**Transcripts are auto-generated.

Erwin  

Hello and welcome to the truth about real estate investing show. This is the show for Canadians I am Canadian born and raised. My name is Erwin Szeto, and I’ve been a real estate investor since 2005. Full time in real estate since 2010. Since then, we’ve helped investors transact on over $420 million worth of income properties, including about 100 Small multi families and another 100 or so student rentals. For those new to the podcast. This podcast is a true seeking journey with over 300 episodes each an hour long, generally have been successful investors on different investment models, that what it took for them to become a successful investor also how they fail. I personally never believe anyone who says they’ve never failed at anything. So that’s why real estate investing anyone who says I’ve never failed before the physical transfer line, there’s a good chance it could be lying, but our successes as well, the lessons learned. So we’ve learned all these lessons together. So we meet together and continuously improve on our investment businesses and in our lives. On this show, we explored what makes people tick, how much time it takes for them to do what they do, the amount of effort the resources they have to invest in order to obtain the results that they do. My intention for you the listener is to learn and find an investment model that suits your own values, style resources, so you may model the success and avoid landmines that like the pros do. One thing I’ve noticed many beginners and some pros miss is the understanding of why we must invest in hard assets, especially during inflationary times, which is in case anyone thinks this is the only inflationary time understand, you know, real estate prices have been going up about 7% in Ontario for quite some time. Anyways, mainly focused on things like supply or lack of supply of housing in the bottom, the impossible demands caused by on our housing supply the impossible demands caused by our immigration, then they can’t explain why house prices have gone up so much. Because there’s actually some examples around Canada, including in Vancouver where they’ve created button submission supply. But yet house prices still have gone up. One thing causing inflation is the growing supply of money. And we can thank our government for that the amount of borrowing but they do the printing of money. Plus low interest rates cause our banks to lend like crazy, which again creates more money in the last 10 years especially I’ve uh, I’ve supplied a chart in the show notes on website truth about real estate investing.ca. And if you’re on our email newsletter, you’ll see it in the email as well, the chart that I post, in the last 10 years, Canada’s money supply. So the amount of money made are Canadian dollars in the entire system, you know, so that includes in your savings account in all the businesses savings and checking accounts, you know, the dollar bills you have stuffed in your mattress. So if you add up all that money in the last 10 years, it’s actually gone from $1.2 trillion to 2.4 trillion. So it’s doubled, the amount of money in Canada has doubled, including a significant ramp up since the pandemic and it has not slowed down the pandemic money supply growth, the money supply has not slowed down, which goes against what the Bank of Canada is trying to do. While the federal government’s stimulating the economy and causing inflation to bank Canada’s trying to do the exact opposite by raising interest rates. So that’s kind of interesting how our government chooses to operate anyways. And then, do you ever see this not happening anymore, where the federal government actually reduced the supply of money, like the Americans actually did? For a few months, they actually did. Now with with their debt, heading towards the debt ceiling, they’re gonna start creating more money as well. So again, there’s a chart in the show notes. And I was explaining this to a roomful of Toronto real estate investors just last week, and also some novice real estate investors as well. Because again, it’s not something that’s commonly known why real estate or hard assets, why they go up in value. And based on the increase in money supply, hard assets, such as land, which is, you know, there’s land under all my income properties that should in theory have doubled in price. Looking back 10 years ago, we were buying detached homes in Hamilton for 290,000. And since then, they’ve tripled in price. So they’ve got they’ve more than doubled. And they’ve increased Yeah, exactly. Again, the triple. Same for St. Catharines. We were buying detached homes, St. Catharines, we were buying for just over 250,000 We were paying about an average of 255,010 years ago. They’ve also I’ve nearly tripled in value. This is important information when forecasting what will happen to real estate prices in the future, knowing how central banks are including the Bank of Canada, they will always continue to print money, how the housing crisis will only get worse as the builders in the last four months they’ve been they’ve been off not all of them but many of them are not building because they’re not selling you know there’s not much appetite for pre construction houses and condos houses more so in like really small markets. But anyways, the supply the supply of pre construction condos and houses has to be absorbed first before it makes sense for generally for builders to continue building. In the in the trend also is for more immigrants each year. Add in how interest rates they’ve likely peaked. We may see another quarter repeat quarter point interest To increase, which I actually think is good news, right or wrong, I still think again, a quarter point increase would be nice, because it gives my buyers my clients more time to be able to buy properties and take advantage of the most of the last downturn. So and then based on economic fundamentals, it still makes a lot of sense to buy and hold quality investment properties. Note mine and my clients experience of generating wealth and real estate is not the same for others. Not all real estate goes up. For example, I had at some friends visit to shoot to record a podcast just two weeks ago, there Calgarians. And I’ll take their word for it. They live in Calgary, their real estate investors, they shared how their market has only gone up 20% In the last 17 years, 20% in 17 years. So some might think that’s good. I believe they have not kept up with inflation. So that’s actually a poor investment.

Erwin  

Therefore, yeah, it could be worse though. If you invested Sadly, in Calgary commercial office, that’s down even more. And I don’t have the Edmonton stats offhand. Anyways, yeah, yeah. What does the future hold? Nobody knows. But for my clients tonight, we will continue to write this trend of a market appreciation through owning quality investment properties until it ends investor market update wise, we are picking up some great deals thanks to the recent downturn. And as mentioned several times already, we are well past the bottom based on what we’re seeing. The bottom I believe was August last year. Last week, we had a client pick a newly renovated duplex in Kingston, Ontario, for less than the seller paid. Unfortunately, the flipper the seller slash seller, they bought near the peak they paid and then they bought a house and then they renovate they had to renovate it if the Turkmens single family home into a duplex, and now they sold it to our client, somewhere less than 150,000 than what they invested. So they’re probably going to take us close to a $200,000 bath on this, while our client is of course, ecstatic, as she picked up a great deal that will cashflow. And again, it’s a newly renovated duplex. So unfortunately, that’s how the cycles work. If you invest poorly, you’ll be shaken out of the market. Hopefully, this flipper was a regular regular flipper. So they made lots hopefully they made lots of money on the uptrend, and they’re just taking a decent sized haircut on this one, also. So thanks to the downturn, we’re picking up bigger and better properties with development options, thanks to Bill 23. Both in the East End in the West End, we’re picking up a lot of houses with detached garages. So we can convert those garages into apartments to increase cash flow. And of course, our property values, it is actually a good time to be a buyer, it’s actually possibly the best time to be a buyer in quite some time. So if you’re interested in working with a team of professionals, if you enjoy using professional services, ours is particularly award winning. For those who don’t know, we are the four time Realtors Of The Year Two investors, we are investor focused at realtors. I personally am the I’ve been an investor focused agent since 2010. So if you’re interested in working with one of us, contact us and I went at infinity wealth.ca Again, it’s IW i N i win at infinity war.ca. If you’re more interested in improving your education at this time, you’re not ready to jump in. We are hosting an island mastermind tour east of the GTA on Saturday, June 3, starting at 10am. We meet for coffee and we do obviously do some networking. Then we tour some houses usually to usually a duplex conversion or garden suite slash garage conversion. And of course, we always provide handouts with cash flow analysis and some design drawings if applicable. And then we’re off to lunch. So Coach Steven Phillips, who is hosting our tour, he actually has a commercial property where he’s renting out his parking lot to two food trucks. So it’ll be both learning. It’d be both educational and a bit of commercial real estate investing, as well as enjoying local food truck and supporting local. These events are fun filled with networking, high quality tactical education that I wish existed when I first started. But like I’ve been saying, it’s never been a better time to learn how to invest in real estate quality education has never been successful. But also on the other hand, extremely poor, overly expensive education is also available. So if you’re interested, do not delay. We do have a hard cap of 30 attendees have the spots already sold. The cost is a whopping $20 plus taxes and fees. Clients, you are our guests so you do not pay. And also all proceeds go to register our registered charity that happens in basket brigade. I mean, yeah, I’ve shared the link in the show notes. Yeah, again, linked in the show notes, www dot truth about real estate investing.ca and stay connected about our events. I can’t recommend it enough that you subscribe to our female email newsletter. We’re about to announce our next tour in the West End which will likely be Hamilton possibly Nagar region. So we’ll announce that also in an email newsletter as well. So you do not want to miss that. So make sure you sign up for our newsletter on our website just about real estate investing.ca name and email on the right side and you’re good to go. onto this week’s show. We have some great guests who have just launched their new apartment building a REIT, a real estate investment trust. If you don’t know what that is, it’s a fun down the line. investment is a bunch of park buildings and regular investors like you and I can invest to own shares in the fund and participate in the investment. Mike Rocco and Mark Baltus are our guests today. They are the founders, owners of peak multifamily investments. And I’ve known Mike a long time, we met somewhere around 2010. As we were both members of the same real estate investing network. I know I talk like an old person because I am, but I knew Mike when he was still in school. But thanks to some, a lot of hard work, surrounding himself with go getters, some great mentorship, he’s been full time in apartment buildings for several years now. And again, he’s now a co founder of a REIT. He’s come a really long way. He’s quite a successful individual. On the show, we discussed the journey. And we get a bit detailed on things like when to set up a REIT, the cost to start a REIT, who they need to hire a partner with raise capital. We touched on securities regulations, which anyone listening who raises capital should pay special attention to if you want to stay out of trouble with the Securities Commission, you Please do stay out of trouble with US Securities Commission. We already have folks in our community who have been shut down by their local Securities Commission. Anyways, if you’re ever looking to partner as Mike and Mark have, they share how their partnership works, their roles and responsibilities, how they organise their business, organisation hierarchy, and they describe where who owns what. And of course, we break down some recent deals, we discussed the makeup of their portfolio, cap rates, how they increase values, suddenly, I want folks to pay attention to his cash flow. And I want to thank Mike and mark for being so transparent on where the cash flow actually comes from. And that’s not where most people think to learn more about their business peak multifamily investments, you can go to peak multifamily.ca As we are discussing a securitized investment your accounts a legal disclaimer, the Information and opinions expressed in this podcast are solely for educational and informational purposes and should not be considered as investment advice. The hosts and guests of this podcast are not licenced financial advisors, brokers or registered investment advisors and their comments should not be construed as recommendations or endorsements any any specific investment security or strategy. investing involves risks, including possible loss of principal. Before making any investment decision. You should conduct your own research insulted licenced financial advisor to determine the suitability of any investment for your specific financial situation investment goals. The host and guests of this podcast make no representations or warranties as to the accuracy, completeness or timeliness of any information discussed on this podcast. The podcast is not responsible for any errors or omissions, or the results obtained from the use of this information. This is our advice to use their own judgement and seek the advice of professionals before acting on any information provided in this podcast. The podcast shall not be liable. I guess I’m not be liable for any damages including but not limited to direct, indirect, special or consequential damages arising out of or related to the use or inability of use or reliance on the information provided in this podcast. This is a really great, great episode. So for anyone interested in learning about large scale investing, please enjoy the show.

