Podcast 434 - HGTV’s Scott McGillivray (Part 1)

BP Podcast 434: How HGTV’s Scott McGillivray Started a Real Estate Empire with No Job, No Money, and No Experience (Part 1)

Edited by Brandon Accomando

1. How Scott got his start in television

But, actually I’ve been in real estate investing for 21 years, and I got started pretty early. But then a friend of mine who worked in television asked me to help on a show to do some construction. I was sort of in the background helping to build a kitchen and then they’re like, “Oh, you were great on camera, can you do a few more?” I did this part time construction in the background of these TV shows, while I was building my real estate portfolio in my 20s. At that point, someone at the network eventually approached me on set and said, "Listen, we've been watching these episodes, you do a great job, we think there might be an opportunity for you to do your own construction show." They started asking me what I do, and I said, "Well, to be honest, I have my contractor's license, I like construction, but I'm more of the real estate investor guy, to be honest, I invest in real estate. That's what I do." We had this long conversation, and it really came to the point where they said, “You know what, it’s just too far… ” I think they said too left of center. They’re like, “It’s just too far from what we do on this network. If it was painting or design, or it was construction and building maybe, but real estate investing, it might be just too far outside the box. But I was able to somehow convince them that, there’s this huge untapped audience of people who want to be real estate investors.

2. When is the best time to get started in real estate?

Look, I always say to people, when I’m doing my events, I’m like, “Listen, if you’re interested in investing in real estate, the absolute best time to invest in real estate, you missed it, it was anytime before today. But the second best time is now and the worst thing you can do is delay your opportunity to make money in real estate. It’s not rocket science.

3. Why most people are scared to invest, and what pushes them to finally do it

Well, I think for most people, they’re scared. I look back, and a lot of people asked me this question like, why did you do this? Why didn’t anyone else do it? I think for me, that was a moment in my life where I was pretty desperate, I didn’t have options. A lot of my friends, their parents were paying their tuition, some of them had a car and mom and dad made the payments or covered the insurance. But basically I had no other option. To me, this was the only choice. I’m like, what else am I going to do? My parents aren’t helping me, they just can’t afford it. Not that they didn’t wanted, they just couldn’t afford it. I fend for myself anyway, so I don’t have anyone else to answer to. But I realized at that moment when I was about to buy that property that I was just as scared to buy the property as I was to face the rest of my life without a solution. I need to try something. I don’t think my friends were just at that moment yet. They just didn’t have enough pressure to pull the trigger. I believe that people hesitate about doing something entrepreneurial, or starting their own business or investing in real estate, because they’re just a little bit too comfortable, maybe, they’re just a little too comfortable.Then it’s not until the pressure hits, which I find for most people is realistically when they start actually realizing that retirement is on the horizon. They’re like 51 years old, and they’re like, hold on a second, I’m supposed to be rich, I’ve done everything right. I’ve been for 40 hours a week, for most of the year, and I’m just not reaching my financial goals. They start to have that slight crisis where they’re like, okay, I’ve spent 20 or 30 years proving that this doesn’t work, and now it’s time to try something a little more what they think is extreme, but realistically, it’s more calculated. For my friends, they were too comfortable. They had an out. But the irony is now, they're starting to hit that point where they're like, man, the biggest regret in my life is that I wasn't your business partner 21 years ago, and now you're a mega millionaire, and I'm stuck in a job where if I were to lose my job, I'd be out of money in three months, which is insane to me.

4. Amassing a small real estate empire even while you’re young

I got that first property, and the first thing I recognized was pride of ownership. That’s something that was new to me. As a renter, when you’re off to college, or university, when you leave home for the first time and you rent a place. I fundamentally believe that you should do that. When you go to school, live in residence, party with your friends, get that out of your system before you make a commitment. But once I did buy the property, all of a sudden… I think one of the things I tell people is, I remember the first thing happened after I bought the property and I went to the mall, which is where I got my mortgage, by the way, it's at the mall. I remember I went to the mall, and I went to go see my mortgage broker and just make sure everything was cool. As I was walking through the mall, I was like holy smokes, there are three furniture stores here. When did those get… I had never noticed a furniture store in my life, and then I saw three of them in the mall that day. I walked in, I’m like, yeah, maybe we need to buy a real couch, not one from the Salvation Army. I started getting a little bit excited about my property. Then I started to fix up the basement. I’m like this could be its own apartment down here. Maybe I could use a little more privacy. It’d be nice if I had my own bathroom. I mean, it is my house. It took me a year or so to slowly renovate it, being able to afford literally a dozen two by fours at a time, and doing most of the work myself.

5. How to take advantage of financing offers and how Scott closed on 8 houses in the same day

It took me a couple of years to get to three properties, and then in one day, I bought eight more houses, because I went to my mortgage broker and he said, “Dude, the rules are changing, and getting financed is hard, all of a sudden. Now, they want bigger down payments.” I’m like, oh my God, I’ve got this house I want to close on, you got to help me.” He’s like, “Okay.” He’s like, “I’m shopping around.” He’s like, “I don’t think I’m going to be able to get you more than one more loan with all these lenders. They’re all saying, just one more, just one more.” He showed me all the lenders. I’m like, “Oh my gosh.” I’m like, “You tried all of them?” He’s like, “These ones won’t even give you a loan, and these eight lenders would only give you one loan.” I’m like, “So, I can get eight loans at one time?” He’s like, “Well, theoretically.” He’s like, “You’d have to basically close on all the properties on the same day so that they don’t show up on your credit report.” I’m like, “You’ve given me my instructions.” I went out, and I bought… I basically lined up and went out and put offers on until I had eight accepted offers, all with the same closing day, and I bought eight properties, because the rules were changing, and I’m like, this has to be my life, I have to be a real estate investor, and I need to load up right now. That was it. After I was able to close on those properties, the irony is, within six months, all the lenders were very, very favorably looking at lending me more money, because now I had this… I used to have this Excel spreadsheet, that would have all my cash flow, all my equity, all my mortgage numbers, everything that was going on, and all of a sudden, in positive cash flow alone, at the end of that year, I was banking close to $200,000.

