If I told you that you could build a real estate portfolio using other people’s money, would you be interested? That’s exactly what my guest this week did to the tune of $75 million. Edna Keep’s journey from single mom at age 16 to multimillionaire real estate entrepreneur and coach is inspiring. She owns long-term, buy and hold rental apartment buildings in Canada and the US. Her claim to fame is a $75 million real estate portfolio built with other people’s money. Edna joins me on the show to explain how she became a successful real estate entrepreneur. 

 

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Do you prefer to invest in socially responsible companies? If so, our sponsor, Wealthsimple, will help you build a portfolio that focuses on low carbon, clean tech, human rights and the environment. To get started with socially responsible investing, head over to maplemoney.com/wealthsimple today. Now, let’s chat with Edna… 

 

Tom: Hi, Edna. Welcome to the Maple Money Show.

 

Edna: Hey, thanks for having me, Tom. 

 

Tom: I wanted to talk to you today because there’s a couple of interesting things I found out about you. One is that you have a $75 million real estate portfolio built with other people’s money. I also went through your e-book 90 Days to $5K about setting up passive income around real estate investing. I just wanted to have you on to see what we can learn from you and how someone could get started in this. I’ve never been a real estate investor myself, so I find this interesting. I’ve always looked at real estate as buying a house and looking at my mortgage rate every five years. Otherwise, I haven’t put too much of my own time into this. Can you tell us how you got started in this? How was it when you first decided to invest in real estate? 

 

Edna: You know, Tom, we were having some really increasing values in our home city. I actually was a financial adviser at the time selling mutual funds. I had a couple clients come in telling me that they were going to invest in real estate. And one of them in particular was looking for advice. I said I really don’t know anything at all about real estate so I can’t really help you. But I listened to what she had to say. She was going to invest in this investment and it kind of sounded interesting. But it was a conversation I had with a client who had 50 doors and was coming in to take some money out of his mutual fund portfolio to put it into real estate. I was trying to talk him out of it but he said, “You know, Edna, you really ought to look at real estate. I invest mutual funds but I really like my real estate.” So I thought I’d check it out. We went to evening course where they introduce you to real estate through. We signed up for a three-day weekend, and at the end of the weekend we said, “Wow, there’s really something to this. We’ve got to know more,” so we signed up for a full-on, yearlong, coaching program that we paid $27,000 US for. And within 18 months we had 50 doors. I could not sell mutual funds any longer so I sold my practice and went into investing in real estate full-time. 

 

Tom: So you went all into it pretty quick. I know that book and course with Rich Dad, Poor Dad but I’ve never read it or gone down any of those paths. I’ve heard a lot of people say it’s very “life changing” for them. If I matched up the people that have said this, it’s probably everybody that’s interested in real estate and has been using it to get that extra income stream. 

 

Edna: One of the things I liked that I learned really early on from what Robert teaches which is different than what we taught us financial advisors. It was about building up this great big nest egg and then living off of it the rest of your life. He defines financial freedom as when you have more recurring income coming in, then you have day-to-day expenses. Then you can just scale from there, of course. But that’s the first level. Because once you’ve got that recurring income coming in, you don’t have to go to that rat-race every day of your life. That’s really the whole mindset, I think—being stuck in that. I know it freed us up when we were able to start thinking differently about what financial freedom was. 

 

Tom: This idea of leveraging money, again, just as a regular Joe who just owns a home—and that’s the end of my real estate, technically, I’m leveraging money too. My mortgage is leverage so that I have a place to live in. Is it different when you’re investing, though? I hear about 5 percent down and private investor capital. What’s that whole world look like where it’s a little different than putting your 20 percent down and getting a personal mortgage? 

 

Edna: Well, first time homebuyers are allowed to put 5 percent down. That’s still a thing. Generally, when you’re looking at rental houses, you have to put 20 percent down. So we started in in the house, condo, industry in our area and we had to put 20 percent down. In the first couple condos we bought we actually used the equity out of our home because real estate—talking about what was happening in Saskatchewan that time, our house from 2002 to 2007 almost doubled in value. We had pulled out all this equity and we bought our first couple of properties. We only had to put 20 percent down. And then in both those cases, because of what was happening in the market, we were able to refile in a very short period of time and pull our money out of them. The whole concept of leverage is most heavily used in real estate. The reason is because lenders feel a lot safer dealing with real estate. We could offer leverage when it was mutual funds. But if you put in $100,000 you could borrow $100,000. That was about the max. With real estate, you put in $20,000 and you can borrow $80,000, and exponentially based on what you can pay. When you move into the multi-family world, it gets even sweeter than that. So generally, we can get in with 15 percent down, really great interest rates, long amortizations, something like 35 year amortizations. We also can quite often use vendor financing in there. I’ve had students who get 85 percent financing from the lender, another 5 or 10 percent from the vendor, and then just have to come up with the difference themselves. I’ve also had people that (as they scale, of course) s bring in investment partners. And the investors put up the capital and find and look after the deal and all that sort of thing. It has different concepts but you can run them together as well. 

