JF1981: Rebuilding your portfolio with new develoment with Russell Westcott
Out with the old, in with the new. Investor Russell Westcott is repositioning his portfolio by selling his older properties and replacing them with new construction rental homes. Having transacted over 100 properties over the past 20 years, Russell and his business partner decided they were done being eaten alive by deferred maintenance. He also discusses some of the lessons he’s learned by surviving a couple Canadian market downturns.
Russell Westcott Real Estate Background:
- Veteran and full time real estate investor
- Built his first million-dollar real estate portfolio within his first year of taking the leap into real estate investing
- Based in Coquitlam, British Columbia, Canada
- Say hi to him at https://russellwestcott.com/
Best Ever Tweet:
“You need to invest in yourself first. Even though you might not have the money and you might not be making money-investment into the deal, you need to invest into yourself. ” – Russell Westcott
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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. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Russell Westcott. How are you doing, Russell?
Russell Westcott: Hey, Joe. How’s it going today, my friend?
Joe Fairless: It’s going well, and looking forward to our conversation. A little bit about Russell – he is a full-time Canadian based real estate investor. He’s built his first million-dollar real estate portfolio within the first year of taking the leap into real estate investing. So, built a million-dollar real estate portfolio within the first year, we will talk about that. He’s based in British Columbia, and his website, RussellWestcott.com, is where you can go and check him out; it’s russellwestcott.com. So with that being said, Russell, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
Russell Westcott: Well, thank you, Joe. I’m honored to be on your podcast and share today. Before we get into it, I just want to acknowledge you. I want to acknowledge you with the service that you’re providing for real estate investors, and congratulations, the world’s longest-running daily real estate show. I understand your event that’s upcoming is getting pretty close to being sold out, so congratulations to you for providing an amazing service out there.
Joe Fairless: I appreciate it.
Russell Westcott: Well, it’s interesting… Maybe it’s just the Canadian in me deflecting and that– I’ve often found that’s the hardest question to answer, is “Talk about yourself for a little bit, Russell.” Well, my journey is maybe a little bit longer than most people’s; maybe because I’m just a slow learner, and I just take the long route a little bit, but I joke that my journey started around the turn of the century, right around the year 2000. At that time, I had a self-inflicted Peter Pan syndrome, where I was afraid to grow up. It was a milestone birthday that hit that year in 2000, I was turning 30, and I need to grow up, I need to take financial control of my future.
I was renting a basement suite and never bought a property before in my life, had no idea where I was going to go for advice or where to go to take my business and take things to the next level. And lo and behold, the answer to me came from watching Oprah. On Oprah, around that time, I saw Robert Kiyosaki when he talked about Rich Dad, Poor Dad. That little purple book changed the direction and changed the trajectory of my life. After reading Rich Dad, Poor Dad, it changed everything on a different path that I was going down. That’s almost coming on 20 years now.
Joe Fairless: Got it. So what is your current focus now?
Russell Westcott: My current focus right now is what I’ve been doing for 20 years. I’ve built a fairly sizable portfolio. I’ve transacted over 100 properties. I’m actually in the process right now with myself and my business partner – we’re building brand new construction rental properties. So I’ve had my lesson handed to me of buying old crappy– now don’t get me wrong, I’m not saying anybody who’s buying older, junkier, crappier properties is doing it wrong. Maybe my age and advanced years, what I’ve seen, I’ve had my lessons handed to me by buying old properties with deferred maintenance; you just get eaten alive.
When you buy a property, and you hold it for 15 to 20 plus years, it’s now another 20 years older, deferred maintenance starts catching up on you, and you just get your lunch handed to you with expenses and bills. I’m now getting into actually building rental properties, like building houses with suites, building houses and garage suites, building duplexes, fourplexes, all the way up to eightplexes, and that’s what I currently hold.
Joe Fairless: So let’s talk about that. But first, within your first year, building your million dollars real estate portfolio that’s in your bio, what does that consist of?
