Mark David

Three exceptional investors prove that is possible to overcome a dire situation and succeed in life: Paul Hecht, who pulled himself out of bankruptcy to become a certified real estate millionaire in just two years’ time; Jeff Zettle, who went from living with a wife and child in his parents’ basement to owning several investment properties; and Sylvie Beauchamp, who turned her career around before she hit rock bottom.

Paul Hecht
At 17, Paul Hecht received a wake-up call – literally – in December of 1988, telling him his mother at had just passed away. This devastating experience made him realize that life is too short, so he must live it to the fullest. He didn’t want to squander it by spending it in an office while he waited for retirement at 65. So he began a quest that would be filled with many ups and downs, and Hecht’s thirst to succeed is what inevitably made him come out on top.

“I knew I had to take control of my own retirement since I could not rely on an employer or the government,” he says. “Real estate is the safest and most proven way to do it.”

Fresh out of college, with $136 in his bank and student loans to pay off, Hecht’s initial attempt at real estate investing came unexpectedly. He was working as a partner in a drywall company in Whitehorse, Yukon, when he overheard a conversation about a lot ‘lottery’. Hecht immediately phoned the city and learned they were releasing 40 lots to buyers and there were already 120 buyers with their names on a list. If your name was drawn you could purchase a lot for $25,000 to $35,000.

Unfortunately, Hecht didn’t have the funds to go it alone so he sought a cash partner who would back his idea to purchase the lot and flip for profit. The odds looked good since Hecht knew there were already 80 potential buyers if his name was picked.

Hecht found a money partner, but when his partner tried to take Hecht’s idea for his own by submitting his name to the list, Hecht learned his very first business lesson –get everything in writing. Hecht wasn’t one to give up and thought laterally, offering his partner another deal. Hecht would also submit his name and if his was drawn, profits would be split 50/50. This allowed the odds to be in his money partner’s favour.

As it happened, Hecht was the lucky one because his name was drawn. The lot was purchased for $28,000 and flipped in 10 days for $40,000, Hecht walking away with $5,250.

First buy
It wasn’t until years later, when Hecht completed his bachelor of applied arts, that he purchased his first home in Calgary, Alta., which was also his first investment property. The two-bedroom bungalow with a basement suite was bought for $128,000 with a down payment of $10,000 from his RRSPs. Hecht and his wife lived in the lower suite so they could maximize their returns by renting the upstairs for $600 per month. This almost covered the monthly mortgage payments of $640. Hecht was left to pay the remaining mortgage and about $130 per month in taxes and insurance.

After 18 months, the tenants moved out and Hecht and his wife swapped suites, now renting the lower half for $400 per month because their financial situation had improved. Another 18 months later, Hecht knew it was time to move on, so he sold the property for $174,000 and pocketed $40,000. This money was used to fund his next down payment. Hecht continued purchasing several properties in this way, by pulling the equity out of one and using it for the next.

During this period, Hecht attended various real estate seminars and educated himself on all things real estate. However, most of his learning has come from doing. He says it’s always better to make mistakes sooner rather than later and it’s these mistakes that taught him how to become an investor.

Downward spiral
In 1997, a foreclosure property that cost $10,000 in Buffalo, New York, is what almost wiped Hecht out financially. He used his line of credit – big mistake – to purchase what was to be a quick fixer-upper that he intended to sell for $50,000, he says. The four-bedroom, two-bathroom, 2,400 sq. ft. home was located in a high crime area, which made it hard to sell.

What was meant to be a 30-day flip turned into an 18-month job, with contractors taking longer than promised, renovation and carrying costs exceeding what he’d originally estimated, three expired listings and three price reductions. Renting the property was not an option since the $500 he might be able to attain in monthly rent would not cover costs. Eventually, Hecht was able to sell the property for $32,000 on eBay and endured $30,000 in total losses.

To pull himself out of debt, Hecht decided to continue selling properties on eBay, while working his full-time corporate job. Basically, he would purchase a property under contract with a long condition period and then sell that contract online. The investor who bought the contract would pay Hecht a finance fee – anywhere between $2,000 and $7,500 depending on the property type. Hecht managed to become debt-free again.

Next, Hecht began looking for other real estate opportunities and joined an existing real estate training company that came with three partners. He was involved for three years and taught seminars on how to invest in real estate.

“Although the product was excellent, for many internal reasons the business struggled,” says Hecht. “While the four of us tried to grow the business, I took home very little pay. Most of the profit was re-invested into the company.”

