Robert Laura, Contributor
Most people don’t turn to a home improvement TV host for financial and retirement advice, but Scott McGillivray is more than your typical TV handyman. Watching him in his ninth season of Income Property, and as co-host of the new show Flipping The Block, you only get a glimpse of the businessman, author and real estate mogul who is changing the way people think about creating wealth.
In an interview with Scott, I challenged him to be candid about real estate investing and whether it’s really something everyone can do and right from the get-go he set the record straight.
“Of course it’s feasible but you can’t create an income suite in 30 minutes like we do on the show,” remarks McGillivray. “If you think that,” he added, “you’re in for a bit of a surprise.”
A mantra he shared throughout the interview was, “Real estate investing is get rich slow, not get rich quick,” which is echoed in both his work ethic and business model. “What I tell people is I’m the type of person who is willing to work hard to make a little more,” he said. “I like being able to control my own financial future. Some people may be willing to put their money in an investment where they get some passive return and hope for the best. I’m a bit more of a control freak and like to pick and choose where it goes and have a say in how fast it grows by working harder at it.”
We talked about the real estate market crash and how financing isn’t what it used to be. McGillivray made an important distinction, noting that the opportunity in real estate has to be treated like a business. Before the market bust, “people were putting money into a pre-construction home that they hoped was going to be worth more money when it was finished. That’s not real estate investing, that’s called speculating and I think the confusion between a real estate speculator and a true real estate investor has given the whole business a bad name.”
In McGillivray’s opinion, trying to figure out whether you’re buying during a boom or a crash is fairly irrelevant. “A successful real estate investing model shouldn’t just have one way to make money. My business model has up to four different ways to make money… and the number one indicator I look for is not market value but positive cash flow… and that calculation is completely different.”
“Using cash flow as an indicator to whether a property is a good investment or not helps protect a buyer from being stuck in a scenario where not only is the value not there, they’re actually losing money.” He illustrated his point with a personal example. “I have properties that aren’t worth what I paid for them in 2006, however, I’m still making money because I calculated the positive cash flow beforehand, knowing they are still paying down the mortgage today.” Different ways to make money with no pressure to sell.
Scott has been a real estate investor for over 15 years and has experienced hot and cold markets, as well as those that are just getting warmed up. “In the last year and a half, I have a seen a massive trend in the amount of interest people have in generating wealth through real estate. I have been doing live events for seven years and attendance was low when the market turned south. But recently I was in L.A. and I spoke to 3,000 people in the audience… it was standing room only.”
Generally speaking, McGillivray finds the millennial audience (18-35) to be curious, and the 35-65 year olds more serious about it as an income generator. He finds this age group the most prepared and motivated to start doing something because of triggers such as the need for extra savings and income for retirement or seeking financial alternatives to help put their kids through college. “It’s a reality check,” said Scott. “They’ve seen their investments go down and may have seen some equity in their own property go down at some point, and now they are thinking, ‘I need to do something different.’”
His advice is simple: “If you want to do this – do this! Don’t just talk about it… learn about it… and think about it. You actually have to do it. It’s very hard for people to take that final step because there are a million excuses not to try something different because everyone is scared and they have their comfort zone.”
A starting point can be as simple as renting a room in your house. “I know a lot of people who, for example, rent a room to a foreign exchange student. And that’s a great way to bring in some income. Other people create an entire income suite in their home and rent it for even more money. Then you have those who to take it to the level that I enjoy, which is strictly real estate investing: purchasing a property, finding tenants, and reaping the rewards of the long-term investment.”
While the results he creates on his shows may be both profitable and inviting, every project he has taken on hasn’t been a success. “I have done maybe 30 or 40 flips and I made money on maybe 80% of them. The other 20% maybe broke even or even lost some money on them.”
He adds that “It’s not how hard you fall, but how quick you get back up.” He admits that failure is part of any successful business and that you have to include setbacks as part of your overall plan. “There will always be a month of vacancy here or there so you can’t expect to have a perfect track record. Mistakes are there to tweak you and make you better… to keep you on your toes.”