#16: Alain Ross Talks About Real Estate Investment by Acquiring Vacant Land

Real Talk with CHIA #16: Why Invest in Land? Is it a good investment? Vacant land, resort and forested land, urban land for development or redevelopment, financing models... Alain has 30 years of experience in the acquisition, subdivision and development of land throughout Quebec. He owns over 175,000,000 square feet of land. What motivates him? How did he buy his first land? What is his advice to young investors?

This episode aired September 28, 2022 and is rebroadcasting on YouTube, here is its transcript:

Chia: Hello you are with Chia, your Happy Broker and your Real Talk with CHIA show host. What is Real Talk? It's actually a very intimate studio like today’s, so I invite a real estate expert to talk to us about commercial real estate or real estate investment. What I'm looking for is really above all to learn about the passion, the journey of my guest. Today I have the pleasure of being with a great visionary Alain who has a rather atypical career. Alain.

Alain: Hello, thank you very much Chia for the invitation, I think you're exaggerating a bit when you talk about a great career and then a great visionary.

Chia: Well it's true but I did my research and I read about you. First of all, you wear many hats; you are a great lover of nature and you are in love with your wife, the father of 2 children and also a successful entrepreneur; you have been part of several different companies, and before starting you were already servicing the community for a long time, 26-28 years right?

Alan: Yes.

Chia: So that's it, it's a lot of changes and I have the impression that you love change, you're not afraid of challenges, are you?

Alain: Indeed, yes thank you very much for the introduction, I see that you have done a good research.

Chia: Exactly, I also noticed that you started investing 25 years ago and in fact it was at the age of 30. I will try to draw a parallel; I come from Taiwan and in Taiwan in fact we were born attracted by real estate investment. So that means that we were born there then we know that as soon as possible in life we ​​must buy our first property then a second property, third and so on when we are able. Here in Quebec the mentality can differ from one family to another so when you started, is it because in your family you already share this philosophy or is it because you were initiated by someone close to you 

Alain: Excellent question. Indeed, we see that there can be a clash of cultures because in Quebec, the community in which I was born, in the suburbs, in the countryside we were born for perhaps not more than a bun so we were not necessarily born in an environment where wealth, money, that is to say development, is part of our life. I come from a community which is in the suburbs and I realized it a little later, I realized it a little later, that I came from a community which was a little more in difficulty. When it's as an adult that you realize your Christmas presents were chicken, canned food and then toilet paper that's when you realize that yeah it was hard but when you're in the process, you may not necessarily realize it. So I don't come from a family in which real estate was omnipresent, I don't come from an environment in which entrepreneurship was present, I come from an environment in which I was adopted at a young age. , from the age of 2 and a half because my father died, he was an electrician and then he died electrocuted on a pole on the job then so I was adopted in a foster family and I I even changed my name because it's not my birth name Alain Ross so it happened that I fell into an environment that was a little more difficult for a child then it seems that instinctively I was setting goals for myself then I had that innate in me so I set goals for myself, it was always asking a little further, very simple goals in the head of a child like for example I can't wait to be 12 because at 12 I have the right to have a hunter's card so there I went until I was 12 as if it kept me alive for certain stages. After that, I couldn't wait to be 16 because at 16 I can have my driver's license so I set goals then but I had a kind of entrepreneurial spirit because I organized a lottery, for example, which at the time I read again today in the family a small lottery which allowed me to make $25, I was going to pick strawberries so I started to work very very very very early then at the time given that we had no income so I went to college with a loan and scholarship. I remember it was $3200 for the whole year so what I was looking for. Then at the time, you know, in the countryside, we knew a lot more about traditional trades than specific trades like today, there are many more trades today than there were at the time, at least in my case. opinion then so I decided so my goal is how can I get into the job market as quickly as possible, as efficiently as possible then I had a need to serve people and help people. So that's when I decided to go in a process to go into a service to the community and then during my studies at a certain point there is a teacher who said to me ''You should investing in real estate'' but at the time I didn't really know what it was.