Erwin  

Mark, Mike, thanks for coming in. What’s keeping you busy these days?

Mark  

Thanks for having us. Well, we launched the a REIT and we’re just talking about so that’s keeping us really busy has for the beginner what it is a REIT. So okay, so it stands for real estate investment trusts, it’s really an investment vehicle to kind of simplify it. So read essentially is a company that buys operates owns real estate is kind of specific to real estate. So that for the purpose of appreciating and cashflow that’s kind of what I read is the structure the legal structure allows people to invest, you know, with a company with a REIT in a passive way and can be registered funds, non registered funds. So the REIT structure allows typically allows again, not complete expert but we’re going through this well we’ve gone through it right now. So so fairly fresh allows people to use registered funds. That’s one of the big benefits. I think that why we went down that path is it it opens it up to registered funds, which is fairly significant in Canada and the US before 1k, although we’re not in the US, but registered funds is really underutilised here and as a pool of capital in Canada,

Mike  

just for some clarity, there is one step further like we opened a mutual fund trust, you can do a REIT that doesn’t allow in registered funds. So there’s another step to become registered to take in that RSP and TFSA capital.

Erwin  

So as to do two steps before you get to before you can accept register money. It’s a whole separate document. And you know, this is done over a weekend with a lawyer and just lock yourself in a room and hammer out some paperwork. And

Mark  

if you if you have Chad GPT you can probably do in a weekend. This was this was months and months, like almost a year, probably almost

Mike  

a year. Yeah, probably about eight months from when we said okay, let’s go a couple of months prior with some consultants and kind of figuring out are we going to do this? Are we not going to do this? But yeah, it’s a lengthy process.

Erwin  

I mean, you mentioned lawyers, they’re not cheap. You mentioned consultants, they’re

Mike  

not cheap. Not cheap at all. No.

Erwin  

What’s the ballpark?

Mark  

I think set up like without any marketing, we’re probably in about 150 to one seven. Five to kind of get very serious decisions. Yeah, you know, you might, you might hear people say, well, guy can set up a fund in for 30k. I’ve heard that a lot, you can set up a GPL P for 30k. Check a general partnership, limited partnership, that could be a fund that that’s probably one way to structure a fund the path that we took it a little bit more complex, but the complexity allows us to expand our reach, essentially. And that was really the purpose of the whole exercise.

Mike  

I think, too, because we’ve heard this lots is building in Olam. An offering memorandum is about 30 grand. And for someone to draft it, you probably can draft it right for that 30 grand. It’s everything else that comes along with it and DD checks and lawyers reviewing it. And getting on the shelf of an exempt market dealer. You know, dealing with Olympia Trust and their review. Total cost puts you well above 100 grand, right? But you hear people me and Mark now look and say, Oh, they’re in the early stages. Someone saying oh, that’s expensive. I was told I can draft it for 30 grand, right? That’s just one part. One step. And you can kind of now we’re able to gauge Oh, they’re just kind of exploring the option.

Erwin  

Interesting. So to the ignorant person, like offering memorandum, you can just get like a template? Yeah, you can. Because your business is similar to other real estate investment trusts. Yep. Right. You can, you know, I’m always looking for. Yes.

Mark  

So let’s say so offering memorandum was kind of just by way of example, it’s a document essentially, that outlines the nature of the business, the risks, there’s a whole bunch of stuff that goes in there, right, the legalities how investors can come in how they can get out the, you know, redemption, the whole bunch of stuff that’s important to people. Right. So let’s say it’s 100 pages, you know, 80% of it’s probably templated. Right? Maybe more actually exists? You’re right, because, you know, obviously, we’re not the first you know, this is a it’s a model that’s work, where I think the time, at least for us, anyways, was deciding what does the investment product look like? Like, what’s the returns? What’s our performance fee? How much are we sharing with investors in terms of equity? Do we have hurdle rates? So like, basically, one of the consultants we worked with and still work with and helped us develop this? He called it kind of investment product manufacturing, right? So you’re creating an investment. But there’s so many variables to it, there’s the rate of return does the you know how long you get paid? So there’s all these things kind of features? That’s, that’s I think what took a bunch of time for us is figuring out what what does the market want? Or right? What does the market want? Let’s craft something, okay. Can we develop? Like, does our business model suit that that’s a big time consuming component, as well as like, can our business model deliver what the market wants? You know, there’s a lot of due diligence that gets into that. And there’s, you know, we had a bunch of people help us along the way.

Erwin  

It was like, I’m really, I’m really digging, you know, I’m a bit of a real estate geek. I don’t know if people know that. What does the market want in terms of return risk profiles, or other sorts of things? Like we were mentioned, talking about before recording, like, there’s all these courses being taught out there. One of the biggest mistakes I see with with novice investors and people who are being coached is, they don’t know what a deal looks like, as in like, they don’t have enough information to decide if that is actually the right deal for them. Yeah. So I think by asking you like what your preferred term profile has to be, I think that’s probably a good baseline for most.

