Investors may be eyeing Calgary with justified skepticism these days, but circa-2004 Cow Town proved to be a perfect launching pad for Greg Eaton. At the age of 24, Eaton was working long, not entirely fulfilling hours as a repairman for his parents’ burgeoning hot tub business. He saw real estate as a way out of a rat race, which, at that point in Calgary’s boom-bust cycle, was growing in both intensity and emptiness by the day.
“From a pretty early age, I did not like the thought of working my butt off, trading time for money until I was 65 and then retiring,” Eaton says. “I figured there’s got to be a better way.” The lure of passive income, the possibility of dictating his own lifestyle and a real estate market that was still welcoming to first-timers proved to be an irresistible combination.
Rather than spending a year or two educating himself about the vagaries of real estate, Eaton dove in and purchased a pink stucco half-duplex in Calgary’s Martindale neighbourhood, a northeastern enclave known for its affordability rather than its tenant profile. “I really had no idea of the fundamentals,” he says. “When I bought my first couple rentals, I didn’t know what a cap rate was. All I knew was that my mortgage at the time was $800, and I was renting out the upstairs for $850.”
Many investors would balk at purchasing a home and living in its non-conforming basement suite, but Eaton chose to move downstairs with a roommate, greatly increasing his cash flow. At a time when it’s becoming increasingly difficult to cobble together a 20% down payment, Eaton says going the owner-occupied route in 2019 just makes sense.
“Now that I’ve got kids and a wife, I’d be less inclined to live in one of my basement suites,” he says. “But that’s also how you get ahead: by making some short-term sacrifices. Because I made those sacrifices, I was able to leapfrog past a lot of people my age and get further ahead.”
Although he may have lacked formal training, Eaton says the information he gleaned from the writing of Richard Kiyosaki left a meaningful impression. “[Kiyosaki] says anything that drains your money is a liability, and anything that creates wealth is an asset,” Eaton says. “Your principal residence, according to his book [Rich Dad, Poor Dad], is a liability because all you do is pump money into your house. Sure, you might build equity, but it’s a drain on your income.”
Living in the basement and banking every penny of the returns his property was generating allowed Eaton to purchase a second home, this one in the Temple area of Calgary, shortly before the city's market caught fire in 2006. Once again, Eaton moved into the basement and watched his bank balance, bolstered by his three rental units, grow.
As it did, Eaton sensed an opportunity to get out of an increasingly congested Calgary. His homes had appreciated considerably in the two years he had owned them, and his positive experiences as a landlord convinced him he would be able to build on his early success in a smaller, more stable market.
“I had a ton of equity in these properties,” he says. “I decided that it was time to cash out and move to the mountains.”
Cranbrook, BC, is where Eaton’s story truly begins.
A Rocky start
Flush with cash and settling comfortably into Cranbrook’s slower pace of life, Eaton made his first two purchases: a triplex and a six-plex. After considerable renos, the triplex was ready to take care of itself. The six-plex, on the other hand, was a nightmare.
“I just thought I would leverage myself as much as possible, the market would go up and I’d just get rich,” he says. Between not having run the numbers on the building prior to purchase and then being blindsided by the market crash of 2008, Eaton was left caring for an alligator.
“It was eating me alive,” he says. With vacancy rates climbing and no one in the market for a non-cash-flowing apartment building, Eaton was forced to feed the alligator for over a year until a buyer finally took it off his hands.
What could have been a catastrophic end for some investors ended up sparking the next phase in Eaton’s development as an investor. Although he barely broke even on the six-plex, he profited handsomely from two lessons he learned while owning it. First, not all multi-family properties are created equal. “Anything between five and 10 units is a really inefficient spot to be,” he says, explaining that buying four units or less eliminates the need for commercial loans, incorporating or getting a business license, all of which increase costs.
More importantly, the six-plex taught Eaton that he had a lot left to learn. “It was at that point that I realized I needed to understand real estate at a different level,” he says.
To get a more comprehensive grasp on the finer points of investing, Eaton enrolled in real estate courses through the University of British Columbia and earned a diploma in urban land economics. His new understanding of market cycles, construction processes and both micro- and macroeconomic theories have already “made quite a difference,” he says, and have allowed him to construct pro formas and calculate varying rates of return. “Once I found all that out, I was able to really construct a portfolio that just made sense and was based on cash flow.”
Strength through diversity
Contained in Eaton’s education was an appreciation for truly diversified portfolios. To that end, he has branched out into some rather unconventional investment vehicles for a buy-and-hold investor: a mobile home park and a hotel.
Contrary to stereotypes, Eaton says owning the trailer park “has been a piece of cake. I rarely have anything to do with the park,” aside from picking up rent and organizing snow removal. The park had been languishing on the MLS for years, but once Eaton discovered its 10% cap rate, he was compelled to pull the trigger.
“In real estate, your land is generally your appreciating asset, and the buildings on top of the real estate slowly depreciate,” he says. “The great thing about mobile homes is that you own the land, but not the depreciating asset: the trailers. In a lot of ways, it’s sort of the ideal scenario.”
A far less passive investment has been Eaton’s purchase, with a group of fellow investors, of the Baker Hotel, one of Cranbrook’s most iconic properties. Eaton saw the Baker, beaten to within an inch of its life but in a prime downtown location, as an enticing opportunity to not only make a sizeable profit, but to vivify the beautiful little city that had become his adopted home.
“It’s always exciting to buy something run-down that nobody really seems to want or know what to do with and then to have the vision of what it could be,” Eaton says. “There are basically two different ways that we could win at this project. We could make a pile of money, and we could help our city. And if we do both, perfect.”
Eaton feels investors who have been fortunate enough to make it in real estate should be moved to do more than just line their pockets. “I think anyone who’s a real estate investor needs to be aware of their why. You want to make a boatload of money – great, but what’s the point?”
For Eaton, the journey from basement dweller to mountain-based entrepreneur would mean little if it lacked a higher purpose. Now firmly and happily ensconced in Cranbrook, that higher purpose – improving the small part of the world he has control over, for the benefit of anyone who passes through it – has become as clear as the mountain air he craved while plotting his departure from Calgary.
“I want to make money at it,” Eaton says of the hotel project, “but the more money I make at it, the faster I can do this. The faster I do this, the more I can help my community.”
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