Chia: OK, was that at the Canadian force or another college?

Alain: That was in college but yes indeed, while I was in college, to diversify my curriculum vitae and to gain more experience, I decided to join the Canadian Armed Forces so it was a process during the summer which was simply the recruiting process of the TQ One at the time so it was part of my objectives to achieve, a means to achieve my goals so it was to diversify my experiences. I also worked for 2 years on armored trucks, at the time it was called Secure just before it was transformed, before it was Brinks and then from that I worked in community service for at least 28 years then at the same time, I always felt that I had this entrepreneurial streak and then, basically I am a nature lover so I just want to bring back to my childhood also the only reference I had from people successful in my environment was my uncle who was a lumberjack. His business seemed to be going well, he had a truck so it was working well, he was driving, things were going well so I said to myself, then he bought land. So for me success was connected to buying land. So while I was in CEGEP, at some point I had the opportunity to buy my first land and then I still remember like it was yesterday because I was at CIBC at the time and, I'm going to be loyal to them for the rest of my life, I went to my bank manager. At the time, I didn't even know it was called a bank manager, I was maybe 20 some years old, I didn't even know what I was doing there. But it's funny. Then I told him: “I want to buy land, I need $30,000”. At the time, it was Wednesday but next Tuesday I'm going to bring you 17,000, because I've already sold, at the time there was no Facebook, there was no marketplace, there was the newspaper of Montreal so I knew I was going to buy land and then I learned to do subdivision, so I said I'm going to sell part of the land, I'm going to pay $30,000 for the land. It was at the time, for example, 100 arpents and I sold 30 arpents for $17,000 so I had left for example 70 arpents for $13,000 I said to myself it's good. So I put an ad in the Montreal newspaper, I started showing the part of the property of the land I wanted to sell, I got an offer to purchase and that's where I am. go to the bank because I had no money. I said 'I need 30,000, I'll give you back 17,000 on Tuesday'. And he looked at me he said "Hey kid", he said, "It's easy to get money here" and he said "I trust you".

Chia: Wow, what's his name?

Alain: It's Mark, Mark Parent who is no longer at the CIBC. He's returned to Dynamic Funds so I salute him.

Chia: The first person. Decisive.

Alain: Exactly. So that, that allowed me after that to, I sold some for $75,000 it allowed me to buy another land, I did the same process and there I realized that I had this facility I was there to visualize what I could do with land by using the topography of the land a lot, for example, the streams, the capes of rocks, the natural limits of the land. So one thing leading to another, meanwhile, we agree, because I was working full-time in community service, but in the meantime because real estate investment what is fun in that is that if you don't feel like doing it, well, the real estate is there, the trees grow and then the deer roam the land anyway.

Chia: Yes it's true. I'll just like maybe enrich on that. It's that in real estate investment there is like any type of property, you know, in which one can invest. So there are land, there are income properties which are very popular, I think you also own several multiplexes, and there are obviously, there are people who practice Airbnbs in the city center so they buy several condos, there are also hotel operators so they can buy the business and then the buildings all at the same time. So there are different ways to invest in real estate and you, for you, it was land, it was vacant land. Can I say that it requires an obsession with land to be able to succeed? I give a parallel: my boyfriend is the same thing, we walk in the street then there I say ‘’Oh the flowers’’ and all that, the sky is super beautiful and all that while he is always obsessed with the grounds, are you obsessed with terrains too? 

Alain: You can call it that, yeah it's a passion. It can become an obsession yes because if I locate a property, a piece of land, then I see something unique in it, I become a motivated buyer there. So for example something unique, a waterfall, an Eagle Nest, an Eagle Nest is a cape of rock on which you can see almost 360° or 180°, land with exceptional trees, a lake complete… In any case, yes it can become an obsession because it always comes back to me, it's the love of nature too so we have superb beauties here in Quebec.