 

Tom: A term I hadn’t heard before is vendor financing. Is that a builder, do you mean? Or what is that? 

 

Edna: Seller. The seller, lots of times leave money in the deal. And of course, you need to know what to say and when to say it because a lot people think you just walk up to a seller and he’s always going to leave his money. No, it doesn’t work that way. But if you talk to them right and explain it properly… Then, of course, they get collateral on the building. The first mortgage lender is in first place, they’re in second place. As long as they understand that quite often they can sell their building easier. When you’re dealing with larger portfolios, even though it is only 15 percent down (sometimes 20), you’re dealing with larger portfolios so you’ve got to come up with a big chunk of capital. 

 

Tom: You do need that 15 or 20 percent down but that can be borrowed as well? Is that through investors? How’s that? 

 

Edna: They don’t typically borrow it. What they do is come on as joint owners with you. That’s how we use investor capital, they’re joint owners with you. Now, some people want to own the building 100 percent themselves so they might get people to loan money to them. One thing that the lenders do want, though, is skin in the game. They’re generally not just going to allow you to do 100 percent financing. You need to have some of your own skin (or investors skin) in the game. 

 

Tom: I assume if you’re going to go to investors, you probably already have to have some experience or reputation? I’m guessing you can’t go to a private lender on your first purchase with not much of a plan of what you’re doing other than knowing you want to get into real estate. 

 

Edna: I have had people that have done so. And you know what? Even with us, we used our own money on our first two deals, but we only owned them a few months before we got our other full, no-money-down, deal. And we also read Robert Allen’s book where he talks about no-money-down deals. We bought a house from a lady. It was actually a duplex. We tried the traditional lowball offer, market offer. Then we went a little bit higher than what most people would have. But we also asked her if she would be interested in vendor financing. She didn’t know what that was or how it worked so we explained it to her. We told her we have enough money for the down payment for this property, but we want to be able to scale. What we’re looking for is to be able to take her own money back out, maybe leave your money in the deal. You would be in on a second mortgage position. Then we can go on and buy more and more. We offered her 6 percent (interest only) payments over five years. And then when we refinanced in five years, we’d pay her out. And we gave her a full price offer. After she understood it, she goes, “Wow, I’m going to win twice. I’m going to get a full price offer and I’m going to get 6 percent of my money. That’s awesome.” She ended up getting paid out earlier than the 5 years just with everything that was going on. She also had some challenges with her mom so she needed the money. We were cash-flowing that one little duplex, at $1,000 a month. I have had some people say, “I think you’ll overpaid for that house by about $5,000.” We probably did, but in the first five months we got that back in cash flow. We still own that to this day. A lot of it is just in how you look at it. I always say, it’s a mindset shift. You start thinking differently and creatively on how you can make it work. Really, when you buy a deal with no money down like that, your return is infinite. We still own that house. We own it 100 percent. We don’t have partners under anything. 

 

Tom: Using that one as an example, a cash flow of 1,000 a month, you mean you’re getting so much for rent but I assume you’re also including a property tax and everything else that comes along with that? 

 

Edna: Yes, repairs and maintenance, because there’s always repairs, maintenance. Property management and all that sort of thing. Yeah. 

 

Tom: I’ve said this on my podcast before it with other guests around the real estate topic. And one of the things I still fail to wrap my head around is where the cash flow can come from. I’ve just looked recently here in my neighborhood and a townhouse—I can’t remember the exact amount to get a mortgage on that place, plus the property tax and stuff but it’s pretty much a break. The rent was about $500 more than the mortgage, $500 more a month. But by the time you look at property tax and everything else, it looked like a break even so what do people do to actually get something like $1,000 a month cash flow? Obviously, it’s probably a bigger place than a townhouse, but how do you make sure you have that breathing room? 

