Priced out of your neighbourhood? This real estate CEO says look south

Nothing is certain in Canada except death, taxes, and endlessly rising real estate prices.

The story is as well-worn as a 20-year-old doormat with even wealthy Canadians struggling to break into the housing markets in cities like Toronto or Vancouver thanks to dwindling supply and sky-high demand. So, real estate investment company SHARE is encouraging Canadians to look elsewhere for deals — south of the border, to be exact.

“The average price point of a Canadian home is north of $750,000 U.S.,” says Andrew Kim, SHARE’s founder. “Right now, in the U.S., it’s sub-$400,000 U.S.”

To Kim, the U.S. housing market is a surprisingly good opportunity for Canadian investors to generate income from real estate — either to pay for a permanent place in Canada, or to supplement their portfolio. SHARE’s premise is that owning real estate should be as straightforward as having a stock portfolio, and the company promises to help with sourcing, renovating, and property management — even taxes.

For average homeowners in these regions, however, it isn’t quite so straightforward. Real estate investors (including, but not limited to big institutional investors like BlackRock) have been blamed for buying up swathes of homes to turn them into cash-generating machines for landlords, and driving up prices for ordinary buyers in the process.

But Kim suggests SHARE’s user base of Canadian investors takes a different approach. He spoke to the Star from Toronto:

You come from a low-income family that emigrated to Canada. Was buying a home a big priority for you, growing up?

Growing up, I knew I was a risk taker. My parents were entrepreneurial, but lacked success. And I think I was always exposed to the concept of real estate being a very safe investment. That kind of stuck with me. I thought if I was going to be a risk taker, I should probably have a safety net. So I knew that at some point, and sooner rather than later in my life, I would get into real estate as a passive safety-net-building mechanism.

How did you save enough to buy your first investment property? So many people of our generation can barely afford a house at all.

I’ve been working since I was a kid. I’m talking newspaper routes since I was nine years old. I worked a lot of part-time jobs throughout university. I also had a lot of online businesses — I was a very good affiliate marketer, and I was part of web 1.0, where I could run SEO traffic. So I’ve always been working, every single possible avenue to generate revenue, and I never spent. Growing up low-income, you see the strife of what that can do to a family. It really resonated with me. I didn’t want to put my future family in that same situation.

SHARE’s whole deal is opening up the U.S. single-family home market for Canadian investors. What’s so good about U.S. homes?

It’s a trifecta of price, annual appreciation, and net cash flows. A good investment has a strong balance of each. It’s harder to get a good balance in most of Canada because of our population distribution. If you want a secure asset class and you’re in Canada, and you’re near a major metro — which is often a very safe bet — the price point is often high. Think the Greater Vancouver or Greater Toronto areas. You’re looking at north of $1 million, at 20 per cent to 25 per cent value — that’s a quarter-million dollars to get into the market. And the cash flow typically goes in the opposite direction.

Now if you want to go to rural Canada — north of Sudbury, maybe Prince George — you can get something under $400,000. You’ll get low appreciation and it’s a much higher risk, but you get a higher cash flow yield because the price point is so low. But when you have a tenant turnover, the demand for rent isn’t as high so you typically have a higher vacancy rate.

On the flip side, in the U.S., they’ve got such a massive population that is rather spread out. If you were to look into Atlanta — a major metro, home to Coca-Cola, UPS, Delta Air Lines — you could go to the equivalent of Richmond Hill and find a three-bedroom, two-bathroom, $250,000 home, built in 2005, with 1,500 square feet. It’ll have high rental demand, in an area with growing jobs and growing household income.

What was it like for you to learn about this whole process? Correct me if I’m wrong, but you don’t have a real estate background.

I’ve kind of spent my career between venture backed startups and high growth divisions of large enterprises. After my last startup exit from Silicon Valley, I moved back to Canada and did a four-year stint at Loblaw. I was growing my family and wanted a change of pace, not have to worry about raising capital and not having a steady paycheque — but after four years of doing a lot of hard work building their omnichannel platform, I realized it was time for me to go and do another high-risk startup.

So I convinced my wife to let me quit in late 2019 to pursue the startup. And then the pandemic hit. All of a sudden, I’m a stay-at-home dad with three kids, with no path to any sort of income. It was scary for me. I had a financial buffer, but what was I going to do now? That’s when I put on my investor hat and put my runway back into real estate. So I started really immersing myself in this space. It had been several years since I’d invested.

When I dug into the market, I realized 80 per cent of this $4 trillion market are mom-and-pop investors — everyday investors looking for financial security. I’ve somewhat achieved that, and I know it’s possible, but I know from personal experience that it’s a high-risk road, and the cost of living today makes it even higher risk. So that became SHARE’s mission. How do you make financial security more accessible by making real estate a low-risk, low effort investment process?

A lot of Canadians are worried about paying their mortgages right now, given the interest rate situation. Who can afford to invest in U.S. real estate from Canada?

We’re seeing two user types. One is 50-year-old married couples — typically middle management, skilled trades, or entrepreneurs — that have had real estate experience, either domestic or in the U.S. They still want to deploy more money into the U.S. asset class, because they realize that it’s good, but don’t want to be bothered with the effort of investing.

And the newer user group that we’re seeing are young married professionals that are getting priced out of their primary residence in major metros. So think New York, San Francisco, Seattle, Toronto, where the average home is north of $1.5 million. Their down payment on that type of home could easily be enough for two or three homes in the U.S. and allow them to build equity and let the capital grow. They can pull it out later and be in a better buying position when the market cools.

Are there any particular areas in the U.S. you tend to find good deals?

I would say places like Atlanta are good as a very neutral, safe asset class. We typically look based on an investor’s appetite for risk and reward. If they’re a high cash flow user, we might go to Ohio or Tennessee. If they like high appreciating real estate values, we’ll look at the top-tier markets — so, say, Florida, Atlanta, the Carolinas, or even Texas.

There are some serious concerns that institutional real estate investors are pricing homebuyers out of the market. Are you worried about the effect SHARE might have on the housing crisis we’re seeing in both Canada and the U.S.?

Although SHARE is an institutional investor, we’re doing it for everyday, mom-and-pop investors. Eighty per cent of our customers have less than 10 units. And institutions are dumping tons of money. They’re the ones that are negatively affecting the market because they buy in such density. They control price and rent, and that can really affect the market, whereas we’re giving that back to mom-and-pop investors where that money is staying in their hands. It’s creating generational wealth, as opposed to that of high-net-worth individuals and pension funds.

U.S. interest rates are higher than ours right now, and the Fed has said it might increase rates again in future. What do you say to people who might be wary about investing in U.S. real estate?

I think there’s two problems here. The savvy investor knows that if they can get a deal done today, it is secure — even though it might not be as financially viable today, it will be at some point in time over the next 10 to 15 years. And the institutions are buying up real estate at a ridiculous rate, so you kind of have to secure your assets now.

We would never encourage an investor to buy if they can’t afford it, but we also provide every single possible data point we can from the financial perspective to each investor. We’ll ask them what their risk appetite is, whether they are OK with a property breaking even or generating a return, and what their financing terms are.

I’m curious about what your investments mean for tenants. What happens if prices rise high enough that tenants in real estate markets SHARE invests in can’t afford to live where they are?

Obviously, we’re not as aggressive and cutthroat as funds. Typically, mom-and-pop investors are a lot more human than investors on an institutional level — their house is a single line on a gigantic Excel spreadsheet. On the flip side, mom-and-pop investors want to see everyone’s name. There’s often more leniency there, a more humanistic approach to investing.