** Transcript Auto-Generated**

Transcript:
(00:00) welcome to the truth about real estate investing show I am Canadian investor since 2005 investment specialist realtor since 2010 my team and I have done over $440 million in investment transactions my name is Eran CTO and today we’re going to talk about my guest and I are going to talk about how we one a Canadian can get infinite mortgages in the United States but before we get to that we’re going to talk about uh I haven’t experience this year um I currently have three of my own houses for sale that I’m listing and this will
(00:30) frame uh what I’m seeing in the market so call it a market update again I have three listings uh all best in Market student rentals two in student CA two in St Catherine one in Hamilton I sold one in St Catherine to a family whose child goes to Brock University and they’re going to move in well the sun’s going to move in the student going to move in and rent out rooms to his friends the two others were not attracting the interest I was expecting which is nuts because there is very out very little out there
(00:59) in Supply in terms of uh to buy or to rent uh and I love if you know me you know I love having options when investing I’ll explain my plan was to sell and uh I’m not looking to give away my properties so I put them back up for rent my St Catherine’s property I have a group interested in paying me $4,550 per month inclusive for a house that I’m asking $650,000 for uh we have the deposit already and the new rent would be $10,000 sorry would be the rent would be 10% higher than what I got last year my
(01:36) house in Hamilton is located near mcmas University our showings for rent went through the roof uh in just three days of loan uh we had 15 showings we had actually more than that we had all these Uninvited people asked knock on the door as well to see the house uh we signed a lease with a group of students for $5,950 per month plus utilities that’s an increase of over of around 40% over last year because between the increase in rent and also I’m switching now the utilities from being inclusive to exclusive uh I have first and last
(02:09) month’s rent in hand and uh leases are signed for our house I was asking 850,000 for now these are in my experience are some of the best numbers you’ll see in the market and and as I was ready for Plan B which was to enjoy my higher cash flows and hold for another year um but when I told showing agents what my rents were uh all of a sudden their buyers became interested I’ve taken up the risk of renting up the property uh the rent numbers were uh obviously of interest to the buyers and now I’m sold conditional
(02:40) on my other two listings fingers crossed they firm up uh this is why I love income properties with options as they are they rent for positive cash flow and so I don’t mind holding them I do not mind holding them for another year and based on my expectations and what I’m seeing in the market and also with interest rates expected to be start cutting in in June this June I expect a better market and as I tell the other agents these buying agents I tell them I’m happy to hold on to these properties collect my cash flow and I’ll sell these
(03:10) properties for more money next year Market wise uh this is still the least investor activity I’ve ever seen uh it’s now March so seasonality wise whenever we have a warm winter spring Market starts sooner it doesn’t actually follow the technical definition of one spring is many years I’ve seen February be a hot market and this is a very uh slow spring Market based on what I’m seeing from investors in my expert opinion uh student rentals are one of the top probably top two top three top investment uh strategies in
(03:48) Ontario because the rents are so high uh there’s limited vacancy du and also because we can get regular turnover of tenants students graduate uh for example my Hamilton property the students are graduating uh from their undergraduate programs so they they need to leave they’re going to go home whatever move on in their lives and I have the opportunity to adjust my market rents based on um Market rents uh so again investor demand is at an all-time low uh based on what I’ve seen in my career of being um a coach
(04:20) and realtor specialist to Investments since 2010 uh and again from my experience my properties are quality uh and again Supply extremely low while my rents are at historic highs uh Cher and I will have a hefty tax bill to pay I know many people are asking what we’re going to do about taxes but yeah there’s there’s no avoidance of taxes or death so we have we have significant taxes to pay on those capital gains but to me it’s worth it raising cash and paying down debt will allow us to take advantage of other opportunities as no
(04:52) one knows where this where this recession will take us also one my Hamilton property is is unfortunately part of the rental licensing territory so I don’t even know where that’s going to go anyways next for cherry and I is we’re planning a trip post tax season uh a workation if you’ll call it to visit sunny and warm landlord friendly USA to check out some properties that we intend to buy uh this year we’re going to enjoy some Southern Hospitality Fried Chicken my favorite barbecue a visit to uh the
(05:22) king’s graceand uh you the king of I don’t even know what Elvis was the king of Elvis is Grace anyways Lookout Mountain and the Dukes of Hazard Museum so Terry and I have different very different backgrounds on being raised but uh I you know I gotta see the General Lee I I’m going to take her to Duke Duke the Duke of Hazards Museum I can’t wait as I am a total real estate nerd of course who doesn’t like warm weather I love to make money obviously I’m an investor uh I love to eat good food listen to great music and
(05:56) experience iconic attractions public Service Announcement I seeing some interesting stuff on social media one podcast uh with a bankrupt host is just released a new episode he’s back uh there’s another Guru who’s running ads saying that they are basically financially free even though I know they have six separate parties suing them uh and they are uh former joint ventor partners and coaching clients so wow just wow they even display the testimonial in the ad from a friend of mine who’s suing them
(06:30) so buy or beware do your own due diligence before you invest with anyone do 10 reference checks that’s what I do the more reference checks who made money and paid out the better the better the reference it’s hard to fake being paid cash money unless it’s a pony scheme but Pony schemes generally cannot last a down cycle which is why it’s good a good idea to only invest in a strategy a business partner investment that’s been through the more than one cycle sadly businesses and so-called experts are are
(07:00) going bankrupt right now it’s all part of the cycle U folks who got too greedy at the wrong time they’re they’re it’s unfortunate uh High leverage strategies or difficult flips or expensive cottages on Airbnb in a recession it can be done by well capitalized investors who are strategic bought for Great Value and big caveat anyone who survives this period should do quite well that’s why survival should always be the first priority of any investor uh this is uh and this is done by having multiple cash flows
(07:34) having multiple sources of cash flow which is really important hence cherry and I are working towards building a sixf figure cash flow from single family homes in landlord friendly USA it’s easier there and when there’s no rent control your rents can go up I literally reviewed one of my properties and and I’m getting I’m under rented by almost $1,400 on one property $1,400 would make a big dent to my cash flow anyways if you’re interested in learning more about how cherry and I are investing we are
(08:02) hosting a US investment Workshop Saturday morning April 13th in our office in Oakville and online via Zoom webinar we’ve already sold half the in-person tickets so these always sell out and people always last minute ask me if there’s anything I can do I can’t there’s a whole thing called fire code so we can only have so many people in the office so to avoid disappointment I’ve got the link in the show notes we will be covering economic fundamentals uh for my research the numbers behind each investment corporate
(08:32) setup tax implications and of course financing which is and financing is commercial style which we’ll cover in today’s show uh and if you don’t know financing is the ideal style of of mortgages should anyone want a scalable portfolio because you need a scalable portfolio in order to generate any sort of significant amount of cash flow or returns uh so to give an example I just had a client close on a property uh an 1100t Bungalow built in 1981 I mentioned 1981 81 because that is younger than the
(09:03) vast majority of my portfolio in Memphis Tennessee price was $95,000 American renovation budget 25,000 American rent is $1,100 per month plus utilities American for a single family detached house not to mention there’s no rank control no landl tenant board no rtb for those folks in BC no residential tendency act my client is happy with how much he is going to cash flow and I couldn’t be happier for him on to this we show today we have mortgage broker Scott Dillingham from Windsor Ontario who as far as I
(09:36) know is the only investor specialist who can help Canadian Canadians with mortgages in both Canada and the United States Scott was the number one mortgage broker when he was working at one of Canada’s biggest banks you all know the name of it but we’re not naming names uh likely a quarter of you have bank accounts at this at this firm I know I do uh and Scott I’m a past client of Scotts as well he’s got me several mortgages and my clients mortgages at cheap rates and I’m actually selling one
(10:04) of them Scott has since opened his own mortgage broker called l City he shares how on today’s show he shares how American debt service coverage ratio mortgages work uh that’s what they’re called that’s what they call in the states uh we have them here as well for anyone who does commercial real estate meaning apartment buildings or if you’re buying like a strip mall these are all debt service coverage ratio mortgages and uh we’re going to talk about why this the most effective way to
(10:29) to finance uh income properties and this is the only really the only way to do it on this in this business sense scalable format Scott is a real estate investor himself his portfolio is actually significantly large larger than mine he’s got way more do doors than I do for sure he shares some of his own challenges as a windsor landlord and how he and how and where he plans to buy his next investment property and why for longtime investors you’ll remember the days around 10 years ago when we used to negotiate seller credits um if you’re
(10:56) new to this don’t worry Scott’s going to explain it uh where we were able to bring down our dam payments thus improving our return on investment we’re going to roll back the calendar as seller credits are more of a norm in the US especially with uh new construction as Builders are as it’s a slow Market in the states in certain States many states uh so Builders are offering more seller credits uh while we are in a mar slower Market with historically High interest rates SC of Scott of course will be our
(11:23) mortgage expert guest speaker at our next us investment Workshop that I mentioned earlier on Saturday April 13th at our office again links in the show notes we’ll also have everyone’s favorite real estate accountant my wife Cherry Chan CEO uh and explaining the Canan side of the taxes and also we have all all the executives from share my friends at share Andrew Kim Demitri bin Carmen D Silva and they’re again they’re all spiked to their respective are respective areas of expertise again Linked In the show notes uh you can also
(11:53) reach out to Scott and team at iWin lens city.ca I I have the email in the show notes again that’s iWin lens city.ca i w n l n d CI T y.ca it’s a custom email address made specially for you my 17 listeners please enjoy the [Music] show hi Scott what’s keeping you busy these days all kinds of stuff irn I’m getting my hands wet in all kinds of different projects um one of the biggest and that I’m most excited about is the US lending yeah let’s dig into that should say investing us investing but I do the
(12:39) lending we are well us investing doesn’t work with like like most people will say that investing in real estate doesn’t work without lending like without unless unless we can borrow for for good rates right Y and that’s honestly what’s kept me out States for for like back in ‘ 08 like any sort of real estate education if you’re around any of it it was like widely known right that the US had many FR landlord friendly areas like and then and but the lending was never there so then pretty much everyone was forced to
(13:09) go to Alberta many people got hurt real bad with the oil crash many people made a ton of money in the states at the same time right after especially after the crash like you know like for Ryan P like mutual friend of ours like him and his clients made a killing after the financial crisis uh but again most of us didn’t have the we didn’t have that kind of capital to take advantage and the lending facilities weren’t there and I didn’t know about lending facilities until you told me about it yeah yeah no that’s true and I
(13:44) stumbled upon it sort of by accident myself not really though can I share that can I share the story yeah well you again I’ll go through it in the beginning but you know you’re big time for sure you at the Bay Street Bank you were the number one guy right investor focused so you had people’s attention so it didn’t just stumble by accident no absolutely and and that’s where the problem started actually was was at the bank because people and this is how long ago the the demand was right when I was at the bank
(14:24) people wanted to buy in the states M and I kept asking the bank you know when are we doing this when are we doing this because they’re expanding into the states they’ve got branches there like oh eventually so then I left the bank nothing happened um and then they opened up their version of us lending which is you can buy your secondary home or like a cottage there for yourself yeah so professional use yeah yes and you’re not allowed to rent it out at all right wasn’t that yeah like it’s not like I
(14:56) think if you rent it out afterwards what are they going to do kind of thing you know what I mean but on paper you weren’t allowed to yeah on the closing date it’s supposed to be for personal use so the thing not a scalable model to accumulate a portfolio of properties no you can get one right you get one and tally scalable yeah yeah great yeah that’s great it’s better than nothing yeah but then you know I left the bank started my own company lens City because uh I just needed more options for clients that was
(15:29) really it it was all about the options and I hated making a relationship with a client at the bank getting them their five properties because that was the and then shaking their hand and saying see you later right so I wanted more options so I started lending uh through Dominion Lending and uh we have a commercial team and a residential team so then you know I’m getting in inquiries from from investors all the time saying let me know when you have us lending CU I want to invest there MH and then it it kept happening and I’m like
(16:08) okay like this is this is something and and then I thought back to my bank days and I’m like I literally left the bank because I wanted more options for investors and then here’s the Canadian investing World which is sort of crumbling I hate to say it like it doesn’t you know it needs fixing I love Canada and you know I still invest here but it needs fixing and investors are coming to me saying hey you know we want more options and so all comes down to options then here we are I I was born in the states so I’m like all right well
(16:43) I’m going to figure out what I need to do to be able to lend over there and uh I figured it out and uh here we are now we do Residential and Commercial over there too can you elaborate more how did you figure it out you a special circumstances that not everybody else has yeah so I actually got to give my neighbor credits um this was a a goal of mine right to get us lending and you know in life when and pretty much no one has cracked it as far as I know what’s that no one from our community has cracked this no for
(17:19) sure for sure so this is super cool um but the um like in life whenever anything’s meant to be you know how it sort of happens I don’t have an example to give you per se but everybody who’s listening to this I’m sure something in their life it just happened and it was like meant to be you know what I’ll give you an example actually I do have an example one day I’m on the highway and I’m driving actually I had to go to a real estate event and I’m in my lane and out of nowhere and this has never happened
(17:50) to me before my car went from the Middle Lane to the left lane like the wind took me one whole Lane to the left out of nowhere it’s never happen happen to me like that like you feel the wind but to completely move you but at that same simultaneous time a truck’s tire blew right to the right of me and he merged into my lane so it was like one of those things like it was meant to be that I lived you know what I mean and in life those things happen and so this is exactly how it happened with the US lending so I had a a dream and and a
(18:21) vision of how to do this like I want to do it but the question was how to do it so I think in life when you start opening up your eyes and looking for things they come to you and that’s exactly what happen so my neighbor um who’s also a mortgage broker we do like a mastermind and we talk and have coffee and just figure out what’s working what’s not working and throw ideas off each other to grow and he said you know what one of my past clients he moved to the states and he works at this lender and he was telling
(18:55) me like if any Canadians want to um buy over there that he could help them and he’s like you know what you should talk to them because I told them like the US is something I want to do I talked to the guy and it morphed from a simple referring people to them to why don’t you join us and we can do this and uh that’s what happened so um from there I joined them and then of course I joined a bunch of other lenders as well um so we have multiple options for the clients um but that’s how just a a mastermind
(19:28) session with one of my neighbors right so combine your track record with networking and the opportunity appeared absolutely think it does for whatever you want in life I believe whatever you want if you start seeking it you will find it yeah I’m seeking uh away from the tyranny of being a lario landlord and all the government’s levels of government hating me I still have to return the call from my bylaw officer as apparently a couple my properties fall under uh rental licensing so I’m going I’m just going to whine and
(20:05) say my rents aren’t going up and I can’t really can’t afford this there’s there’s not enough cash flow to afford like the $2,000 plus dollars to to comply to your rental licensing standard and I’m not renting the students anyway so I’m not I’m not the people you’re chasing everything my basements were done with permits you your city inspectors already been semi property I don’t know why you’re bothering me anyways I digress no that’s a problem though everywhere you
(20:30) bring up a valid point though even in Winter they’re trying to make they’re testing it in certain districts yeah but they want rental licensing and the landlords are pushing back and actually they’ve started to sue the city and they’re saying no like our property meets the code and your rules don’t allow for income to be generated from the property and we’re already tight so with the interest rates right so yeah problem everywhere yeah and you know I’m for some sum like like I’m a pragmatist
(21:01) I’m all for like protecting the people’s lives but for example part of the rental licensing requirement is an Esa electrician inspection every two years if I don’t touch the electrical even if I do touch touch the electrical I need a permit for it anyways so why do I need it inspect it as well every two years yeah I think as a landlord you know what I mean it might not be a bad idea just like you have to regularly check smoke detectors right sure they’re good I think that might not be a bad thing for an an investor to to
(21:34) check them right because tenants can tamper with it right so I think from that standpoint it’s okay but to have Esa come in and do all that like Overkill that’s crazy oh and also Ling requires a annual fire inspection which is practical right which Sol which you know solves your your your objection right like solves the problem of smoke alarms right of literally have someone from the fire department in the property that’s that makes a lot of sense but an electrician when you haven’t touched an
(22:01) electrical that makes no sense I I agree I agree might as well get a plumbing inspection too while you’re at it don’t give them ideas true you touch Plumbing Haven it inspected yeah anyways so with the lenders that you signed up in the states like these are like some of them were or like Wall Street like they’re not just they’re not fly by night Regional Banks some of these are as big time yeah yeah yeah no they’re they’re they’re big lenders um like the biggest how names are they not yeah I mean I
(22:37) don’t want to throw out any names here per se but uh yeah we we have some very very big lenders um I’m getting another part of my mortgage license it’s called the M uh n MLS over there so then we can do even more things for investors that license I didn’t it wasn’t my go-to because that one’s more for like the owner occupied stuff and that’s not our Target client um but what it will do is it will allow us that when we have you know an investor who invests over there and they build up a credit score it just
(23:15) gives us more options to potentially get them lower interest rates right right so we are looking that yeah I was still imagine some of your clientele like uh we had when we sent out a survey uh I think 10% of people were actually exploring moving to the states yeah so I imagine that’s within your clientele as well that you have a percentage that will eventually want to move their residents to there as well or at least buy a home buy buy a secondary home whatever absolutely we’ve got a client right now we’re refinancing their home
(23:47) they didn’t know what the options were and so they they’re a snowbird so they live in Florida for half the year and then um actually Windsor for the other half of the year and um they bought at cash right so we’re helping them to refinance so so yes I mean it is it is a thing and we do have lenders that we can refer those files to right now um but soon I will be able to do them but our Niche is absolutely the investor though so Focus there but I actually met a gentleman from Winnipeg when I was in
(24:16) Texas and uh like he was having trouble getting financing for his joint venture Partners I said you gota meet Scott so you’re can so CU he he uh he’s diversifying the states as well uh from Winnipeg uh and he’s there regularly and again like his Jo Venture partners are all back in Winnipeg but like so they couldn’t figure out a way that made sense to get financing in the states like oh here you me Scott so I sent you guys I sent Jillian and him an email to introduce each other um but I think
(24:51) folks need to appreciate that you are an investor yourself can you touch on what your Ontario portfolio is like yeah yeah so at the peak of it it went up to eight properties I did sell off a few um I used the proceeds to buy my office cash now my office um we had it fully rented preco and then Co came and then we stopped renting it out but we’re actually renting it out now so even my office is an investment property I specifically bought it and we subdivided and there’s all these little offices and things like that um fully tenanted um we
(25:30) should be able to get uh 8 8,000 plus HST per month in total rent building and that’s including us still having space in there um so really attractive and uh I bought that four years ago for like 420,000 so the 2% rule applies so I love that because with commercial you don’t have the same rules as residential right commercial you have a lot of the US style rules right you don’t pay the rent they’re out in two weeks it’s it’s much better um so I really really like that um so just imagine like a Wei workor that’s kind of
(26:08) what it is but we’ve got a lot more private spaces where wework is just very open so a lot of courses out there are teaching like high leverage and you’re you’re actually you’re in the business of providing people leverage why the decision to buy all cash it was um I guess to be honest at the time it was because I didn’t understand commercial that well I had worked at the bank and I had worked with commercial clients and referred them to commercial people within the bank um but having one
(26:41) lender and the way that that lender did it was was just that you know you had to refer the file over to somebody in commercial I just wasn’t aware of all the options right so um and what I did I was strategic is I sold the properties that I knew an investor would buy MH um that had you know good numbers and stuff that way they could sell quickly because I had to um the seller of the property that I bought uh they were under he didn’t tell me at the time but I found it after but they were kind of under financial
(27:15) distress so they really needed the money from the sale so it had to be a quick close so it just like made the most sense um I didn’t want to sell a bunch of stocks and have capital gains and stuff like that and mind you rental properties have capital too but I have only renovated all of them too like I turn them all over so I had a lot of uh Capital cost allowance to minimize the capital gain so um it just yeah made the most sense and and that’s what I did um the other thing too though so I’d say
(27:44) lack of knowledge is about 80% of it but the other thing too is when you start a business you want to keep your expenses as low as you can so my thought was if I own the building right there’s no any expense on it besides taxes and utilities that it’ll work and I mean it did it served its purpose right during Co when nobody even used the building um it was great to have no money on it right so and that was what allowed a lot of yeah that’s what allowed a lot of small businesses to survive anyone who
(28:13) owned their building especially outright they were able to survive versus anyone who had rent or big mortgage payments they didn’t do so well in the pandemic yeah yeah so that helped right so that’s a blessing and disguise but now we’re looking at taking out funds on it right because want to invest more in the states and before talking about the states though let’s talk ID money yes idle money there so uh yes we’ll talk about the states why not more property in Ontario you live in W Ontario which is a which
(28:44) from my research should be a great place to invest in my you know I don’t live there but from an outsider point of view like there’s not there’s probably not many better places in Ontario to invest than Windsor with your affordability and the job story that’s going on yeah it’s it is a great area to invest I I’m very Pro Canada and and I know you are too I just want to announce that I don’t want people to think we’re we’re against Canada um when there you’re right there’s lots of good areas um we just
(29:14) got um a listing that I shared with some investors the purchase price is 500,000 uh it’s got three units and it can rent for 5,000 a month right so really when I grew up up into the investing world right the 1% rule was was what we were told is is good so if you can rent a home for 1% of its its value yeah then you’ve got a really strong property so I mean they’re here the properties are here but that’s not my challenge right my challenge is the system and that’s where I think things are broken now things are improving I
(29:54) just read an article the other day I wish I knew the source and I would it here but I don’t but they’re saying you know the Ontario tribe they actually hired a bunch more people again so they did a round of hiring in the past and they’re hiring a bunch more again to really shorten the weit times so I think that’s important because investors waiting eight months to get a non-paying tenant out is a nightmare that can best case that’s like a best case though yeah and that that can absolutely bankrupt
(30:27) someone and in fact I’ve seen it do that for certain investors right depending large your portfolio or small it is so you you’ve got that problem and I you know I’ve got a great story that I can share with you about that problem um but then the other thing is is rent control so you look and I feel for the tenants too I I want to state that like it sucks to live in a home when you’re on a fixed income and then if you’re Ren of skyrockets like that does suck right but at the same point um we don’t control where the
(31:02) interest rates are going and what they’re doing and when they went up people renewed even myself on one of my properties I had to renew and my property went from cash flowing a couple hundred dollars a month to actually losing 1,800 which is crazy because my mortgage just the renewal rates were four times higher than what I what I had it at so you know for an investor most people can’t take that type of a loss so it’s it’s it’s huge so the lack of rent control I think is a problem I believe if there was a no rent control
(31:41) let’s say and the rat Skyrocket like that and you’re going to lose your home right then you can raise the rent and it you know what it does suck if that tenant can’t pay but they could find somewhere else as well that might be affordable to them if they can’t pay the rent and then you put someone in who who can afford the rent so it’s a lateral thing but um in Canada we don’t have that ability so the landlord eats it all um yes and and I joke been joking with people that uh we are charitable in
(32:13) that we are subsidizing all the tenants housing inflation yeah not all of it but a good portion of it since we can only raise rents 2.5% when inflation’s for like seven it’s true and I saw this Tik Tok video and it was so good uh and it said something like you know if I were to go into the bank and Rob them for $10,000 I would go to jail but as a tenant I’m allowed to do that without really any penalty in Canada I’m is your right not pay the rent and live in the home for all this time it is your right
(32:49) I’m not a criminal here some free legal a too he’s a free lawyer yeah so like that should be a crime and in the states as you know certain states it is a crime if you don’t pay a rent and you can go to jail for it in certain States that’s the key part is that people like America is different just like states are different counties are different no different than parts of Canada are different yeah Alberta does not have the same problems that Ontario does for sure but they’re trying to force rent control
(33:20) in Alberta I won’t be surprised if we see something for like Calgary it’s just because they’re just uh you know like that’s another that’s another topic for another day sorry before you were recording though you were mentioned that your own story because you have a property you want you have listed right now yeah yeah yeah so the one that I’m actually losing 1,800 a month it doesn’t make sense to keep it right why keep a weak property so you want to sell that take your capital and reinvest into
(33:49) something that makes you money it’s it’s a smart business decision I can’t control the rates right now and and they are coming down so like you know I see some L at the end of the tunnel um but it is what it is so this specific property um you know I put it up for sale because I want to redeploy the capital somewhere else and then um just during this process the tenants were really good to work with uh in the beginning they were um allowing us to to show the property and things like that um and this week alone they text the
(34:24) realtor and they’re like don’t text me again we’re not allowing you access to show this property I’ll report you uh if you text me again like that’s literally what they said to the the realtor um so you know you got that problem then they also um I don’t know what they did specifically um because they’re giving multiple stories like the one kid said oh I you know I spilled a water bottle in the basement and then another child told a contractor that went through there that he fixed the water leak
(34:58) whatever that means but anyways I got a quote for like 10 Grandin of damage in the basement so I feel like I don’t know and I don’t want to point fingers but it feels like you know that happened right before a showing and it just seems like they’re trying to make it so the property doesn’t sell right they’re avoiding the showings right um they it wasn’t flooded the basement but there was enough damage that to rip up the flooring trim all that stuff 10 grand you know what I mean like week or time
(35:27) too to get it done yeah and I don’t even know if I want to get it done while they’re there because is is it going to happen again do you know what I mean like already happened once and then so for me to process the eviction right if if that’s what we’re doing here eight months maybe longer right of of this so it’s just it’s not a good scenario you know what I mean it is what it is so it doesn’t matter if you’re a new investor or an experienced investor these problems can apply to anybody that invests here
(36:01) anywhere on Ontario yeah potentially BC as well is that before before we were recording I was saying I would pay them the 10,000 to leave because this is what this is the this is the situation that we’re facing onario is that we are we don’t have control over our own properties um it is a almost a standard operating procedure to buy out your tenant to compensate them for their moving expenses and the grief of moving in the figure of you know 5 to 25,000 yeah and uh but this that doesn’t happen in the states not in the right
(36:38) ones not in the right ones it shouldn’t be that way I think I agree In fairness on both sides I think there has to be because I I got to say too you know seeing lots of clients and stuff there’s a lot of landlords that don’t care they’re actually very bad landlords oh yeah so I understand the tenants and how they feel in certain cases when you’re a good landlord and you’re doing all the things properly for these things to be allowed to happen to you I completely disagree with yeah yeah the failures of the
(37:09) landlord tenant board are the worst for the tenants because they often have nowhere else to go and they have real problems yeah right say your problem was a say your property had a had truly had a leaking basement and the landlord wasn’t willing to deal with it you know that means mold that means sewage that means terrible Health implications right and that same tenant will need eight months to get a hearing the landord tenant board right to get any sort of forced action on it like it’s ridiculous Y and and the other
(37:40) thing too is like because when I heard that from the showing from the realtor that did the showing I called my property manager and I’m like hey there’s water in the basement send somebody out to fix it they called the tenant and the tenant’s like oh no there’s no there’s no issue here everything’s fine there’s no water do you know what I mean not only are they like hiding it but they’re they’re not announcing challenges which could cause more challenges right like mold you just
(38:05) said mold Could Happen yeah yeah so craziness craziness and then what are your plans to do with the with the proceeds if it ever sells yeah this is a great this is a great uh promotion for your property yeah I’m not sharing the address with any’s the address the realtor um who want a motivated seller the uh the the proceeds yeah I mean I want to uh invest in the states uh that’s that’s the goal um and and I’m not going to like completely exit Canada I want to invest here I love the commercial thing that we’re doing with
(38:45) my office uh that is duplicatable and repeatable right and and scalable um so I want to continue that right so there’s a lot of good things in Canada it’s just the states when it comes to residential properties in the states that I like you can get so much more income so much more flexibility um I don’t even know if this the word but there’s a pride of rent toship in in the states and areas that I’m looking at um it’s not like I don’t know it’s hard to explain you got to see it believe
(39:16) it uh what What markets are you targeting for for your own investments just like you I love Texas uh I love Texas I tell Texas but how can you tell I like Texas I don’t know give it away I just have this feeling for anyone who’s just listening I’m wearing my Texas hat so yeah yeah Texas is cool did you know this is more of a did you know but did you know that Texas has the legal right to be its own country if it wants to oh my God that’s probably that’s probably on the horizon it totally can be its own
(39:51) country um it can separate from the states no problem if they wanted to yeah um let me just add though like I doubt it will happen but it’s a great leverage tool to get what they want in in the negotiations with the federal government right like we see the same posturing we’ve seen the same posturing the P from like Quebec and now from Alberta and that got them benefits right Quebec Quebec as a province benefited from it Alberta will benefit from their posturing as well and I’m sure Texas will gain from it as well I can’t see
(40:17) them actually separating no for sure I don’t see it either um but I also like uh Ohio and I like certain parts of Michigan because Michigan is really close for me it’s literally I just cross a bridge because I’m in Windsor right so I just cross your bridge and there’s Michigan and you know driving through and going shopping with the family and because there’s all these really nice malls in Michigan so we’ll make a you know a fun day of it we’ll go see the mall but we’re also driving through the neighborhoods and
(40:44) stuff there’s some really nice areas and uh Michigan and Ohio have really cheap real estate prices so it’s just different different targets right for appreciation I think I like the southern states better um if I’m looking for cheap real estate with maybe like a stronger cash flow ratio maybe not dollars in the bank but ratio obviously Ohio and and Michigan will give you a higher ratio of cash flow um but yeah just buy a little bit here a little bit there um want to get some airbnbs in Florida as
(41:21) well so then you know in the when it’s not rented it’s available for myself if I want to use it know let me know what’s available sure the ni thing about Florida is like nobody can beat that weather you know what I mean yeah like maybe California can but California is pricey uh and also you know you and I are our East Coast folks which is like I should correct myself because there is no Coast in Ontario we don’t actually touch the ocean but you know what I mean we’re Standard Time Florida is just
(41:49) straight to South for us um and I just want for listeners benefit I too agree that I want to go south um cuz for example you mentioned Ohio uh Columbus Ohio is getting an Intel plant uh so that’ll be thousands of jobs it’s a multi multi- it’s a several billion dollar investment but also Phoenix Arizona is getting the tsmc Taiwan seg conductor manufacturing company is building like Phoenix there’s someone else I’m gonna look it up right now but there um there’s a Sam not Sams in Austin Samsung’s in Austin Austin that’s
(42:22) it okay yeah yeah yeah so there you go I was out I was I was probably making security nervous by standing on the property taking [Laughter] pictures anyways uh but so when investors ask me like oh how do I choose like um like I I say to them like okay so you’re say for example you work in manufacturing microchips you an employee of the you can you’re you’re qualified to work for Intel or tsmc right which you choose to live in Columbus Ohio or Phoenix Arizona and not one person has told me they’d rather live in Columbus Ohio than
(42:56) Phoenix Arizona so I will prefer to invest South right because that’s gener really demographically like like people have roots and family whatnot but you know for someone who’s that doesn’t have Roots anywhere and there’re moving specifically for work I’m going to guess that tsmc will be have more luck recruiting for Phoenix Arizona than Columbus Ohio hence why like Columbus Ohio on paper makes a ton of sense but again like demographically and we see it demographically as well it’s generally
(43:26) people have moved South for the better weather like largely for the better weather yep and it’s the same as here right we all live in different locations for certain reasons yeah right so like you said you have to come up with your why like why do you want to invest there what is it you like about the area um I like making money that’s why I like investing there yeah but I mean in both you got to admit Phoenix Arizona and Ohio you’re gonna make money in both but it’s just like you know yeah just for me because I
(43:57) want I want like every check mark in my favor and also because my plan is to buy in like you know Carolina’s Alabama Texas Tennessee Georgia you know I only have so many dollars to stretch yeah and the other thing too just for the listeners here the reason I like Michigan and Ohio is they’re so close to me like I’m in Windsor Ohio is maybe two hours away and Michigan like I said I just drive across the bridge and it’s right there so that there’s a level of convenience for me but people in GTA
(44:29) like yourself you don’t have that super close proximity I mean you got Buffalo New York I’ve had a lot of investors buying Buffalo which did a it was a duplex they bought it for 220 and it rents for about 3,000 a month yeah um but still I agree with you right the southern states I think it’s where it’s at and like you said it checks off more ticket boxes yeah I think I heard some things about Buffalo’s becoming more tenant friendly so I didn’t like those Rumblings that could be that could be
(45:02) I’ve not researched it as an area that I want to invest in so I didn’t look that far into it so Scott tell me about how a US mortgage works for a Canadian because um I find almost nobody knows how these things work including myself until you brought it up to me back in like August 2023 yeah so pretty much you want to buy in a company name or limited partnership we do have it’s very few lenders but we can close in the personal name but if you want best rates best terms right you want to close in an
