, so take into account where we’re buying the property… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Brian Persaud: Thank you.