 

Edna: Well, in this case, we paid $160,000 for it with $120,000 of it mortgaged. Our payment is still really low. It’s under $400 a month. Our property taxes, when we first bought it was like $50. Now it’s $75. The tenants pay all the utilities so we don’t have any utilities. And I think insurance is something like $100 a month. So you’ve got your rent—and in our case it’s $1,000 up and $600 down. They pay all the utilities and the payments are a little less than $400 for the mortgage, $100 for property taxes. It’s not that high, but $100 for insurance. That’s only $600 out of $1,600. And, of course, we would have repairs and maintenance. But at one time we were actually getting more rent than that. That’s just today’s numbers. We’re getting more rent than that. But then you still have repairs, maintenance. Some of it will be eaten up if you have to put on a new roof or the plumbing breaks—different stuff like that. But when we took our training, they actually advised us that if we could make $100 or even $50 in cash flow, to buy it. It’s not just the cash flow either. A lot of people forget to calculate, but there’s also a mortgage “paid out” which your tenants are paying for. They’re paying your asset off for you. That part’s really, really powerful, too. Because of the prices in the way the market is right now, especially in your area, Calgary, prices are high, if you break even on the rent, you’re happy, but you still got your mortgage pay down and your appreciation as well on houses. When you’re looking at multifamily, you have the opportunity for its appreciation. If you buy a property and it rents for $10,000 a month and you increase your rents by $2,000 a month, that increases the value of your building. 

 

Tom: I like the idea that, yes, you can just break even on cash flow because you’re paying off that mortgage. Thirty years from now, if you have a bunch of properties and they’re all paid off, you’re looking at a pretty decent retirement. 

 

Edna: Exactly. 

 

Tom: Just being on the safe side, I think one issue I have is how it looks when you don’t have a renter. How often is that happening where they only stick around for one year lease and then it takes you a month or two to find someone. Have you seen issues with that? Anecdotally, the idea of having a little extra cash flow to me would be, I would put that away to cover months I don’t have a renter. 

 

Edna: Yes, that’s a very good idea. We didn’t spend our cash flow either. We kept it to the side because there are times like that when it’s going to happen. We’ve even had times where insurance claims, whole apartment buildings… We had a 12 unit building that got hit by lightning last summer and burnt to the ground. Everybody was safe but we’re still working with insurance to get to a new building there. We have rental offset insurance which pays the mortgage and stuff like that. But, yeah, we’ve had instances where it’s been vacant or instances where we’ve got a bad tenant and it’s hard to get them out, especially during Covid. You have to plan for it. You have to plan contingencies for that. You have to stay on top of your property managers too. We’ve got some of best deals… I think I mentioned we just bought 178 units in Memphis, Tennessee. I believe it was doctors that owned it. They hired a property manager and then just kind of disappeared. Well, a property manager sometimes will treat your building like an ATM so you have to be really careful. You have to stay on top of that. If you allow it, then that’s what going to happen. And in this case, the property managers just got lazy. They might even have been good when they started with them but then  vacancies came up, repairs and maintenance came up and they just didn’t even bother. Then the owners get in rough shape and they have no choice but to sell it. You still have a responsibility so it’s best to keep some money aside, for sure. In a lot of cases with our multifamily, what we do is raise extra just to have a reserve as well. 

 

Tom: Yeah, I like that. And interesting thing you mentioned there was that you’re investing down in the US and you’re up in Saskatchewan. What does that look like? I feel like we’ve missed some of the drop in real estate over the past decade and a half that the US had. Obviously, they’ve come up quite a bit since but there’s still better deals down in the US than there seems to be in Canada. What extra complications are involved in owning real estate there? 

 

Edna: Well, even just being able to qualify for financing is a big one because we actually started educating ourselves in 2007 so we spent quite a bit of time in the US in 2008, 2009 thinking we would want to buy there because the markets were so down. But we couldn’t get financing because the lenders were all in trouble. It was actually easier for us to get financing back in Saskatchewan, our hometown, at the time. We found the way to get around it is when we find an undervalued deal (like we just did) we pay cash for it. We bring in all investor capital, pay cash for it and then refinance it. Once you own it, it’s easier to refinance than it is to try to get new financing. 

 

Tom: I don’t want to get too far down this US path, but are there certain states that are better to work with? I could butcher this, but I’ve heard Florida isn’t very Canadian owner-friendly with some of their taxes. Is there anything like that? 