Chia: That's right. Also, in the end, investing in vacant land, especially in resorts and forestry, means that the taxes are minimal, so that means that we can very well buy land, leave it there, it grows on its own, the value you know it goes up over time but we don't have a tenant to deal with, collect rents etc. But on the other hand, it is also possible to have an income if you rent a piece of land for a purpose that is authorized.

Alain: Yeah there are all sorts of ways to get income and that I developed over the years and then I refined it over the years. But actually basic, as we were saying earlier and then as you just said, land or a building is passive income if there is income, but at the same time land is not time consuming. In the sense that if you want to go on vacation, you go on vacation, if you want to do other things, if you want to work for someone else, you can work for someone else. The deer will go for a walk, the moose will go for a walk, the trees will grow and then we will grow at 3% per year so there is a forest volume that also increases in value then the land, it on average depending on the sectors, but it will easily take between 3 and 15% per year of increase on the capital gain I speak.

Chia: Well that's it, I think that's why, correct me if my figure is wrong here, that's probably why today you own more than 175 million square feet of ground.

Alain: Yes.

Chia: That's it. Fantastic.

Alain: I don't know if you can imagine but 175 million square feet for the common man is hard to realize how big it is, but 175 million square feet is scattered all over Quebec. My company is the real estate company Les Arpents Verts, it's arpentsverts.com. So our lands are not all on there because there are lands that are held for the long term, there are also lands that are there to create living environments, to create new streets, for example to sell land to allow people to have access to property, to land in resort areas, in the mountains at prices that are really attractive. 

Chia: Very well, very well. Let's talk about land acquisition and then land development. In a wide variety of investments, what is the type and what is the business model that you favor the most?

Alain: I would tell you that if you had asked me the question 10 years ago, I would not have been able to answer. Neither 20 years ago nor 5 years ago. I refined my business model, I would say for a maximum of one year. So the business model that I currently favor is a model that is balanced. It is a model in which there is value creation, that is to say that for example, in concrete terms, we will speak in terms of land, that means that we buy land, we will carry out a street, we're going to go through the whole process, we're going to create a living environment, we're going to attach an image to it and we're going to sell land within it. So that, we call that value creation, it's annual cash flow that comes in, so that's the sale of short-term assets if you can call it that.

Chia: Alright.

Alain: And so when I talk about a business model that is balanced, then we also talk about long-term ownership, so passive, recurring income, a bit like apartment blocks and in land it's a little more specific like for example, that's why I discovered about 2 years ago that there are several sites in Quebec on which there are recurring revenues. Like for example land with wind turbines, then income from electricity production or income from servitude. There are also lands on which there are easements of assignment because there may be an electric dam higher up, so we are talking about 25-year contracts, renewable for 25 years. So it's 3A tenants on which we don't have, that it's not governed by the court. Now it is formerly the housing authority now it is the administrative court of the land. But then that's in the balanced model, so we're talking about short-term value creation, we're also talking about holding ''land banking'', so I like to keep land for the long term because, among other things, it goes my values ​​also that the love of nature and then the outdoor activities that we can do there and on which there is income so in this kind of land there, there can be a certain annual deficit, of a cut of miles, but in reality we compensate for it by renting to hunters or active people who want to do outdoor activities.

Chia: So that's it, so it's an investment without cost or with income.

Alain: Exactly, that's it, but in principle these are investments that will pay for themselves.

Chia: Yeah that's right and above all hassle free. I want to say it's hassle-free because when you have tenants, when you buy a commercial or residential building, you always have to deal with either structural issues or complications with tenants.