(45:41) entity and a COR now I’m not licensed for tax advice I know Cherry is do you have any advice from her from a tax perspective on what’s better between personal versus limited partnership are you allowed to say that uh I’ll just you know give the regular disclaimer I’m not an accountant go talk to your accountant uh but personal is seems to be more for people who are going to be very small scale okay right because uh the accounting fees are significant if you’re going to if you have a corporation of any sort right
(46:16) because for example if for investors in Canada if you already have a corporation you know what your fees are like and you should expect to to you know to have basically the same in the states right that’s the cost of doing business for a multinational bu Investment Company right and so my advice to clients is uh this us investing doesn’t really make sense unless you buy at least three properties so then you can generate enough cash flow to cover all these extra expenses and overhead right and if you’re going to go
(46:43) that if you’re going to own three or more and your plan is to grow because my first for example my plan is to grow to 20 30 properties like it makes sense that I go LP format at least yeah right and and that’s the importance of having a good team because your uh your accountant needs to be able to talk to your mortgage person so that you’re all in the same page because what’s optimized for tax is not necessarily optimized for lend for borrowing yep because you do not want to get this wrong sure but no you you bring up good
(47:14) points and and that that’s exactly it I think that’s why the lenders prefer it too so then the down payments they can range okay and generally speaking the more money down you do up to 50% that’ll get you the best rates so the very smallest down payment I saw it’s only available for Rock Solid deals is 25 down but 90% of the lenders are going to want 30% down or more okay now where they get the or more from is because the other thing that they look for is is the cash flow of the property so if the
(47:59) property has a weak cash flow some of the lenders are going to want you to increase your down payment to the point where have positive cash flow so that’s why it can go higher but we have other lenders that don’t care what the DCR number is but what they’ll do is they’ll charge you a higher rate because it’s riskier for them to lend on properties that don’t make as much money so then they just increase the rate but keep the down payment small so kind of how that starts but for a Canadian uh buying and it’s actually
(48:30) any foreign buyer doesn’t have to be Canadian so if you’re listening to this from Mexico that you know this still applies yeah um they don’t look at your like you don’t need a credit score in the states um they don’t even look at your income at all um what we have to supply them is pretty much your Canadian credit report and they’re not even really looking at the score uh they want you to be a homeowner in Canada or own an investment property um because they don’t want to lend to someone who has no
(49:00) experience do you know what I mean that’s kind of their thing um or or may think you’re trying to buy something to move into ver have your home here then you’re less likely yeah exactly exactly and so those are things that they but these requirements are all very minor super minor yeah it’s so easy um and then of your home that you have if you have a mortgage on it they want to make sure that you don’t have any late payments on your mortgage so that’s really what they’re looking for from
(49:31) your Canadian credit they’re not looking at your score um they’re not looking at uh the other items as well so um from that uh they’ll move forward now you know your down payment they do check a 60-day minimum some lenders want a little more but the smallest one that we have is 60 days um right anti money laundering rules just like Canada Canada has 90 days they want 60 days of proof of where your funds are at and they want the funds to be in the states so you’ve got to really transfer the funds at least 30 days before the
(50:11) closing okay just so it sits there so that’s a requirement um some lenders you can sign fully remote so you don’t have to leave Canada at all some want you to at least sign with um a notary or someone in the states sign with someone in the states um so it all depends and that’s part of our Discovery call that we have with clients is we find out if they have the capacity to go to the States because if you can you will get better pricing because the lenders right you got to think of it from their Viewpoint their is if they can reduce
(50:46) the risk yeah then that you get a better rate so so if you can go to the states it’s less risky to them because you’re a validated person yeah you get the better rates yeah I’m down for that I’m down I’m cheap I’m coming N I come the property too you know what I mean so it’s it’s worth it the view from the US side’s better too so yeah yeah so that’s really it like I know I’m I’m being so high level um the pre-approval process it is really is there that much beyond the high level
(51:20) though no no I mean there’s there’s rules and things that they look for it’s all pretty standard and if client is following like you said at the beginning you leverage your team properly and if they’re following Our advice and the realtor’s advice like we’re help you to make it work right so there’s not going to be a big thing there is an application you got to fill out there’s little things like that but we help you with all of that um but yeah super super simple I had a great point I forget
(51:47) where I was going with it but um a good point yeah me getting a be lender mortgage is worse than this process yeah yeah and they give me they’ve been giving me crap ltvs too it’s me Equity takeouts even though I have lots of cash and lots of equity like this is start to to put words in your mouth but actually apologies because you actually said it uh you said at the at the last us work investing Workshop we we had I believe your words were it is 10 times easier to borrow money and build a portfolio in the states than it
(52:20) is in Canada 10 times easier yeah yeah they just want to see you have really the down payment they do want you depending on the lender this is another condition between 6 months to 12 months of of payments um that can even come from a line of credit so you don’t even have to have the money in your bank account but they just want to make sure that you can pay it in case there’s a vacancy or whatever now those funds they do not have to be earmarked so on a future purchase you can use those same funds to
(52:51) count as your payments right you don’t have to keep growing that um but yeah then from there it’s super easy it’s it’s simple now I want to share something with everybody too that we discussed and that’s the seller credits you think that’s yeah yeah yeah yeah because we we used to have those yes the good old days yeah please explain because I haven’t we haven’t talked about in the show we haven’t talked about it on the show for I don’t know if ever because I don’t when was
(53:19) the last time we could do seller credits in in Ontario I honestly Irwin probably 10 years ago because when I first it was acceptable we actually did it in Canada as someone’s down payments so the purchase price was 200 the seller credit was 10 grand to be applied as the down payment and the lenders were okay with it when I first first started right right right and then it went away it was gone so for the listeners benefit to catch them up uh around 10 years ago we were able to um get sell our credits for
(53:50) for uh our closing cost for example that was the most common one we’d ask for and then any sort of we’d ask for even seller credits for any sort of deficiencies we’d find in the home inspection like say the electrical is bad so we need like $5,000 we’d asked for a credit uh in in the in schedule a of the uh agreement of purchase and sale so it was all above board lenders see it all right that all stopped like around 10 years ago as well yeah yep but they they have it in the states so the right because everybody wants the
(54:27) best rate and by default if you look at the state’s rates versus Canada’s rates they are higher in the states than in Canada by default doesn’t matter what lender you’re going to um it’s just how their Market is we have lower rates here so what you do as a Canadian who’s buying over there is you ask for a seller credit I’ve spoken to a few realtors in the states and they said anywhere between two two to 3% of the purchase price is extremely common over there like extremely common now I’ve done the math for many
(55:07) investors um and uh you make out much better getting the credit and I’ll explain why in a second if you lower the purchase price on the home now ideally you want to do both right you want to try to negotiate a lower purchase price and also get a credit but if the seller’s being really tough MH get the credit okay now what we do is we can use some of that credit there’s limits to how much we can use but we can use some of that credit to buy down your interest rates so right now the lenders depending
(55:39) on everything and I’m going to like just a blanket statement rates the average is between eight to nine and a half and they’re so different because in the States you can make your mortgage fully open from day one but that cost you 1% in the rate to do that that um but then as an investor right you can refinance whatever you want to do right it gives you flexibilities also certain States like New York right there’s higher rates if you’re fully open you can do a bur then exactly you refinance cheaply in
(56:10) yeah you can refinance after post renovation exactly so so that’s why I’m giving you such a range right so 8% is just the standard um n and a half is you want it fully open like you’re good to go but then you can apply the seller credit and the seller credit can get your rate down to as low as 6.
(56:32) 5 that’s the lowest that the lender will go or that I’ve seen A lender be willing to go to um as of today now it changes right so in December the lowest they call it the floor rate the floor rate in December was 7% but now it’s come down to six and a half so I suspect as the rates drop in the states that the floor rates will also come down meaning you can secure that that lower rate but just by adding um roughly let me see if I’ve got the deal real quick I’m going to pull it up here uh I know I have it saved but we worked on one and I
(57:09) actually presented it to your group and I just want to give everybody here um the example so the client was buying a condo in Florida and uh it was around 300,000 uh let me see here and ,000 yeah and he asked for a 2% seller credit so he got 6,000 bucks and I’m just pulling this up here let me just add to the Celler crater part and when I was in a in a new in um in a built in a developer’s office there they were building new homes in Texas they were offering seller card at at the promo and uh they weren’t
(57:55) offering that off the price but they their suggestion was to buy window coverings because it’s a brand new house so there’s no window coverings period right so putting some like you know um Venetian blinds or something whatever right and also they’re buying down the rate so yeah just not something we’re too used to back here yeah and you can use it for other stuff too so like say you negotiate a 3% um seller credit the lender will let you buy down um and I’ll show you here in a second but the client only negot at
(58:25) 2% so he put all the money towards it so anyways if we take his $6,600 and we pay it down to the rate so he would have received 8.375 okay so I know I said rate started at around eight but this was a condo and the DCR wasn’t that great because it also had um an HOA fee which is the same as like a condo fee over here like it’s Home Owners Association fee so condos are priced a little bit higher because their cash flow is a little bit weaker so so he couldn’t get the floor buy down rate but he used that money and he
(58:58) bought down his rate to 7375 M so he was very happy with that when you shop the market at what that rate looks like was very aggressive for this this time and all came from the seller so he didn’t have to no skin off his back right and he saved by getting that seller credit $150 a month in cash which is crazy yeah and then his more of his payments were going to principal because he wanted principal and interest although you can do interest only but his he he just wanted to pay this thing down um so now more of his payments go
(59:35) to pay it down and everything all because the seller gave him the credit so it’s such an awesome tool I have so many questions that’s okay can you I I still think the point needs reinforcing like how much easier is it to get a mortgage in the states than than in Canada 10 times it’s so much easier like who who gets denied because I get denied on financing here in Ontario yeah you know I I think the biggest challenge that I’ve seen with any approvals is when you have all kinds of Partners involved right um because the
(1:00:15) lenders if it’s too convoluted in this partnership on that one and that one owns there it’s hard for them to track so I honestly find that the super complicated corporate structures that’s when the lenders are just going to say okay we’re going to do it but we’re jacking up your rate because we don’t understand what you’re doing over here it’s crazy and so they do charge you more if you have that complicated structure I’ve not had an application declined because of that but
(1:00:42) it gets confusing for them that they’re not in the business of knowing all these corporate structures um so you’ll pay for it so so that’s kind of been a negative that I’ve seen um and then obviously right you can’t have payments on your house mortgage but I haven’t had any clients that had that but that’s a hard like you’re declined if if they see that um so it’s all reable yeah and they don’t want the last major thing for somebody is they don’t want very rural properties okay because you’re a foreign
(1:01:13) buyer they’re looking more for cities so buying in even small towns are okay but they don’t want like you’re the only house you know five miles that way and five miles that way they’re they’re not into those right cuz they don’t want take it over they don’t want a bad asset exactly sounds very reasonable uh I don’t even know where I want to go next so uh oh you mentioned dscr and I had a question around that okay so sorry can you explain what goes into uh a Debt Service ratio mortgage what are the what
(1:01:47) are what what’s the calculation and what are the inputs and actually yeah this is great and I’m going to tie it into the statement that I was going to make about pre-approvals as well this is how you get PE proof too fantastic yes yes so what we do is we get the numbers of the property so we find out the estimated purchase price of the property so that goes in the DCR then we factor in the property taxes we find out if there’s a homeowners association fee um we find out the hazard insurance is what they
(1:02:19) call it over there which is home insurance so we find out what that is and then lastly we find out what the mortgage payment is right like what rate you’ll qualify for based on all the numbers that’s it that’s the only thing that goes into the debt service coverage ratio and based on that we get a net DCR result so if that’s a good results then we can write up a pre-approval letter for you that you can give to put in your offer now because of capacity we don’t just write pre-approval letters because I had
(1:02:54) one investor and he gave me like 20 properties and he’s like can you give me pre-approval letters on all these and I was like no like what run all the numbers exactly he wasn’t so we we can run all the properties for you but we only give the pre-approval letters when you’re ready to put an offer on the home right because it it would have taken a few hours to do this for this gentleman and he ended up not even offering on any of them right so we have to be careful of our time um but we will we’ll write you that
(1:03:26) pre-approval letter which I’m going to say nine times out of 10 uh the the sellers want to see this they want to see this letter now obviously if we’re doing a deal with Sher so Sher has a great and I know you guys who follow Irwin know share but just in case right Sher finds the properties underwrites them turns them over and rents them out and you get a turnkey property so something like that um you’re not going to necessarily need a pre-approval letter for right because they’re going to or or do they want one
(1:04:01) I don’t think they they want a pre-approval letter I don’t think they know I don’t think they need to because they they know they have proof of funds and they know what the property is yeah but if it’s you know you found the property on the market those are the things that you’re going to need and we can do that for you right right and we we share the tool too we’re not we’re not shy we share the tool for anybody you can download it and it’s got the 30-year term right next to the 40-year
(1:04:28) term so then you can kind of compare because maybe it’s a little tight with the 30-year but the 40-year works you mentioned 30-year terms uh are there going to be so so my understanding is that the in the states is the market is generally 30-year term mortgages as in your rate is your rate is fixed for 30 years so again as a Canadian like that just boggles that boggled me and it boggles everyone because that’s not what we’re used to here in our Market will are there going to are we going to see shorter uh amortizations terms anytime
(1:05:03) soon because I gota I gota imagine the market wants it especially since uh every all indications are that we peaked in rates there is we’re refinancing another property right now in Florida and the gentleman he’s got a 15year term on his so you you can get shorter but the thing is is for an investment property is it going to cash flow if you choose 15 years amortization or term they make it the same thing over there oh boy okay yeah no thank you but you can go with 30 and you could increase your payments if you want which
(1:05:38) will technically shorten the amortization um but that’s how they do it in in the states they don’t have separate terms like in Canada where the amortization and the term are two different things yeah it’s the same thing over there right right because I want a cheaper rate So speaking of Cheaper rate uh is there a way to build Credit in the states and is there a benefit to it and how do you do it there there is yeah so um The Lending is one part of it right so having the mortgage so it just depends on your entity right
(1:06:07) whether you set up as a corporate personal um these mortgages um from what I’m told they don’t build personal credit but they will build credit in your core yeah good enough I just want cheaper rates at some point yes so then you’ve got that credit now lenders they want you to have one other item so I opened up my bank account through coer when I set up over there com Bank name a whole bunch I hear Chase is really good for Canadian too um but the reason I chose Comer is well one it’s local to us um but two um they
(1:06:45) don’t require you to have a Canadian address or sorry a Us address to set up the account a lot of the banks want that um so anyways when I was there the guy told me he’s like look if you bank with us and we see your transactions and we see what you’re doing he’s like reach out three months six months and he’s like we’ll give you a credit card and he said you know what if if we don’t by default then we could give you a secured credit card and then that can help to start building your credit history and
(1:07:18) then from there once you’re getting that history then your pricing can go down because we’ve talked about this in the past everyone but it’s great for the the podcast here generally speaking the lender’s price as if you’re credit score is 680 as a foreign buyer um but it’s cheaper right if your score is higher than that so that’s why you want to build that credit history um but in the same point Irwin the floor rate is the floor rate they’re not going to go any lower regardless of your credit score m so if
(1:07:55) you’re getting that seller credit and you’re applying it and you’re getting that best rate your credit doesn’t necessarily come into play you know what I’m saying yeah but then I’ll try to i’ run a cheap raid based on my credit and I’ll use the seller credit for something else like you know yeah change the floors remove the carpet paint the house something like that yeah you can you can and um one more thing about the rates because it is it is lowering um over time just like Canada
(1:08:24) and what these lenders do is by default the longest I’ve seen is your mortgage is fully open after 5 years so they open it up the shortest I’ve seen is you’re open after three years and that’s without paying a rate premium that’s just built into automatically their mortgages that’s amazing that’s how it is with every mortgage after a certain period it becomes open in five years is usually the maximum right but if you’re an investor and you feel the rate is going to be lower in one year
(1:08:54) you can do open after one year or you could go open after two so obviously fully open has the full 1% rate increase but open after two I think it’s only about half a percentage higher on the rate so it’s not a big deal but if you’re concerned right and you want to wait because rates are going to lower um you don’t have to right just do open after two right you’ll get appreciation you’ll get that cash flow for two years and then we just change lenders or even maybe even with the same lender just
(1:09:24) refinance get that lower rate and you’re good to go right so just a highlight for The Listener benefit R are expected to bottom out in about two three years so to be open after three means you can pay you can pay off that mortgage with another mortgage at the bottom rate yeah which is strategically what everyone should do refinance when the rates have bottomed out that’s right and and it costs you nothing in terms of versus I have uh I have to I have a mortgage uring uh at the end of this month for my
(1:09:56) investment property that I’m currently selling so I have to renew my variable mortgage and so when I do have to break that mortgage that’ll be three months interest thank God I don’t have a huge mortgage that’s 30 that’ll be roughly $3,600 but you’re saying I don’t have to go through that I I won’t have a break fee once the mortgage goes open that’s right and just to share this with you Irwin you want to price it out but you should be able to renew into an open term um so there’s no penalty but the
(1:10:24) thing is the bank or lender probably has two open terms usually it’s a six-month term or a year and for some reason the six-month term is like 2% higher I’ve seen them coming at 9.99 for some reason um but it doesn’t matter if you choose the year because it’s still open you know what I mean so I would inquire on that because selling um you know this podcast here could just save you three months worth of interest if you r new into an open mortgage yeah yeah yeah but yeah the open’s 10% but yeah but they
(1:11:00) have two ask them what their other open is if they’re telling you 10% because they have the year is usually cheaper the year’s usually about what variable rate is okay check that out for the listener’s benefit Scott got me this mortgage so he knows exactly what I’m doing but it wasn’t a lender that I no longer work for so I don’t have you are an Insider yeah tell any you the SEC yeah so how how long roughly would it take to for someone to build uh significant credit to actually save on
(1:11:31) their on their mortgage interest rate well my favorite lender um they will you have to have the mortgage for one year and then you just have to have any credit any other credit item and you could have just opened it there’s no timeline so even if it is a secured credit card right you open that then you qualify to use your credit score for the pricing instead of default 680 mhm so yeah after one year so Scott uh fun news this back of the day I actually had lunch with a um a 20-year plus uh uh Executive Vice
(1:12:12) President of CB yesterday who’s been in commercial real estate uh never invested in real estate though before because you never thought you never found deals that made sense especially with residential tendency like it’s not worth the risk so I’ve been I’ve been regularly talking to people who are in the industry to poke holes in my thesis that investing in you know boring landlord friendly Southern States is a good investment can you like you’ve been around a long time can you do you got any holes to
(1:12:44) poke and I welcome all listeners to reach out as well poke holes in my strategy please here here’s I think the most important thing and I think where investors can fail is not having the right team and you already absolutely because you’re investing long distance and if you don’t have the right team if you’re not regularly kept up to speed with what your property is doing you’re not looking at the sheets that come in from the property manager right and inspecting things um you could you could
(1:13:19) have a huge mess on your hands that you don’t even know it’s there so I think you know locally here people want to use the realtor that their friend recommends or my mom says they’re great so I’m going to use you um and even though I think that’s a huge mistake for investors I feel like if you’re an investor you have to work with somebody that understands investors you have to because otherwise the realtor will just sell you a property and say oh yeah you can rent it out for X meanwhile it’s
(1:13:49) right next to the methodone Clinic where you don’t want to have tenants do you know what I’m saying like where a good investor focused realtor will say no you don’t want to buy there you want to buy over here so I think that’s super super important when you’re building your team across the border need to make the proper team or I think you could fail I don’t want to say you will fail right because the numbers and the landlord control it’s so much better um but I think you could fail if you set
(1:14:18) it up improperly no absolutely and just to add to that uh I’ve said this on the show I say this to my clients uh the greatest risk to an Ontario landlord is actually the tenant in my opinion if they don’t pay if they cause damage to your property your investment will be really challenged it’s going to strain it’s you’re going to lose sleep it’s going to strain your relationships right but we don’t have that same problem in the states we’ve eliminated that problem so then several steps down I believe is
(1:14:44) property management is your greatest risk um and and in my experience in Canada is there’s no really big property managers who have scale that will work with retail investors right versus I feel I’ve removed that risk by going through an asset manager like share in the states so I’ll have an asset I’ll have a property manager they’re going to negotiate and manage that relationship with property managers who have thousands of houses across the country under management so they have scale they
(1:15:13) have systems right they have accountants lawyers trades people on staff bringing down my costs that gives me the economies of scale yeah but I want to go back to team though because uh something that’s again something unique to lens city is you’re in Windsor right your team is all Canadians and asides from the Americans but what is the benefit of being able to do all your financing Under One Roof like I’m a Canadian like I I’m G to and I’ll have a question for you later on hilock and stuff but again like is it
(1:15:45) not advantageous to have both your us your Canadian mortgages and US mortgages Under One Roof yeah it it is and it’s it’s funny because I see um I’ve been to different investing events and there was um some us lenders that came to this event and it was in Canada um but this network is North American wide so they do events in the states and here and and so the US lenders pitch was we’re boots on the ground you know use us but the funny thing is is they’re actually one of my lenders I don’t need to be boots on the
(1:16:26) ground to get the best rate but the beauty for a Canadian is um we can synchronize everything and it truly is a One-Stop shop so in the states um if we know what’s going on in Canada a lot of the conditions that you’ll need for that us mortgage we can satisfy for you yeah yep they have six to 12 months payments for to cover the mortgage yep the other thing too is we get paid by the lenders in Canada if you’re refinancing your home and say buying over in the states so another thing that we do is our investors that will work
(1:17:04) with us we’ll give them a break or a reduction on the fees so generally speaking the fees range from 0% on a mortgage in the states to 3% now the 0% fee lenders they’re going to have a higher rate so you’re still paying for it it’s just built into your rate the two to 3% lenders you’re getting best rate um but there’s there’s fees and I’ve run the math for a client um and it actually is cheaper to pay the fees because it’s like a onetime costs and then to get that lower rate forever than
(1:17:35) it is to accept the higher rate then that you’re you’re paying that forever right unless you change your mortgages but anyways we we’ll go to the lender and be like look we we got paid on the Canadian side here so we’re okay we’ll take a reduction and pay on on the US side over here um so it helps the Canadian to to save money um and then the other part of it is is because we are in Canada and we’re investing in the states we know the troubles that a Canadian is going to go through getting
(1:18:07) started where us lender you know they could claim hey we’re our headquarters is right here in Florida uh and they may be able to provide the lending they still haven’t went through the Journey you know what I mean so they’re not going to be able to give that good advice or you know hey watch out for that over there or we’ve got that so I think that’s what’s really important um and it works both ways actually now we’re getting us lenders because they can’t do it they’re actually referring
(1:18:36) us Canadians that want to refinance and then buy over there as well so we’re getting that now too so with us you don’t need to do that we have multiple lenders in the states we have multiple lenders in Canada we just optimize your flow and residential and Commercial and I got to be honest with you I did not expect this when we met and started talking about doing this Irwin I’ve actually done more commercial deals over there than I have residential deals I was not expecting that but there’s lots
(1:19:04) of apartment buildings that we are working with lenders as we speak to to fun so it’s it’s really interesting but I do think the um you know single family Southern States different things like like what shares doing I think that is very key um especially for the investor that’s getting started because it’s the path of least resistance and it gets your feet wet it allows you like I just said to go through that journey and experience everything and once you’re more Savvy and you want something bigger
(1:19:35) and better then you go off right and you start doing your thing yeah I’m just cranky and old and boring so I just can’t keep it vanilla but but that’s actually great brings up a great Point what is the difference what is the process how is the process difference for uh mortgage getting a mortgage AG for an apartment building compared to a single family home yeah so over there it’s really hard to find the first lender now we’ve got them um but a lot of times in the past a Canadian had to partner with a US
(1:20:07) citizen to be able to even buy an apartment building and um so actually a couple of our deals we’re refinancing them to get them out of that um but we’ve got the foreign buyer lenders that will move forward now but pretty much it’s just like um you know if you’re buying an apartment building through cmhc so we um we go through Freddy so we went through Freddy uh it’s called Freddy for anybody who’s looking at this small business loan um and it’s insured so it’s for apartment buildings it’s through the
(1:20:46) equivalent of cmhc but in the States you know there’s Freddy and Fanny um and they they run the numbers right and they’ll tell you based on the income the property is generating what you can qualify for as a lending and the and the purchase price U so you you don’t have as much control right because you could buy an apartment building for five million but if the rents only support four then that’s all the financing you’re getting based on do you know what I mean so that’s kind of the same over
(1:21:16) there too fantastic based all right Scott we’re really running out of time um thank you for being so generous with this with your time I I saw your Christmas pictures I had no idea how big your team was think I mean that’s only part right we’re missing Jillian in Toronto and then um we’re working on Murray and Quebec so oh fantastic yeah always growing so uh Scott um any final thoughts I always have to give my guests a share a chance to share anything they want to talk about without me prompting
(1:21:50) them um I mean final thoughts I just think it’s people I find are scared of what they don’t know it doesn’t really matter what it is if you don’t know how to do something you could be the guy that sits down at a table at a wedding and you don’t dance because you don’t know how to dance right so you’re you’re fearful of it right and and that’s just one silly example but like it applies to investing it applies to everything and I think that if a Canadian will take a little bit time and analyze investing in
(1:22:25) the states I think they’ll really like it um I don’t think like a Canadian should just say screw Canada and whatever I mean I think there’s some benefits of diversifying right having a little bit here a little bit there um different property types too um so I still think Canada is great but Canada has to get its act together so I just encourage the investor to analyze the process it’s not that complicated um you have people that can set this up for you from start to finish I also have people that
(1:23:02) can do that um and it’s all about building that teamwork and just just doing something and I think if an investor buys one property over there and and does all that I think they’re gonna want to get a ton more properties over there because it’s just n day better for the landlord yeah I’ve been playing with an example to just explain to invest uh how easy it is for example I I was just running a simple example if I bought 10 houses in the states uh in 10 years I can cash flow over 110,000 can uh US dollars per year yeah right that’s
(1:23:38) a very simple model it takes about two Mill about 2 million Canadian Equity to do so right so very slow boring it’s only 10 properties any issues in really getting financing for 10 properties Scott no right because these are all cash flow right from day one yeah the lenders they’ll do they’ll do 15 each but then they sell off the debt that’s very common in the states right sell off the debt to another mortgage company that wants to grow their books or whatever and and then you free up another 15 and and the selling of the
(1:24:11) debt can can tra take place within five minutes they do it on sort of like a stock exchange they have people that buy and sell debt all day long that’s all they um so you’re just like buy minutes later you’re good you got 15 more just five minutes you’re out of mortgages give us five minutes all right have more 15 more now yeah so again my my point though is that it’s very simple uh logistically operational is quite simple to own a 10 property portfolio uh and again my numbers show that you’ll get to
(1:24:41) 10,000 cash sorry 110 cash flow US Dollars and then you know and then I say to everybody find me this opportunity in Canada right because these properties because again there’s no rent control so my properties will be like eight caps in 10 years yeah right find me this opportunity in Canada right and again list 17 listeners like find me this opportunity I will am happy to hear about it yeah um Scott before you go actually uh I had a question is there a right mix between using cash and HELOC and morgage is there some sort of right
(1:25:19) mix yeah so we we did talk just preface that pref preface that question cuz we um like you and I know some people that are literally going down with large helocs to just some people are doing 100% heoc which I don’t agree with I don’t think you agree with either because at a minimum you got to be trying to build some credit your credit in the States but I’ll let you I’ll let you talk to it you’re the expert yeah I mean if you buy with all Canadian funds you have the highest risk of currency
(1:25:48) risk right look up currency risk you’re you’re investing with Canadian dollars into a different market so in the stock market you can hedge your investment and that limits the currency risk but you cannot do that in real estate and um you know I know I gave an example on your um one seminar that you had and um the thing is is if if you invest now in our money hits par with the US so it’s the same you actually end up overpaying for a property if everything stays the same then you’re good but um every recession
(1:26:28) the money goes really close to par so that’s when a lot of investors want to get out of the market if they’re tight right they when it when there’s a recession and things get tough they want to sell um because they financially need to so just if you invest with tons of Canadian dollars and then there’s a challenge and you do have to sell a couple properties let’s say um it’s going to be the worst time to do it because of the rates so I encourage investors just to only use their down payments from Canada and to
(1:27:01) try to use as much US dollars as possible now over time right so when you start that’s what you’re gonna have to do but over time as you have a couple properties then you can refinance them in the states and then you’re just using all us funds and buying over there with us funds so then you’re not there’s no currency risk right and then you reap the benefits where right now where we’ve got the 30% like the US dollar is 30% more then when you sell those properties or convert that cash flow or whatever it
(1:27:32) is convert that that money to to Canadian then you get that 30% boost in profit which is super so I would try to invest with as much as possible I know a lot of Canadians did want to use their lines of credit because it was cheaper right I mentioned 8 to n and a half% for lines of credit are prime plus half today so 7.
(1:27:55) 7 so they’re thinking okay it’s cheaper to use my line of credit that’s what I’m going to do right um but knowing about the seller credit and that you can buy down to six and a half it’s actually cheaper to get the mortgage in the states than it is to use your line of credit so right there’s yeah so there’s variables but I think the down payment is totally fine to leverage in Canada while you get started um and then after you build up a portfolio you won’t need to do that right you tap into your Equity there and just keep growing so
(1:28:22) that’s what I would suggest yeah get to that 10 20 portfolio number property portfolio number get that 100 Grand cash flow a year because I think that’s something that everyone should be going for because I think everyone could appreciate what $100,000 US in cash flow would mean to their lives right it’s huge and even if you shift Irwin say say you get your 10 you’re like you know what I’m done and then your strategy shifts and you just pay off that debt then you’ve got 110k US dollar a year
(1:28:53) salary and it goes up each year because there’s no rank control yeah like you might double in like five years now you’re talking 200 Grand I’ve spoken to a lot of people that do JVS over there yeah and this is past JVS but they’ve been able to repay their investor um everything like within five years from the success stories I’ve heard obviously there’s probably a ton of failures I haven’t heard oh there’s tons of failures out there but still like that’s incredible so you partner
(1:29:25) with somebody you can get your money back in in five years just based on the appreciation and how their Market is crazy yes yes lots of people lose money which is why I’m going down with the best possible team I can possibly find y makes sense Scott where can people reach you want me give your cell phone number sure I don’t mind I’m gonna give my cell phone but I made a promise to my team that I the consultant for the US lending but they’re all processing them so if anybody calls I’m just here to hold your
(1:30:00) hand but I will partner you with somebody on my team to actually process them um so yeah I’ll share it it’s 226 348 7884 fabulous upsite yeah that’s lend city.ca and actually if you go there right when you like we designed the page so you can book a strategy call it’s like right on the top of every page um so you can book a call with someone on my team myself if you’ve got commercial mortgages like there’s a commercial section on there it’s nice and easy to book a call fabulous and again you can you can
(1:30:41) service people both for Canadian mortgages and US mortgages absolutely residential and Commercial doesn’t matter fabulous Scott thanks so much for doing this thanks for bringing this to our community and at our Peak pain time as Ontario landlords the BC landlords are feeling it too Alberta you guys are good for now awesome you’re they’re basically the Envy of all of us it’s crazy I hope I hope they get to stay how they are I hope things don’t change but you never they should threaten the separate from Canada if
(1:31:14) they things change that’s right that’s right we’ll miss them though thanks Scott thanks so much for doing this thank you as well take care everyone thank you for watching if you want to learn how to invest in real estate from scratch my team teaches beginners how to use the number one investment strategy that I personally use in a virtual free training class every month go to investor training.
(1:31:52) com below and I do the best to answer each of those comments and questions myself again if you’re ready to learn the nitty-gritty about real estate investing from a professional investor register for next virtual class that’s at investor tr.com