Mark  

Yeah. So okay, so you get into any market segments? Right. So I think there’s the retail market, right? So the people that may be investing in mutual funds, perhaps stocks,

Mike  

even like people investing their self directed like self directed RRSPs? What are they looking for? What type of revenue they bring in? Yeah,

Mark  

call every day, at least this is how we look at it in a really broad spectrum. So there’s a retail, and then there’s like, I think there’s the more sophisticated, right? And the more sophisticated our listener Yeah, yeah. Yeah, I think I think it would be your listener because they understand real estate and how it works probably a little bit more definitely do more than the average person, right? I think the average person when you think about real estate, at least my hypothesis, I think that the housing market, right, and that is real estate, but it’s only one sector and real estate, there’s so many other different categories, multifamily self storage, industry and such. So typically, when we like when we started peak multifamily number years ago, we were working with more sophisticated investors to come into our deals, more sophisticated investors typically want a higher risk, return profile, right? 15% Plus,

Erwin  

what we should be fifth percent over what term

Mark  

over per year over our product for typically five to seven years, right, turning over building and such. Okay, as we started to learn more about kind of the retail market, you know, when you’re quoting rates of return, and you were north of 15%, that also raises flags in terms of risk, right? It’s a very high number, right? Like you think of a stock that might do 15 to 20% is probably a lot of volatility to earn, right. And so don’t we all know that right, so So a big learning for us was that, you know, so the appetite of the market doesn’t necessary. It’s not always about the high number, right, the asset class that we’re in is multifamily, it’s typically more a little bit more stable, right? It’s a little bit kind of maybe more boring than other asset classes. And so people kind of coming into that sector investing in that sector don’t want kind of these crazy returns, because crazy returns also mean that there’s risk, right? So I think you kind of have to put two and two together. So yeah, so what we’re learning is that, you know, people are in this asset class for stability, right, when the when the stock market is doing what it’s doing right now, a little bit of volatility, they know that their capital in an asset class, like apartment buildings, isn’t doing that today. Right. It’s also not mirroring the single family market, which is also well, maybe going downwards a little bit more than most. So it’s, yeah, as we’re understanding kind of the risk appetite and the risk return appetite right now. So long winded answer,

Erwin  

the soundbite soundbite for me would be like, people are like 50% return where five, seven years is kind of like a place to be,

Mike  

I would say, in that sector in that market of retail capital, it’s high, you know, dealer reps will kind of perceive that as a riskier product. Right. And the question that came up to us is, like, when you’re looking at other products, you’re looking at some of the bigger REITs in the space. It’s like, well, how are you guys doing better than they are? What are you guys doing? Right?

Erwin  

Is in the paper today? A very, I won’t name names, but very large REITs just cut their cash distribution by 70%? Because they have a lot of office. A lot of office. Commercial. Yeah, I think we all know, like, return to Office is seeking to hit Yeah, but a kid right. So yeah,

Mike  

yeah, sorry. And just going back to like manufacturing that financial product. It’s like all the fees that come along with it. Right, like, financial audits.

Erwin  

Thank you very much. Yeah. Just everything else,

Mike  

like annual offering memorandum updates and stuff like that, figuring all those fees associated with it. And then kind of analysing the properties that we’re buying and kind of fitting them into this financial model to create a return that suits that retail capital. Right. And that’s where the lengthy you know, kind of process comes as how does the market perceive this? If we’re coming out saying 15 to 17% return? How is that perceived in the market?

Erwin  

That’d be crazy.

Mike  

What we, we probably wouldn’t have exempt market dealers raising capital for us, like they would raise more if we were to say 10 to 12. Because now we don’t believe you.

Erwin  

But just hilarious because if you say that in a court, but you’re offering your course people sign up.

Mark  

Yeah. And he says My point is like to the segments, right? There’s the retail and then the more sophisticated, like the more sophisticated can go probably do it on their own, or might have the network to get more private investments or joint ventures that will probably do more. Right. But there’s also more risk associated with it. Right? Like there has to be there’s got to be a trade off for it. So

Erwin  

yeah. Which again, was kind of the point of the show, because you guys have successfully done so you’re sophisticated investor yourself. You didn’t start right away. You weren’t you weren’t born into this business, right? You weren’t born owning apartment buildings, right? Yeah, you have to do it yourself. So it is possible. But it’s not that common, right? Because like you guys have been community forever. How many people said they’re going to open a REIT? How many people actually sit actually did? Yeah, not common? Some have gone under? Like we have mutual friends whose whose REITs have been they’ve sold them? Because they fail? Right? So it’s not it’s not all sunshine and roses? Yeah, no, it’s where it’s work. That’s a process. It’s work its effort. So this is actually a very complicated topic. I don’t know where my listener wants to go next. But we will get to your background. I just don’t want to leave this just yet. But you mentioned exempt market dealer for the beginner. What is that? Like? You’re not out there knocking on doors selling selling shares yourself? Have you read?

Mark  

No. So it’s, it’s funny, we just we just published an article on our website, what is an exempt market dealer? Because we’re getting that question a lot. Because Because because the whole and I won’t do it justice, but I’ll kind of do my best. Right. So the exempt market kind of by definition is also called the alternative investment space, right? So these are these are investment opportunities or products or things that people can invest in outside of the public markets, public markets, buying things on the stock market, right. And so typically, these private investments were only available to the ultra wealthy, right through connections or whatever maybe credited investor credit investors a number of years ago, and I don’t know exactly when, let’s say 12 to 15 or so years ago, the exempt market space started to kind of be created, if that’s the proper word, you got bigger means we’re getting richer, yeah, get bigger. And so there was a need for one issuers, like companies like us to raise capital, but also there was an appetite to invest in private markets. And so the exempt market dealer, the role of the mark exempt market dealer is to kind of connect, you know, companies like us with retail investors. But the important part of that is that they’re registered and they’re they’re certified and they’re educated enough to determine whether investment is suitable for an investor. Right? So they’re kind of the intermediary that connects companies like ours REITs private investments with investors. And so that’s the role. Right, right.

Erwin  

So securities, exactly. Their job is to screen people to make sure those, this is right for them.

Mike  

So even when we are raising capital, ourselves, it still goes through them. And they’re the back office doing everything. So it’s not just us, okay, we’ve raised capital, they raise capital, it’s us, you know, getting the interest of people and then pushing them to the exempt market dealer to make their final decision with them.

Erwin  

Right. So this is actually really good discussion, because before we’re recording, we’re discussing how many people are doing this wrong, and they’re doing on social media publicly available for everyone to see. Yes. Like, for example, discussed a company that went under Yep. Because they had they had the trigger. They were gonna go under no matter what. But the trigger event was the rumour is a competitor filed a complaint with the provincial Security Commission, then the company that eventually went under, then had a cease and desist order. Right. That’s why you don’t air your dirty laundry in the public, right? Yes. Yeah. And by by me, me saying dirty laundry, like people are I see people raising capital on social media all the time, even taking sponsored ads to do it. And they’re not licenced

Mark  

ice cream. Yeah. I don’t know. We talk about it often. Because we see it, we’re on social media, right? Like, I mean, we’re there promoting ourselves, but also seeing what’s out there. I don’t know if I, I’m surprised that that many people are doing it. But it’s surprising. And these are not stupid people. They’re smart people. So it’s either there, they really just don’t know that they’re in the wrong or they know they’re in the wrong but are trying to still do it. I don’t know. It’s a really interesting thing. I don’t know. I mean, for us, that’s pretty risky. Not just for us, but also for investors. Like it’s very risky for the investor. And I think one of the one of the things that investors really need to think about when they’re partnering with someone or investing with someone is are they doing it legitimately, right, the deal could be sort of two things. They could be operating a great business, right. And raising capital incorrectly. There’s a lot of risk there. Right? The business model may work. But if the situation that you just mentioned, if they’re off side on the capital raising side that shuts down capital to your business, which needs capital to run your business model kind of falls apart. Yeah.

Erwin  

Because real estate understand is pretty capital intensive. Yeah, yeah. And

Mark  

so I think the, you know, people have to really think about how risky it is for them and their investment, if the company, the issuer, the whoever the person is operating, it is not doing it properly. So they you know, there’s probably some more due diligence that they should be kind of undergoing to make sure.

Erwin  

You know, I’ve asked my lawyer, yeah, I’m sharp telling people either have an austere lawyer, or they’re going Yes, or lawyer’s advice, or they’re just willing to operate in the grey, or they’re asking the wrong lawyer.

Mike  

Yes, good, Lord, that was just gonna say that make sure it’s securities lawyer, right. Like when we’re talking about investments and agents and all that stuff, you’re not going to use, you know, your residential agent, if you’re looking for an industrial property? Well, same thing when it comes to this, you’re not going to use a, you know, a real estate transactional lawyer, if you’re talking about securities now. And you see that a lot happened in the space. And we’ve asked for years, and we’ve always got answers that weren’t clear. Can we do it? Well, I don’t think you can. Or maybe you can, how many years? Have you spoken to lawyers, and no one gives you a straight answer. Even when you

Erwin  

call CRA it’s hard to get a straight answer. Back, it’s a different answer.

Mark  

This came up the other day, because we were we were with our exempt market dealer. We’re having lunch just kind of talking about kind of the future and growth. Some lawyers will also say, Yeah, I can advise on this, but they may not be experts in that area. Right. So So buyer beware, I guess, right? Like you could ask your lawyer and they might provide advice, it’s still up to you whether or not that advice is correct or not even know if it’s coming from a lawyer like I know when we ask our lawyer stuff about real estate, I don’t know. It’s like go ask a real estate lawyer or if we ask our real estate lawyer Hey, what do you think about glass your securities lawyer so that’s what a good lawyer should do is like defer to the expert and not just kind of take that so I think that’s yeah, get a really watch out for that kind of stuff.