Russell Westcott: Well, it consists mostly of townhomes. You may call them a little bit different, you may call them semis; different people call them different names. Where I’m investing, they call them townhomes, apartment-style condos. Those are the typical ones. Condo fees just slowly started creeping up and just eating me alive. When I first got started, and I put it in my bio that I built a million-dollar portfolio in my first year, I add about a million dollars in properties every year. What I’ve done now is changed my focus a little bit. But there was a time when I first got started that I bought a property a month for five years, on average. But I say that to not impress people, I say that to impress upon people that that actually was a big mistake; that I added way too many properties too fast, didn’t have the infrastructure built, didn’t have maybe the business acumen, didn’t have the support structure to do that. When you build a portfolio of 60 properties in under five years, you better have some really good support systems and people and teams surrounding you to be able to handle that, because that’s very, very big business.
Joe Fairless: Okay, so 60 properties in five years. How many of those 60 properties do you still have?
Russell Westcott: Today, I have a right around 30. I added another six last year and I’ll probably add another six to ten this year.
Joe Fairless: What property have you made the most money on?
Russell Westcott: The most money would be — probably it’s still to be determined. The new construction properties that I’m buying–
Joe Fairless: To date. Whatever deal’s gone full cycle, what deal have you made the most money on?
Russell Westcott: Well, most of the properties that I have sold, actually, I didn’t make a lot of money on. Most of the properties that I did was because I called the herd; when something’s not right, get rid of it. So the properties that I do have are ones that are performing well now. But I’m actually repositioning, I’m calling the herd, getting rid of old properties, and building brand new construction to hold for the next 15 to 20 years. Eventually, I’m repositioning my entire portfolio.
So I’ve been doing it — not to say I’m starting over, but in essence, I’m almost starting over again with my portfolio, as I built an entire portfolio, but a few of them did not turn out well; it was in a market that had to downturns in 10 years. Some of the properties I bought 12 years ago are worth less than they were today than when I bought them. So I’m just repositioning a lot of my portfolio now and building it all again from scratch.
Joe Fairless: I get it. I want to talk about the two downturns in ten years and the causes of those based on your perspective, but just to complete the circle of the question, so you have sold about 30 properties. So of those 30, which one, if any, made you the most money?
Russell Westcott: Well, interesting to note – most of the properties that made me money, I had to reinvest that back into the properties that lost money. It’s funny, it was probably about five years ago I had to sit down and I had to have a really tough conversation and a real tough look in the mirror, and I put together the good, the bad and the ugly plan. What I had to do at that time is I had to sell some good properties to pay off the downright ugly ones. Some of the bad ones are starting to be flushed through now and I’m left with a few leftovers. I’m building more– I’m left, when I say a few, I’m left with 30 places.
Joe Fairless: Yeah, 30’s a lot.
Russell Westcott: Plus, still adding more to the portfolio.
Joe Fairless: So of the ones that made money, regardless of what you did with that money, I’m just wondering, of the 30, which one made you the most money and then we’ll talk about the flip side.
Russell Westcott: The mistake I made was, I probably should have exited when I needed to, at the peak of a mark. So I had properties that I bought that skyrocketed up in value and then dropped down significantly. But I had properties that have made hundreds of thousands of dollars. I don’t have the exact number. That’s actually a very good question. I probably should go back and [unintelligible [00:08:23].20]
Joe Fairless: About how much has the one that made you the most money, how much did that make you?
Russell Westcott: I would say probably about $130,000.
Joe Fairless: Okay, got it. So $130k on the upswing, and then some of them that you sold, as you said, you’re calling the portfolio… Which one did you lose the most amount of money on?
Russell Westcott: The one I lost the most amount of money on probably was on a flip that I had gotten, and had bought it, and I’m just trying to get the exact number… It was probably the flip it was at about nine months and it lost about 60 grand.
Joe Fairless: Okay, that’s not that bad. If you were presented a similar opportunity now, and you had to buy the property, but you could change the terms or price (within reason), what would you do differently to help mitigate that loss from taking place?