 

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/NMy9aF8bbMg

 

** Transcript Auto-Generated**

Unknown Speaker 0:00
Happy belated Valentine’s Day everyone. My son and daughter cannot be more different. My 10 year old daughter was the only one in her class room to hang in, to hand out to sorry to hand make all of her Valentine’s Day cards, one for each of our classmates. my eight year old son, guess what he did? He prepared nothing. He went to school empty handed, and came home with all these lovely treats. I didn’t even want to go. You do not even want to go to the dollar store to pick up some pretty awesome Valentine’s Day cards with badass Marvel or DC superheroes on them. For the cheap, we would have paid for them anyways. Yeah, by the way, Valentine’s Day cards are so much better than they used to be. Superhero Valentine’s Day cards suck jealous. My daughter thoughtful, my son thought less.

Unknown Speaker 0:49
Oh, how hilarious it is to have a child of each sex. Is that a part is I see so much of myself and my son which makes me laugh and disappointed in myself.

Unknown Speaker 0:59
Speaking of family, cherry chan real estate accountant and I are celebrating Valentine’s Day on the Friday after February 14. As we’re just too darn busy between work and the kids having after school programs six days of the week, we’re just yet we’re not getting things done on time. So we’re going to go for a couple’s foot massage. So we can chit chat while that’s going on. And we’ll go for dinner at the Racquet Club where it’s easy to get a table. But also the the meals are subsidized by the club membership. So it’s, it’s I’m frugal.

Unknown Speaker 1:34
If the massage goes well we make the may make this a regular thing for our date night. Again, it’s it’s super cool that we get to you know, relax. And

Unknown Speaker 1:43
I have a lot of issues with my discipline getting old. And also I could use a lot more help for my ankles that are pretty beaten up from all the basketball used to play. And one of the one of the misuses that we’re getting tonight is also registered. So we’re getting a receipt for for our benefits. Thank you for everyone who tuned in last week of epic fail episode two because that was our most downloaded episode of the year. So far. This is the truth about real estate investing show for Canadians, the number 81 and ranked business podcasts on all of iTunes. And we’ve been going at this since 2016. So well over 300 interviews, interviewing many of the best investors and best selling authors in Canada to learn about what makes them tick their tips, tricks, and most importantly, the lessons including from loss. So we may learn as a collective all of us, you, you the 17 listeners and myself, we are able to learn a bit to better apply better practices to our own investments and our own lives. Now back to Epic Fail per app. So to the more I read and hear about the situation, the worse it sounds. A friend of mine who invested with the group seeking bankruptcy protection shared with me the address of the subject investment property. And you know, the thing in real estate, location, location, location. Well, the location is just terrible. The property is located in a rough industrial area. It’s a residence sir. It’s a residential property, apparently a duplex. So it’s residential people live there. And it’s located in industrial industrial area near an active train track that’s frequented by both go and via train, and I’m gonna guess freight trains as well, because I can see how busy how many rail my lingerie line goes right into the states. So it’s likely high traffic that in front of the house and behind the house, our car mechanic shops, so you know how loud loud those can be. And if that’s not enough, also behind the house is a street hockey and outrank street hockey business, something like that and an outdoor range. So so as long as peaceful enjoyment of your property is not important to you, you’re good to go. Unfortunately, the market does not look favorably on such locations. Appreciation will be stunted below market. So please always do your own due diligence. I do not care what anyone says or endorses about the property. I do not care how many Instagram followers they have. I do not care if they speak on stage, or I’ll have their own podcasts or guests of other podcasts or owns 400 600 800 doors. Prove to me you can make money. And in all this due diligence, this location, location, location stuff I told you about the property. I was able to do it from the comfort of my desk while using Google Maps. On the personal real estate front I have an accepted offer on one of my own properties. The inspection was yesterday I just answered a bunch of questions on it. They’re all pretty benign mice Hamilton student rental where I

Unknown Speaker 4:35
where the sink the sink just two weeks ago decided to leak

Unknown Speaker 4:40
to digital to delay being listed. It’s as if the House knew of what was happening and forced delays. In all seriousness, the house is 100 years old. So there are things will break and whatnot. So I had a lead fitting leak. So I got that fixed. Everything’s all patched up passes on for as available for sale and

Unknown Speaker 5:00
I’ll have links in the show notes should you be interested in having a look, because the reason I’m selling them now as well is that these are student rentals. So the market is on absolute fire. There’s nothing to buy out there, and there’s nothing to rent either. So I’m trying to take advantage while the while the supply situation is, is incredibly sad, and the demand is high for both rental and for property to buy. Because if you can’t find something to rent, hoping a rich parent will want to buy this house for their kid to live in, so they actually have somewhere to live.

Unknown Speaker 5:30
I am one step closer to owning property in landlord friendly states of the USA in generating towards getting towards my goal of generating, generating $100,000 cash flow, which is my long term goal. Again, I’ve linked in the show notes to my listings. onto this week’s show. Our guests should need no introduction. It is my lovely wife. This is the this is the Valentine’s Day episode. So my lovely wife, the real estate accounting cherry Chan is our guests. Terry Chan is here to share about the convoluted changes by our federal government to seem to to know they seem to want to know more about our real estate. They keep coming up with half baked ideas only to delay delay. It’s funny because like they the deadlines coming for filing and then they delay the another deadlines coming up and then the delay while Yeah, well I had actually had a friend had to pay out his accountant overtime to get his under under US housing tax filing completed on time. The government’s making us jump through hoops, all this make busy work. It’s really complicated stuff. But cherry is a talented messenger who can explain what the Trudeau Liberal government is doing in in the level at a level that at least I can understand. We also chat about lessons from our from our portfolio portfolio and owning through properties through the downturn in the real estate market, how we are refocusing to at least cashflow neutral on properties. Hence the decision to diversify to the landlord friendly states of the USA. I’m hoping cherry and I can take that trip to the South, the other to Georgia and Tennessee in May after tax season. romancing cash flow to my favorite things in life. I hope you had a wonderful Valentine’s Day and find more cash flow in your lives because now please never forget cash flow is what affords you freedom. US dollars are also worth more than Canadian dollars. Please enjoy the show

Unknown Speaker 7:22
Happy Valentine’s Day My Valentine? What’s what’s keeping you busy these days?

Unknown Speaker 7:28
Um, definitely not Valentine’s Day celebration.

Unknown Speaker 7:34
These days, our business has been focused on essentially two things. One is to gear up preparation, preparing for the upcoming tax season, we expecting to have a lot of filing obligation that we need to fulfill for the latest rule change, particularly all the trust relationship that we now have to report to the government. So that has to be done now is a new rule that was just implemented and started last year, January 1 2023. And the first deadline is April 2 2024. So we have a deadline coming up. And we’re trying to essentially have everyone trained and prepare for the upcoming tax season.

Unknown Speaker 8:19
All right, are investors excited to be able to have to do more reporting to our government? Yeah, it really sucks. Over the last few years it has been change after change after change. I think in 2022 for properties owners that owned properties triplex and under if they own it in a trust, in partnership or in Canadian corporation, private corporation, then they also needed to file something called under US housing tax form. And although that was completely eliminated before as of December 31 2023. B, it was eliminated but then a year or going forward going forward for not eliminated as in you don’t have the filing obligation. Because under US housing tax act when it was first introduced, it was really targeting our non residents. But the way that that is the under under US Housing Tax Act was written, it was including people who are Canadian corporations, Canadian partnership and Canadian trust these people they’re all Canadians, they’re not non resident, not non. They’re not not they’re not Canadian.

Unknown Speaker 9:33
They’re not non resident, non Canadian citizen. So these people because of the way the act was written, they all have filing obligation. Now to clarify the rule and say hey, like if you’re a Canadian resident or Canadian tax, Canadian citizen, mostly Canadian citizen, you own your properties through a corporation you no longer need to file for December 31 2023 When you

Unknown Speaker 10:00
We’re still have filing obligate obligation for the previous year. So it gets really confusing, but that’s practically gone. Unless you own that property as of December 31 2022, then you have filing obligation, you still should file for it, if you miss it, and the penalty would still be there $10,000 for Canadian corporation

Unknown Speaker 10:23
$5,000 penalty for Canadian person?

Unknown Speaker 10:29
How much does it cost them to file? It could be anywhere between $500 to $700 per form. That seems sorry, we need a form per property.

Unknown Speaker 10:42
That’s a lot. Yeah, well, you can do it yourself too. But then you have to go through and understand it and get the proper number and do the following, you need to know that you’re doing it right. Our team had gone through lots and lots of training just to get the better understanding and make sure that we interpret it the way that is being intended intended. And so majority of accounting firms out there are charging, like going rate of 500 to $1,000 perform. And some people would just do do it by themselves, which is totally fine. As long as you feel that, you know, you’re capable, and you are able to do it. So that is gone. The for economic update, done by the federal government basically removed that filing obligation for 2023 and forward.

Unknown Speaker 11:31
But then it was replaced by this trust reporting rule that we mentioned earlier. And this trust reporting rule, it has a different NET. But basically, it requires anyone that is in a trust relationship to file something called a trust return.

Unknown Speaker 11:49
Whereas previously, if you have a trust relationship, you’re not necessarily required to file a return if there is no income passing through. So right now, this new rule requires specifically Bae a trust arrangement to be reported to CRA on an annual basis.