Mike  

And just because we’re really can’t put out any marketing that that we want, like our exempt market dealership has a compliance officer and every bit of marketing we put out we have to send to them get it approved them put it out and a lot of times it’s like, Oh, you guys need to put a disclaimer here. Or can you switch this around and add this there? Right that’s typically what happens even though we are a REIT, right? We can’t just pump up mark but you see it a lot over social media guys just pushing all this stuff out. Right? So even you know being registered we’re still very wary of what we can do and what we can’t do because it’s not just a free for all. Marina pump out the marketing doesn’t work that way.

Erwin  

She had a discussion did DM discussion over Instagram with a mutual friend of ours? I told him he posted something he was raising capital talking to his phone on Instagram Story video, whatever. I say can you just do me a favour and please Run up by your lawyer to just take it down while you do that. All right, then he took it down. And he asked me the basis, everybody else is doing it. I’m like, Yeah, doesn’t mean that’s right. And this is the Henson, he asked me, How do you do it? I said, What do you think all these people are selling coaching? Right? Because you’re selling coaching, you’re not selling securities. You sell coaching, right? You teach them how to do the investment. Right. And then allow them raise capital from there. Yeah, no, I’m saying I’m not saying that’s completely. That’s wrong, because I think it can be done properly. Yeah. Yeah. Right. It’s just like, like multiple representation in real estate. One can represent both the seller and buyer properly. It’s just not common. Right. Right. There’s conflict of interest. Yeah. So again, it can be done well, it can be abused, and it probably is abused a lot.

Mark  

I think so. I don’t know. It’s hard. Yeah. It’s hard to say I don’t know what advice people are getting. It’s interesting to see like that kind of stuff. Like, you know, we see it all the time. And you wonder, it’s like, I don’t know what kind of advice they’re getting, maybe they’re getting proper advice that it’s hard to say

Mike  

the question is, is how are you providing the best interest of the investor? When it’s your investment product? Right? You’re looking at it from your best interest and saying, No, you should invest in this project, you don’t know what’s right for them. Right. So you’re essentially convincing them to invest with you, regardless of their situation, because you have that vested interest in them, right. And that’s where kind of it gets, it gets really tricky, because it’s not at best interest for them. While you’re technically in the raw, like, buyer beware, I

Erwin  

literally had a school teacher reach out and she’s in she some financial difficulty, a mortgage representative would recommended that she put money into a syndicated mortgage on a development. And for where she find the money. He got her a home equity line of credit. So they got paid on that probably got a referral fee on referring her to syndicated mortgage. And that developer went under a very public shoot. Very public bankruptcy. Yeah. All right. You guys probably looked at the properties. They were fire sailing. I did. I’m sure you guys did. But yeah, like buyer beware, like there are sharks out there. Yeah. In some people in nothing the mortgage person was was evil, you might have thought it was actually a good deal. Right. But again, like you’re this is conflict of interest. And you’re exposing everyone to more. Well, I would never do a syndicated mortgage on our development property.

Mark  

Yeah. Right. That’s interesting. That’s, there’s so many stories like that.

Erwin  

So sad. Yeah. Someone who’s mortgage free now has a big mortgage now. Yeah. All right. In no return coming for return. Pretty sad. Yeah, very beware. And I think that’s probably a red flag right there. If someone does not know how to comply with securities law, in their coaching and social media advertising, that’s a huge red flag, huge

Mark  

red flags. And but I think like, I was telling the story before we went on air, right, like when in one of our projects, if someone to come in, they weren’t a credit, no problem. Hey, hey, the REITs coming up, that you’ll probably be okay with that. Talk to her AMD, if that makes sense. Makes sense. And then the response I got was good. Why don’t you just say that I’m a family and friend. I’ve been in other investments like that. They just say that I’m a family and friend, but we’re not like the OSC has a criteria of what a friend is. Right? You know, the one that gets described to us a lot by our lawyer and EMD. In fact, these exact same examples, so I think they’re probably right is like four friends that I’ve probably been in your house, I probably know the colour of your kitchen and your bathroom. Like that’s, we’re friends. We’re probably friends. Right? So I think just yeah, and there’s a lot of benefits hearsay, but that, well, other people are doing it must be okay. I think that that’s where things start to really

Erwin  

vary as well. You guys been around a long time, lots of investors did nonconforming properties non conforming Maltese, yeah, like Toronto, for example. Doesn’t seem to really care but until they do, yeah, Hamilton for forever did not care until they did right.

Mark  

And I guess that’s okay. As long as you know what the risk is like it’s okay, one day down the road if they decide they start to care, here’s what’s gonna happen and if you’re okay with that,

Erwin  

yeah, budget for it and go for this fire escapes and whatever you need to do whatever else. But it’s expensive. You know, you guys know first keeps saying smokin cheap fire shutters,

Mike  

we had to put in a few different things, fire separation and logic rooms and things like that.

Erwin  

Anything could even change from like, you can no longer do what you had to do steel and then the cost went up even more.

Mike  

But that goes back to proper budgeting and knowing what your risks are, essentially when you’re underwriting deals, right, and it goes back to what you said like as long as you know before, I mean, you’re fine with it. You’re either taking the risk or you’re not it’s the investors that aren’t aware and then say, Holy shit, I got a $30,000 bill to do all this. Where am I getting the capital from?

Erwin  

So for the listeners benefit to explain where you guys are coming from before we start to read like how many how do you describe your portfolio? I mean doors, I mean buildings, I mean doors and buildings.

Mike  

Okay, I’ll start I started way back with duplexes and triplexes moved into apartment buildings in 2014. I think we’re up to about 140 units that we Manage, I also have another 100 and change where I’ve invested in projects as well say a couple of buildings, I think it’s another 140 or so units, which I was a realtor on. So no the project while decided to invest in these properties. So total to add, I would say 140 that we manage ourselves as asset managers, not not property manager ourselves. And well whereabouts are they, Mississauga, Hamilton, Barry Kitchener? And now orange, but we have one under contract in orange,

Erwin  

what’s in common for all these places that you chose to invest in them? That I asked because you guys been around, you’ve probably seen the same thing. It’s like people are are investing in towns you never, I always happens. Only when I got into real estate that I started learning about Ontario geography? Yes. In terms of all these small cities I’d never heard of before. These ones I’ve heard I’ve heard of before. And have friends that live in them?

Mike  

Yeah, I was just gonna say it goes back to the rain days. All good, you know, economic fundamentals, you know, where’s population going? You know, what industries are there? You guys you mentioned, you see people investing in these small towns where they’re like, dependent on one industry, that industry goes under slows down what happened? I’m not willing to take that risk. But at least not yet. Or, you know, for investing, you know, other people’s capital friends family, I was never willing to take that risk. So I just wanted a good solid market. And that’s pretty much where we decided, we also see as you you invest in Hamilton, St. Catharines, a very good increase in rents paternal, right. So we’re also looking for that lift, because we are a value add company. But yeah, the economic fundamentals of the city and you know, population GDP growth, all that stuff is primarily what we’re looking at.

Mark  

I don’t think it’s Yeah, I think it’s, I like to think of like, there’s no bad strategy, right? There’s no like going way Northern Ontario or the smaller town, it’s not like it’s good or bad, right? It depends on what you need. Right? So those in those markets, the cap rate is going to be higher, right. So your cat, you’re probably going to cash flow out of the gate. But you also so the other thing to think about, or people know about cap rates is the higher the cap rate, essentially, it’s a risk premium, right? So if you’re getting a higher yield investment is riskier. That’s why you’re getting a higher yield, you know, lower cap markets, GTA Hamilton, right? Lower cap, yes, you might not cash flow out of the gate. But it’s also there’s a lot of security around it, right, where, you know, there was investment transit and such, right. So, especially now, when the economy is doing what it’s doing. The markets we’re in are moving like, they’re, they’re, they’re doing better. Right. Whereas the smaller markets like Mike, like Mike said, if there’s if it’s tied to one industry to industries, there’s going to be some issues there long term. So but I think it’s, you know, people just need to understand what their risk profile is, and what real estate needs to do for them today, right? If it’s cash flow out of the gate, yeah, then maybe in northern Ontario market, as long as you know that it’s some volatility there, or could be. But we’ve Yeah, we’ve stayed away from those.