Russell Westcott: The number one thing I would do is with the money partner I was working with, I would have clearly expressed to him that if this doesn’t make money by the time we turn around and sell, we are going to then turn around and rent it. We got in with the money partner together. We got in, and the total intention was to sell it at the nine-month mark. The nine-month mark came and there was a loss in there. I had to do what we agreed to, but I would have probably positioned it upfront that we have to be prepared to hold it for more years to come if it is at a loss position.
Joe Fairless: How many years was that ago?
Russell Westcott: That was fairly recent, actually; within the last two years.
Joe Fairless: Okay. Let’s assume that you had rented it out for the last two years. Where would you be at this point with it?
Russell Westcott: It’d be getting closer. That was actually in a suburb of Vancouver where I live, where we did that. We had a very severe downturn in the last probably 18 months, where the market just fell out, the bottom fell out.
Joe Fairless: Is that the market where you said it had two downturns in ten years?
Russell Westcott: That was the Alberta marketplace.
Joe Fairless: Another market? Geez, I’m staying away from where you invest in… [laughs] I’m just kidding.
Russell Westcott: I make a joke quite often, “Hey, I’ve invested in this marketplace. Everybody stop investing now; go somewhere else.” One of my early mentors on the ground told me that sometimes we’re put on this earth to be a warning to others.
Joe Fairless: [laughs] Well, I think that’s true for everyone. There are things we can learn from everyone, that’s for sure. With the markets, two downturns in ten years for the, you said, Alberta? Alberta market?
Russell Westcott: Yeah. It was an oil-based economy.
Joe Fairless: Oil-based. Okay. So primary economic drivers were oil, so oil went down, therefore the economy goes down.
Russell Westcott: Yeah. Well, it’s a little bit more involved than that, but that is the gist of it. The first downturn was the global economic crisis back in 2008. Then the next one – there’s a lot of policy things that have happened. There’s been a lot of– not going to get political here, but there have been some governments that have not been favorable for the energy industry, things like that have just not been favorable to energy-based economies. But the good news now is the market has been down long enough that the green shoots are coming in and it’s actually a fantastic time to get back in and buy at a very aggressive rate.
Joe Fairless: Alright. So now let’s talk about what you’re currently doing. Thank you for sharing the lessons that you’ve learned from what you’ve acquired so far. So now, you said–
Russell Westcott: Success is actually a poor teacher. So we learn more from our failures than we do from success.
Joe Fairless: So now, clearly you’re a personal development student; you follow Tony Robbins and others. Yes?
Russell Westcott: Absolutely. I did it far more back in 1992.
Joe Fairless: When you mentioned the phrase, “Impress, and impress upon,” I was like, “Tony Robbins. There he is. I know that.” Alright. So you said, “Forget that other stuff. I’m doing new development. I’m going to be building my rental properties because the maintenance expenses over the next 15 years will be minimal. And I’m going to hold these puppies.” First off, is that an accurate assessment of where you’re at now?
Russell Westcott: Absolutely, yes.
Joe Fairless: Okay. So I’m going to play devil’s advocate and just mention – I want to hear your thoughts – that okay, new development, totally agree that maintenance is low, and you’ve got a brand new property, and it’s a shiny thing for residents to flock to. On the flip side, should a downturn happen – like what happened twice in Alberta, and like what happened in Vancouver that you mentioned – then having dirt that you’ve purchased that’s not generating income prior to stabilizing it puts you in a precarious position. So what are your thoughts on mitigating that risk?
Russell Westcott: So here’s how I mitigated that risk. I actually only buy the finished product. I do not own the dirt. I’m a business partner and I will go out, identify land positions, and then we have a group of builders that will actually go out and build it for us. We do not buy in spec, we actually only buy based upon properties that we have. When I close on it, there’s actually a host on it. When I own it, there’s actually a tenant in place on the property, fully done, purpose-built rental property.
Joe Fairless: Wow, okay. Just so I’m understanding it correctly, you identify the land positions, meaning you go and you say, “I’d like a house here, please.” Then you speak to your builder and he or she goes and builds it. They put up all of their own money, they put all their resources in it. You have no money, nothing tying you to purchasing that. Then once it’s built, then the builder comes to you and says, “Okay, you said you wanted that. So now you may buy it from me at x price,” and then you buy it.