 

Edna: Yes, different states are different tax friendly. We’re actually looking at Florida right now. We like Florida. The main thing we look for, Tom, is landlord-friendly states. In Canada, Alberta, Saskatchewan and New Brunswick are landlord-friendly provinces. B.C. is not. Ontario is not. Manitoba is not. That makes a big difference because government stated inflation is one or two percent so that’s all you can get for rent increases. Real inflation, as we all know, is a lot higher than that so they can’t keep up. We don’t have those things. In California it’s the same thing. There’s all these rent rules. I don’t even know how people make a living based on real appreciation. But again, if you sell your properties and somebody can’t get proper financing for it, they don’t have the cash for it, your purchasing pool really dwindles down. There are a lot of things to think about when it comes to that kind of stuff. 

 

Tom: In addition to leveraging other people’s money, another thing you like to do is leverage their time and knowledge. I assume both of these is where it comes to building a team? 

 

Edna: Absolutely. And coaches and mentors, too. We feel we wouldn’t be here today if we hadn’t spent that initial money on training and coaches. There’s a lot, especially when you really want to grow and scale a business. If you only buy one house, okay. You already own one home so how hard it is to buy a house? While it’s not hard to buy a house, managing the house, managing the tenants, managing the mortgage, insurance, all that, it’s one more step. But when you’re moving into multifamily, there are a lot more things to consider. For us it was mentors and coaches. That was a huge thing. But also just being around like-minded people. When you’re around like-minded people who are growing and buying multifamily, it’s natural for you to do that. If you’re around people who’ve never bought anything else but their own house, chances are you’ll never buy anything but your own house. That’s where other people’s knowledge and time, of course, is right from the start. We used to get questions like, “How did you grow so fast? I bought four properties and don’t even have time to look for any new ones because I’m so busy,” and then I would find out they were dealing with the tenants and dealing with the toilets, et cetera, all by themselves. They were stepping over dollars to pick up dimes. I think that’s a big thing people need to wrap their head around too—hire as much as possible. I mean, you still need to be able to make money on your deals but hire out a lot of that stuff because your time is not best spent there unless you’re going to be happy with just four properties. 

 

Tom: Yeah, that’s true. I like the idea of building a team. I’ve done it in my own business. It’s not real estate related, but it’s just something where, if you get rid of one task (even if you can do it), it frees you up to do something else. And you can grow that way. 

 

Edna: The other thing I’ve found is, I’ve been able to grow my business exponentially because even though I’m technically challenged, I have people that do all that stuff for me. And that is another huge way to be able to scale a business. Having an operations manager that looks after all my technical stuff, to me, that’s huge. Yeah, I could take the time to learn it, but first of all, I don’t want to learn it because I’m not interested in it. It’s hard for me, but for him (the operations manager) it’s so easy. And when it’s not easy, he studies it and makes it look easy. A lot of times people wait and wait and wait. I was just actually speaking this past weekend and one of our topics was, how do you scale? People think they’ve got to have a year’s worth of salary in the bank and stuff like that. No, you don’t. You need to have maybe three months’ worth. But then after that, the person should pay for themselves. If nothing else, it’s freeing you for what you’re best at, which, in our case, is finding deals or doing more stuff that actually pays us the bigger money. 

 

Tom: So if someone’s interested in getting started, how does someone assess themselves? How do they know if they’re right for this? I’m sure leveraging into real estate and doing all this investing and stuff isn’t going to be for everyone. 

 

Edna: I totally agree. It’s not for everyone. I find that most students, when they come to me, they’ve already bought two or three houses. They know they love real estate and just want to do more—most of them. I’d say 90 percent of them come to me saying, “Okay, I’ve done this, I’ve done that. I’ve got a few houses. Maybe they’re not cash-flowing, but I’ve done it. Put the down payment down. Now, I want to scale so what’s next?” I’ve taken some new people who did not even own their own home, who still live with their parents and helped them buy 72 doors within 24 months. So it’s being open to coaching. Listening to what your coach says. Doing what you’re told to do. Being very coachable and taking action. And building your confidence because the confidence doesn’t come from a book. Confidence comes from doing a live deal. I always tell my students, you can study until the cows come home. It’s not until you do a live deal that you’re really going to believe that you know what you know. A coach can hold your hand through that part where you say, “Okay, I’m going to bite the bullet and put it under contract. What’s next?” Somebody is going to hold your hand step-by-step-by-step and help you through that learning curve. That’s how we got our first few dozens of doors. It was having somebody else talk us through it and walk us through it. 

 

Tom: Another thing I was thinking is—I know this is like asking you to look into your crystal ball, but what’s your opinion of the real estate market right now? We always hear it’s so inflated. Thankfully, mortgage rates are low. But without holding it to it too much, what’s your guess of how things look and what people should do considering this year compared to next year and such? 