Erwin  

Because you’re almost you’re almost GTA with all these detailed descriptions always changing a GT Ha, maybe, plus. They’re doing that we’re sure Orangeville fits in. But you know, besides the point like, rather than some sizable still a sizable city,

Mike  

I think one of the primary reasons were there is I live five minutes away from there from this particular building. And I really understand the area. There’s also a couple of bigger players in that space that have just moved in over the last handful of years. But it really understand that market, I see where rents are going. And one of the guys I know that personally owns upwards of 1000 units, said to me a couple years ago, he goes oh, my building in Orangeville. He’s like that, that buildings blown my expectations out of the water, I didn’t know it was such a great city rents are through the roof. And now living there, I really start to see that zoned in, something happened to come available. So we jumped on.

Erwin  

So I want to ask you, but we were talking before we were recording about like how much effort is it to get here? Get it to work, get to where you are? Because that’s that’s what I want. The show is called the truth about real estate investing. So I always ask people like, what is it like to be an apartment building investor with 142 units, whatever it is, like, What is your name and effort? Because again, I literally told someone the other day, just two weeks ago, a young guy, smart kid has his MBA. He’s like he kept asking me all these opportunities from different influencers. Right? And I said, start watching Social Media. Turn that off. You’re already on the right track. Right? Don’t be chasing these other shiny things. Right. Yeah. So that’s my point. So anyways, what’s your week look like in terms of workload? And then what fills it?

Mark  

Yeah, I think so right now with the launch of the fund and the REIT, a lot of it is to I guess, just split it up into so we split up our business in three buckets essentially, just kind of how we manage our time and our resources and our even our way we kind of collaborated in status and such. So bucket one in no particular order, capital raising capital raising marketing. So what do we have to continue doing? Because we, you know, we still have to put a lot of effort into capital raising. Yes, we have the help of an end now, but it’s still in the capital raising conversation, or decisions today versus five years ago are different, like it’s under it’s I don’t know, if it’s more sophisticated, but just different, right. The capital markets are with operate within capital markets. So there’s capital markets, then there’s acquisitions, right? So you know, with Mike’s background in acquisitions, and its connection to the network, that’s, that’s a continuous effort. And then operations operations is, you know, property management, we have property management and the majority of of our units, renovations and turnover and such. So, our time is split amongst those things. refinances. If we’re going through a bunch of refinances right now, so that’s that’s effort. A lot of effort right now. So it’s not, we’re not hands free, at all. Like, I don’t know if that, oh, four hour workweek, yeah, no, not a four hour workweek.

Mike  

Not a 40 hour work 40

Mark  

hours. So it’s, we’re not a startup, because we’ve been doing it for a while

Erwin  

you guys are retired. That’s the opposite of retired.

Mark  

It’s 100%. The opposite this is like, so I was in a startup before. And it’s exactly the path right? It’s a shit tonne of effort. 100 bucks, where it’s a lot of effort. Right? It’s a lot of it’s a lot of effort. resourcefulness is a key component, meaning that not just your time. But can you leverage your network around you. Now, I think we’ve decided to do that, though. Like we’ve decided to continue to grow if we decided to not continue to grow. Yeah, maybe we have less time to spend on this. I don’t know. But we’ve decided to continue to push and grow and expand. Yeah, it’s more than a nine to five for sure. It’s a nine to nine, nine to 12. I don’t know it’s present. So I’m retired.

Mike  

The one thing I will say it does allow a little bit of freedom of time, in a sense, where you can take the kids to school, you can pick them up, you can, you know, take them to hockey, you’re just now working a little later or choosing to write how fast you want to grow. What do you want to do? If you were to say you want to get to 100 units, because that 100 units to cashflow? Well, you know, sustain your lifestyle, you could push to get to that 100 units, and then probably work a five hour work week, if you’ve implemented proper systems in place, you have your property management running them. I mean, you might have some months that are more intensive through reifies. You may have a month or two where you don’t need to do anything, essentially, right, you can live on the beach with your cell phone, just maybe take couple zoom meetings here and there. And that’s it. But if you’re looking to get there, zero to 100, and you’re looking to do it within a certain period of time, you’re pushing, right. If it’s not the acquisition, you’re looking for its capital, where are you raising capital? How are you marketing for cap, right, and things like that. So there’s always something on the go. And when you get to that size, there’s always tendon issues that you’re dealing with construction management, deficiencies and properties, something is always coming up.

Erwin  

Even with systems in place, stuff comes up with systems

Mark  

systems in place, although less though, a little less, way, way less for sure. There’s definitely more of a buffer now, which is

Erwin  

nice. One thing that always kept me away from raising capital was was the investor relations is what I think the term is the formal term, because basically managing your capital partner, where does that fit in with your three buckets? Operations, capital raising,

Mark  

that’s going to capital is that investor relations like in that bucket? It’s it’s kept raising, but also communication, not to investors, for reporting tax lips, like all that stuff is kind of in that bucket. Anything to deal with investors, I guess, in there, you could probably put in, you know, also lender relationships and financing like that, in itself is is it’s like, so it’s capital capital is a big bucket, and there’s a lot of spokes to capital. I think that

Mike  

like the lending part would go there and under operations as well. Because you’re always dealing with, you know, new rent rolls and stuff and sending that to lenders and Okay, let’s increase so it’s kind of mixed between both buckets. Doesn’t sound like you guys are retired. No, yeah. No.

Erwin  

What do you think the expectation should be then for? Because we were talking about like weak people that take weekend courses, for someone to take a weekend course, for example, to go to zero to 100 units successfully? Because I think we’ve all seen like, we’ve all seen deals people shouldn’t be doing. So those will not bring people closer to their goals, but say they do actually find deals that we should be doing. How long do you think they should take? They’re working on nine to nine.

Mike  

Okay, so this comes back to back to capital raising, at least in my opinion is okay, you want 100 units? Where do you want 100 units? Right? And then we teach a course and first thing is your why? What are you looking to do? Do you want to invest? You know, close by Do you want to invest? You know, in another province? What do you need real estate to do for you? Once you figure that out? If you can get a value of those 100 units say you’re buying at 300,000 a unit Any 100 units will know how much money do you need to acquire that? Right, regardless of acquisition. So some people have a good network, some people been working, you know, on Bay Street maybe, and been in the, you know, financial industry for a long time, and they have family with money, a big network of accredited investors, maybe they can raise that two years, who knows? Right, but someone just coming from my normal corporate job making 80 grand a year, I’m going to assume that they don’t have a big network of investor capital, especially in the accredited investor space. So regardless of finding these properties, how are you purchasing them? Was what? Right. And that’s, that’s what it comes down to? I don’t think there is a time limit mark may be able to do it in three years might take you five, maybe 15? Who knows? Right? It’s very difficult to say, because just because I’m working nine to nine, it doesn’t necessarily mean I’m, I’m attracting the right capital partner. Right. So it’s kind of an open ended question. And it’s tough.

Mark  

If you see assets, let’s say 100, let’s say you’re doing even a building a year, a building a year is a lot, like for a for a person, or maybe a building a year, like 20 units a year, maybe two, you got to find the deal that makes that makes sense. And now, like I think we’re coming out of a period where and we’re talking about 2020, and 2021, where you can buy a building barritt in 12 months, and you have all your money and do it again, like that’s not happening anymore, that those times are gone. So if you’re searching for those, I don’t even know if you’re buying a building a year, because those are hard to come by. Right, especially with tenant laws now, tightening up. So if you think a building a year, 20 units a year, which I think is aggressive, if someone’s starting on their own, that’s five years to get to 100. I would say some people can do faster, some might take longer for some people, but five buildings or 100 units in five years. I don’t know. That’s probably a target. I don’t know if it’s a fast target.

Mike  

Okay, so we bought our first building together 2018, we’re probably together at about 100 units or so. Ish. And that’s five years of going like going full time. But to partner right,

Mark  

we had an early start. Yeah, right. Yeah, we’re doing two

Mike  

partners with with an early start, and where they’re at the five year marker. So that’s actually

Erwin  

I think that’s really helpful to know, like you’d have running start to be five years to get there in partnership. So

Mike  

technically, it’s 50 units. Right? And it’s not 50 units. So we have partners on those as well. Right?

Erwin  

So can you retire?

Mark  

Could you retire? We sold everything.

Erwin  

So it’s an equity thing?

Mark  

Yeah, I think if we sold everything for sure, like if sold everything. And sometimes, you know, this crosses the mind. Sometimes you sold everything for sure. Yeah. It would be good. Oh, yeah.

Erwin  

I’ve crossed my mind. Everything

Mike  

a couple of times here across my desk. I just bet but sometimes, obviously, you go through it. I’m sure you hear this a lot. But people are like, Oh, I’m done. You go through those stressful moments. I think that gives me personally a peace of mind. Knowing I could if I wanted to, I know I’m going to be working till I’m 90. I’m not going to stop. It’s just something I enjoy doing. But I like knowing hey, if I needed two months off three months off, whatever I could take that, as well as if I just had enough money through a breakdown of some sort, I could retire. So we were talking about before

Erwin  

we’re recording, what you’re saying is you can’t live with the cashflow of 100 units, even though I’m gonna guess you guys bought pretty well.