Hecht had no choice but to begin living off his credit lines again, as he had a wife and two children to support. “We did this with the hopes that the business would turn around and eventually turn a sizable profit.”

After two years, the business went bust and Hecht had accumulated $100,000 in personal debt. He took on labour jobs in the evenings and weekends, but as the debt continued to build, Hecht was left with no choice but to declare bankruptcy.

“What a horrible feeling,” says Hecht. “I was trying to get to financial freedom and yet I ended up bankrupt. I had lost myself and my self-worth as I had tied my personal value to my bank account.”

Starting over
Hecht continued on the path of real estate investing because he felt that while it might not be easy, it still offered the greatest returns. Since he was unable to acquire a mortgage, he partnered with a business associate and the two scraped together $500 each to launch a rent-to-own company where they approached landlords and rented their properties with the option to purchase within two or three years. From there, they were able to sub-lease the property, also called a sandwich lease option, where they would re-rent that property to another investor and allow them an option to purchase at a higher price.

An example of one of their sandwich lease option is a three-bedroom single-family home in Brentwood, a Calgary neighbourhood, in 2001. Hecht and his partner rented the property for $1,050 per month and $100 of that went towards the option price of $212,000, with zero down and $1,000 for the security deposit on the lease. The property was then sub-leased at $1,200 per month plus $250 per month going towards the sub-tenant’s option price of $249,000. The sub-tenant paid $5,000 for their sub-option deposit and $1,000 on their security deposit. The property was sold to the sub-tenant in 2003.

“Since we received $5,000 for the sub-option deposit, we actually got paid to put the deal together,” explains Hecht. “We had no holding costs and our security deposit was immediately reimbursed to us from our sub-tenant.”

The second approach that Hecht employed was to find money partners who would finance the property, and he would manage the tenants, contracts, marketing and maintenance. He found these investors through networking and word of mouth.

“I had some previous experience with real estate and could work numbers, so I would show them the deal and if it made sense to them they would get involved,” he says. “Also, the investors were always on title, and this helped to protect them because they could kick me out of the deal if I didn’t follow through.”

Once a property was sold, profits were split 50/50. Both parties typically made a 19 per cent annual return, or between $15,000 and $30,000 per property.

After two years of following this business model, Hecht and his business partner turned $1,000 into $1.2 million in equity and cash returns. “It wasn’t easy and there were many long days,” he says. “But I was determined.”
While Hecht prefers the buy-reno-rent-hold model, he has dabbled in all sorts of investment strategies and prefers to move with the natural market cycles of the economy. “I believe in having as many tools under your belt as possible since markets constantly change,” he says. “It’s not always good to be flipping, nor is it good to always be buying rentals.”

For example, in the past, rental properties in many metropolitan centres weren’t providing as much of a return as flips or buy-and-hold properties. However, today’s market is favourable for rentals or lease-to-own options, he says.

Hecht is currently holding 20 properties and investing in multi-family properties, from four-plexes up to 30-unit apartment buildings in Canada. He is also considering buying in the United States. He says the key is to invest where the numbers work so you can force appreciation and the best way to do that is to buy, renovate, increase the rent, refinance, take out your equity and hold.

Paul Hecht’s top 6 questions to ask yourself before investing:

1. What type of asset is it? The asset must support itself without any of my own personal income.
2. Where is it located? Look for a location that will always be in demand according to demographics, transportation route and amenities.
3. How am I going to sell it and what’s my exit strategy? Who’s going to buy it when I want to sell and what do I have to do to ensure that they will give me top dollar for it?
4. How am I going to make money with it? What strategy am I going to use with the asset? For example, can I make
5. What’s the land value and zoning? Is it underutilized and can I capitalize on that?
6. How can I force the value up instead of waiting for the market to appreciate? Renovations are usually key here.

Jeff Zettle
At 20 years old, Jeff Zettle was living in his parent’s basement with his wife and young son. He was working with the District of Muskoka as a traffic technician, while simultaneously trying to launch a network marketing business. Zettle and his family were barely able to make ends meet and he finally came to the conclusion that he was going nowhere fast. This path would not allow him to stand on his own two feet and reach his goal of financial freedom so that he could support his family. Zettle needed change, and he needed it now.

In 2002, he was offered a contract position in the security field in Kincardine, Ont. Unable to afford his own home at the time he continued to live under his parent’s roof and drove the two hours each way on a daily basis. He knew this wasn’t a viable long-term solution, so Zettle began saving for a down payment. When his contract expired and he was offered a full-time position, Zettle took it and was glad he’d thought ahead. He is still currently employed with the same company today.