Alain: Yeah, definitely. That's what's interesting about land. It's that if you don’t feel like it anymore, you can stop. And me when I make an investment, the first thing, the first question I ask myself is "What's the worst case scenario". All the time. So what's the worst case scenario as I was saying earlier the land is there and the good Lord won’t create more land and terrain. What is there is there, it is limited. So in my business model, in the one I favor, it's a balanced model. It means that it is a model in which it takes recurring income: monthly, annual, long term and it also takes short term income. With the short-term income, it allows me to produce more cash after the tax payment of course. And that's how we make other acquisitions. And there is also what we do in our business model, we finance our own land. So people who buy land that comes from Arpents Verts can be allowed to finance it. So that provides income that is also part of the long-term recurring income that helps to pay all of the company's operating expenses. We also do project management. For example, if we build a street in a particular project in the forest, depending on the cities, but most small suburban municipalities do not want to take the streets from the start, they will wait depending on their bylaws. Either 50% of the houses are built but during that time it is up to the owner to maintain the road. So we offer the management service, so on the management service we charge a small amount of management fees, this amount of management fees also goes into our long-term income. So when I talk about a model that I favor, it's a balanced model in which there is as much long-term as short-term income and then it's important to review the cash budget, the cash analysis -flow to see if monthly is the company in deficit or is it positive cash flow.

Chia: That's it, and to date it's always maintained positive cash flow.

Alain: Well, our acquisition decisions are made based on this business plan.

Chia: OK fine, OK perfect. Then finally, for someone who is in the same situation as you were when you were younger and tells him I too am passionate about real estate investing. What advice would you give so he can start? Because today I think the Mark Parents probably don't exist anymore… So how can he start?

Alain: Well, I think guys like Mark Parent still exist. 

Chia: Oh yes? 

Alain: Yes, I think that everything is in the profile of an investor and also in the way you are going to present your project. When we talk about a business plan, then in simple terms I am going to make such an acquisition and here is my plan and here is my exit plan and then who is the individual who is behind this. So if it's presented well, I think there are people who could still help with that. Otherwise there are many many other alternatives such as private lenders, which are alternative lenders, as I was saying earlier, which can replace the financial institution to be ready to fire from the start, that is to say make acquisitions .

Chia: Short term. 

Alain: Yeah, but to answer your question, because before answering the question, I would like to come back to the fact that investing in land is one thing, but that led me to make multi- residential and this multi-residential investment led me through the years to invest in myself, in training because I started with duplexes, triplexes, houses and that's where later I created the company Les immeubles Sainte-Anne-des-Monts. We decided to invest in the Gaspé region, my wife and I, and there we gained a lot of experience in multi-housing. And then from that we created Habitations Tremblant, which is a company in Tremblant in which we do new construction, so now I am also a general contractor for my own buildings. So to answer your question if I had one piece of advice, I would give two, to a young person at the start. I have already posted on my Facebook, the first advice is to invest in the most important person, that is to say yourself, so on these 2 aspects, as much technical as personal development and as soon as possible. The second piece of advice is to buy a building, a duplex, a triplex or a quadriplex as soon as possible, which remains to the owner who is the occupying owner. So when we give these 2 pieces of advice, the answers we're going to get are 'Well why would I do that?'

Chia: Oh yeah? 

Alain: Well yeah, “Why? I'm afraid.''

Chia: Ok for me it makes sense.

Alain: For a young person, “I'm scared, I don't know what to do”. So here I go back to my number one tip which is to invest in the most important person.

Chia: Yeah right, why do you want to do that?

Alain: Right.

Chia: Speaking of why, maybe to conclude, to share with us what's your biggest important why, what's your "Big Why"?

Alain: Me my "Big Why", really I discovered it through the process of personal development and the main reason why I do all that is to build a family heritage for my children and my grandchildren and for allow them in the future to be able to make decisions with full financial freedom. So it's a bit like my childhood history so we understand why so it's in this direction that we're going, and my wife and I share the same vision so it's really for a family purpose.

Chia: Wow, great. So I have invitations for you. Thank you very much Alain for being here with us today, it's really a pleasure, I could have chatted with you all day. So until next time, thank you for listening, if you have any questions for Alain, if you want to invest in vacant land, it's "les Arpents Verts", real estate company of Les Arpents Verts.

Alain: Exactly.

Chia: Thank you.

Alain: Thank you very much.

Chia: See you next time.

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