Mark  

So right now, so there are different stages. So some buildings aren’t CMHC. So at like 2%. So those are those are cash flowing. Some buildings, we’re just like we’re in the process right now of refinancing, three, three apartment buildings into CMHC. Those will cash flow. combined the whole portfolio. Yeah, off cash flow, we wouldn’t be able to live off cash flow on all those buildings. We have investors on some of them. Yeah, no, I mean, we wouldn’t unless we sold a building or refinance the refi. Although refinances have helped so refinances and equity takeout that gives the most capital, way more capital than than a cash flow. So we’ve been able to refinance a few times over the last couple years. And that’s that’s given a significant amount of capital way more than cash flow.

Mike  

Do we want to go down the rabbit hole of buying a non cash flowing property versus a cash flowing property?

Erwin  

Sure. Because I’m sure you bought and projects if you got like a nice, tasty disaster project that’s like 30% vacant, there’s no way no way. No way. It’s cash flowing?

Mark  

Most that’s all we’re buying. Right is except for well, one, we actually one we bought CMHC out of the gate that cash flows, that cash flows, four to 5%, you know, on an annual basis,

Erwin  

sorry, 4% of what said cash on cash or cash on cash. Yeah. Okay. So for like for listeners benefit. So you put in 100 grand your cash flowing? Or 4000? Yeah, a year a year. Yep.

Mark  

But our strategies value add. So maybe that’s the context Australia’s value add. So these things are by definition, underperforming, right, they’re not cash flowing, the debt coverage ratio app purchases under one so that means that the The income to support, there’s less income than the service of the debt at the outset of the project. And so our job is to turn that around and reverse it. Right. So at the outset, all of these do not cash flow. And that’s where the value is, for us, at least in our strategy.

Erwin  

And this isn’t going to get all investors need to understand like, investment is so diversified. Yeah. Like, for example, the land investor does not cashflow. Zero. Yeah, not saying it’s a bad investment. Because there’s always reporting we know plenty of rich builders. Yeah, like I believe the person who owns the most expensive house in Ontario is Matt. And so the owner Mattamy. He’s apparently worked out worked out cash flowing on land for a while. But yeah, so you do take this, but you’re playing for the longer game?

Mike  

What does the thing we don’t want to Yeah, we don’t need the cash flow today. So what we’re doing is we’re looking at cash flow in five years, seven years, 10 years, what is it looking like then. So if I were to buy in a cash flowing market, that doesn’t appreciate, say, somewhere up north, and it’s providing me 5% cash flow, if I’m not looking for cash flow for five years, I would prefer to buy the value of that property in, you know, a more populated area that has the economic fundamentals, put it through the stabilisation process, get the rents up, sit in cash flow, right, because I’m gonna get my value, I’m gonna get my cash flow, that’s probably going to be more than an order market in five, seven years from now when I need it, right. So a lot of times I get newer investors asked me that question is we were taught not to buy a negative cash flowing property, like we stay away from it. It’s like, Yes, I understand

1. Yeah, absolutely. For sure. But

Mike  

what are you what are your goals? Like? That’s the other thing too, if you can’t afford it, definitely don’t get don’t get very, very fast. Right. But I mean, if you can, and you’re looking at cash flow in five years, are you planning to retire in 10 years, maybe a building today, that doesn’t cash flow, and you’re gonna put it through that stabilisation process is the better way to go, I

Mark  

think your ROI will definitely be stronger. You just against risk reward, right? So your ROI is stronger, but you are going through a little bit more risk, right? Because you’re buying something that’s underperforming, you got to weather the storm for 12 to 18 or 24 months. So you have to budget for that. Whereas Yeah, if you’re buying some is cash flowing out of the gate, the benefit is your cash flowing out of the gate, but long term ROI is probably not going to be as strong. So it just depends on what yet and then what the person needs. And when.

Erwin  

So I imagine you guys understand this, the answer to this question is, one thing that’s coming out of multifamily is just how difficult it is to find a deal. So where do you find a property worth buying? And the last right ca?

Mike  

So I’ve spent at the weekend course, we’ve actually bought the first building off that will ask you to, to at least to two for sure. Off MLS Yeah, I spent probably the last five years or so really looking at who sells majority of multifamily buildings in the areas that I’m looking at whether it’s through a real track or not, and really building relationships with with a lot of these brokers in this space. So I don’t technically go out to building owners directly, which which I have we St. Joe’s project it was but primarily is building relationships with these larger brokerages that sell majority of the building. So a lot of times I’ll get a call to say, hey, we’re working with a building owner. We haven’t signed the listing yet. I think it’s going to fit what you guys are looking for. When I get the numbers, I’m going to send it to you guys in a position to buy. And a lot of times it’s like yeah, when you get it let me know. So I’m hearing about these things, sometimes three, four months before these brokerages even sign the listing, right are kind of prepping who’s my you know, buyer database? What can we do what, you know, what do you think you would buy? Sometimes I’m getting prelim numbers from these guys. So they’re probably going back, but you realise that a lot of you know, the acquisition side is very relationship based. Right? And the reason, the main reason why I went the broker route, and prefer to go the broker route, is because a lot of the bigger buildings that I think we’re going to get to in a short period of time, like right now we’re buying, you know, 15 to 25 unit buildings, but when you’re looking at larger buildings 40s 50s 80s You really start to see the efficiencies. Right. So that was another reason why we went you know, the fund and REIT route is to raise enough capital to be buying these bigger projects. Well, these bigger projects know there’s a handful of brokers that do a billion plus worth of sales for me to come in and try and compete and get that listing or buy it directly is slim to none. They’re gonna go to the Colliers, they’re gonna go to the CBRE. Right, so if I can just manage the relationship with some of these bigger brokers and have the inside deals, that’s where I want to be. That’s where I want to be positioned. And it was lucky enough to you know, work for another REIT in the acquisitions Department led the acquisitions department, and that’s allowed me to build relationships with with a lot of these brokers before we got to that space. Right. So that’s where a lot of the deals are coming from a lot of these you know in house brokers Sometimes they don’t even sign a listing to like, just bring me an offer, the owner doesn’t want to sign a listing. So we got a little bit of an in house and we got to pay the broker direct. That weren’t real deal actually, that we’re purchasing never got listed, just the broker ended up talking with with the owner direct guy didn’t want to list it. But we ended up bringing it off or through, ended up working, working through it and getting getting the deal across. We’re firm now. So bearishly across the finish line.

Erwin  

So sorry, I don’t think we’ve covered that in the show for a while. You had to pay the broker directly, a

Mike  

lot of times in multifamily. The purchases are paying the broker. So there’s there has

Erwin  

to be a good relationship. They’re there for them to tell you about our property. They don’t have under contract.

Mike  

know for sure, yeah. 100%. But also,

Erwin  

you can’t screw me because but but

Mike  

we’re not in that position. I think we’ve done now I’ve done deals working for, you know, another mutual fund trust. So that relationship is there. But they also know that we’re younger in the industry, and we want to grow. So if we start screwing up relationships, and I’m trying to save 100,000 on commission, I’m never getting any deals again. Right. Right. So yeah, there’s

Erwin  

that trust factor there for sure. That’s awesome. So a couple of things are a lot of things. So I know, it’s easy. How the logistics work for you paying the broker for putting the deal together, you pay them on closing. You have it’s in the agreement, it’s an

Mike  

agreement, it’s done through closing both signed Co Op agreement, I will just say that sometimes they’ll have their own like Co Op agreement, I’ve done it to where I’m brokering out where it’s like a separate contract is I guess it’s a commission Trust Agreement, or essentially, which is just me and the broker saying on this deal. They’ve referred me to this client and the buyer is willing to pay X amount,

Erwin  

right? For the listeners benefit. why would why would an apartment building owner not sign a listing agreement?

Mike  

For two reasons, one they don’t really care to sell. Right? So I think when you see paper in front of you, and over the last couple of years, you know uncertainty in the market, they start saying oh, maybe I should maybe I shouldn’t. But I think it plays a psychological part in the sellers head to say, oh shit, we have something here that serious? Should we should we not? For example, just think yourself you’re not selling someone brings you a good offer rates are going up? You mean two months callback, right? I’ve submitted like massive offers on stuff on portfolios that me as the buyer for, for a client, and the broker know that they’re not selling for 234 years down the road. But he wants to put it in their head that when they do think about it, they’re calling him first. Right? So I think that’s that’s one reason. And one people don’t want to exclusivity. So as a seller buy may come to you and say, Hey, you have buyers, bring them forward, I may go to three other agents in my office, I may go out to a bunch of them and say, Hey, bring me some offers. Right? And not really. And you can probably negotiate commission that way, because no real marketing is being put in place. But they know these bigger brokerages have big buyers, whether there’s, you know, full fledged marketing plays are not. And I think they believe they can potentially save that way.