Russell Westcott: That’s very close.
Joe Fairless: There has to be a catch. I knew there is a catch, because I knew it didn’t quite work that way. That’s why I wanted to summarize it.
Russell Westcott: Very close. So my business partner and I – he will go out, he lives in the area, I live in Vancouver. My job is to get on stages and talk and bring people and excite people and bring investors to the opportunity. I will go find an investor that might want to buy a property through me, or just go buy it on their own. Then my business partner goes out, finds a good subdivision, finds the right spot with good parking, everything; they have the right floor plan for tenants. Then the investor who’s buying it, whether it’s myself or the person that I bring to it, will write an offer. They’ll put down a deposit anywhere between 5% and 10% deposit. They’ll also qualify for a mortgage. Then when they have a purchase contract, the builder then has the confidence and they’ll go build the property then. Then the investor will then close on it, say, six to nine months later.
Joe Fairless: Got it. Okay, so the investor and builder are the ones who have the risk in that. The investor has 5% to 10% deposit and the builder has their time and perhaps supplies.
Russell Westcott: But with the investor, the risk is mitigated because the money sits in a realtors’ trust account. If the builder does not build it or does not fulfill upon it, the investor can get their money back because it’s sitting with a realtor. There are laws governing deposits sitting with realtors.
Joe Fairless: Cool. So assuming that there’s not a major market crash, then a lot of the risk is mitigated in that scenario.
Russell Westcott: Yep.
Joe Fairless: Okay.
Russell Westcott: The builders don’t want to bite off more than they can chew, too. Most of the builders are actually just using land positions they already have put deposits on.
Joe Fairless: Sure, right. Of course.
Russell Westcott: Right now, in the market I’m buying in, to buy a brand new construction property is not much more money than actually buying a house off the MLS. Usually, people say, “Well, with new properties, you’re paying a premium.” In the market I’m in, new construction properties cash-flow, and they’re not that much of a premium. That’s why I’m doing this.
Joe Fairless: What market are you in?
Russell Westcott: It’s in a northern city of Alberta.
Joe Fairless: Edmonton Oilers.
Russell Westcott: You betcha.
Joe Fairless: So you’ve been all over Canada. You’re all over… [laughs] It’s like, pick your Canadian reference point in this conversation. I gotta look at a map afterwards to see your travels of real estate ventures.
Russell Westcott: Well, I actually grew up in Saskatchewan, so…
Joe Fairless: Okay, there we go. I want you to mention as many Canadian places as possible during this 30-minute conversation.
Russell Westcott: Yes. And I may drop a couple A’s and I might apologize a couple times, too. I should have my Tim Hortons’ coffee with me here, too.
Joe Fairless: [laughs] So Edmonton is where you’re buying. What’s the purchase price on average of new construction?
Russell Westcott: Well, depending on the model and finishing and stuff, anywhere between 400k to 525k for a suited house model, all the way up to, say, 1.6 million for an eightplex.
Joe Fairless: An eightplex, okay. For easy math, we’ll start with the $525,000 property. What’s that renting for?
Russell Westcott: Well, I’ll give you my last two suited houses I bought, where in essence there’s 920k, essentially for a fourplex. That’s rented for 75k grand a year.
Joe Fairless: Okay. $75,000 a year divided by 12 is $6,250. Then what did you say the purchase price was? 900k?
Russell Westcott: All-in, that includes all taxes, that includes all landscaping, that’s a completed turnkey property.
Joe Fairless: Okay. So people talk about the 1% or 2% rule. This is 0.67 of a percent. But it’s a new construction. Have you heard of the 1% rule?
Russell Westcott: Yeah, absolutely.
Joe Fairless: Okay, cool. So it’s under, but your take on it, which is very logical, is that it’s new construction, so you have less maintenance headaches.