Unknown Speaker 12:08
So in plain English, who needs to file for this, in plain English, there are some common examples. Number one is

Unknown Speaker 12:18
people were family trust. So if people who have trust, but even though people have family trusts, you and I have a family trust last year, we just said that one up, that family trust, even though there is no income going through in the past, you didn’t have to file this year, you will have to file that’s number one. Number two is if you have a Trust Agreement, signed, a lot of real estate investors out there are using this trust agreement to buy properties in trust for a corporation or interest, or buy it in a corporation in trust for them. So this type of relationship, they have a bare trust agreement that’s signed, those people you will have the filing obligation, those are really simple one. And then there are people who own properties in a joint venture relationship. Now, those people who sign joint venture agreement, you could be the one that’s on title.

Unknown Speaker 13:10
But then you and I are actually reporting income and expenses as as an liabilities 5050. So there is a joint venture relationship happening between the two of us. But you’re the one that’s on title, my name is not on title. So that

Unknown Speaker 13:27
is also a trust relationship, because you own 50% of the property in trust for me. So now there is a trust relationship, and there was a filing obligation.

Unknown Speaker 13:38
And other common one is, we don’t have anything formalized, you and I,

Unknown Speaker 13:45
a couple one of us make more money than the other person. So that person go on title, both of our name on title, and but only the lower income spouse is reporting 100% of the income and expenses. That higher income spouse is only going on title essentially to help to qualify for the mortgage. Now, there’s no formalized agreement, no trust agreement, no joint venture agreement sign. Typically it happens between spouses. And there’s also a trust relationship because your legal title ownership does not equal to what you report and how you file on your personal income tax return. And so therefore, there is a trust relationship and so you have to file. Now the common example is parents go on title to help their kids to qualify for financing if they were to buy a property for their own home.

Unknown Speaker 14:40
They don’t own any properties, usually investment property or to be on their own for their own home, like their own. Kids are buying their first home can qualify for financing. The parents go on title just to help the kids qualify for financing. It’s also very common. I know it’s common, but is there there doesn’t need to be a trust.

Unknown Speaker 15:00
agreement in place, there will not be a trust agreement. People just go on it because it’s family. There is no trust agreement sign, although the trust relationship exists, because yeah. Oh, I see. So doesn’t need this designation to be a trust agreement in place. The trust agreement is there, if you have a good contract necessarily, yeah. The trust agreement, just formalize it. But the trust relationship would still exist. Yeah, without an agreement. Now. So this applies to not just properties, we so far, we have only talked about properties investment. It also is also applicable to cash account investment account, there is an exception, if your cash account that you own interest for someone else is under $50,000, and the account balances in cash or in publicly traded stock, then you don’t have to file. But if it is over $50,000, or if the underlying investment is not cash or publicly traded stock, then you would still have the following obligations. So I could be owning a crypto account in trust for you.

Unknown Speaker 16:05
And my name is not that I do. But if I had had I own that crypto account,

Unknown Speaker 16:13
even if it’s, it’s it is under $50,000. And I only interest for you, then I have the following obligation. So the government wants a whole bunch of visibility into what we own. Yeah. So this is also universal between Canada and US. Us is also asking, IRS is also asking for the same information as well, at the same time that we’re doing it. Yes. So again, interesting.

Unknown Speaker 16:34
News doesn’t make it into my feed.

Unknown Speaker 16:38
And then, and then how much? And then how do people know generally, it’s generally the accountant. People’s accountants, generally are the ones who are triggering, let me triggering to let the client know that they need that they have to have a copy of a trust filing that’s required. Um,

Unknown Speaker 16:54
I think it is really difficult even for accountant to know all of the trust relationship around someone’s life, right? Like example is you go on title to help your your your kids qualify for your accountant, you won’t tell your accountant or you go on title to help your parents manage their affair, the property affair light, it has nothing to do with tax filing altogether. Yes, you mean anything to tell you? You’re exactly neither party would know, neither accountant nor claim. And that’s what they noted that need to disclose that. Yeah, exactly. to each other. Yeah. So then that those are the those are the I guess, it’s harder to know this. But a lot of the time we remind our clients, hey, if you have a trust agreement, if you your reporting entities is different from what’s being on your legal title, then there is a trust relationship, and you have to file and then how how, when should people expect to pay for these things? Is a per trust agreement? Per trust relationship? Yeah, so yeah, so obviously the payment is, well, there are ways to get around it. But typical each trust relationship, because if I own things in trust with my mom and trust for my mom, dad is one trust alone, right? If I owe anything, for example, the property that we share, you are on title, but you don’t own anything, at least in my mind. It does. You don’t, there is a property that you go on title because back then you are required to go on title by the bank. But I’ve always reported for more. Yes, I’ve always reported that as my income, because it was my pre marriage house that I had, right. So I always reported the income and expenses, there is no disposal, you’re not entitled to anything. And so that is also trust. So you own that property and trust for me. So that’s a different type of trust altogether. So I yeah, my name, my title. Sorry, my name is on my mom’s property. I’m the trustee for that particular property on this particular property that we own together, or I own 100 foot sign that you’re on title and trust. For me, that’s a separate trust. So there’s like two trust filing that we have to do on top of the family trust. Just so you know, there are three trust rock piling as a minimum, at the moment. May I reiterate, iterate to the listener or 17 listeners that the ultimate wealth hack is to marry your accountant. I actually think we should start a dating app for accountants.

Unknown Speaker 19:23
I don’t know what you’re talking about, I mean,

Unknown Speaker 19:28
what else is happening or for new accounting changes.

Unknown Speaker 19:32
So those are the biggest thing in the account rocking the accounting role. There is another a couple other smaller ones I should probably throw out there as well. Like, you know, it sounds like a lot of accounting firms are already tight for resources and capacity. Does anyone really want to do more of this? No. So in I was just having a conversation with a US accountant and the accountant from Boston. She’s telling me that the the accountant in the states they’re short bye

Unknown Speaker 20:00
$300,000 this year, next year, there will be more shortage, because fewer and fewer people are going into accounting, right? So as an accounting firm owner, we don’t want to do as much. Yeah, it’s just unfortunate that the government, essentially

Unknown Speaker 20:18
making up all these rules, new reporting requirements, or accounting requirements. So if anyone’s considering your career, good job security and great pay.

Unknown Speaker 20:31
And then so what? How does anyone know how much they should budget for trust reporting? Typically, trust reporting is that like anywhere, depending on the return the type of returns that you have the number of them anywhere from seven $800, all the way to 1000s of dollars, right? Yeah, depending on the type of trust that you’re talking about. So this is tough. This is especially tough in this market, when so many people are in cash flowing on their real estate agree. I was talking to a friend of ours. He’s a downtown real downtown for a realtor and he was telling me how

Unknown Speaker 21:07
he’s an engineer smartest crap

Unknown Speaker 21:10
it takes to buy a condo today, to make it at least break even on hard costs will be 50 to 55%. Cash, as in like there’s no interest on that cash. And that’s just covers mortgage taxes, insurance and condo fees, doesn’t include they can see islands bad debt, repairs and maintenance, property management. And poor property taxes was going up 10.6% or something like that in Toronto? That’s if the federal government kicks in, I don’t know how many millions of dollars if not, then it’s going up to like 16%. So it doesn’t cover that property tax increase. And now we’re now now we have all this extra reporting requirements and accounting costs to people do it yourself, or trust reporting? They can try?

Unknown Speaker 21:57
Oh, yeah, like people do their own personal tax return all the time. Right. So I did when I was a T four employee. And that was it. As soon as I had properties I’ve transitioned out of that.

Unknown Speaker 22:08
Some people can try or do you have YouTubes out there how to teach people how to do it themselves? No, they can open zip up to a massive amount of liability.

Unknown Speaker 22:19
Glad you realize that.

Unknown Speaker 22:22
It’s not the best idea. Maybe someone else can be up there is another business idea for somebody out there if they want to create YouTubes on how they can do that on trust reporting accounting.

Unknown Speaker 22:31
So what else is going on with with real estate investors from your perspective?

Unknown Speaker 22:36
Recently, there’s also this new latest update on the Airbnb.

Unknown Speaker 22:42
The federal government has announced that you are not eligible to detail any expenses if you operate a short term rental in the area that do not allow short term rentals. So the most noticeable notable area would be Toronto and Vancouver right? So the BC or because they said it’s province wide for BC Yeah. So then you know that in those area if you own short term rental you’re not eligible officially to deduct any expenses Yep, this is gonna be tricky as heck because like for like Toronto for example, you’re still allowed to rent an Airbnb space in your home for a certain number of days a year so yeah, and but again every minister it’s an Ole Miss spelt Miss municipal level on who allows what what what they allow and to prove this to the government that your quality that your that your units, okay? Yeah.

Unknown Speaker 23:35
Wild, how do they know? How do they know? How do we know as accountant? We can only talk to you, Hey, are you operating Airbnb? If you’re operating Airbnb, are you operating in this area? All we can do is we file taxes based on whatever the clients told us on the way until CRA to come back to all the

Unknown Speaker 23:57
scary stuff. And then the bigger story well, part of the big story about Airbnb is like they’re like the I just saw the headline today that prices in certain cities in BC are collapsing. Like, for example, there’s a whole building that was intended that’s like 80%, Airbnb, because the condo building allows Airbnb. Now the province no longer allows. Yeah, so the buildings no longer allowed. Yeah. And so prices are just collapsing because you can’t cashflow those things on a regular rental. Yes. Yeah, that’s why Yeah, you know, we like to stay in Airbnbs. But I don’t think I could operate one. And I understand why people are doing it because that’s pretty much the only way to cash flow in a single family home in DC, Ontario.

Unknown Speaker 24:43
I feel sorry for these folks was not just the only way to cash flow it’s it’s also the reason coupled with the reason of how difficult it is to collect rent when you cannot when you have bad tenants, right? So that also does

Unknown Speaker 25:00
some help, right? We’ve covered that extensively on the show.

Unknown Speaker 25:06
Yeah.

Unknown Speaker 25:08
It’s sad because, again, like I said, it’s really tough out there. And then one of the reasons why we never did Airbnb,

Unknown Speaker 25:15
like, we didn’t have a great experience with our own Airbnb, we weren’t able to make money with it. Again, it’s more like the boat, there’s more of the location. That was wrong.

Unknown Speaker 25:24
Being in the suburbs of Hamilton, the lesson was, and also because we have friends that are successful doing so you need to be near, you need to be much better walkable areas, because it works for we have friends, but it works for.

Unknown Speaker 25:38
But for all the folks who are like, just like, they have no plan B plan C, because we have Plan B, I can sell it. I’m in a hot area. And that’s why we sold it sold quite quickly.

Unknown Speaker 25:50
But yeah, for plan B, plan C, long term rental wasn’t wasn’t an option for us, because wouldn’t be able to walk cash flow.

Unknown Speaker 25:57
If

Unknown Speaker 25:58
there’s not really many options for cash flow in for

Unknown Speaker 26:03
in risk management, Ontario and BC,

Unknown Speaker 26:07
which is why

Unknown Speaker 26:09
we’re selling what we’re selling two of our properties right now we have another link going live today. I don’t know if you know that? No.

Unknown Speaker 26:17
Yes, we divide and conquer.

Unknown Speaker 26:20
So I’m sure if people want they’re interested, how do we make this make this working relationship work?

Unknown Speaker 26:26
I’m not really sure if people are interested. But Sure. Well, you know, when I was asked to speak at a crua, Canadian real estate Women’s Association, that’s all they asked for

Unknown Speaker 26:40
is how do we make this relationship work?

Unknown Speaker 26:43
How do we make this work?

Unknown Speaker 26:47
All relationships, about compromise your heart just need to be big enough to forgive each other

Unknown Speaker 26:56
mistakes or things that you don’t like? There’s that and also we had common interests like you were already looking to become a real estate investor yourself before we even met.

Unknown Speaker 27:06
palpably. I don’t think I was I was able to become a real estate investor because I was tied down to the biggest mortgage of my life at the time, which is the townhouse Toronto townhomes that I that I still own today. It was the biggest mortgage on single income. It was really expensive. I just don’t have any cash left. I live paycheck by paycheck. So remember, when you are you’re telling me how you’d use when you were bored at work in serve? realtor.com.ca? Yes. And you were looking at local properties. Yes. But you would the quick math was easy. You can make these things work. Yes, I was trying to find a property in you topical,

Unknown Speaker 27:46
actually in Mimico area if for those of you who know the topical hot area. So I was trying to find a property that I can buy, buy, like from South using the proceeds. If I were to buy anything, I would have to sell my townhouse and buy a property that’s decent enough that I can rent out the basement. So that was what I was looking for at the time. So then I don’t need to live in a three bedroom plus one den, executive townhouse that has three bathrooms, because at the end of the day, I could only use one toilet at a time. So you only have one answer. Yes, exactly.

Unknown Speaker 28:24
So, so that was what I was looking for. I’m like something that’s somewhat decent, and I can rent out the basement so that helps me with supplementing my income.

Unknown Speaker 28:34
And you’re not alone. I guess again, my Toronto realtor friends are telling me that duplexes are on fire in downtown Toronto. We’re recording this Valentine’s Day, obviously. So it’s February 14. And again, it’s downtown Ontario, downtown Toronto, it’s on fire for the same reasons that you that you just shared. People are looking for mortgage help. Yep. From their basement for for one of the units in their property. Yep. So the the hopefully comes out to our comes up to Hamilton soon enough in our market recovers. But do you remember the first property we bought together? Yes. But what about it?

Unknown Speaker 29:11
What about it?

Unknown Speaker 29:13
Didn’t where is it? Oh, okay. So it’s in St. Catharines is six six bedrooms, student rental. It wasn’t a single family home at the time. So we converted it into a six bedroom essentially upstairs and downstairs type of arrangements six bedroom for

Unknown Speaker 29:30
kids for university students to rent. Yeah, Brock University students do remember even seeing it. Do remember the process? I remember I remember quite well. Yeah, so I was still working for Loblaw at the time, so I didn’t have the time to all the luxury to drive out to St. Catharines to look at properties. So the way it worked was that I refinance my Toronto townhouse. And I have like maybe 40 $50,000 line of credit available. So I

Unknown Speaker 30:00
decided to then start after refi yet 40 50,000 available line of credit, or maybe $60,000? I don’t remember all secured by your house. Yep. And so you said that it would be interested like it would be nice these investing in St. Catharines student rental would allow us to cash flow and said okay, so I could refinance the property and then see what’s available. And

Unknown Speaker 30:26
you went out to see the property. And that’s how we bought our first house together. Yeah, I just happen to be driving around the area. So again, I remember it well, because that was there.

Unknown Speaker 30:35
I was driving around. I saw the For Sale By Owner sign and a knock on the door. Yep. Can I share what you paid for it? Sure. Paid 235 for 1000 square foot bungalow. In a in what my what my good friend told me was an A plus location.

Unknown Speaker 30:53
And that’s the property we have we’re currently selling right now and again, having additional sale on hopefully firms. By Friday. Yep. And it’s gone up significantly. So I want to say, I’m glad that we did have a diverse portfolio because we have duplexes and we have student rentals. single family home, and also office. Yeah. Diversify.

Unknown Speaker 31:18
Because of our just like I mentioned how Toronto was on fire. Yep. My friends are are telling me it’s it was December was the busiest I’ve ever had. Even over Christmas, it was just there just insanely busy for anything that was on land.

Unknown Speaker 31:32
So I’m glad we have student rentals, because those are how those have demand. Unlike our duplexes with long term tenants. So and there’s demand for rentals, there’s no demand for purchase, I guess. Yes.

Unknown Speaker 31:46
The student rentals have demand for both rental and purchase versus our duplex tons of demand for rental, almost no demand for from from investors, at least in Hamilton and beyond where our properties are located.

Unknown Speaker 31:59
So I’m glad that we have some rentals because we can we’re plexes are plans to exit them. And we’re planning on moving to moving our capital to the states. Yep. So I keep getting questions around because for example, I shared your your store on Instagram story about how to exit Canada from a tax perspective. Tax implication on leaving Canada. Yeah, permanently. Yeah. We’ve probably touched on that a little bit.

Unknown Speaker 32:25
I think you can question people. Are you leaving Canada? Are you moving to Texas? So no, we’re not leaving?

Unknown Speaker 32:30
No, we’re not. Yeah. Okay. So yeah, so to serve and just work there. It’s only our capital that’s leaving, because we want to go rest. That’s where it’s less risk. And for improved cash flow, and there’s no rent control? Yep. Great. So can you share? Because I think listeners understand how I appreciate that. I generally don’t have to worry about the tax and accounting sides. I know you got that covered. So what what can you what, what’s your accounting perspective on all this? Um, so I guess the plan for us specifically is to exit at least a portion of our portfolio, and then buy a couple of properties in the states to begin with. And we’ll see how it goes. But that’s always in my head. I don’t know, everyone’s plan, because everyone seemed to have big blinds all the time. And, at least in my head, we’re about exiting a few properties and see where it takes us and then see how the US portfolio will take us. And from exiting Canadian properties perspective, you do have to realize your any capital gains that you have. Yeah, there’s no avoiding paying tax is no avoiding paying tax. And I always pretty sure there’s a common question you get, yes, I made all this money, how do I avoid paying taxes

Unknown Speaker 33:46
so that there is no avoiding paying tax. And you have to make sure that I was just having this conversation with you earlier, we have to make sure that, hey, we actually set aside enough money from the proceeds to pay to cover all of our own tax liability before we move all the capital that you get from the lawyer to go into the states. Now with respect to buying properties in the States.

Unknown Speaker 34:10
My understanding is that you have to be really careful from a Canadian tax perspective,

Unknown Speaker 34:17
buying properties in in Canada versus buying properties in US or in anywhere else in the world. The best case scenario is that the Canadian government would treat the purchase or the profit from from the rental operation out of country the same way as if you are investing locally. That’s the best case scenario. Now, what’s the worst case scenario you pay double taxation, that’s the worst case scenario. Yeah. Someone screwed up though. Yeah, to happen. Exactly. So and that’s that’s incredibly rare. Like someone has been negligent for that to happen. Am I right? No. So it is actually way more common than you think it would be because a lot of investors out there are going to

Unknown Speaker 35:00
local people, for example, in the US, they will go to a local lawyer, a local lawyer, a local accountant, who do not know anything about cross border tax would immediately go for do LLC because there is no double taxation, there’s blah, blah, blah. So they have their own setup. Yeah, they think they think as they treat it as if you are a local US citizen or local us green card holder. So it’s a very different ballgame when it comes down to foreign investment. So you have to talk to people who are aware of the tax implication, and said, You aren’t set you up on the right track. So many people that I know that set up LLC for their own investment, LLC is called limited liability company, I think, but there’s a flow through entity for the US side, but it is recognized as a corporation in Canadian side. So there is that mismatch. And therefore you will pay double taxation, if you own properties are something called LLC. So folks need to have the right accountant on the side of the border and non bad side.

Unknown Speaker 36:01
So yeah, it’s in no different than everything that we do when we’re investing in Canada, you still need the right team, you still don’t need the lawyer, the mortgage person in the in your accountant all need to speak the same language. Absolutely. Because whatever is best for each of those worlds may not be the best, like the best corporate setup may not be the best for getting financing, you may not be the best for tax tax. Absolutely, yeah. And also, the thing is, it’s also important to understand that now you have if once we are venturing outside of Canada, you are operating a multinational business, believe it or not. So multinational business means that you have increased your the complexity of filing at least double right, because now you have to file US tax. And then in Canada, we also need to report it. So now you’re increasing the compilation costs. Now I’m saying that because a lot of people would come to think when they come down to investing in the US, I think, really straightforward. But there is that complexity, the compliance complexity as well, which just want people to be aware of it, we’re still going ahead with it, because there’s cash flow to cover the expenses. But I also want to mention it. So then people don’t need to actually get a realistic picture of the costs associated.

Unknown Speaker 37:22
From so you’ve looked at a lot of real estate. You’re like the most popular real estate accountant in Canada. I, you know, people tell me all the time, I don’t know about that. But sure, that’s what they told me when they run into me in public and asked me where you are.

Unknown Speaker 37:34
Follow your YouTube, I volunteer at too high.

Unknown Speaker 37:39
from an accounting perspective, from your from, from your professionals perspective, do you see any downsides for Canadian to be investing in the states other than double taxation, which we mentioned, but it’s avoidable if you do currently?

Unknown Speaker 37:54
I think yesterday, I just had a conversation with Carmen, who’s the CFO of this company that she co found called share. And they specialize in helping people to purchase properties in the States, particularly Canada’s or they all purchase single family home in the States. And from what I can see,

Unknown Speaker 38:17
it really goes back to the person’s preference. But for me, it works because there’s cash flow. And we’re conservative people. So we like cash flow. Yes. So yesterday, the conversation with Carmen was that, hey, she bought a bunch of properties because she exited a business and had the resources to buy a bunch of properties. And, and they she’s buying properties at class C properties to generate a cash. I don’t know about cod, but generating enough cash flow. Now she’s venturing outside of that. To clarify, because she when she was buying those condos in Florida there, they probably weren’t that bad. I was thinking about more her upstate New York, yeah, like 50 grand properties. Sorry, I can’t go ahead. So the the example that I was given was that she was buying these classy properties and they were able she was able to refinance them, and then diversify and buy Class B or class a property using the refinance proceeds for it. So essentially, she was so buy properties that are

Unknown Speaker 39:18
that are properties that would have more upside in terms of appreciation, but she used the money she has the cash flow that she has from these classy properties to purchase those up, I guess, better quality properties. And but that concept is essentially treating your real estate investment portfolio like a real business. A lot of people in Ontario, especially Canada, because they don’t have a choice. They’re buying properties here negative cash flow, how much negative cash flow can you sustain on a monthly basis? Like just look at a few $100 It adds up with him a few $100 1000s of dollars in

Unknown Speaker 40:00
But it adds up. Do you have that deep pocket to pay for that? 1000s of dollars of negative cash flow on a regular basis? We have one in our office who’s negative cashflow. 6000 a month? On their portfolio? Yeah, exactly.

Unknown Speaker 40:13
folio? Yeah. It’s not necessarily but what business would accept that? So $6,000 is equivalent to $72,000 annually. And that’s after that’s before tax dollar, but still $72,000 Is someone else’s job. Job. Opportunity. Yeah, exactly. Do you have that deep pocket to sustain that type of loss? Is it a really sustainable business model? Really, if you’re, you’re counting on appreciation alone, and sucking up all the negative cash flow monthly cash flow, your appreciation is not really the amount of appreciation that you’re seeing, you need to take that and minus all the cash flow that you’ve put into the property as well. People often neglect those when they talk about real estate appreciation and investment, right? from a tax perspective, are you allowed to or are you allowed to keep use those losses like for for as long as you have the income property, income property, the negative income property, or use those negative up those losses for against to count against your income. Generally speaking, if you’re trying your best to invest, and you’re trying your best to generate income,

Unknown Speaker 41:22
you’re not leaving, leaving the house vacant, there is activities going on, then, generally speaking, you will be eligible to deduct the expenses. Because generally condo investors like they have no hope in hell from the beginning of cash flowing.

Unknown Speaker 41:36
And so that’s still a lot to be deductible. That’s interesting.

Unknown Speaker 41:41
That’s surprising to

Unknown Speaker 41:45
you, which is why I don’t understand why. So I actually think that, like what we’re doing with shares is going to disrupt the entire market. Because the properties that we’re looking at the properties we’re gonna be buying ourselves, were the forecasted appreciation, I guess a forecast, you don’t know what we’re buying in the top, we’re buying the suburbs of the top towns in the USA. So even though we’re like we’re using 5% appreciation, which is reasonable, in my opinion, they’ve been around for a long time.

Unknown Speaker 42:13
So why would I accept negative cash flow?

Unknown Speaker 42:16
There’s also historically in Toronto, there’s also 5% 10%. Appreciation? Yeah. So there’s that appreciation, that’s why they are accepting negative cash flow in exchange what with that appreciation?

Unknown Speaker 42:29
Jeff doesn’t sound like good investments.

Unknown Speaker 42:33
What else about us investing Are you interested in?

Unknown Speaker 42:38
Well, right now I’m waiting to to host this webinar co host this webinar with share,

Unknown Speaker 42:46
whereby share is going to share their essential process of how they will be able to help investors, because I think one of the biggest obstacle that we see on the street in terms of buying US property is how do you start? Where do you start, you just engage in with a realtor? How do I know that that realtor is right or wrong? And how do i Which town should i because there are so big contracts? Exactly? Where do I start? So I wanted to host this webinar. One is to share with the world what share is doing to is to help me understand the entire purchasing process as well, because we are about to embark on this journey or source ourselves. So this is a learning experience also for us in general. Also, I want to be able to help others. And so we are hosting this to share the information. And I’m presenting as well, you’re presenting because you’ve been to Texas, and Atlanta to do your research. So I wanted to know, essentially, I treat it as Hey, are wondering now once you embark on this journey, and this is kind of like a presentation a pitch presentation to convince me that I need to have this buy in to invest in the US. And that’s what I’m trying to do. And the webinar is happening February 29. And the registration link is on my website and my website is real estate tax tips.ca. Well, the link in the show notes as well.