Life lessons
Zettle purchased a duplex for $115,000 in Kincardine in 2003, with the idea that he and his family could live in the top half and rent the bottom. The down payment was $15,000. Interest rates were about five per cent at the time, which generated mortgage payments of $700 per month. The rental income from the tenants below was approximately $600 and this allowed Zettle to save for his next acquisition.

Zettle quickly began to realize that investing in real estate may just be the answer to his financial woes. He educated himself on all things real estate by reading books, such as Rich Dad, Poor Dad, and attending seminars. He knew that in order to get in the game now and reduce the risk of investing solo, he should attain a partner. Zettle and his partner, who was a colleague from work, each put $6,000 down. In 2004, they purchased their first investment property – a five-plex in Formosa, Ont., for $97,000.

“We found the five-plex in a little town about 30 minutes from our home town of Kincardine,” remembers Zettle. “Even though it wasn’t a very desirable property at the time, the cash flow sold us on it. The tenant came with the purchase and had a lease of at least one more year.”

In 2005, the five-plex was sold for $115,000, once the tenant’s lease was up. However, it generated a monthly rental income of $2,400 during that year.

The most important lesson that Zettle has learned is one he lives by – ‘if you don’t like the answer you’re getting, find a different one.’ He attests that following this mantra has literally saved him over $50,000, plus months of headache.

An example is when one of his properties didn’t meet the standard fire codes. The fire department ordered Zettle to install a sprinkler system or a second layer of drywall on the ceiling, and costs ranged upwards of $40,000.

“I kept thinking to myself that there must be a different way – a more cost-effective solution,” he recalls.
“Sure enough, there was. I did my research and realized that if I put in a 24-hour monitored fire alarm system, this would meet the fire department’s standards and cost only about $10,000.”

Zettle says one of the biggest challenges when he first began investing is one he still faces occasionally today - his age. Realtors and other professionals didn’t take him seriously and many of those he met would tell him he was too young to be buying property. He dealt with this by making initial contact over the phone. During those phone meetings, Zettle would build a relationship so that when they met for the first time the associates would know he meant business.

Going forward
Next up, Zettle looks to continue growing his property portfolio with larger and potentially more lucrative investments. He already has two 12-unit buildings under his belt - the first purchased in Owen Sound, Ont., in 2006 for $555,000, and the second in Cambridge, Ont., for $855,000 last year.

“I prefer these types of buildings because you have all of your tenants under one roof, making it much more manageable,” he says. “Plus, if you have one vacancy in a 10-unit building, that’s only 10 per cent vacancy, whereas one vacancy in a single-family home is 100 per cent vacancy. When you do the math, it’s obvious which one is better.”

Zettle’s investment experience spans from lease-to-own options to flips to buy-rent-hold properties, but it is the latter that he prefers most.

“I only buy positive, or break-even cash flow properties in areas that are poised for growth,” says Zettle. “In the past, I have purchased in areas close to home because I was learning and it was easier to manage. However, now that I’ve gotten my feet wet I look to spread out my portfolio.”

Zettle says that it’s the fundamentals that will drive his investment decisions moving forward, including the economic conditions of the city, population growth, unemployment rate and infrastructure.

“Also, it’s important to have your own team of people around you to help make the investment as profitable as possible,” he states. “I don’t know of anyone who has accomplished anything great by doing it all on their own.”

Freedom 35 is his motto, meaning that by age 35, Zettle hopes to retire from his day job so he can spend more time with his family and give back to their families who were there for them during uncertain times. He says having a full-time job and being a full-time father and husband, while running a real estate investment business has been quite the balancing act. This is why he looks forward to the day he can cut out the nine-to-five job and having a plan helps to motivate him.

“Having a date to work towards is one of the most important parts of setting goals, yet it’s often forgotten and then people wonder why they didn’t reach their goal,” he says. “No date and no plan equals no goal, just a dream and dreams don’t always come true. So, my goal is freedom 35.”

Sylvie Beauchamp
For more than 15 years, Sylvie Beauchamp, 47, worked as a site manager for Teleglobe Canada, an international telecommunications company. She enjoyed her career and planned to stay on until retirement. However, in 2006, the company was sold to Tata Communications in India, and there was talk of layoffs and transferring employees halfway across the world. Beauchamp didn’t like her options, so she set out to take control of her career.

“I began to feel very insecure about my job and future so I started to think about changing my career due to this insecurity,” says Beauchamp.