Russell Westcott: Well, let’s put it this way… I have not had a phone call for these properties yet. As a matter of fact, they’re under warranty for the next two, five, ten. There’s a warranty on it. The maintenance hassles are a lot less. The difference in tenant profile is completely different, too. Like, getting people that are making a $100,000/year incomes. One of the other units is — there’s a police officer, an [unintelligible [00:18:05].20] officer, and his family. It’s a completely different tenant profile that you’re getting. It removes a lot of the maintenance and a lot of the management hassles as well.
Joe Fairless: Then when you scale up in units for the eightplex, is that a similar ratio?
Russell Westcott: It’s a little bit better.
Joe Fairless: A little bit better. Okay, that makes sense.
Russell Westcott: Yeah. On an eightplex, I don’t have my numbers in front of me, but it’s significantly better on an eightplex where potentially you’re getting, depending on the mix, you’re getting $1,800 per unit on the up; you’re getting almost $12,500.
Joe Fairless: Okay. So you did the annual amount?
Russell Westcott: No, that’s for a month.
Joe Fairless: Twelve five, $1,250 a month, per unit?
Russell Westcott: No, a total, all eight, $12,500.
Joe Fairless: Okay, because it’s about $1,800 a unit?
Russell Westcott: They come in stacks; there’s an up and down. So it’s 16 up, 9 down.
Joe Fairless: Okay. So how much per unit, on average, rent per month for an eight-unit?
Russell Westcott: $2,500 per stack of four. $2,500 times four. Then there are utilities on top of that. So the way it’s built is essentially– it’s a stacked townhome and there’s four of them put together.
Joe Fairless: Okay. So there’s an eightplex, so there are eight different families. There could be eight different families living there. Is that accurate or not?
Russell Westcott: That’s correct. It could be 16 up, 9 down.
Joe Fairless: 16 up, 9 down for an eightplex?
Russell Westcott: No, there’s four. There’s a stack of four. So think four townhomes all stuck together.
Joe Fairless: Okay, got it. [inaudible at [00:19:41]:05] Okay, so eight total dwellings if it’s an eightplex, right?
Russell Westcott: So I guess this would be the best way – four of them at $1,600 and four of them at $900.
Joe Fairless: Got it. Okay, so four are at $1,600 rent a month and then four of them at $900.
Russell Westcott: Correct. Then there are utilities, there’s parking there, there are things on top of that as well.
Joe Fairless: Fair enough. Okay, I understand. I apologize for being dense on that, but I understand now. So let’s just go with the best-case scenario. If it’s $1,600, and I’m paying about $200,000 for it, instead of 0.67%, it’s 0.8%.
Russell Westcott: Yep.
Joe Fairless: So it’s inching up closer to the 1% in the $1,600 case, and the other one would be obviously lower than that.
Russell Westcott: Then where we’re doing these and building these, that might be different across jurisdictions. But some of the investors that are getting in with residential financing on these, instead of going the commercial route, are able to get actually a residential mortgage with full discount CMA, those kinds of things as well, as opposed to the commercial route.
Joe Fairless: Okay. Yeah, I imagine it’s going to be a lower down payment and lower interest rate and longer amortization.
Russell Westcott: No fees as well.
Joe Fairless: Oh, beautiful. If they buy the whole eightplex, they can get that type of loan?
Russell Westcott: On one title. If you buy one title, you can get one mortgage.
Joe Fairless: Wonderful. For the whole eightplex?
Russell Westcott: Correct. And really cool exit strategies; you now have the ability to potentially subdivide it into four separate titles.
Joe Fairless: There you go. Then you can sell them off piece by piece.
Russell Westcott: Yes. Buy by the yard, sell by the foot.
Joe Fairless: Okay, that’s not the first time you said that. I’m kidding with you. Cool. Well, when you take a look at your experience as a real estate investor, what is your best real estate investing advice ever?
Russell Westcott: The best advice was someone who gave it to me very early, and the best advice was, “Money is required to buy real estate, but it doesn’t have to be your money.” That came to me very early and thank goodness it came to me very early, because I had no money to buy real estate. I had to learn the process of how to raise capital from other people in order to move forward and keep building this portfolio. So I built my entire portfolio raising capital from other people. I’ve written books on it, I’ve taught people, I’ve trained… I’ve done the majority of my real estate investing in other people’s capital and helping other people.