Unknown Speaker 44:16
Yeah, so I was in Atlanta in November and I was in Texas I was in specifically in San Antonio and Austin in in January. And I wish you were there because

Unknown Speaker 44:29
Texas was

Unknown Speaker 44:31
the whole southern hospitality thing. I had no idea how about it went all the way to Texas as well. Because like I’ve been to Florida we’ve been to Florida together. And that’s what we southern as well. Like it’s fine. Like no one’s really rude to us I’d say but like like in Texas, people are just over the top hospitable. Right is like the best service at all for everyone I’ve ever seen from the Costco cashier to the McDonald’s cashier to the whole

Unknown Speaker 45:00
Tell staff to everyone I just the surface was outstanding. I felt so comfortable. I wish you were there to see it. Okay, we got a lot of chance, especially if we were to buy a property over there. Yeah, cuz I don’t know where why first we’re playing by either Austin or San Antonio area or Orlando first. And then until we make our own visit to Tennessee,

Unknown Speaker 45:25
you want to go? Maybe may, in May, month of May that may.

Unknown Speaker 45:33
I don’t know, for my comfort level, I like the fact I’d like to go do site visits, get a feel of get a feel for things.

Unknown Speaker 45:39
So he’s going to share all your research right?

Unknown Speaker 45:43
In 20 minutes, I can’t share all my research. Well, the reality is the two hours that I get in hours, I get her one that talks about this, like bits and pieces all throughout the week or the month, and I can’t comprehend the whole thing. So that’s why he’s given 20 minutes condense his own research into 20 minutes Siteman in my webinar, so you got 20 minutes to present your research.

Unknown Speaker 46:10
All I know is you need to look at all these economic factor population growth, and then historic rate and major industry. All these things, I’ll let you do your thing.

Unknown Speaker 46:24
Do you have any concerns with us investing?

Unknown Speaker 46:27
As far?

Unknown Speaker 46:32
Yes, it is far, which is why my apartment requirement was that we would only work, we will only do this if we would have the best of the best property management that was available. And we’re going to get it for cheap too.

Unknown Speaker 46:44
Because we’re going through an asset manager, right? Because with Ontario, I tell my clients all the time, your greatest risk of Ontario was your tenant, if they don’t pay you, you are in so much trouble. They refuse to pay you and refuse to pay you for months, you’re in so much trouble. Right? Versus in the States, you don’t have that 3060 days of tenants going? Yeah, it’s a it’s a very different scenario out there. It is really hard in the marketplace.

Unknown Speaker 47:11
We have actually my uncle just recently told me he had a friend

Unknown Speaker 47:16
who’s on the property and Barry, and rented out to a couple who’s like a couple in their 20s. And sadly, I decided not to pay you. And if you want me out, pay me $17,000. And I’ll be out this pick that number of the year. So yeah, yeah, I don’t know, 17 or 20, or whatever. But that number is out of thin air. Because they know that they’re going to be they know that they will either get it from you. Or you will have to pay that $17,000 over a number of months, because they’re not paying you rent. And then at the time, by the time you get the ruling in favor of you, then you would be able to kick them out. Maybe a year later, it’ll cost them around 17,000. Yeah, exactly. That’s why they are counting on that. And that’s why they get the $17,000 That’s so nice to meet you in the middle. It’s gonna cost you 912 months of rent of not giving rent or just pay me 17,000. I could have asked for more. Yeah, that’s what I said.

Unknown Speaker 48:16
And that’s the sad thing is that more and more It’s this is coming up in the news. Oh, more and more. And people are DMing me about this as well. And a friend telling me that his friend has a realtor living in this condo and refusing to pay rent or was in $23,000. Jesus. Yeah. And so the tenant is a realtor. So they fully know the rules.

Unknown Speaker 48:35
That’s what you think

Unknown Speaker 48:38
they fully know the rules because they’re not paying. Yeah.

Unknown Speaker 48:42
Yeah.

Unknown Speaker 48:45
So you fully support my decision to move our capital to the states. I’ve only slowly I think I am right now in support of exiting a portion of our portfolio in Canada. Now, whether we’re going to the States or not, we have to wait till February 9 29th, who watched that video to watch our webinar all together? And then we’ll see how it goes. Yeah.

Unknown Speaker 49:09
Because I don’t think we we don’t want this one sell everything this year. First of all, the market has recovered. I think we can sell some of our properties back at peak prices, if we wait till probably the end of next year. So I think I wouldn’t call it selling our whole portfolio. That’s not really our intention. My intention anyway. Maybe in your head, you are thinking that’s the case. But I don’t think that is really my intention. I think it’s about risk diversification, right? Like, if we are always in this rent controlled environment. What if one person is not paying us and what’s going to happen? What if two people stop paying us and asking for $17,000? Do we have $17,000 or $34,000 in the bank account to to

Unknown Speaker 49:54
kick them out? I don’t know. It is a crazy, crazy time in Canada I have to say

Unknown Speaker 50:00
Yeah, it’s totally sad. That’s probably why I want the market to be hot as well, so that folks can just move in and whatever. But at least thankfully, we have a good relationship with our tenants we’ve been

Unknown Speaker 50:11
pretty sure almost all of our tenants will say, like, one of the best landlords I’ve ever had. So hopefully, karma. Yeah, hopefully. Yeah, hopefully. But also, I see that the only path to cashflow $100,000 A year is through us income properties. Because we don’t have that with our portfolio. And I don’t see how we’re gonna get there, especially with rent control, holding down our rents. Absolutely. Top just top of mind, I think we have more, we have at least three properties that are under rented by over $1,000 a month. Yeah, right, that’s $3,000 a month right there. That’s 36,000 a year, we should have more in our pockets. So absolutely. So I want to sell all those to

Unknown Speaker 50:51
what you like in this market is too early to say it is too early. But my forecast is we should be back to peak by end of 2025 or 20, sometime in 2026. So it makes sense to slowly sell maximize our profits. And then and also and then by exiting will minimize our grief.

Unknown Speaker 51:11
We’ll see where we’re putting out capital.

Unknown Speaker 51:17
And the other investments, you’re finding your clients, so that weren’t working? Like you have clients and everything. We have clients doing developments, you have clients doing short term rentals, you have clients doing private lending?

Unknown Speaker 51:27
What’s working?

Unknown Speaker 51:32
We’ll see a lot of what’s working to be honest, we see a lot of what’s working when they exit the property. We don’t see a lot of cash flow, right? Or you wouldn’t know to the exit. Yes, exactly. We don’t see.

Unknown Speaker 51:46
We see a lot of losses recently, in the last couple of years. We see losses from private lending losses, we see a lot of private lending losses that are not even eligible for tax deduction because they invest in RRSP or TFSA, or no, so then you don’t get anything, you lost the money. That’s it. We see people who lose money on flipping their properties, they are inexperienced flipper, and they lost money. They got caught in this market lost money. And these are the same people that people are lending to. I don’t know why they are in the experience. Other ones

Unknown Speaker 52:21
are borrowing money in their own experience. And then we have we see people

Unknown Speaker 52:29
generally speaking, I still see some people investing in private lending, but not as much as before.

Unknown Speaker 52:36
Everyone is negotiating the fees and thinking that wanting to find ways to cut their expenses as well. Those are the market conditions right now. It’s not that easy. And simple, right? Because I already know enough people, there’s plenty people who love their product managers go because they can afford them. Yeah, yeah, absolutely. Which is all the more reason to cashflow on these income properties. Yeah, absolutely. People.

Unknown Speaker 53:03
People think that cash flow is under like, I think cash flow is totally underrated by majority of the real estate investors there.

Unknown Speaker 53:12
I’ll throw that out there that people believe love and marketing that’s in front of them. I literally had an investor who’s negative like 1500 a month on three different condos. And he told me like, because he bought based on a performance provided by whoever was selling the pre construction condo. And he only focused on ROI. He didn’t look at what the cash flow was. Yeah. Which is we like for my team, we always start with the cash flow. Yep. Here’s what we think the character here’s our cash flow calculator will give you all the inputs, what’s the cash flow going to be? Are you okay with that, versus an ROI number based on an appreciation rate in those last few years that didn’t work out. I think that’s very common when you sell a condo preconstruction condo in I Waterloo area. I think, because people are selling those student rental, and they want guarantee how guarantee price guaranteed rent. We’ve seen some of these pro forma as well. Yeah, we were we were advising clients to against that.

Unknown Speaker 54:15
For anyone who doesn’t believe me to go go drive around Waterloo, and you’ll see how many buildings they built. All at the same time. I wanted to take a memory lane a trip down the memory lane. So I knew Waterloo

Unknown Speaker 54:29
instead of struggling with Columbus, Ohio to get placed in this

Unknown Speaker 54:35
what are the what are the tax taxation stuff that should people take? Pay attention to like record keeping? I was just talking to just talking to our admin assistant. Apparently I’m missing some receipts. Yes. So there is a lot more that we need to do in terms of record keeping. People are not aware and it is hard to educate people.

Unknown Speaker 54:57
What I found I can start with the most

Unknown Speaker 55:00
troublesome clients,

Unknown Speaker 55:02
our most troublesome clients are always the one that are growing really fast and doesn’t have an integrator or doesn’t have someone like a strong administrative assistant, and doesn’t believe in having one at all, thinking that they can do it all by themselves. Those are the people who I wouldn’t say fail the fastest. But you can see that when they come to us, they have nothing prepared. They said that they have something but everything is messy, it’s not possible to lend you money based on the size of books that we prepare, we try as best as we can to make it meaningful and as representative as possible. But there’s garbage in, then there’s only garbage out there. So these people need to refi Yeah, as an example, short notice, only short notice. So they come to us things that have done have not done messy, and then they want things down yesterday, which is not possible, those are the biggest risk in terms of record keeping, because they don’t have any support for any of the stuff that they do. And

Unknown Speaker 56:10
it goes back to, hey, when you have a big plan, it’s really important, I don’t know about the coaching courses out there, because I’ve never taken one, it’s really important to have someone who are detail oriented, and super organized to help you out. Because if you don’t have that person, chances are you’re going to mess up. And now going back to record keeping is part of that person’s responsibility to do strong record keeping. If you don’t have that person, you’re a small,

Unknown Speaker 56:41
you’re a small investor, you’re comfortable with it, it’s all fine. All you need to do is pretty much get some brown envelope, stuff all your receipts in it, and make sure you just keep all your receipts that are that can be proven to be deductible into that envelope. And at the end of the year, look at all of them and then categorize that. Not all you need to do is as simple as that. If you don’t want to use

Unknown Speaker 57:08
a physical folder, all you need to do is take pictures and send it to an email address that’s dedicated or save it in a particular folder that’s dedicated for that particular property or business.

Unknown Speaker 57:19
It sounds simple, but it’s really hard for some people. Is there an app for this, you can use an app. QuickBooks Online has a function to allow you to take pictures directly. You and I use something called hub dock, I have a different set of reasons why we’re using hub dock instead of QuickBooks Online. There is also text out there that would allow you to do that text with which was formerly known as Receipt Bank is called de XT. txt.

Unknown Speaker 57:53
And then what is the process like See, see their books or see the record keeping is good? What does the accountant have to provide, so that the investor can go get their mortgage, typically, if you own properties in your personal name, so they would ask for your personal tax return

Unknown Speaker 58:09
and schedule of statement of rental income and expenses. And then they would ask for a couple of years of your tax returns. Now if you own properties in a corporation, then it gets a little bit more complicated. They want to see the financial statements of your corporation, they also want to see

Unknown Speaker 58:29
essentially, the proof of property tax insurance bill rental for all properties. That’s how within the same corporation, and plus they also want to see your personal tax return. Right. And sometimes they may want your personal tax return. Like as soon as as soon as it’s available. Sometimes they don’t. Yes, so depending on the lender and the timing as well. Right. I’m gonna guess most investors who are like really rushed they usually look more complicated in the requirements we hire from the from the lender.

Unknown Speaker 59:02
And so if they think investor, do you understand like, if you’re, if you’re stressed, like almost so many people’s strategies to refinance, like, done quickly,

Unknown Speaker 59:12
in a timely manner, whatever it is, renovated, rented out, right, and then refinance it. Yep. So for this to go smoothly, their books have to be in order. Oh, yeah. Majority of the people are only putting things in order at the time when they need to when they file the taxes.

Unknown Speaker 59:29
Which makes rushing. Yeah. So it can take a while then. Absolutely. And it’s not not their fault, necessarily. Just they’re just busy. Trying to do everything themselves. Yeah. And if there’s no cash flow to pay a bookkeeper or an assistant or whatever.

Unknown Speaker 59:48
So this is probably an unexpected delay in getting people’s financing as well. Oh, yeah, I don’t see. Yeah, absolutely.

Unknown Speaker 59:56
And you’re probably not making any fair and friends with your accountant if you’re putting garbage in.

Unknown Speaker 1:00:00
You

Unknown Speaker 1:00:01
know,

Unknown Speaker 1:00:04
what else should people investors know about?

Unknown Speaker 1:00:07
Record keeping is one of them understanding keeping up with the latest rule is, second one, people don’t like to be told that they need to do all these filings. We try our best to tell our clients as much as possible. Sometimes we even go as far as taxing them, just to tell them that, hey, you may have this filing obligation, make sure that you, you watch out for these.

Unknown Speaker 1:00:30
I think people don’t pay enough attention to what

Unknown Speaker 1:00:34
the two notes altogether.

Unknown Speaker 1:00:38
Can we talk more about private lending? Do folks dig into it at all in terms of like, what what the common errors are?

Unknown Speaker 1:00:47
private lending? Yeah. You mentioned like That’s seems to be a painful area for people losing? Yeah, so a group of our clients have invested in different type of private lending situation, and God

Unknown Speaker 1:01:01
essentially didn’t recover their initial investment. So when you do private lending is in a few different forms. The first one could be in something called a second mortgage or first mortgage. You’re the first one when security Yeah, first mortgage means that you have first security first, right? If the that the borrower doesn’t pay you, then you can go back and liquidate that property, you’re the first to get paid, you have the first government

Unknown Speaker 1:01:28
after the lawyers and realtors get their first cut first, then you’re the first one that get paid. Now,

Unknown Speaker 1:01:37
then a second mortgage, second mortgage, generally as high risk your rent ranked second, meaning that you rank after someone else who’s the first lender who has the first right to the proceed if something goes wrong, and you are in a higher position, because now you are exposed to higher risk. And so usually the interest on the second mortgage is higher. But you’re still register on title hopefully, because sometimes they don’t, right, get registered on title for whatever reason, administrative error or whatever, then register. Now. Now, if you’re registered on second, you still have a change was withdrawn that point a little bit. You get paid a rate. But if you’re not secured on title, you’re actually taking more risk. Yeah, absolutely. You’re not getting a return appropriate to your risk. Yep. Sometimes it just doesn’t happen. Now, Lord, and then afterwards. Typically, there’s like, obviously, third, four or five position, right. And contractor liens we’re seeing now too, we’re seeing this property taxes on being on pay utilities yet, but we’re talking about a third four or five as in like being a lender, you’re talking from a different perspective. Now I know, but they can be behind someone else. Yeah. So once that’s being

Unknown Speaker 1:02:53
done, as you know, if you’re a third lender, your risk is higher than the second. Now, let’s say, actually, in the last few years is really popular to land based on something called promissory note. So promissory note is essentially IOU. You come up to me and say, I want $100,000 Because I’m trying to renovate this property, but it’s not registered against the property. So you don’t know how much is being registered already against that particular property. So you still lend me the 100,000, or I still lend you the $100,000. It’s not secure against anything. If that person goes bankrupt, the whole promissory note is gone. Even if they give a personal guarantee they go bankrupt. Yeah, dun, dun, it is what it is, right? So those, what a lot of our investors are losing money, the type of instruments that they’re investing in. Because at the end of the day, if you’re secure against the property, you have a chance to recover. But if you own promissory note, they have to sell those properties paid first and second, before it gets to the promissory note. Repayment, right. Do you know if any of these people are actually taking over the property? Or there’s writing off these losses? Well, depending on who and what the position is, right, we have our best friend actually was in second position. I publicly talked about her situation before. And she went ahead to pay off the first loan, and then take over the property and purchase the property off and pay the legal fees for the power sale process having started which were which is over $10,000 Yes, she has to pay out of pocket and additional $10,000 to close the property, passive cash flow. And then and then she ended up making money on the sale because that happened a few years ago. So the market has gone up. She’s owned it for a year or two. And then she ended up making probably 100,000 or $80,000, or something from the property. But she said that she’s never going to go into this private lending ever again. Because she told me that story. I was never interested in private lending. Yeah, good.

Unknown Speaker 1:05:00
again, everyone, pretty much everyone goes into it. Wanting a passive investment. Yep. And then, and then if it doesn’t work out, it’s bad. Right? That she had to pay that she has to pay that first mortgage. Yep. So what’s supposed to be it was supposed to be a positive cash flow play is now as you’re paying someone else’s mortgage now. Yes. So imagine if there was no tenant. I believe it was the owner that lived there. There was no there was no rent. So there was rental income after she bought the property, but there was no rental income.

Unknown Speaker 1:05:30
So she had to bleed for a while. Yep. So for those people who are into promissory note, this option is generally like there’s no point you go through this whole process, right? You’re not secure against the property. So you’re not essentially getting anything out of it. You’re really just helping to buy that property and pay off your first debtor, first mortgagee and also the second one, you’re not even the third red rank the third. So there is no motivation for people who are investing in Yeah. So there is no reason for you to do that. Other than hold onto the property and hoping one day, then in that case, you can hold on to any property hoping one day you’re going to recover the loss that you incurred, right, there’s plenty of history of what promissory note has been wiped out. I’m shocked that people still do it.

Unknown Speaker 1:06:19
special situation, I think it’s great. And like 15%, interest rate 16% interest rate.

Unknown Speaker 1:06:26
I think these some of these in the most recent story was 17. As well as reading the news, is there a line item on your tax return for greed right off,

Unknown Speaker 1:06:36
I can declare these losses due to greed. So if these losses are incurred in TFSA, and RRSP, like I said before, they’re not written off, right. But if these loans are registered in your own personal name, or in the corporation that you own, then you can report generally speaking, you can record it as capital loss. So it’s not immediately offsetting against all your income. It’s only when you ish, when you report capital gain, you will be able to offset some of these losses. Only these capital gains, yes, can be can be written off against

Unknown Speaker 1:07:10
other corporate income. No just kept looking down. Generally speaking, like there’s an exception. The exception is if you operate a mortgage business altogether, but how do you prove that your mode of operating and really mortgage business, if the very highly specialized majority of us do not qualify? Let’s just put it that way, making this sound even worse, because like, interest income is taxed at the highest rate?

Unknown Speaker 1:07:39
Yes. And then my losses are deductions are at a really low rate, I can’t deduct as much

Unknown Speaker 1:07:46
or none of his TFSA or RSP.

Unknown Speaker 1:07:49
Yeah, in again, if I make the income in an RSP, and TFSA, I’m paying Max tax. This just sounds even worse. People generally do not consult with us, either, because we’re Calvin, we’re like, at the back end. We’re only looking backward after they made a decision at the end of the year. Oh, yeah. By the way, I have this interest income. That’s how we find out. No one talks to me either. Yeah. Is this an investment? Oh, my God, never touch that.

Unknown Speaker 1:08:17
That’s how,

Unknown Speaker 1:08:19
unfortunately, all of its bad. I think some of it can work. But I think there’s I think there’s a rare cases, there’s a very, very, very specific niche case where the promissory note works.

Unknown Speaker 1:08:31
Any other advice for real estate professionals, realtors, anyone, builders, contractors.

Unknown Speaker 1:08:38
I mean, there are rules that are that just came out

Unknown Speaker 1:08:43
September 14 2023 for HST, if you a lot of people don’t seem to realize that if you build a purpose built rental, when you complete the purpose Bill rental, you’re required to pay HST on fair market value of the property to get the government. You buy a piece of land you build that you paid the cost of to build, you paid HST to the builder. Now, at the time when it’s ready for occupancy, you now have to do something called self assessment and pay 13% on the fair market value of the rental to CLA because as if you were to buy it from someone else brand new.

Unknown Speaker 1:09:24
Now you can pay that 13%. Where’s this money coming from? From your own pocket? You have to pay it I understand when developers because developers is collected from this the buyer Yeah, exactly. There is no there is no transaction here. So in the excise mission, yeah. In the eyes of CRA essentially you are the builder. So you have to charge HST to someone, but you’re also the buyer because you’re the landlord, so not so then you have to pay that delta to CLA. Now majority of us don’t aren’t developer

Unknown Speaker 1:10:00
aren’t building purpose built, but this rule has been around for a long time. So you have to do self assessment.

Unknown Speaker 1:10:07
Now, CRA came out and said, Well, we recognize that is added cost to the to purpose built rental. So we decided to essentially wave down and we receive, we will also refund any HST that you pay prior to it provided that the construction of this purpose Bill rental is four units and above or have 10 bedrooms and above. Now conversion from residential property doesn’t count. And the construction has to start after September 14. And

Unknown Speaker 1:10:44
after Sorry, what do you mean by conversion of residential property? Like you can’t like take a five unit into a 10? Unit? Yeah, that doesn’t count this just yet. You have to pay HST and don’t even sell it. Yes.

Unknown Speaker 1:10:56
It’s just treated as if you sold it to yourself. Yes, exactly. But if you convert Commercial to Residential, then that count. I mean, the legislation is still up in the air a little bit. So we’re still waiting for the final legislation. All these finer detail has to be ironed out. But it matters. I hope so to encourage people to go, you know, build from one unit to 10 unit, whatever. Yeah, absolutely. But I was thinking about the common example where like people ourselves and people in our community that do basement apartment, or garden suite, two, those have HST implications, depending on whether it’s considered substantial renovation or not. So substantial renovation meaning 90% or and a bulk of your property’s renovated the walls and your floor space is is replaced. So a lot of them do not qualify. Now garden suite, you do have the filing, because it’s a new structure a brand new on its own. Typically you do the filing, you pay and after getting back the residential tenant, sorry, the HST rebate, you’re eligible to claim a rebate back, but usually it’s like $24,000. And so after that net net, you’re you could be ahead by a couple of $1,000. Or you could be behind, generally, you’re behind. Like there’s filing costs everywhere. Okay, let’s use a typical garden suite example. I see ranges from like, we had a client do one for 300,000. I see people who do fancier ones for like 450 800. Let’s just stick with this. The basic investor example would be 300,000. What’s my HST implication, you take 300 multiplied by the 13%, which is 39,000. And then you take 39,000 Minus the HST that you already pay to the builder,

Unknown Speaker 1:12:43
or what they paid through interest 1000 For the

Unknown Speaker 1:12:47
valuation. Yeah, depending on what your valuation is the initial 300 It depends on what the valuation is, the fair market value of the garden suite

Unknown Speaker 1:12:59
of the uplift of the property or just the garden suite alone, the garden suite alone,

Unknown Speaker 1:13:04
we can get into finer detail. But that’s beyond the conversation. Don’t imagine just the book value be sufficient. This is why paid for like this is fair, we can calculate HST on this, right. So people say I paid 300,000 Plus HST, then then you get $39,000. You don’t need to pay tax to CLA because 39 minus 39 is zero. And then on top of that, you will be eligible to claim HST rebate so in that case, you may be able to get like a, whatever, HST so that’s what’s. So I think it’s fair that most people can just argue book value I paid this for this is what it’s worth.

Unknown Speaker 1:13:45
No.

Unknown Speaker 1:13:47
Like, I don’t know how to value gallon sweet. There’s not a lot of there’s not much out there because it’s exactly so I can’t tell you if it is reasonable. You arguing based on I don’t want to be put in the corner to say that nobody knows. Fantastic. So the HSC payable is based on the fair market value of your property. So I don’t have the fair market value in for the purpose of our discussion. We’re just assuming that it’s 300,000 and you pay $300,000 for it. I’m still

Unknown Speaker 1:14:16
doing it. If I had 3000 all cash, I’m not buying houses. I’m not doing a garden suite. I buy one or two, probably at least two houses in the States with that same amount of money.