She looked to real estate investing because she’d heard through friends and colleagues that if executed properly, the returns could be infinite. Beauchamp says she wasn’t deluded enough to think there wouldn’t be difficulties, but she did feel it was an area she should educate herself upon so she read Real Estate Investing in Canada, and attended seminars by Peak Potentials, a wealth training company.

Career change
Beauchamp knew she couldn’t go it alone, so she partnered with Diane Jolicoeur, 54, a self-employed accountant who had a goal to retire by June 2010. Jolicoeur didn’t have a pension plan, except for RRSPs, but she knew that wouldn’t be enough to assure financial security in her retirement.

Their first step was to define their responsibilities through a partnership agreement. They played to their strengths – while Jolicoeur took over the administrative and financial duties, Beauchamp took on the management position.

Next, they set their objectives and strived to become financially independent. It was essential for them to only own cash flow positive properties. They also focused on small multi-family units because they say the numbers proved these would give a greater return, compared to single-family homes. Also, the pair preferred to buy-rent-hold, a strategy they felt would be ideal because their research revealed that real estate must be held for the long term.

Finally, Beauchamp and Jolicoeur began to scout locations and felt they’d be most comfortable purchasing and managing close to their hometown of Lakefield, Que. They researched the economic fundamentals of every city that was a 30- to 45-minute drive away since they’d be managing the properties themselves.

Saint-Jerome, Que. came out a winner because there were plans for infrastructure with a new suburban train, the economy was growing and the population and immigration was increasing. Beauchamp says the city supports government-funded programs for immigrants from South America and France.

The tricky part was when it came to narrowing down a property. The duo spent three months looking at many units, but after working the numbers none of them met their cash flow positive criteria. Beauchamp and Jolicoeur knew they had to broaden their options so instead of focusing on smaller duplexes, they looked at multi-family properties with at least six units.

They found a winner in July 2006, an eight-unit apartment building for $407,000. The pair used the equity in their existing homes to pay the 25 per cent down payment, took on the mortgage from the vendor at 4.3 per cent for four years, and had an amortization of 25 years. Today, the property has a monthly rental income of $5,000, with about $800 in positive cash flow per month.

It was around this time that the inevitable happened - Beauchamp was given an ultimatum by her company, either she transfer to India or she’d be let go. She felt she couldn’t leave the country just when she was trying to turn her life around, even though she wasn’t a knowledgeable investor yet.

“At that time of my life, it appeared like an opportunity to concentrate even more on real estate because I knew that the more cash flow properties I bought, the more I felt secure financially.”  

In the end, Beauchamp says the decision was a no-brainer so she declined the offer to transfer and was consequently laid off.

Next up
Beauchamp now went full force into the world of investing. She says they viewed many properties that they had to pass on, including a 10-unit apartment that was for sale by the owner. While the numbers looked solid, the property didn’t pass the building inspection.

Finally, in March 2007, she and Jolicoeur closed on a four-unit apartment building in Lachute, Que. for $140,000. This was financed through a mortgage line of credit and continues to generate a monthly rental income of $1,850, and cash flows positive about $400 per month.

The majority of Beauchamp and Jolicoeur’s struggles have been tenant-related. “I’ve had to deal with tenants who didn’t pay rent, who consistently paid late, and even one who was a sex trade worker,” says Beauchamp.

“Generally, I try to deal with all tenant issues one-on-one to come to a conclusion that works for us both. Once in awhile, however, I have had to get the landlord and tenant board involved.”

Beauchamp has learned to run a strict screening process, one that involves getting a credit check and tenant verification through companies that specialize in the Quebec area, such as Locataire Avertis Inc. or Corpiq.

Now, Beauchamp and Jolicoeur focus on their business, Enterprises Bojoli Inc., a consulting and training company that focuses on real estate investments. Their original goal to own 50 units in five years has been accomplished in just two years through persistence and patience.

They say they constantly have people ask them what their secret to success is. The answer is simple.

“We do not have any magic secrets, we just stick to the system and we buy when all requirements have been met in that the property is cash flow positive and there is good potential for appreciation.”

Sylvie Beauchamp’s guide to spotting a good investment:
Investment opportunities can be found just about anywhere, in any type of market, according to Beauchamp. The key is to study the environment of any potential property. Check if it’s close to services, shopping centres, hospitals, universities, businesses. Be open to opportunities by telling people that you are looking to buy revenue properties. Read the local newspaper and the ads, and note any private sales by the owner. Sometimes these are cheaper, depending on the market, and easier to negotiate.

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