Joe Fairless: You’ve just come across a 20-year old, and she asks you how she can get started in real estate. In particular, she wants to learn how to partner up with people and use their money, not hers, because she doesn’t have money. What is your advice to her?
Russell Westcott: The best advice I would give her would be you need to invest in yourself first. Even though you might not have the money and you might not be making money investment into the deal, you need to invest into yourself. I was in the exact same boat and then I would just share my story; truly, when I got in, I had no money. I could qualify for a mortgage, but I had no down payment. So what I did was I got involved with a network.
I networked, I trained, I got a coach, I got mentored, and I kept sharing with everybody that I talked to what I was doing, and the action I was taking, and the properties I was dealing with, and things that I was learning. And all these people that had the capital saw that I was willing to invest in myself and that I was willing to do the work. Then eventually, I was getting my hands dirty, and eventually, they trusted me to do the work for them, and they were putting up their money into the deal after that.
Joe Fairless: What program did you go with to find a coach?
Russell Westcott: Through a company up in Canada called the Real Estate Investment Network. I actually ended up being their vice-president for the better part of 13 years as well.
Joe Fairless: So I was going to ask, would you recommend — but you’re a fan. So yes, you’d recommend it.
Russell Westcott: Yeah, 100%. But here’s the thing – things have changed so much, and you would know this too, Joe; things have changed so much. Meetups – there are so many amazing meetups in the real estate space. Every local community and market almost has something. The main thing I would just say is, just show up, get out there, start hanging out with those like-minded people, and you’ll be amazed at what can happen.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?
Russell Westcott: You betcha, brother.
Joe Fairless: Alright. Let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Alright, what’s the best ever deal you’ve done?
Russell Westcott: Best ever deal– interestingly probably, it was my first one. I know sometimes people obviously say their first one, but the first one was the one that I got in the game. I will be honest, I did everything wrong, I made all the mistakes, I struggled along. Actually, the tenants in the basement suite passed away on the property and I sold it within probably a year of buying it. I did the entire cycle of buying and selling it within one year, and I lost money on it. I lost about 500 bucks. I sat there and I’d go, “You know what, if I just do one thing better the next time, I think I can make this work,” and I didn’t quit. That was the main thing, was it got me in the game. It started — even though I did a lot of things wrong, I didn’t quit, and that was probably the best deal I ever did.
Joe Fairless: What’s the best ever way you’d like to give back?
Russell Westcott: The best way I like to give back is actually just teaching and sharing and coaching and consulting. I jump on to podcasts all the time, I do Facebook live all the time. I host multiple Facebook groups. I write books, I teach, I share. I’m a firm believer in the quote by — and I’m probably gonna mess up the quote a little bit, but it’s a John F. Kennedy quote, “To whom much is given, much is expected.” And I’ve been so blessed over the years and in order to be a blessing to others, I need to share everything that I’ve learned. I’ve had so many amazing mentors in my life, and I’m actually in a point that I’m giving back to the real estate investor community of mistakes I’ve made.
Some people will not talk about their mistakes, that it’s only just unicorns and butterflies and sunshine and roses and everything’s wonderful. Not everybody will actually share the struggle and share the downturn and share the mistakes that you made. I actually celebrate them, and I actually am sharing all these lessons I’ve learned through almost 20 years. I share this with the real estate investing community, to encourage them and inspire them to keep moving forward.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Russell Westcott: My website is the hub of all things. That’s just russellwestcott.com.
Joe Fairless: How’d you come up with that website name?
Russell Westcott: I think my mom did. [laughter]
Joe Fairless: Russell, I really enjoyed our conversation. As you said, celebrating mistakes and talking about that, but then also talking about your success and your focus now, and why you’re focusing on it, with new development and the structure that you have with the individuals or the parties involved. I really enjoyed our conversation. I hope you have a best ever day and we’ll talk to you again soon.
Russell Westcott: Right on. Thanks, Joe.