Unknown Speaker 1:14:26
Which is still again, this is a friend situation. Not many people just have 300 grand sitting around. Yeah, absolutely. Which is sad, because I don’t see how we fix this housing situation Ontario. Anyways, anything else we should cover? What is your future outlook for real estate? You’re still an investor.

Unknown Speaker 1:14:42
So all good long term investing vehicle. I just prefer for my sanity, I like to invest in cash flowing properties, or at least properties that are that at least break even. So I don’t have to worry about it. I’m

Unknown Speaker 1:15:00
Be smart in the future, we aren’t as smart. I think we were smarter before. And then because we were doing the conference, we had to switch the mortgage, I think it’s important to diversify. We had fixed rate mortgage in the past, and we had to refinance the property to extract the equity, not less necessarily extracting anything, we were just trying to make room just in case we need the money for doing the conference. And through that process, we swapped from a fixed rate mortgage to variable, and therefore now we’re subject to this negative cash flow as a result, but we had this fantastic fixed rate mortgage that we had. I think diversity is another key lesson that I learned over the last couple of years. Yeah, diversity, geographically diversity in terms of your how you borrow money. Right now, we also have a commercial loan, the commercial loan, I decided to opt in for fixed rate mortgage for three, three years, because I don’t know how the world is going to be like, it will also take a while before the Fed or the bank Bank of Canada to lower their interest rate to June right now. Yeah, exactly here. So by that time, it’s a year in into my term, so diversification be

Unknown Speaker 1:16:20
be aggressive, but also defensive as well. Be defensively aggressive. Just buy properties at cash flow, do not buy properties that do not know sad, like, I don’t know how we breakeven on anything locally. Yeah, I think most people qualify me as someone who knows real estate Ontario, unless you like I said, unless you have 50 to 55% down in cash for a condo. That’s just hard costs. And we all know things. That doesn’t cover Yeah. All right. So yeah. So based on our based on the criteria you’ve given me, I don’t have a choice but to buy our next property in the States.

Unknown Speaker 1:16:56
Or we can buy a student rental. Someone was kind enough to email me when I challenged folks to find me something within the percent rent, gross rent yield. Someone emailed me, oh, we get, we get $1,000 a room in Kingston, Ontario for student rental. Yeah. But that’s hardly a scalable strategy, because we perfectly know well, how the financing works out for that. Yeah. So yeah, the student rental has their own challenge, but so as investment in the state, so as investment in Canada,

Unknown Speaker 1:17:25
it’s a business on its own. Absolutely. Any final words you want to share with her or listener?

Unknown Speaker 1:17:34
You can find me on real estate tax tips.ca. Or you can find me on YouTube, I have a YouTube channel that share all the insights that we have.

Unknown Speaker 1:17:45
It’s youtube.com/real estate tax tips, or you go on to YouTube and search to return there as well. And I’m hosting a webinar by the end of this month, February 29. Hopefully this will be released before then. And so everyone can register. Registration link is also on my website.

Unknown Speaker 1:18:05
And what is your own recognize you from your YouTube?

Unknown Speaker 1:18:10
We keep running into people who know you from your YouTube. The funniest is when we run to an accountant who knows you from your YouTube?

Unknown Speaker 1:18:17
Have we? I don’t think so we have. Okay, I remember all of our fan interactions, at least your interactions. There’s not that many of them, but they happen. There’s only 17 listeners just like you maybe

Unknown Speaker 1:18:32
your fan interactions, not mine. I only have 18 subscribers, just one more than yours.

Unknown Speaker 1:18:41
This must be the truth about real estate investing.

Unknown Speaker 1:18:44
Thanks so much for doing this. Thank you. Thank you for watching. If you want to learn how to invest in real estate from scratch, my team teaches beginners how to use the number one investment strategy that I personally use in a virtual free training class every month. Go to investor training.ca/youtube To register for our next class. Then links also in the description as well. I publish at least two to three videos a week here. So subscribe if you want to keep learning from seasoned investors, like myself and my guests. And if you’re just starting out, feel free to ask questions and comment below. And I do the best to answer each of those comments and questions myself. Again, if you’re ready to learn the nitty gritty about real estate investing from a professional investor register for our next virtual class. That’s at Investor training.ca/youtube. Thanks again for watching. See you in the next video.

 

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/Hb9dmNBjZCE

 

** Transcript Auto-Generated**

Erwin 0:00
It’s a sad day in the truth about real estate investing world for Canadians, a highly leveraged group of landlords with hard money loans, heavy renovation investment strategy in tertiary markets. This group of landlords is seeking bankruptcy protection. I’ve included and I posted about this, posting about this on my social media last week and a half or so. That said, I’ve included links in the show notes from the appointed monitors website, where you can find all the court documents related to the bankruptcy protection hearings, articles in both CBC and the Globe and Mail. Fingers crossed that this all works out. But the article the articles from the monitor, mentioned how over 30% of portfolio is sitting empty. There’s over 600 units and over 200 units are sitting empty, across over 400 properties. Maybe I’m a small mining investor. Take note though I my my my ex wife and her family were in trades. So we only ever renovated one property at a time. As none of us likes neither cashflow or vacancy. Were just that cautious as it’s negative cash flow, it kills companies and investments. So yeah, we weren’t a fan of negative cash flow. This company is experiencing a liquidity crisis as they have no more cash to renovate. There’s 200 units that are sitting empty, as this company only has $100,000 in the bank, even though they borrowed $144 million across first mortgages, second mortgages and promissory notes, which means unsecured debt. But it’s also called a Yeah, it’s called promissory notes in the promissory notes adds up to $54 million from that’s included in that 140 $4 million owed. I spoken to a couple of insiders as well. But folks, you know the principles well or worked with them. Thank you to the fans of the show who’ve been sending me DMS as well. As folks know, I generally don’t shy away from public law, publicizing losses. But this is a fluid situation, I believe in innocent until proven guilty. There are many things I’d like to say. But I won’t get this little bit close to home. I know some of the principles or and I know people who’ve lost money. And yeah, I don’t like to see anyone lose money. And of course, I do not have all the details. I’m not involved. And no one will have all the details until this all is shaken up. One thing was for this for certain, though, is that many lenders have lending criteria that I have for things I would not lend to. For example, when I worked for a bank, they want to they wouldn’t give mortgages to Properties in small towns and or houses on septic tanks, fine. That’s their criteria. Covered mortgages. Covered home mortgage came on the show and they stated they do not lend to small towns, including and their threshold would be a population of 50,000 population. These landlords who are seeking creditor protection, they have a large part of the market share in small market Northern Ontario. They make up so much of the market. So to quote the Globe and Mail article they own they own almost 20 units to winter hit properties in the small town Timmons and to unwind that portfolio would take 14 Nine months for a controlled liquidation to exit the optimal portfolio and 23 months in Sioux Sainte Marie populations for those towns are about 42,070 3000 respectively. Just as important to note is those cities have barely grown as well. I actually actually check Stats Canada ensuite Sainte Marie, su Sainte Marie actually shrank in population in between 2016 and 2021. These are hardly markets I would consider for investment. That’s just me though. I’m for those who followed me for a while some of the listeners, you know, I am incredibly risk averse. Funny enough. I’ve been criticized for investing in small town Hamilton, Ontario, with an exploding population over 500,000. Plus, it’s a summer suburb of Ontario, Timmins of is a suburb of no one. The closest big city is suburbia, Sudbury, Ontario, which is 294 kilometers away. I can’t help but think of the book if you haven’t read it. That’s called the psychology of money by Morgan Housel. And the history of greed causing Highly successful people who try to go to a different level of richness, only to lose everything. Everyone knows Bernie Madoff for his Ponzi scheme, but did you know he had a legitimate brokerage firm? They were actually moneymakers and markets aren’t market makers, and he helped develop what is now the NASDAQ stock market. He also served as chairman of the board of directors for sec NASDAQ stock market. Then greed got a hold of him, and he started his own investment advisory service, the Ponzi, which was the Ponzi scheme, and the rest is history. Slow and steady, folks. Don’t get too greedy. Someone once told me their rights, be valid, be strategic and value focus like Warren Buffett. And speaking of Warren Buffett, I was reading about how the how the late Charlie Munger influenced Warren Buffett’s investment philosophy toward preferring to buy a wonderful company at a fair price rather than a fair company at a wonderful price. The philosophy underscores the importance of investing in high quality companies with durable competitive advantages, and strong future prospects. Even if their stock price might not seem like it seemed like a bargain at the time of purchase. This approach is aimed at ensuring long term value creation and capital appreciation, aligning with the overall strategy of value investing, but with a focus on the intrinsic, intrinsic qualities of the business rather than just price metrics. Now, everyone knows, not everyone, but I’ve shared I just got back from Austin, Texas. And from my research, it tops many top 10 lists for top places to invest in the USA. I’m looking to invest in wonderful single family houses in one of the top 10 Place top 10 places to invest in America, which is almost the opposite of investing in tertiary markets in Ontario that do not have population increase. So if you don’t, again, if you don’t believe me, go Google st Sioux Sainte Marie populations that can literally they shrink by 1.8% over the five year period of 2016 to 2021. This Saturday, I’ll be sharing my findings from my visit from us to Austin, what properties are looking at how I plan to grow my portfolio to cashflow $100,000 per year, that’s before taxes and that’s from rental income. Note this will take a couple of years to do. This is not not a get rich quick strategy at all. I’ll need around 20 properties to do so that cap in So on average, I need to cashflow about $5,000 per property. Know that these properties are in the 100,000 to $350,000 US dollar range, which is about the same cost as the basement suite conversion or garden suite. So you decide which you think is a better investment. I cannot wait to show all real estate investing Canadians what I consider to be the best investment for most Canadians most of the time. 100% ownership and control maintained under 10 times easier to scale than anything in Canada. All the benefits of being a landlord without with with fully outsource property management.

And I’ll have the show notes of the link to register in the show notes. So on today’s show, I invited my good friend Christian spool forward to discuss the sad truth about real estate investing in managing and recovering distressed assets, understanding the root causes and having protect proactive strategies. We discussed the risks of private lending the responsibilities of borrowers, Krishna has the unique perspective of having worked in a heavily securities regulated environment of mergers and acquisitions when he was the general manager working under one of Canada’s richest Canadians only to see what is so he was quite shocked to see the wild wild west that is retail real estate investing were some investors just you know thumbed their nose at the at the Securities Commissions openly violating securities laws in the way advertising and soliciting the public for capital, even offering guaranteed returns. The last time I heard the word guaranteed returns was from the owner of a now bankrupt investment company and he’s on the run from the cops. Christian being what what I consider one of the good guys in real estate. I thought he was ideal to text at 9:30am this morning, which come on the show for 10:30am to talk about losing money. Krishna is the owner of Olympus group where he invest his his and only his his family’s own money. He has no courses to sell nor coaching to sell. He’s not accepting op accepting OPM, other than banks. He just wants to help people. That’s why we get along so well. Krishna is also the Vice President of Oreo Ottawa real estate investing organization, a nonprofit member base educational organization group annual memberships only $127. I’m a member to Yeah, that’s annual, by the way, $127 for the year, I remember to and the value is unmatched. You can go to www dot o r e i o oreo.org/membership. And you can you can even go take assessment for yourself. Go attend the meeting for free. See if you like it. In my experience. The vibe in the room is wonderful. I’ve included some again I’ve included some links and resources in the show notes. So if you want more detail on the case I have a look there, I actually see Islamic ego for a little bit. I actually uploaded all the court documents, the CBC and the Globe and Mail article. And another article that that I can’t mention. All in the chat GPT as well. So actually built a bot to be an expert on this topic, so that I may ask questions and whatnot, and they actually helped me produce the show, so. So please take a chance to learn from history LSB doomed to repeat it. I’ve seen this all happened before back in 2008. During the financial crisis, folks, all this happened before and in the late 80s, during the Toronto real estate price, market collapse. And also please watch out for confidence artists. Note that con artists is actually short for competence artists. Be wary of people that are overly confident. You’ll notice I’m not competent at all and anything I say that’s why we stutter and slur. Anyways, please keep your investments safe, and enjoy the show.

Hello, Christian, what’s keeping you busy these days?

Christian 11:10
Are when I guess the thing that’s keeping us all busy is keeping up with all of the use of inappropriate use of borrowed money.

Erwin 11:20
Oh, yeah. And so we are speaking specifically today about the what it’s over 140 million and private mortgages? On a I don’t know, 600 over 600 units, mostly in northern Ontario that we’re talking about?

Christian 11:35
Yeah, well, that’s certainly one. All right. And it’s a bigger trend. Yes. Yeah. So that’s that’s one there. Yeah, there’s a friend of mine just sent me another one for somebody in Kitchener Waterloo that looks like it was a clear Ponzi scheme. Right. And charges of fraud are involved in that one as well. So, but there’s a lot of this going on,

Erwin 11:58
there’s a lot of this going on, like Greg Martell out in Vancouver, BC area, he’s on the run, apparently $300 billion is missing. This epic Alliance, which we have covered pretty extensively on the show, but previously, so a widespread problem, probably not worth Canadian. So we I tend to focus on Canadian news, but I’m sure they have issues in the States as well.

Christian 12:20
Oh, absolutely. I mean, but one of the big differences in the states is that, you know, the Securities and Exchange Commission, the SEC actually has quite a lot of teeth, and they you know, they also have the ability to, to bring in the FBI when necessary as well. So, you know, in my dealings with and I as you know, I used to do m&a stuff been in large corporate before getting into real estate. And the diligence, we always put around all securities related items was very significant. We had a lot of lawyers involved very high priced lawyers to deal with it. But my as

Erwin 12:59
you work for a publicly traded companies, right, correct. Yeah. So that’s why the diligence was the securities requirement was just like, at the highest level,

Christian 13:07
it really is. But it’s also that it will, you know, in my experience, the SEC in the US is far more diligent about these things, they do tests, right and verify things. You know, it’s not just on public complaint, but even if there is a public complaint, there’s a lot more diligence there, and they have the resources to do it. In Canada, as you know, our we have an overarching, you know, securities regulation framework at the federal level, but really, it’s all at the provincial level. So in Ontario, we have the Ontario Securities Commission, the OSC, BC has the BCSC, etc, right? And the resources of each of these provincial entities is not nearly as high as I wish they were to really start to crack down and what I think is hurting individuals.

Erwin 13:58
Yes, yes. And yeah, maybe that’s not the best format is to have provincially level security enforcement, you know, maybe a national map, but that’s, that’s not a well beyond the scope of this show. Whatever we’re wanting to cover was more some general things that we’re seeing, because all the problems with these with these I don’t know if it’s the right term. I want you to I want to say abuse, but a lot of people are gonna lose a lot of money. And in my opinion, there’s a lot of lessons that have not been learned throughout history. Like for example, there was a very large condominium in Toronto that went belly up back in the in the financial crisis of like 2007 2008 And the lesson I drew out of that was like they went under because they couldn’t handle the the amount of debt they had. And also mentors of mine like Tom Tom in the crowd today share regularly how their father, you know, bought a bought a house on assignment. If I don’t know if you remember back in like the late 80s, like people were like, when when there were no show houses, there was usually a, you know, like, like a temporary a temporary structure where people would buy houses for for pre construction. And then once in the market was so hot that once someone had their signed documents to buy a brand new build, they’d walk out the door, and there’d be people out there trying to buy that paper off them. Oh,

Christian 15:28
yeah. Yeah, absolutely. on assignment, I assume that’s why a lot of condo. Condo sales these days don’t allow for assignment before you take possession. There’s

Erwin 15:38
lots of reasons for that. But again, my point, though, is that there’s been through time through history where, you know, market got too hot people got in too deep.

Christian 15:46
That’s right. And and I guess the reason I was referencing the Securities Commissions is, you know, in the fact that we don’t have enough enforcement within within our provinces, is really that it starts to push back on the requirement or the need for individual investors to really do their due diligence on whatever they’re putting their money into. Because, you know, there, there is a little bit of a state regulatory safety net, but even if they, you know, invoke it, your money is still gone. It’s like regulation can come in and say, all it does is panic, you know, punish the bad people, but your money’s still gone. It could be invested itself into a Ponzi scheme. Yeah, the Ponzi guy probably go to jail, get some serious buy ins, etc. But your money’s still gone. Right?

Erwin 16:38
So it was by legacy, this advertiser stopped right away, like people who like break securities code violations within their promotion and marketing. It should be stopped right away. Yeah, 100% saying an ounce of prevention is worth a pound of cure. That’s

Christian 16:52
exactly right. So and we’ve certainly tried to get as you know, with Oreo, and I mentioned this before, we love Oreo, Brian, get, you know, Oreo, the Ottawa real estate investors organization, we wanted to get someone from the Ontario Securities Commission, because we take things like, you know, capital raise very seriously in terms of legal requirements. So we asked the OCC, if they’d like to join us, and I’ll still put the offer out there on the off chance that someone from the OCC is listening to this podcast, right? They might be one of your 17 listeners or one.

Erwin 17:26
Maybe someone knows somebody, nobody

Christian 17:28
knows. So we’d love to have them speak at Oreo. We’ve done some informal reach outs. And so far, they just say that they’re not interested. Not interested. No, no, not interested. Right.

Erwin 17:42
We’re interested, just we don’t have the time for it right now.

Christian 17:46
Yeah, no, it really just their replies came across as we’re not interested, right. Although it may be resource constrained, it’s hard to say which just the way I read the emails, but it’s exactly as you say, you know, you know, you know, an ounce of prevention is worth a pound of cure. So,

Erwin 18:06
so we’d certainly like that. Got them on the show as well. And to provide context, for example, like the fire department, the Prevention Unit, would generally will gladly come and speak on like, my platform, your platform. They are they focus heavily on it. They have departments that focus heavily on the education piece.

Christian 18:23
Yeah, absolutely, they do. And it’s well worth it. Some of the towns that I invest in have a formal fire prevention officer, and they literally have a list of buildings that they go through. So we get a call every year, it’s time for your annual check, especially in a multi unit buildings, annually, all of them, right. And it was a badge of honor. When during the pandemic, I called them up and it’s okay. Shall we do our annual inspection? They said, well, because of the pandemic, we were just, we can’t go and hit every building. So we have to do it as a shortlist. And if you’re not on that short list, right, and it was specifically and they say it was because so we never have issues with your building. We’re just focusing on the buildings, we normally have issues.

Erwin 19:12
And we’re talking about like life safety stuff. So it’s, you know, it’s great that they aren’t they do offer education, and they’re, in my experience, they’re generally completely open to folks booking an appointment coming in.

Christian 19:22
It’s a serious, it’s serious, right?

Erwin 19:25
securities laws, protecting the public.

Christian 19:29
Right, it is a serious issue. And that’s why I’d like the USC to come back and or actually come back and say that they’d love to speak. But I mean, it as you know, we have a really big crowd, so it’s actually quite useful.

Erwin 19:43
Exactly. It’s a great leverage point, just like the show, they can talk to 17 listeners immediately. get that word out there. We

Christian 19:49
all know are when you have far more than seven people.

Erwin 19:54
So I want to I don’t want to get into the life story that’s going right now not into detail because it is The life situation we don’t know how this is gonna work out. You know, I still believe in innocent till proven guilty, but there’s still some lessons that folks can can drive for this. For example, before recording, I was mentioning how in one of these cases, there’s a large allocation of properties in a small town called Timmins, Ontario. With a population. My Google was like, like 43 said returned, like 42,000 population. Versus I’ve had guests on this show, like Calvert mortgages, for example, which most people are familiar with. And they’ve, you know, they’ve set it on record, we avoid small towns with under 50,000 population. Here, we have an organization that owns a significant portion of the market. And they quote The Globe and Mail based on the run rate of that city in terms of real estate transactions, how many houses sell, to quote the Globe and Mail? Their number was it would take seven t months to unwind that portfolio? Yeah.

Christian 20:56
Yeah. So concentrated, obvious, concentrated,

Erwin 21:00
and, and I think it worked. It serves it may be need to mention it as like, the turns in these situations are in such difficult situations. Yeah. So in these communities are not happy at all, like the mayors of some of these cities have stepped up and said, like this, this, this is terrible for the city, terrible for tenants. And this is a terrible look for all of us investors. It

Christian 21:25
sure is, it’s just that no good comes from this right. Other than maybe the lessons learned.

Erwin 21:32
We all we all share some of this collective pain. Like I personally haven’t know anyone personally involved in any of this. Anyone who’s lying to them. But still, I’m sad for the community. Yeah,

Christian 21:43
yeah, no, no, absolutely. But I think we need to get to the lessons learned on on something like this as well. And I kind of look at it from the aspect of the lender and the borrower. And, you know, there’s proper underwriting principles we need to talk about from a lender’s perspective. And there’s the accountability as a borrower. So as you know, I run a very ethical practice, and I try to make sure that others that I had, that I can influence run an ethical way of doing things. And our responsibilities of borrower is is paramount, right? I mean, first thing, obviously, is reputational damage, right? Especially in this online world that we have, you can’t really hide very well, oh,

Erwin 22:32
no, people are actually stuff I’m seeing on social media. People’s dirty laundry being aired. It’s not good.

Christian 22:41
It’s not right. But as borrowers, we have to be very responsible with the money that we get, we have to have a clear understanding of how we’re going to repay any money that’s borrowed, we have to ensure that like, certainly, anytime I borrow money, right? It’s not just that I have an intent to pay it back. I have a plan on how I’m going to pay it. Right. And I tend to run a very conservative operation. So last thing I want is to be not just because of my reputational damage, but I personally, and I know not everybody’s like this, but personally, I don’t want to be in a situation where I have to tell somebody, I can’t pay them back. I can’t, I don’t like it for myself. I don’t like it for the lender, even if there is a you know, and we’ll get to the lender in a second, right. But even if the lender has assumed a certain level of risk associated with the interest rate, right, I still don’t want to be in a position where they’re out of money because of me. Right? So. So as borrowers, it’s it’s a hell of a lot more than just a promise or a desire or an intention to pay back. It is very much about having clear plans, right from the moment you take this debt on to the moment you give it back that you have a solid plan, not a hope and a prayer. Right. So

Erwin 24:07
let’s just stick into a solid plan means for example, like I was having a conversation with a client, so actually know so I do know someone who has invested with one of these parties where I don’t know what level of concerns sorry, I don’t know if their first second or a promissory note position. But I made the suggestion to her like, Are you are you getting ready to take over the property? And then her response was take over the property. What do you mean? So myself if I’d personally met it said it many times on this show, I’m not smart enough. Not? doesn’t it’s not within my risk appetite to be a private lender? Because I know Plan B is I have to take over the property at some at some level. So if you’re a promissory note investor, for example, which I’ve never be, that means that the make the first mortgage and the second word is true. take over the property. So I’m driving up the Timmins or Sudbury and dealing With the conversion process, whatever it is right now either exiting or finishing or whatever it is, and that is beyond my, my, my appetite for risk and effort.