 

Edna: Well, I believe that we’re going to get hit hard with inflation. And having assets like real estate is your best inflationary hedge. I also believe that because inflation is going to go up significantly even if it’s not government stated—government has to be careful because if they state it’s higher, then they’ve got to give wage increases. They don’t want to do that. They’re also more in debt than anybody else. So, if inflation goes up, interest rates go up, they’re going to have to pay that as well. I think we’re going to see some of that going forward. I think we’re also going to start seeing more of a divide. There’s going to be more and more people that cannot afford to buy their own houses. Look at Toronto and Vancouver for your classic examples. Calgary is coming up right behind them. They can’t even afford to buy their own houses. As landlords, that’s great for us. It’s not so great for everybody else, but great for us. What side of the fence do you want to be on? That’s my question. And some people think we’re taking advantage. No, you’re taking advantage. It’s going to happen regardless if you’re part of it or not. So I think there’s some areas… This is something else, too… We can’t look at a whole country, a whole province, the whole state as to whether or not it’s a good place to invest. You have to look at it building-by-building and then area because we’ve got really good deals in the city and we’ve been presented with really poor deals too. So you really have to know what you’re looking at, how to analyze the deal, how to analyze an area, that sort of thing. And also, just because something is going really, really well right now doesn’t mean five years from now it’s going to do well. You’ve got to kind of go in willing to take a risk and ride it out if there’s some challenges. A lot of people buy in and think, “Oh, this is good and it’s going to stay good for the rest of my life.” It doesn’t work like that. If there’s risk involved, you’re going to pay for it somehow. You’re going to go through fluctuations. You’re going to go through some sleepless nights. You’re going to go through tough times. What you want to realize is where it’s eventually going to take you and be willing to ride out those ups and downs. Not everybody can. When you ask, how do people evaluate themselves? Well, what’s your risk tolerance now? What could your risk tolerance be if you understood that most wealthy people build their wealth through real estate and are doing so in a market like right now—no matter what’s happening. Right now I have a ton of students from Ontario joining because they’ve all got these $400,000 houses they bought a few years ago worth $800,000 taking equity out of their own homes. I want to do something with that. I’m not just going to go spend it and waste my money and be making payments. I’m going to take that money and invest in something that’s going to cash flow me, $2,000, $5,000 a month. That’s what the “smart money” does. The “dumb money” goes and buys a boat, do-dads, and all that stuff. We’ll always see that. It doesn’t matter what’s happening in the market. 

 

Tom: I like what you said about how it’s going to happen anyway so what side of the fence do you want to be on? Because whenever someone’s complaining to me that banks charge too much fees, banks make too much money, I tell them that’s why I invest in them. It’s a similar idea. They’re just facts that are going to continue so you can either be on the side where you’re paying or the side where you’re making the money. 

 

Edna: Yeah, absolutely. 

 

Tom: I just had one random thing I wanted to ask you about. I noticed in your e-book you have the phrase “real estate entrepreneur”. What makes that different than a real estate investor? 

 

Edna: Very, very good question. I consider a real estate investor as somebody puts their money into the deal. If you’re a real estate entrepreneur, you’re doing the deal, but not necessarily with your money. I get my students to differentiate themselves right from the start. I’m a real estate entrepreneur because some deals are bought with none of your money, you know? 

 

Tom: I like that because when I hear the word entrepreneur, I think of a business. And when I think investing, I think I’m putting money into stocks and such. So, I definitely like that phrase. First of all, thanks for being on. This is great just to run through this, but can you let people know where they can find you online? 

 

Edna: Sure. I’m all over social media. I have a great team that makes sure I’m out there a lot. But my website is a great place. It’s ednakeep.com. I always encourage people to take a look at a 30-minute training module I put people through to see if multifamily might be of interest to them. I can make sure that your audience gets that link. From there, if it’s something they want to look into further, I encourage them to book a strategy call with myself or one of my team members and just see where it could possibly take them. 

 

Tom: That’s great. We’ll put the links all in the show notes so people can find everything there. Thanks for being on the show. 

 

Edna: Yeah. You’re welcome, Tom. It was my pleasure. 

 

Thank you, Edna, for the advice on becoming a real estate entrepreneur and the tips on scaling a business with other people’s money. You can find the show notes for this episode at maplemoney.com/167. The Canadian Financial Summit kicks off today, September 22nd. You can still get your free tickets. Head over to maplemoney.com/summit. I’ll be there and I hope you will be too. I look forward to seeing you back here next week when the Money Mechanic joins us to discuss how he uses leverage to invest. See you next week.