Erwin  

All right. So then how does it beginner break into this market? To get the same deal that you would get to see the same deal, you would get

Mike  

very tough, very tough, and we’ve had some of the guys on our podcast as well. And they described it as like, like an old maths or an old boys club. Like just everyone wants to stick together. Because if I know you’re a buyer, he’s a buyer, and I have a building come up. But I’m saying you have five or 1020 on your list that are seriously looking. Why would I even consider bringing someone new in there, I have a relationship with you. We’ve been doing deals for 10 years, I don’t care if someone who’s coming in, I don’t even care if the price is higher, because I want to know that, you know, he can close and I have 20 people that with reputations of closing, my seller has an expectation. And if you guys are all meeting that expectation, I’m not gonna bring him in but for right so it’s very hard to crack in. I would say it took me two years before I really started building these relationships that people say, Hey, let’s go for a beer. Hey, what are you doing? Let’s come let’s let’s go for lunch. I did it through. People laugh at me. But I enjoy FaceTime. Like, if I can drive to Toronto, because I know someone’s going to be there five minutes at a building. I’ll go down there. I’ll go down there and say, Hey, what’s going on just to build that bit of relationship? Right? I couldn’t crack through it online and email a phone call. People don’t know who you are, they don’t see your demeanour.

Erwin  

So they don’t see your Instagram stories, and then press move Spanaway

Mike  

on top of all that I just I do think that plays a part while you’re building relationships, right? Like we started running and things like that and I’ll get calls Oh, that was a good run because they have the relationship now. They’re also seeing the social media right or becomes an easy conversation like one of the brokers I know is into sports caught a wind early on that he’s into sports Big Blue J fan, right so when I would see him, you see the Jays game last night, right like small things like that to build a connection outside of Real Estate. He’s like yeah this guy’s a good guy I want to pass him the next deal right in front of people of course entertaining and that’s that’s how I’ve done it I’m sure there’s multiple ways but but yeah it was tough the first couple years no deals nothing I’m like this is tough and that’s where the consistency comes in.

Erwin  

Yeah sounds like no returns are like poor returns for a while nothing was so when you mentioned you bought you did buy two properties off realtor dot Sears and like that was that early days and then what was it about how did it make it how did you make it work because again those properties likely slips through went through many people before you ever saw them.

Mark  

So I think probably the profile of this seller or at least eight I mean I can speak to this better than I can but the two in particular there were not commercial brokers or commercial Realtors right so that’s an advantage to you know, guys that goes by they might not be able to value it properly are they negotiating Yeah, so that’s it so the first one was it was on for a long time like the building was these buildings were on for 400 days I think it was right Holy Cow it was wrong was it so one of the pricing was not right. Right so pricing was an issue the buildings were fine we’ve had in the portfolio now for five years or so it fell through twice and so I think the the advantage of going after realtor deal or realtor.ca or MLS deals let’s call it if you’re a serious buyer is MLS deals may not attract serious buyers they may attract people that are kind of thinking they are first time buyers for example first time building buyers and first time dealing buyers might not know how to finance it properly or not be able to close and so in both situations actually we were not the first to the table the deal had fallen threat the first one the deal have fallen through like twice maybe three times and then finally we were able to close on it the second one this was a kitchenette same thing fell through once maybe twice once and so once it fall I mean you know this like once a deal falls through the cellar is like really sceptical now and like really kind of worries up and and so

Erwin  

yeah, cuz they’re getting grief from their tenants and grief in their property manager. Yeah, so especially didn’t want to sell in the first place.

Mark  

Yeah, so I see as a benefit actually going after MLS deals because either the realtor usually the realtor are not commercial because if they weren’t and they wouldn’t be an MLS right and be sold it would be sold already. And it’s attracting you know, a wide array of buyers some serious maybe some first time and so at some point the seller or the agent is going to get fed up right and so I think with a track record like ours or you know brand and you know, the ability to close puts us in a better position

Mike  

I would say I’m access to 15 years so 15 and under yeah is where you see a lot of that happening because people aren’t familiar in that multifamily space anything bigger you’re getting more educated buyer usually crossed the line or how often do you see like a 40 unit building on MLS anyways, doesn’t usually happen but yeah, the smaller ones is

Erwin  

very interesting. Remember like 10 years ago like one of the really dominant realtors in Hamilton had like a pretty sizable building on the market and this is where the market was getting on the way up so it was really early on the way up and so like you guys were probably there I was there all of our mutual friends were there going through the property it was hilarious the lineup was like you know like this you see it on I never do these things like those those lineups of Realtors for condos. It was like that was all investors. So like we saw all of our friends were all going through the property we saw like we all we all went through everybody went through like three suites or something like that it was that much of a production but I think that was the last one because there’s like there’s way too much demand we don’t need to do these things. Everyone was pissed tennis were pissed property manager was probably pissed for that many people went through and to deal with all this crap right

Mark  

but also also like from the seller point of view not all sellers and I would say probably more more so than not don’t want their tenants know that they’re selling right? It doesn’t sell right or like it just causes you know creates questions and so kind of you know the idea of being off MLS and going with these brokers is easy you kind of have a secrecy too right like so it’s there’s no sign in the front right not posted everywhere.

Erwin  

Lots of serious buyers this serious buyers out there like this pretty competitive isn’t not a good building. Yeah. And then negative cash flow and stable it

Mark  

Gee well there’s more demand for those right it’s more demand for the value adds razors that you know you can add value right so

Erwin  

and the yields are coming down have a night like actually once you’re stabilised What is your yield? What is your cap rate roughly?

Mike  

It depends where it depends where I understand

Erwin  

like very different than orange

Mike  

stabilised now in and around five cap. Wow Yeah. Portfolio stabilised was considered what’s considered stabilised now. That’s the thing like people look at all our left. That’s now a little slightly lower cap rate or there’s no lift on it. It’s fully stabilised. Right so the cap rates are gonna adjust slightly From that, but I would say somewhere around four and a half to five, right?

Erwin  

So so the reality is people really, really cannot live off the cash flow of these things easily. No, no,

Mark  

you have to have fairly big portfolio.

How big? Well, it depends. For people

Mike  

were buying something stabilised, like, sorry, unstabilized. And we’re going through the stabilisation process, and then just reifying out the current debt we have on it, then your cash flow is going to be significant. Yeah. Because if you’re buying a 3 million, for example, you put a million into your 4 million in but now your value is seven and a half, and you only have four and a half million of debt, your cash flow will be probably upwards of 5% cash on cash. Yeah,

Mark  

right. Yeah, it’s true. So yeah, I think a lot of the conversation around kind of, you know, burning and taking all your money out while you’re taking all your money at the trade off of having lower cash flow in the end, like you can cashflow significant if you don’t take all your money. So it depends on what the equity take. Right? So I think that’s, but it goes back to what are the stack of bricks need to do for you. Like if you’re going to take that money, and that’s how you’re living or you can take that and reinvest or, or you just leave your equity in there. And now you can live off. Who knows, I don’t know. 20 units, 40 units and you don’t need you know, you don’t need a tonne, right.

Mike  

Look at the new moi right CMHC. It’s a 1.1 debt service. So as long as your expenses which I would say in a lot of cases, they’re probably slightly more you’re probably just over one and a debt service. So you’re not really cashed

Mark  

right and taking out a lot more but you’re not cash flowing it.

Erwin  

Yeah. And you guys to work pretty hard. Like for example, you mentioned like in your course you say like what are your goals? My goals? I like being a side hustle investor so I’ll stick with my duplex triplex student rentals, right, because I don’t want to be 99 like you guys, young guys really a time, but usually you have the Canadian real estate multifamily was limited podcast.

Mark  

Investing podcast. Yeah, that’s a mouthful. You know,

Erwin  

I can just call Eminem. Eminem reads like literally today? Yeah, they’re probably some issues. Talk to your lawyer.

Mark  

That’s a different law trademark lawyer, I think all separate, like as a new engagement. Yeah. In getting rap battles? You know?

We also,

Erwin  

you know, I’ve had a lot of questioning, what is it? What is it ultimately that you guys that you guys like about what you do? What drove you to do the wreath? And where’s that gonna take you?