Christian 25:11
Or even worse, like if you have an opportunity to be able to take over, right, that might be the better plan and go into a power sale or foreclosure, especially in a market like right now. Yes, right, where you may not be able to get the best return out of it. Because if it’s if it’s been devalued, you know, the first mortgage or may be kept hold, but the second mortgage or the and certainly the unsecured prom notes, are probably going to be in a world of hurt, right? After all the admin fees, the reduction in price to sell it off, et cetera. So yeah, I mean, there’s there’s a lot of exits, right. But if people are just relying on power sale, or foreclosures as a way to secure to recover the money that they’ve loaned or loaned out on a property. That’s not necessarily the best exit. So what you’re saying is spot on, which is that, you know, aside from foreclosure and parasail, you might have to seriously consider taking over the property. And

Erwin 26:12
then people need to understand that that means you in fact, cell phone, promissory opposition, I have to pay the first mortgage, and pay the second mortgage as well. That’s right, what what I was when I went into an investment for positive cash flow reasons, I now have significant money going out the door. Yeah. In and in the news, I think was globe mail, both CBC and globe mail also mentioned that there’s over 200 of these properties, your units are vacant. So there is no rental income coming in for over 30% of the portfolio. Yeah. All right. So so this is, so if you’re, unfortunately, if you’re, if your private land position is on one of these vacant properties, there’s no money coming in. Yeah. Right. And that’s formula for a failing business. It

Christian 27:01
is, and fortunately for them, is we have laws associated with creditor protection, right, and the ability to restructure things. So in the States, it’s referred to as a chapter 11. Type seven people are probably more familiar with it in that context. But it gives you a chance to get your house in order to see if there’s a way to resolve things properly, rather than it becomes a wild west with all the different lenders. So at least I’ve got that piece of it. And, you know, hopefully they can restructure their way out of it doesn’t look to be perfectly honest. But you know, that that’s a mechanism that that’s, that’s sitting there and that that works. But you were talking about, you know, as a borrower, right, you know, what kinds of processes we need to put in place. And I think that’s really worth discussing, before we get to the lender side. So as a borrower, I mean, I’ll give you my view of it. And what we do is that, you know, one, we have a solid plan for execution. So it’s not a, you know, I see some people say, Oh, I’m going to do a flip. This is my entry price. This is my ARV, this is the discount I need. And then I just execute, well execute on what you need a plan that takes you right to the finish line, in terms of being able to execute. So that’s thing one. And the second piece is you need a risk management plan. So if you are planning to do a project, I don’t know about you, or when but personally, I’ve never had a project go exactly to plan. And

Erwin 28:41
never, never, never happens. Always over budget over time. Yeah,

Christian 28:46
and with real estate, there’s a lot of moving parts, it’s, you know, that things just go wrong. Like it things you just can’t explain, right, sometimes, you know, like cost of goods goes up, for example, or labor shifts, or unavailability or anything can go wrong. So that’s where risk management plan comes in. And it’s really about trying to identify what you think can go wrong, the probability of it going wrong, the severity, ie, what’s the impact of your project, if it does go wrong, and for the top ones, the ones that are, you know, high severity and likely to happen. In fact, if it’s, if it’s going to be severe when it gets you and that can, it’s very likely that it’s going to happen, it put a plan, it’s part of your base plan. Right? But if it’s, you know, moderate probability and you know, moderate severity, you might say, I’ll put a contingency plan. So if this happens, this is what I’ll do. You know, and maybe the smaller stuff like low probability, low impact it just, you know, just put that in the general contingency bucket. But not only do you sleep better at night, but you also have a you know, a fairly clear you know, rather than just having a broad contingency bucket, you have plans with backup plans that allow you to get to the finish line. And, you know, I learned that as a, you know, used to run development teams right in, in the software industry as a product and technology industry. And so that’s always what I did, I had plans, but then I had plan B, plan C, Plan D,

Erwin 30:22
redundancies, you know, my

Christian 30:24
stuff almost always delivered on time, right, because I had those contingency plans, right. But it’s the same around real estate. So you gotta have that the third element would be your capital plan. So looking at it beyond just this one project, what we do is we’re taking a look at all the assets we have, we figure out where we have opportunity, because we’re self capitalized. So I don’t take external investors, but it scales to people who are taking external investors. So

Erwin 30:54
I just want to spell that point out. So you’re investing between your own cash and, you know, different debt instruments that are generally cheaper debt than what we’re talking about, with these folks out there doing with private debt.

Christian 31:09
Alright, so I do use, I do use debt vehicles, right, mostly from institutional lenders. But I don’t take equity partners. And so that’s what I mean by self capitalized is yes, of course, I do take lending products, but it’s, but I don’t take equity investors. But equity investors, you know, are can be part of your capital plan. So, you know, if I take a look at it in the simple ecosystem, where I don’t take in equity investors, I have assets, and I need to be able to extract capital from them over time. And then that capital is not just used for acquisitions, but it’s also used for contingency. So let’s take the scenario that we were talking about here is that, you know, a lot of people make the assumption that the value of the property is always going to go up, no. Less than half of any time. The other assumption that they make is that interest rates are gonna stay within their normal range. Yeah,

Erwin 32:10
we’ve had we’ve had emergency rates for how long? Exactly right. So it felt normal to them. But if understand like they were these these massive cuts were done for emergency reasons, like at different periods of time. Yeah,

Christian 32:23
absolutely. So so let’s talk about that capital plan for a second. So we’ll talk about in a really simple context, I take on a mortgage, fixed rate, you know, and this is particularly true in the commercial side. So if you have taken a commercial loan, and you start off, and you’ve got a five year term on that loan, what happens after five years, right? You go back now to the lender, right? Possibly the same lender, maybe different lender, but even if it is the same lender, and you say, I want to do another five year term? Well, they’re going to underwrite your property, again, from scratch as if it was a brand new loan. They’re not going back and saying, oh, yeah, we’ll just extend the term don’t worry about it. Because their audit, like residential,

Erwin 33:10
or usually, they don’t do anything. Correct.

Christian 33:14
Right. So in residential, they get a bit of a pest, but you still need to think about it because situations can change. Bank policies can change, lots of things can change. So when I take on that initial debt, I’m thinking about how I’m going to D leverage it. By the time I get to the the end of that term, let’s use five years. So I’ll be thinking about, Okay, well, can I increase the NOI the net operating income, so that I can increase the overall asset value, so that way, if I need to, let’s say, interest rates go up, right, then if interest rates go up, then the debt coverage ratio gets hit by that, right, which means that your total loan to value of your debt, it gets pushed down. And we’ve seen that, for example, you know, back to three years ago, people were getting maybe as high as 85% loan to value with CMHC. Back and right now, if you were to underwrite those same properties, you might only be getting about 55 to 65% loan to value. So if the property hasn’t changed in value very much, at the end of that five year term, the bank is going to say, yeah, we’ll extend the loan too. But you’re gonna have to put some money into this, you’re gonna have to put some equity in. So if you don’t have any of that extra cash, you’ve now got a really bad situation, right? Where you owe the bank money back on that first loan, because they’re not going to extend the same level of credit. So that’s why I was made sure that that the beginning I have a plan to figure out how I’m going to exit so either I’m going to, you know, increase my principal repayments, which is always the worst case from my perspective, right? I don’t like doing that. Or I increase the value of the product pretty, but any way that I look at it, I’m trying to figure out how do I D leverage that property at the end of the five year term. If I don’t have a credible way of deleveraging, at year five, then maybe I’ll take a seven year term, or even a 10 year term, I’ve done someone 10. So not highly stabilized assets. Because guaranteed over well, guaranteed is a relative word, but highly likely, by this, it’s guaranteed. But over at the end of 10 years, the likelihood of my ability to D leverage that asset is actually really very good in one shape or another. So that’s, you know, at a simple level, apart from a capital plan, sometimes you can’t, but you do need to take a look at it at your portfolio wide. And you have to have this continuous thing of when am I doing refinances? When am I loans coming due? How much equity do I have here? What if interest rates go up? And I have to, you know, drop a bunch of equity into these, you know, maturing loans, where am I going to get that money from? So when something happens, you know, if I get two years down the road, and let’s say interest rates are as high as they are right now, right? In fact, as high as they were six months ago, right to be at the real peak, then, you know, at that situation, I’ve got two choices. If I built up the equity, right, then at least I’m protected as I do a renewal because now the increased noi, the increased asset value means that I have the debt coverage ratio to maintain at least the old loan, and maybe squeeze out a little bit more. But if the interest rates come down, well, now I’m in a situation where I can, you know, go in and do a refinance, and take some equity out and generate new working capital for new projects, new acquisitions, all that kind of stuff. So there’s no downside to having a capital plan. Right? It just keeps things predictable, right?

Erwin 36:57
Which makes me wonder about the capital plan of some of these other investor investment groups. Because again, we have sorry, we actually have court documents stating that this one group had over 200 units sitting vacant. Yeah, like, and then I’ve said on the show many times, like I, my ex wife was married during the trades. So I’ve had first hand experience. I’ve done many, many renovation projects myself, and just seeing how there is generally a shortage of labor, good quality people to you know, do renovations, my model has always been one or two properties that are vacant at a time at the most. I’m in a pretty big market. I’m in Hamilton, right? Population of Hamilton’s over 500 million Sorry, sorry. 500,000, Elton, proper as population 500,000, I have a significant pool of resources to draw from here, we’re talking about like small towns, how can you possibly staff some of these were basements, we conversions, which is a major renovation, you staff that team in a small town.

Christian 38:05
That’s, that’s right. Now, a lot of those vacancies, if they’re legitimately being done as part of a repositioning project, etc, is actually going to go on your balance sheet anyway, meaning that it’s not coming from your cash flow, and you have to take all that vacancy in that loss basically has to get refinanced out at the end. And that has to be part of the plan, whether they did that in this case, or not, who’s to say, I don’t have that level of privilege in their information, but that’s where it needs to be. But if you’re just running it generally, and you just have vacancy rates, because you’re not managing it, right? That’s the direct impact of cash flow, and your ability to sustain the debt that you have associated properties.

Erwin 38:47
For most just to have one unit vacant is quite a pain. So let me back up, like for example, so like, there’s lots of condo investors out there, for example, if any one of them you know, these columns are like six $800,000. And it’s only one rent for if that turns not paying rent for months or months. Like that’s quite devastating to most. Yeah, and we’re talking about 200 units.

Christian 39:11
Now, to be fair, if it’s 200 units out of,

Erwin 39:13
you know, 600 something, or it’s a 30% vacancy, but

Christian 39:20
30% vacancy is hard for anybody to absorb, right. And that’s, that doesn’t. Again, you know, if if those two inner units are part of a full repositioning project, right, fair enough, right? But if it’s not, then a 30%, or 33% vacancy is pretty brutal. But

Erwin 39:38
just think, how long can we get through repositioning? 200 units, especially

Christian 39:44
if a lot of them are in the same town, there’s only so many trades you’re gonna bring in from other towns.

Erwin 39:49
Exactly. My point, my overall point is, it’s okay for folks to go slow and steady. Yeah, slow and steady, you know, ya

Christian 39:57
know, exactly, exactly. And just that Plants, right? Like, this isn’t a off, you know, there’s a lot of money involved. So

Erwin 40:06
100 or 140 million in mortgages, for them,

Christian 40:10
but even for the individual investor, right, you’re talking about a lot of money, it’s not inconsequential. And you don’t want to be shooting from the hip, you really want to think through what you’re doing, and how you’re going to make the money. Like, you know, me, when I when I buy something, my plan is deterministic. You know, I’m not just guessing or speculating and thinking that, you know, my property is going to go up, I know precisely how I’m going to make my money. Now, there’s going to be some variances on that, because you can’t predict everything in life. But, you know, I predict the COVID. But it’s very predictable. It’s a business case. For me, I know precisely what outcome I’m expecting. And I managed to it, though, but so you don’t want to be shooting from the hip on this stuff at all. And, you know, I see a lot of people too, that are in the camp of, well, I’m gonna buy this and it’s gonna be negative cashflow. Right, but that’s okay, I’m gonna make my money up later, while how. So negative cash flow can work. But you have to have a well defined business case, that’s going to tell you exactly how you’re going to exit, and that on that exit, it’s going to generate enough cash flow, either from the sale or refinance, it’s more than offset all the losses you were taking previously. But here’s the one thing that I know is operating a business and an investment business, is that in the large scale of things, negative cash flow keeps you from scaling. It really does. So can an individual project be negative cash flow? Absolutely, because it’s tied to a business case? If your portfolio, right, and if you’re owning three, four properties, and they’re all negative cash flow, you can’t sustain that for very long, your income job can only cover so much. Right? So, but I still see people do it.

Erwin 42:03
And that’s like, they make a general statement that a lot of people who are getting into heavy financial trouble these days, they they’re following more models, investment models, business models of high leverage, like, for example, again, like the one case that we’re talking about, it’s 100%, loan to value for a second, first mortgages, second mortgages and promissory notes. So from the outside looking in, it doesn’t look like the principals have any skin in the game.

Christian 42:31
Correct. And then if it’s, if it’s an individual project in a broader portfolio that’s otherwise, you know, at a good debt to asset ratio, yeah, well, yeah, then fine, right, like, as long as you have a business case to back it up and use tracker to execute. But if your entire portfolio is at 100%, leverage, right, that’s a house of cards. You know, you’re just not going to survive it.

Erwin 43:01
I don’t know what kind of disclosures were, if they were all properly made. But this was never something I would get into. But the point I was trying to get to is that if anyone is taking a course, or coached by someone that preaches such massive over leverage, yeah, you may want to consider something else. Yeah.

Christian 43:19
I completely agree. It leaves people so vulnerable. At the end of the day, can you do no money down deals? Sure. You can, right, like there’s ways to do it. But in most cases, and what people are, are teaching people on those is to put you in such a highly leveraged position, that if the economy burps, right, you could be completely destroyed.

Erwin 43:43
Right. And you have no wiggle room? No,

Christian 43:47
there’s no wiggle room at all, and no worse

Erwin 43:50
if you quit your job to become a full time investor. Yeah, you’ve given up six figure income.

Christian 43:59
Yeah, yeah. It’s it’s it’s not pretty and it’s not necessary there. There are other ways to do this stuff. And, you know, when you’re first starting out your first couple of doors, I know that’s, that’s a bit tougher, right? And you do you need to take some risks, etc. But, again, risk doesn’t mean no plan, right? Risk means something that you can quantify and put a plan around so that you have a way to get through it. But if you’re just speculating, right, I don’t 100% leverage, right. Yeah, it’s just it really won’t end well, in most cases. But we should probably talk about the lender side a little bit. Sure. Yeah. And so the lender side. You know, you and I have talked about this many times, is really a lot of people don’t necessarily know how to do underwriting properly as a lender.

Erwin 44:55
Well, this bankruptcy is going on. I disagree. If you’re gaining any new listeners understand I can be extremely sarcastic. But yeah, nothing was wrong here.

Christian 45:07
A second there, you did it with such a straight face or when,

Erwin 45:12
for this, this amount of this amount of leverage in small towns was such a complicated business model, right? Something was not Something doesn’t smell right.

Christian 45:23
Well, underwriting is a complex process. Right. And, you know, you were telling me once that actually, just before this call, people, you know, saying, Well, you know, I, I’ve loaned money out at 18%. And I’ve been doing this for several years, and this will come through and, you know, I’m devastated right, that this happened, it will not if you underwrite these things properly, you expect some losses in your portfolio. So the, you know, the way to think about it is, the first part of an underwriting is really what you’re alluding to, which is due diligence, right, making sure that who you’re going to loan money out to is credible, that the project is credible, that there’s a clear exit plan, that you know, exactly how the money is coming back to you. I won’t loan money to people who will, you know, I don’t believe have a solid plan to get the money back to me. Does the lender I want that money to come back? No, it doesn’t say I don’t loan to high risk individuals I do. Right. But in those situations, I’m looking at the quality of the borrower, and I’m thinking, Okay, well, if I were to have, you know, 10 of these guys, or 100 of these guys, what would be the probability of default, okay, and I’m expecting that out of 100, maybe 10 of them will default, or 20 of them might default. So I’m prepared, you know, and expecting that some of these loans might not do well, right, and that I might have to invoke a foreclosure, or in the case of prominence, and yeah, I have done prom notes, right, written prom notes, but I can assure you that I’m underwriting it with the expectation that sometimes there may be a loss. Therefore, the compensation that I get back, be it in the form of a lender fee, be it in the form of the interest rate, whatever it is, is taken into account that a certain portion of those loans are going to default. Now, it’s never pretty if it’s your first one,

Erwin 47:29
all your eggs in one basket, but yeah, right,

Christian 47:32
but at certain portion of them are not going to come back. And that’s just a reality of life, or what your diligence is. So you have to set your compensation be at an interest rate or be at a lender fee, whatever it is, and combination, that is going to ensure that over the long run, you’re going to get a certain rate of return, and you should have an expectation of what your blended rate of return is going to be. And you should expect that sometimes these loans aren’t going to make it and therefore the ones that do make it are going to help cover the losses that you had on the other side. And that’s part of you know, it’s a bit of an actuarial science. So if you’re really good at math, it’s helpful.

Erwin 48:14
That’s another subject.

Christian 48:18
But the expectation should be there. Right? It’s

Erwin 48:23
as part of a diversified portfolio. Yeah, yeah. doesn’t believe me, just like a visa stock. Lots of unsecured debt and made a really good business out of it.

Christian 48:34
That’s right, they don’t lose money, but take a look at their interest rates, their interest rates are running at 2021 2223, whatever percent minus 29. But yeah, it depends on the card. Right. And, and the quality of the bore, where maybe

Erwin 48:50
they keep trying to throw more debt at me all the time. So knowing absolutely,

Christian 48:53
they want you to spend more and hopefully not make a monthly payment so they can charge you interest and fit

Erwin 48:58
exactly, exactly with some people’s business models. But I’m not I’m not but so actually, that’s a good, that’s a good point is this is getting collecting over and they’re very, very good at collecting over 20% interest. And then it’s not just that to because they’d be charged back and then every every new money and also they charge on as well. Versus No, the promissory note money that we’re seeing in the market is like 17% Right, like, you know, part of the problem with me ever doing private private lending, especially promissory note as you know, I might be more interested in getting credit card interest rates because I don’t feel right about giving someone unsecured money so they can go pay down their their Visa, MasterCard.

Christian 49:41
What’s the exit plan?

Erwin 49:43
That’s that’s a part of the point as well. So there’s so even just like on a personal level, like a lot of people are getting promissory notes from like friends and family. Like I it’s not like I have a policy I don’t lend to family or friends. All right. So people need to appreciate that. So say someone you’ve lent a promissory note money to. And they’ve gone quiet, mortgage mortgage, the notes mature, they’ve gone quiet, they’re not paying you back. These things ruin relationships.

Christian 50:14
It really can. And it’s a good point. I’m always hesitant to do it, but I will do it. And for very specific criteria, right? So you know, especially with with lenders, but you don’t want to get into a situation is why did you loan money to Billy, but you didn’t? You know, you’re not loaning money to me.

Erwin 50:34
That’s even worse. Oh, yeah. Yes. Get the collars on both of them.

Christian 50:41
Yeah, but I might loan money to Billy because Billy needs a second mortgage to complete a project that I know, you know, conclusively is going to complete. And he has a track record. And I can easily explain it to the rest of my family that that is there. Now I have the advantage that my family is not very big.

Erwin 51:02
Picture network is big.

Christian 51:04
Yeah, yeah, that’s true. And so you know, certainly with friends, I don’t, I’ve never loaned to friends. And I think it’s probably because like you have a bias against doing it. I don’t want to destroy your friendship over money. But it will happen. It will happen, because,

Erwin 51:24
for example, the 300 lenders on on these projects will likely hate the principles involved. You know, it’s so people need to understand that as well. If you’re going to if you’re, if you’re going to take people’s money, whatever vehicle it is new lucid, understand that will change the relationship going forward. It sure will. Absolutely. And just for the money, they will like you, they will like you lots, right? No, there was no money. You lose the money. You’re not getting Christmas cards ever again.

Christian 51:52
People don’t care. Right. And we’ve seen some actors out there that that I just question whether they have any ethics at all, they seem to have no concern about borrowing money from people taking money from people without any plan of being able to return it. Right. Right, then they’re not even bothered by the fact that they couldn’t return the money. Right? Yeah. And you know who these people

Erwin 52:19
are? Right. The sad part is, there’s lots of them out there promoting stuff with ads, whatever. The real, you know, I talked offline about, you know, we think other people are gonna be train wrecks as well. And I feel good, I feel sorry for the people that’ll be involved. But, you know, we’re not the LSC, we have no means to, we’re not we’re not we don’t have the resources to judge them again, like we have our own lives and own businesses are run. So people need to really do their own due diligence. Actually, I need to add a piece about that as well. You mentioned about like, the credibility of someone. So for example, one of my standards is again, just because I have you know, I’ve been around a long time. My standard is that someone has been through a full cycle before. And a lot of these people who are going under have not. So I have a question why these people were trusted, right? I mean, I know you feel cycle me like you had to like 2007 was really late. Yeah, it was not that bad, right, in terms of a correction. But again, credit disappeared. So that was that was painful for many, especially anyone who’s like flipping or trying to return they couldn’t refi. Right. So again, I knew that from that, like credit can disappear. If credit disappears at any point in time. We are so screwed, no different than like Ellie’s people who are who are who have business models, reliant on CMHC is anything for their for their exit for the refinance, whatever. So you’re, you know, I think everyone should like you’re relying on government for your exits. Right. All right, right there, right, there is a slight challenge. But again, my point is, though, is that I would never invest with someone who hasn’t been through a full cycle. So I cannot believe the amount of money that these folks were given, like, any folks, any folks out there?

Christian 53:56
Well, I think part of it is that, you know, if we’re trying to become armchair psychologists around this, is, we get people who are caught up in the real estate frenzy. They feel that, you know, they’re bowled over and over again, that you can’t lose money in real estate,

Erwin 54:14
oh, I can show you a million

Christian 54:17
secured against an asset, you know, in a lot of people don’t understand that. Second, mortgages are not risk free. Even first mortgages are not completely risk free, depending on the loan to value. And then, you know, there’s all this in it. I think there’s a lot of FOMO right? So, you know, because of all this people feel that if I’m not getting involved in this stuff, that I’m not making the best returns that I possibly could, which of course is a false narrative. And then there’s a lot of people there that have, you know, either I would call it manufactured credibility, right, but they’re out there. They’re talking I was gonna say that they have some credibility or manufacture credibility but knowing in all the cases, they if you have credibility, you know, people will listen to you, and you’ll be giving them sage advice. So I’d say manufactured credibility where they said, Well, if this person thinks it’s okay, right, then it must be okay. Right? And if you know not to pick on anyone specifically, right, but if if, if a broker that you think you trust, right is saying, this is a safe investment, right, and you just blindly give your money because you trust that broker, but it turns out, it’s not, not, in fact, a safe investment, the accountability has to come back to the lender, in that case, you need to take account of exactly, you know, if maybe the broker told you that it’s all good, and maybe they’re right. And you know, and a lot of brokers are really very good people. But it could very well be a situation where you need to do your own diligence, because at the end of the day, the lender is the one holding the bag. So you have to do your due diligence and make sure all the things that we talked about

Erwin 56:02
before, you should be able to justify to your spouse how you made this decision. I like that bag I’m holding, and if it’s a great bag, because again, like private lending can be done properly. If the if the principle of the borrower defaults, and you get a great property, and a great discount that you would want to own any day of the week. That’s probably good. Yeah, right. And also, we talked about, like the brokerage responsibility, you and I were discussing how we have some we have one of their, their documents where they’re promoting one of these mortgages. And they the verbiage, the the copy of the language is, quote, be thoroughly endorsed and approved these borrowers. Yeah. This is this is this is on the one of the mortgages properties that

Christian 56:47
lends a lot of weight to relatively naive lenders. Yes, yes. Right. It’s not good, right. And I want to emphasize, again, for people that thinking to lend their money, don’t rely on that, do your own due diligence.

Erwin 57:05
You know, like I when I, when I was working with clients directly, you know, their real property manager, you know, he’ll tell you what this can run for, right? So here’s the home inspector, that’s how you would thinks about the property, they’re all third party, they’re your you are their client, they’re here to protect your to protect your butt. Right? Do you don’t do diligence, see the property yourself. Such a foreign concept.

Christian 57:28
And I think we also need to make sure people understand too, that, like, good quality borrowers, right are not much of a headache, you just kind of deal with them, you know, at the beginning you to deal with them towards the end, maybe a couple of times in the middle there not a lot of book or a bad quality borrower, even if you don’t go into a power sale or foreclosure, or a lot of work. Right. And I’ve had bad quality borrowers, I did it on purpose, you know, so my eyes were wide open. And trust me, they’re they’re making, you know, I’m making money on it. But it sometimes can be a distraction, it can be a lot of work, where you’re trying to manage manage the situation with the borrower so that they don’t become insolvent, for example, or if you’re dealing with, you know, one of the, you know, RSP trust companies, for example, like, like Olympia, for example,

Erwin 58:27
actually gonna be pissed about all this to make enough money for all this trouble.

Christian 58:32
Well, limpia has a lot of overheads and so on, right. And we also have to recognize that they are acting as a trustee, and they have an accountability not just to you, but also the federal government as managing things as a trustee. And they’re going to put you in situations where you’re forced to do something that you might not think is necessarily in your own best interest. But them’s the rules. So you have to take that into account in what you’re doing.

Erwin 59:03
Yes, let’s think we’ll leave it there. Christian, thanks so much for your time. I know you gotta run. Any final thoughts?