6. Why you need to give your investing career time to start rolling

When I’m teaching people, the same way when you guys are teaching people, it’s exciting to get people fired up about the opportunity, but you have to balance that with the reality of how much suck there is in those first few years. I remember 21, 22 long weekends in the summer, everybody’s going to the lake and partying and I’m like, I can’t, I have tenants moving in on Monday, and I’m not finished dry walling. I remember spending seven days a week, 10, 12 hour days racing around like a madman to try to get it set up. When you’re in the weeds at the beginning, there’s a lot of suck. There’s like, why am I doing this? Why am I doing this? You have to be patient, and you have to continue to look at what’s the five year outcome of my efforts. Because, like I said, those first few years, it’s exciting. Everybody loves buying properties, but then it sucks when you’re trying to fix them all up, and you’re going over budget and you got bogus tenants over here, there’s a million things that happen as you’re learning. It’s hard to promote that to people. I’m always like, “You’re going to hate me for the first 18 months, and then in five years from now, you’re going to come back and hug me and love me and thank me. Just be prepared for that part. That was really, really hard. Like you said, getting that train moving took more energy than I knew I had. I don’t forget it, I always try to sit down and say, okay, when I’m training people, all these people are excited, because they see the results, they see the wealth, they see the TV shows, they see the lifestyle and they’re like, that’s what I want. It’s not instant gratification, right?

7. Getting rich slow in real estate

Real estate is get rich slow, that’s the thing, there’s no such thing as get rich, quick, it’s hard work quick, get rich slow.The difference being there’s not a lot of things that are going to get you rich these days, and a job certainly isn’t one of them. You might as well put your hard work into something that’s going to get you to those results. I think by the time I got those eight properties, I was in way over my head at that point. It took me a year and a half to optimize them. I called it the optimization phase, and that’s when you’re renovating it, making it worth its most money and getting it rented out for a premium. That’s the optimization phase, which is really critical. A lot of people skip this, they buy one and then they close on it and they’re already looking for the next one. I’m like you have not finished optimizing, right? You’ve got to get it max performance. I got those eight to max performance. I’m like, hey, I can now refinance them and get equity out. I’ve got tenants that love the place and are paying a premium. Then I needed a plan. I actually didn’t come up with a plan until I had all those properties. I’m like, where am I going with this? This has just been an experiment. My first goal was to have 25 properties by the age of 25, which I did, and that was huge for me, because… Again, this was another moment where I’m like, “Am I crazy? 25 properties, I don’t even know anyone with 25 properties.” At one point, my parents had a cottage for a few years, and I was like, two properties, that’s gangster. For me to think of 25 properties, I’m like, that’s a goal that’s hard enough, that it’s going to make me bust my butt. But I’ve got 11, so it’s just doubling it in a bit, and I’ve got 2.5 years to do it, and I figured it out. I figured it out, and I started buying multiplexes.

8. What a “double offer” is, and how you can use it to beat others to a deal

There was a property that was listed for over 100 days, it was getting pretty old. I spoke to the listing agent and the listing agent was like, "No, they're very specific and they only want this type of offer blah, blah, blah, blah." I went home and I have all the documents and I started to fill out an offer. I was like, gosh, they want no conditions and obviously they want to be able to take certain fixtures. They were very picky. I’m like, “Fine, here’s everything that the agent told me they want.” Then I reduced the price by like 20%. I was like, “Here’s everything you want, and here’s the price I want, basically.” Then I wrote the offer that I wanted, and I gave them asking price. I took both offers to the agent, and I said, “I have two offers.” They’re like, “Well, who’s the other one from?” I’m like, “They’re both from me.” They’re like, “I don’t understand.” I said, “Well, you should tell your client that they’re in a bidding war now, which is the most exciting thing ever for them, congratulations, it’s a bidding war. I’ve got two offers coming in at the same time. One is everything you want, it’s just 20% less than your asking price, and the other one has a few little terms and conditions that I tend to like and that I need to make it work for me, and it’s your asking price.” Guess what, they took my offer.

9. Why you should take action even when the market is uncertain

For real estate, well, in general, there’s going to be volatility because right now there’s so much uncertainty, which means it’s a good time to be involved. You’ve got to get in while there’s uncertainty. Once everything is, let’s say normalized again, it’s too late. That’s coasting, that’s where you coast. For real estate right now, to be honest, the biggest things that I see influencing real estate, which is no secret is number one, interest rates. This weekend, I was able to secure a conventional mortgage for 0.99%.

10. The Scott McMethod

The Scotty McMethod. Yeah, no, dude, it’s so good. Because when you offer people two options, I will say this, I say, you go to Starbucks, and they got the tall, the grande, and the venti. They do that, largely so you don’t remember 711 has the same cup of coffee for 79 cents. When you give people multiple options, they choose between the available options, not between external options. It’s exactly what you’re doing.This is going to sound excessive, and I don’t recommend this, but we literally put together an offer for a mobile home park recently, and we gave them 31 offers. 31 offers, now, that sounds ridiculous. It wasn’t to the seller or to the broker, but we basically laid out 31 different things to this broker of like, this is what we want to do, and they helped us take those 31 down to, I think it was we ended up with seven that we actually gave to the seller. It was a huge complex deal. But we do that because we’re like we want to find the way. Again, that’s excessive and there was a very specific reason why that deal worked that way. But I love that, I love the Scotty McMethod. It’s great.