Mark  

I think so the setting like mentioned it, like the scaling aspects, right, like the ability to scale, I think it’s two components. One is scaling. But also just to be louder in our marketing, while remaining compliant scaling capital, so that we can scale the portfolio, because there’s definitely benefits in number of units from an efficiency standpoint, you know, a 50 unit building operates more efficiently than a 20 unit building, and to build yet to continue building. I mean, I personally like business building like, this is it’s an it’s not always nine to nine, right, but just this idea of, or this process of creating something from scratch growing it that in itself has intrinsic value. Like I enjoy that. And the financial benefits kind of are there. But yeah, I mean, I think our goal is to really just kind of scale this, how large it’s going to be, I don’t know, it’s like it’s a $50 million fund right now, meaning $50 million in capital, which will buy us probably $130 million of buildings 130 150 or so give or take, depending what the values are. And so that’s step one, is let’s get to $130 million portfolio there.

Mike  

If we have some time here, you asked the question off camera that I think would benefit the listeners about partner, to partner and you see a lot of partnerships happening where there’s just a synergy, but you look at them. And so you guys have the same skill set. Like why would you guys partner together? Right. So that’s always been a topic. I was

Erwin  

someone just like them? Yeah. Which is not what you’re supposed to do.

Mike  

Yeah. And I mean, at the beginning, there’s obviously synergies. Everyone’s excited. Yeah, let’s partner Let’s buy a building. But I think for me, and Mark, it works well, because I have that acquisitions background. And he’s got that marketing and sales background, where I’ve never really been interested in raising capital. I’m not good at it. It is not my thing where Mark enjoys that marketing, building funnels and things like that bringing people in. So it works well in the US. But can you go back to the three buckets? I mean, he’s capital raising I’m acquisitions in our operations kind of works together. Like we’re both in and I think operations at some point in the near future, when we’re when we’re large enough will probably be held by in house property management, maybe a manager of property management, something like that, where we won’t be putting much effort, but I mean, just having two totally different skill sets really, really complements the business where, as mentioned, you see that like, I have friends that are partnering to them like why don’t you just pay him like a consulting fee or something like there’s no need? Don’t get back with the person

every 15 Send of the business, just pay them for the job. The other thing I think about your pay your contractor, you don’t give them equity. Right? Yeah. Yeah.

Mark  

The other thing I think about partnerships, too, is like, what’s the role of partnership? Right. I think, you know, with Mike and I, and I think this is important, too, is that we debate a lot, right. We don’t see eye to eye on everything. And I think that’s super important. I think that’s, you know, I think if, if you agree on everything, I think that’s probably a red flag at some point, right? I think the fact you can have a debate debate challenge, when you see the challenge, that’s super important, not just for partnership just for business growth, right. Like, I think we’re challenging each other all the time. And we have different perspectives on things, right. And I think that, you know, if you didn’t, then one person’s enough to grow something, but you know, if you have two different angles at it, and that’s super, especially now, right, where we’re options, the number of options matter, right, like in terms of, you know, where are we growing? Next? How are we refinancing, there’s so many ways to slice and dice, all decisions, right. And so having multiple brains on it is super critical. We also have a board advisor as well, that provides another perspective to beyond just kind of ours, which is, which is helpful.

Erwin  

So she interesting, brought up the board of advisors, because I wanted to ask a question on competition. And because I find a lot of people out there do this wrong. I’m gonna guess you guys do it, right? Because I’m gonna guess in your board of advisors is probably your previous employer. No, it’s not. Oh, Saudi. How do you guys how do you get along then with your previous employer? Might are

Mike  

more looking at my previous employer? In what sense?

Erwin  

Oh, you were doing acquisitions for you were doing requisitions. Were another read? Yeah,

Mike  

well, that was kind of like a subcontracted job very well, I’m still there working. We understand all the conflict. I’m on my way out, in a sense, they want someone full time in house where I couldn’t commit. But the relationship still still there. If I get stuff that doesn’t work for us, or too large for us gladly pass it along.

Erwin  

Right. So that’s actually I think that’s really important to know, is that, that relationships can be maintained. Because what I find is like, again, I’ve seen out there in the market, literally people steal from other people. Yeah. Right. Like they’ll take their their course or their take their book, and they’ll they’ll just rip it off. Like you learned a lot. You have you have like long time relationships where it used to work. Yeah, right. And you you’re able to keep it, you’re able to maintain a healthy relationship.

Mike  

Yeah, it goes back to like childhood days. It’s just, I think, the understanding right from the beginning, the expectations were set out very loud and clear. So it’s been great. And we’ll be continued to be great. Her.

Erwin  

I think we’re also because you both have you both had that abundant abundance mindset going in? Yeah. And you knew that about each other, versus, you know, some people are just just all about themselves. Yeah. Versus they were, I’m gonna guess that they were they knew that they’re, they’re happy to help groom you to be on your own.

Mike  

Yeah, that relationships different. But yeah, I’ve just came from a very, very young age. So it’s different than most? Yeah.

Erwin  

I’d say you’re lucky. Any final words? Where can people find the podcast? Where can people learn about the fun because they go to the end to learn about the fund or what is

Mark  

known, they can go to our website, peak multifamily.ca, there’s info there, fill out one of the forms, and there’s a lot more info that they can have, like frequently asked questions that, you know, the overview of the fund, like the facts of the fund. And yeah, and you know, anyone’s interested in learning more even determining if it’s right for them, then yeah, we’ll put them in touch with our end or dealing representative, and then they can have that kind of financial conversation with them.

Erwin  

Fantastic. And then, you know, selfishly against someone who’s cheap, I’m gonna watch your social media to see how I can stay on the right side of the Security Standards Commission. Okay, so that’s how they said it.

Mark  

Yeah, yeah. Yeah, it’s actually you know, what’s interesting is, you actually do a lot you can actually do and say a lot, right? You know, there’s a couple of rules of thumb, right? Again, not a lawyer. But here’s what we’ve been told, right? You can talk about returns, right? But they’re not guaranteed, right? You should have a disclaimer, there’s a bunch of things that so it’s actually I don’t know, it’s been a little bit more liberating. In fact, through the process, we’re realising that we can say a lot more than we thought we could. I think we were probably just conservative in general before and just worried that we’re gonna get in trouble. But we can do a lot more than we originally thought. I think we’re a little more confident because we have a chief compliance officer that reviews it. And so gives us I think, a little bit more confidence to say what we’re doing, but you can, you can say a lot, as long as your back end processes, you know, set up properly and how you’re vetting investors and determining suitability and you don’t need an EMD to raise capital. You don’t need that either. But there’s certain rules that you do have to fall, which sounds like a lot aren’t following, right. But to scale up, it’s necessary. Yeah, yeah. Fantastic. All right. And where can people find the podcast? Is the Canadian multifamily investing podcast? You can find that anywhere? Yep. And all the all the platforms typically if you search Canadian multifamily

Mike  

podcast, Apple podcasts. Spotify showed me on all the moves on Amazon. I

Erwin  

was listening to see if any new ones that I’m not on. Yeah, yeah.

Mark  

We weren’t on Amazon or audible. But now we are. I think as of this, we just released a pot an episode yesterday, and to our editor like, Hey, are we on Amazon? Or we’re not on Amazon. Okay, I’ll get you on Amazon.

Erwin  

Right? Yeah. Yeah, but if you don’t know about if you only just recently found out about audible, how many people know audibles does podcast?

Mark  

Yeah, I never. I don’t even know if I’m audible.

Erwin  

on Apple podcasts and Spotify. Yeah, yeah. Those are my two. Yeah. Cool. All right. Thanks so much for coming in. Appreciate it. Thanks for having us. Good show chat.

Erwin  

Before you go if you’re interested in learning more about an alternative means of cash flowing like hundreds of other real estate investors have already then sign up to my newsletter. Sign up for yourself what so many real estate investors are doing to diversify and increase our cash flow. And if you can’t tell I love teaching and sharing this stuff.

 

 

To Listen:

 

On iTunes: https://itunes.apple.com/ca/podcast/truth-about-real-estate-investing…/id1100488294

On Stitcher: http://www.stitcher.com/s?fid=87335&refid=stpr

On Spotify: https://open.spotify.com/show/6Z8yd37AQfQI5DK0J0Xwzz

On Google Podcast: https://podcasts.google.com/feed/aHR0cDovL3d3dy50cnV0aGFib3V0cmVhbGVzdGF0ZWludmVzdGluZy5jYS9mZWVkLw

Youtube: https://youtu.be/Gq92LxvAVGw