Christian 59:11
Well, I think we really categorial Well, sure. That

Erwin 59:15
you screen for screen for quality of people come on stage and stuff like that. We

Christian 59:20
absolutely do. Right, you’re never going to be sold that right. If you’ve come to an Oreo events, right? We we curate those events very carefully to make sure that it’s information for people. And you don’t have to worry that someone is going to try and sell you from the stage. There’s no nobody telling me to run to the back of the room, nothing like that. So And as you’ve been a presenter a number of times

Erwin 59:42
you’ve been sharing a screen. I know. You’ve

Christian 59:45
been screened exactly right. And I’ve always said don’t sell from the stage. Right. So we want to make sure it’s a safe environment for club members and, and I’ll shamelessly promote the club right are proud member. Yeah, that’s the Ottawa real estate investors organization, o r e i o.org. The membership is only $127 a year, it’s been suggested

Erwin 1:00:11
you increase, at least the Ontario rental rental increase

Christian 1:00:19
would be very, I think that’s a clever idea, we might try to do that, and two and a half percent this year, just for just a bit of tongue in cheek. But it’s, we’re a not for profit club, right, one of the very few that you’ll ever find around and we’re very large, we’ve owned nearly 400 members. So very, very good company and in a safe space to, you know, to network with people in real estate. And

Erwin 1:00:47
I’ll just add that, you know, thankfully, that the principles such as Robbie Clark, who I don’t have never heard of before, and Dylan, who I’ve never met personally, have obviously never been on my show as well. And sadly, many other shows cancer the same. Alright, so we’ll leave it there. Christian, thanks so much for doing this. And we’ll talk about Oreo another time.

Christian 1:01:12
It’s always fun Irwin. And, you know, I think people should really take a lot of stock in what’s been discussed today, because that’s why we wanted to have this discussion was to make sure that, you know, we helped keep people safe in these environments.

Erwin 1:01:31
Stay safe out there go slow, go. No, don’t rush into it. And oh, Christian, can we can? Are you still offering coaching? Because Because one thing I want to say is like, for example, I mentioned about, like, if a course is saying like, Go highly leveraged. Like, these courses are a lot of money. Like what at least by an hour of consultation with like, there’s someone like yourself, or like Elizabeth Kelly, or like a Ryan Carr, all these people who have encore unbiased, been there done that, like, continue to get a second set of eyes on this?

Christian 1:02:00
Well, I think that’s really important. And, as you know, I take on a very limited number of clients, my principal business is my investment business. And so I tend to only take on people that are, you know, already well along in their investing career. And it’s very much like what you said, it’s a second set of eyes, or it’s refining their processes in order to create scale, or operational efficiency, etc. And I often getting second, you know, people asking for a second opinion on their deals. You know, I, in the coaching side of things, I would publicly endorse Elizabeth Kelly, right, especially with beginners, or people that are very early in their investment career. You know, to your point, having someone like Elizabeth, on board is is someone who ultimately, like, people look at as Oh, you know, look at the ticket price or doing that. But if you have a real true quality coach, right, and a good quality person, that investment is going to come back very quickly, just in terms of protecting you from the downsides, looking for opportunities, and accelerating, you know, your your success, so, so coaches and education programs that are out there, there are lots of good ones, right? Unfortunately, there’s a lot of bad ones. Yeah, but that’s why like, Elizabeth, I know extremely well, and I have no problem publicly endorsing her.

Erwin 1:03:27
Alright, we’ll leave it there. Are you gonna run I gotta run to. Thanks so much for doing this Christian.

Christian 1:03:31
My pleasure. Take care. Thank you for watching.

Erwin 1:03:35
If you want to learn how to invest in real estate from scratch, my team teaches beginners how to use the number one investment strategy that I personally use in a virtual free training class every month, go to investor training.ca/youtube To register for our next class. Then links also in the description as well. I publish at least two to three videos a week here. So subscribe if you want to keep learning from seasoned investors, like myself, my guest and if you’re just starting out, feel free to ask questions in comment below. And I do the best to answer each of those comments and questions myself. Again, if you’re ready to learn the nitty gritty about real estate investing from a professional investor register for our next virtual class. That’s at Investor training.ca/youtube. Thanks again for watching. See you in the next video. Bye

 

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/qGkR6023auw

 

** Transcript Auto-Generated**

Speaker 1 0:00
Working from home with me influence southern been an absolute blast Metamask people worse myself and Texas history, culture and enjoy a lot of I mean a lot of opportunity. Because it’s easy to find pretty much every restaurant search rescue even the Chinese restaurant servers not only collect souvenirs, but I really like Texas. More than anywhere else I’ve traveled. It’s just that perfect mix of a bunch of entrepreneurial environment and culture and more friendly. For more real estate and everyone is Sonics. See folks in Texas for less than back home, the GTA, which means are known for being less parts of the Texas driver’s test for the better as well. On Tuesday morning, I met a classmate, new ostomate insurance elite, who reached out to me actually, Facebook, he commented on my posts saying, Hey, we should snap back here as well. And he’s down from Winnipeg, he moved on a couple months ago to be with his wife who was originally from Boston. And so that snapshot flips Boston. He was kind enough to invite us to one of its split properties and share with us his renovation plan. There was a tired house by an elderly couple. And he got to a wholesaler. You shared his experience with the local market. What makes it different Patrick Chana. So what’s the point number four, which in Ontario, things are pretty bad. Now, I saw her legal say the other day that Snowblind bots about nine months to get a hearing delivered to the board. And I found him off guard the union is convenient. But again, he’s focused on Ontario is it is now here in Austin. He’s only about defects. So look out for him. Specifically structural issues caused by heavy clay soil which which Texas is known for. And then you mix in the problems with droughts followed by heavy reads. That tends to be the land shift and turn costs structural issues is yet to be challenges inherent contractors and regulators. In still sourcing materials, it’s busier than those who don’t know, the unemployment in the US remains stubbornly low around 2%. That’s a slow hour on rubber, low fives. Even with interest rates expire during peak levels. One has to think about what is going to what’s going to happen to inflation in the US when rates are cast. We should expect to come this year, the market actually predicts success. No, no. The US Fed said they do three times. That’s what they said they’ll do. The market thinks different. I have my own theories on what to do to you know how to invest based on current macro environment. ECB raising cash to invest with us. Funny enough, down here in the states on the local schools were closed, closed due to cold to cold weather. These close snaps so for actually a couple days. In Texas, the temperature dipped below was like 70 degrees Celsius. So pipes you’re freezing. Thank goodness, there’s no snow or anything like that comment traffic accidents. But again, pipes from freezing. Texans are not too happy. So it used to deal with the sub freezing temperature and agenda we managed to have what trades pipes. Actually, I show a picture of a pipe burst at the at a mall in San Antonio, Texas that we would never have. Generally we don’t have pipes that are exposed to the outdoor elements. And these so in no way Sorry, that was pedestrian bridge. Anyways, so on Tuesday, we actually moved from our probation combat and Austin that was a company member there. That’s the next we have seen as watching on my brother’s hotel room at a resort 60 minutes from downtown who’s who is at work for a very large multinational. We’re staying at a resort because his company is having a big international conference there at the resort, the head store. I repeat for 18 hole golf courses for that’s absolutely incredible. I’ve never heard of it. Like there’s not really there’s very few courses that have 280 people ports this would happen for us. It is incredible how affordable housing is the ambulance in the most expensive town in Texas. Fortunately, it was to golf and golf and they honestly didn’t have time to go play around. As honestly my party was more meaty real estate investors and real estate. So after my check after check in, my husband and I was actually made the trip down as well, too, and I drove down that busy corridor, actually the busiest corridor, Texas Highway corridor, 80 miles or so. That same drive, but a one mile stretch. Parts of it are 100,000 cars travel on a per day is San Antonio to see some historical sites. Specifically, we want to see the column which is a major panel that was part A that helped decide that Texas is independence from Mexico, we walked around the San Antonio Riverwalk, if you haven’t been I highly recommended. San Antonio, I had no idea was such a pretty. It’s incredible how much money has been invested into that downtown to make it solid base. I honestly haven’t seen that. Like maybe it’s something to do with, you know, actually eating up. But it was it was an iconic area filled with bridges, bars and restaurants. But for best in class barbecue, we had to leave down to him. So we hopped back into our our rental Toyota Prius. Or the irony of driving around Texas in the Prius resides next up big trucks to dine on some of the finest barbecue in the city. This time around, I had smoked turkey and sausage just to try something different. And interestingly enough, on the way from Austin to San Antonio, we took a toll road. So from what I saw was, is faster and fun, new suspect, because we had stayed out of state license plates on our Prius, there was actually no way for the autopilot system. The highway with straight is fast. But I often notice that there’s very little development long, that’s what I wrote told toll road check the 4747 is testing department typing that common trucking Baltimore shoe. Like compared to the 401 or three W we’ve learned a lot. So and then. So same thing, what we experienced on the right home, we took the non toll road from San Antonio back incredibly, incredibly developed for NPD. One mile stretch is that’s the game that did some checks up to and that’s how I found out that that was that that stretch of road his child was troubled by about 100,000 cars a day. Ben, I was also studying this area because it makes sense for invest and investing because it’s located between two major center to the top towns firm as in Texas. And it’s also on the direct path to Monterrey, Mexico, which is booming economically. So that’s where the church at searchers, the for yourself as well learn more about what’s going on economically in terms of manufacturing reshoring that’s going on in moderate Mexico, the past month already else is also home to to random experience, myth. And repeat you all know this. I shop at Costco once a week, spending hundreds of dollars there. So I had to stop and take that Texas time Costco I was impressed. Everything truly is bigger in Texas. Still, honestly, like double the size of the Mackay go to Burlington. And they also have a double the variety that meet like the amazing as you’d expect just in Texas State Deloitte. And it was less expensive. For someone who’s cheap who likes meat. I was very excited. We did a gas obviously on the way home and we stopped at buches. So if you’ve no buddies, you know what I’m talking about. It’s an enormous gas station. I think there’s like 100 gas pumps. And of course I looked over it. I also saw in 2003 I counted 23 Tesla superchargers this place is a humongous grocery store. This is huge. It’s like the size of a treat. Except they saw these guys the Bucky sell pretty good brisket, barbecue sandwiches. We also saw a variety of other things like you know, hats, T shirts, all sorts of Friday that’s campstove gun cases and artists variety, right of jerky I’ve ever seen. I should make sure I mentioned I picked up that because I actually picked up a $14 bottle of Pinot Grigio called pain sheet so if you see it this year, Pinot Grigio by benci recommend you pick it up

Speaker 1 10:00
Hey, my friends that I opened it up together. I didn’t actually think about the price, but everyone was impressed. And then they were even more impressed when I told them it was only 40. T dollars. American attended. Yes, I’m going to talk about real estate eventually. This is real estate show. I did check it out a bunch of properties on Wednesday instruction. And I even did a self guided openers, as confuses looking at listings in the States, and some numbers, open houses between four to 6pm 10am 6pm and 6pm, like six days a week, which I didn’t understand. So realtor just sits in the property and just waits for people to show up. So by that when I went to went to the property that wanted to see that for sale sign on the lawn had a QR code to complete open door, which is our app, and I filled out my contact details to purchase my driver’s license. And then I was able to unlock the front door which was totally awesome. I didn’t have to engage with a lawyer or get a property that I’m not called by the bank yet and this has been I’ve been studying for a little bit a lot better. If I was liquid I would be ready. In under square foot Hill Foundation impacts like Shiraz Park meevo I walked the perimeter of the house for looking for cracks four bedroom two full bath location that’s the town so don’t do construction houses or apartment buildings paid directly with the elementary school for Treadaway the big upside is even Italy with its $17 billion Best Buy Samsung to build a merchant metric plant that will employ 2000 people this is how I invest for economic fundamentals that will cost upward pressure on rents and resale price no right control means my cash flow continuously improve however the numbers that has asked me about 3000 in the buyer’s market so I don’t get less the rent is virtually your plus rent plus utilities no confidence bidders numbers with something similar ease of investment but significant upside three for me no show just know if you’re gonna make fewer promises like six figure income on 2000 more investment I will laugh at you on the show. I do want to see some new constructions because as well as I mentioned that they just didn’t feel right there wasn’t like community feel when the sale agent told me that the elementary school was a three mile two miles or three miles away which about five kilometers the coolest five kilometers away from their adventures I’m targeting families for these properties. So anyways otherwise the houses look great prices were great friends were great sales agent let me know for me that every property that she has sold to the northeast does not explain more about what I found in all the properties and researching first ever I’m repeating sorry I went US property to all virtual of course on Saturday morning. We’re covering properties from Texas and Tennessee and search for both cashflow and appreciation. If you’ve been following the news in Canada that like that I do, for example health and just passed me by law of the land where a landlord is to do a renovation say there’s a flood and attends have to vacate in order to sort of learn how to do preparations to beat the property proceed. Start the walk. If that landlord has to find another apartment, similar rents are the tenants I wish all the parties involved in the market. Susan Allison consumer documents Apple vacancies under 1%. Of course rent control Lexi rents are under rented I do not see how it’s feasible for anyone to be responsible for someone to locate someone cheap rental property that just doesn’t exist. I’m sorry, my rentals and I’m doing the you know what? The past client of mine messaged me this weekend asking why they change their heart rate condos for obvious reasons to invest in two parts. She asked why would she have to do with dress? Now let’s think of the story. Remember when Elon Musk was on the Joe Rogan podcast feed the first time he did. Now I’m not a regular listener of Joe’s podcast, but I do tune in when he is the occasional bit test. If you know Joe, you’d love to talk about conspiracy theories and particularly aliens that you’ve mentioned So Joe as Elon enters the audience have visited Earth or something like that. And Elon would be the person we want to ask because he probably knew. So Elon goes to explain that there’s never been evidence event technology down on earth. And he believes aliens, and so he believes there is no evidence of aliens visiting Earth. But he will believe there’s aliens once there’s irrefutable evidence that demonstrates there are aliens until then, we will presume go with the assumption there are no plans. So that was years ago, yet Joe still rambles on about aliens. But for me, honestly, the case is closed and not gonna worry about aliens until there’s new evidence. So no different from me. But the US real estate investments investments, I think everyone’s known for a long time that investing in the US was better than generally all channel. Building, but again, all the same problems, all the other problems where they’re building a team as hard. There’s many people out there, but we all know who got their butts handed to them investing in the US. And after that, real estate investing, investing makes little sense. If you don’t have access to cheap or juice is without cheap mortgages, you’re just gonna have to invest in the stock market, it’s a lot less work. But in our kin, Kin era, other reporters when I met my new strategic partner to shift the asset manager, and one stop dealing him when City Market just opened up Shop USA, now the network just the US only so now Only now do I have a team to make direct real estate investments 10 times easier than it is in Canada 10 times easier. So and at the same time, Ontario and BC have been most unfavorable to landlords that that might theory that the key to our what declined in value compared to the US dollar over the long term, which makes sense due to our growing debt, lack of investment, lack of productivity.

Unknown Speaker 17:16
And Scott said so what is the sophisticated investors? Some I research, this just makes sense. And it will.

Speaker 1 17:31
Anyone does not find it. And I’m happy to do so on my show. Just again, fair warning. I honestly feel I haven’t said it enough. Because again, anyone knows we knows that I was not a fan of epic appliances business model. I was not a fan of Porsche real estate developments. I saw it in the wrong group and in the business model operated by Clydesdale capital. In that point, they just deleted her website and Instagram we would have gone bankrupt and lost all her investors money. And her to she was never on my show disability others. Anyways, let’s dress for returns in cash flow that has helped one pacer that’s the best integrated onto this week’s show. We have a podcast host in a convenient diversity is nice guy. Sharon, a seasoned real estate investor and shoot it here to share how his own journey his own journey and help how he ran into a wall hustling Ontario and then pivoted to investing in the US Patent 2017. Venture is insights from its experience and great strategies for finding properties navigating different partner conditions in the importance of building reliable team all from the comfort of his home near Waterloo, Ontario. Now I emphasize the value of solving complex property issues because Ben is dealing with complicated problems in small towns all over a very big country. The strategy is not that hard. Me personally I’m going for boring but however however it is a full time that’s full time investor with sufficient capital and eath mass like they said it’s totally cool. We are totally on two different risk tolerance spectrum which is totally always make money plus a My job here is only to show you different options so you could choose what’s appropriate for you without further ado, let’s actually brand French This is website is dark land Sutherland calm or you put them on YouTube. Again the show The show is Canadian Canadian investing in the USA. Alright, please enjoy the show

Erwin 19:55
Hey, Glenn, what’s keeping you busy these days?

Glen 19:57
Oh, everything real estate In real estate businesses, right? Well, like, I don’t know, halfway. I don’t know what we’re planning on talking about exactly. But um, yeah, real estate business, I used to do a lot of real estate, even in Canada and transform to the US. And then I transformed it into a business. So for, you know, people like how long you’ve been in the US, and honestly, I’m not sure it’s like seven years, I think, maybe eight years. But I live in, outside of Waterloo, Ontario, so I don’t actually live in the US. But I’ve been investing there for that time, but honestly, it’s only been like three years where it was actually a business. So I think that’s a big thing that people don’t realize the difference. I’m not sure if you want to go down this path at all. But, um, yeah, it was before I used to buy rental properties. And then I sort of manage them. And they were kind of started off with some turnkey ones, which means like, he basically, you know, had tenants or rent ready, and you just basically collected the paychecks and managing property manager, right. But then as you start growing, you start building in contractors and wholesalers and direct mail and all the different other parts that come with building a business that if you aren’t set up like a business, and you’re just doing investing, you find that you’re you start dropping balls, you’re like, I forgot about that property, because honestly, you bought so many properties, like at one point, we were buying one a week, right? Every single week, we were buying a property.

Erwin 21:21
So when you’re buying one a week, was that local? Was that stateside?

Glen 21:25
That stateside? Yeah. Okay. So you easily can like go, I forgot to set up insurance. That’s an extreme one, but like, and then you realize I have to start, I have to start building systems and checklists and everything else, right. And a lot of people, you know, they can, you can handle, you know, five, maybe 10 properties yourself in your mind. But whenever you you want to actually turn this into a business and you know, have a lot of stuff running, and you’re dealing honestly, like we were talking before the show, dealing with a lot of people, right, dealing with a lot of contractors, property managers, people doing what they’re supposed to be doing people doing what not what they’re supposed to be doing people taking longer than they’re supposed to do. If you don’t have some sort of system set up to start with, you’re just, you’re gonna be overwhelmed, right. And as you start to do this, like I said, you get like five, maybe 10. And then your mind is starting to fail. You’re like, Oh, this one. Oh, this one? Oh, it turns into be too much. It’s honestly too much. And other people were like, Glen, how can you do all those and and that’s a lot of it is just building checklists and doing old stuff. So how’s business? Business is good, where I think we’re recording this. SENATOR LINDSEY is going to air we’re recording this in November 2023. And so I think we have five sales this month and two purchases. So we’re pretty busy. We just offered on ad unit as well. And then the other ones are all single family homes.

Erwin 22:45
So that was everything. All right. So how many how many houses do you think you’ve owned so far in the States?

Glen 22:55
200 Maybe, China? I’m not sure. I’d have to go through my thing. Maybe.

Erwin 22:59
What was the mix roughly? For like, single families. How many were like duplex four Plex beyond

Glen 23:08
just roughly roughly probably more than half of the single families right? Maybe maybe 60% single families and then I don’t know if had 664 plexes and I don’t know a bunch of duplexes to fill it in I don’t know I have to for actual numbers I gotta get on my computer and pull it up. Look what I send to that mortgage brokers

Erwin 23:33
we’re not gonna we’re not gonna hold you are not gonna get a quarter over this. Let’s just give a get an understanding like the mix and then how many markets are you in?

Glen 23:44
I think I usually say seven. So we do. In Ohio we do Dayton, Ohio, Cleveland, Ohio, Toledo, Ohio. We used to do Indianapolis, Indiana. I’m still open to it, but we don’t have any there anymore. I sold them all off two years ago. Kansas City, Missouri, Huntsville, Alabama, Birmingham, Alabama, Jacksonville, Florida and Brevard County, Florida, which is like Cocoa Beach and Cape Canaveral, that area down there. So Titusville Melbourne Beach, all in over on the ocean side.

Erwin 24:15
Yeah, then how long do you hold these properties?

Glen 24:18
Well, it depends, right? Because whenever we buy anything, we try to have multiple exits on it. So we usually want it to work as a burn. So a burn us has to exit usually our cash out refinance or at 65% loan to value not not the lovely 80% that you typically get in Ontario. So there’s all those advantages and disadvantages of both countries, but you just have to run your numbers and find those numbers right. But if we’re doing a burr What was the question? How long do I hold them?

Erwin 24:49
Typical hold because I want to understand are you flipping you bought lunch? So

Glen 24:53
typically what I say is six months or so for a burger, right? So what we ideally like to do is like a three month ran out a three month, you know, seasoning and then like, you know what, six months from purchase to refinance. That’s if things go perfect honestly, a lot of times, you know, a month or two or whatever it can slip because of contractors permits other things, right. So that’s how the kind of the bird sort of go on the flips, same sort of thing. Ideally we’d like to be in and out in six months, especially now, I used to do larger projects, that project that we’re just finishing up, it’s gonna hit the market next week in Jacksonville. We’re in over a year, right. And we used to buy buildings from the county or the city or from banks or, you know, ones, they’re even on the block where these tax sales and powers and we’re not tax sales, but they’re like from programs like that. I’ve taken back some people haven’t paid their taxes sometimes. Well, no, sorry, not tax, some people haven’t paid their utility anyway. They’ve come back. Yeah, they’ve come back to the, you know, sometimes whatever reason the different places on them are foreclosures or short sales. But usually when we’re doing the tax deeds, we’re looking at doing the tax deeds in Birmingham right now, but I’ve never done that, right. So where was I going with that. But you know, we so we get we buy properties around the block and be torn down. Like some of them, they were in such rough shape that after a while that city would just take them back and then sell them for almost nothing like almost nothing like it was taken houses, yeah, condemned houses you want to make for the faint of heart. No, they’re not for the faint of heart. But those ones make the most money if you can buy like, you know, something with like a 400,000 ARV for like 20 grand, there’s a lot of room to make money, but you’re gonna be, you know, in this market, you’re exposed for so long, like these projects take a long time, they take a long time to get permits. Because a lot of it’s like stacked like, you’re gonna have to go do your electrical, get all your electrical signed off, then work on the water, then get on the water, sign off work on the H back. And it’s just like step by step by step and it’s slow. It’s not like building a new house, you can get a whole package with all the permits and build a house really fast. When you’re doing those full ones, it’s like, sometimes even need to get clear violations. So especially Florida, they you have to clear all the violations, you have to pull a permit for each violation. And that could be like cracked windows, no railings, no railings on steps outside interior, no water to the house, no hot water the house. And so you have to pull permits and clear all these items. And so all those things you’re going to do anyway. But you’re gonna do them in the wrong order. Because you have to clear the violations before you can get your full building permits.

Erwin 27:36
To say I’m going to fix the whole darn thing.

Glen 27:39
Yeah, but it makes a lot of money. But it’s timelines. And when the market was going up, like two years ago, or even last year, that was, that was fine. Right? It just was worth more, right? By the time you sold it. In this market, I don’t want to be exposed for that long time. So it’s one of the reasons we’re not buying as much in 2023 is because we needed projects that are quick. And if you want projects that are quick, you’re looking at lipstick projects, they usually have, you know, the electrical and the plumbing have all been updated in the last like 20 years. So if you’re buying those, there’s lots of competition for those. And there’s not it’s easy to get a good deal on those. So it’s harder to keep the volume on right. So we slow down a lot. And a lot of people think oh, it’s because he’s scared the market. Yeah, that’s true. It is true. I’m not stupid. I’m gonna play it safe. But I’m gonna buy a big enough discount that is gonna make sense. We just can’t find enough big discounts if they’re close, you know, if there’s outdated, right, that’s usually not enough. Like, my favorite ones are ones with like property line issues through the house, like where they can’t even sell it. Stuff that they you can’t, they won’t qualify for financing. Right? They need to like, you know, HUD, FHA, VA, all that financing in the US, you won’t get anything government backed can’t won’t won’t lend on it. Right. That’s the perfect stuff. Because that’s cash purchases, you can fix all those issues. But the ones again, it’s depending on what the issue is, how long does it take? And I used to be more open to that. And I’m a lot less open to that now.

Erwin 29:15
Yeah, so you’re actually on the ground? So are you seeing things turn like for example, like just just this morning, inflation rate came in low. So treasury bills are the they’re coming down? So it looks like we’re gonna see less expensive mortgages, fixed rate mortgages going forward. And we may have already turned turn the corner. As I mentioned, you sold five properties just this month already?

Glen 29:38
What they’re going to sell we sold one yesterday, and then the other ones are scheduled to sell throughout the month. Yeah, so that’s a big thing on some of the programs for lending, like because there’s all kinds of in the US. programs that help people get into homes. A lot of them didn’t exist because they were too scared during the last year and I think I think it was called home paint home plan or I’m just gonna butcher this. Anyway, one of them on Florida, it just came back. And so like my, I have a property up for sale right now and they’re like, this is gonna help the property move, right? Because people are gonna qualify for it. But yeah, with these really expensive rates, it’s tough. You know, think about this, if you’re gonna qualify, and you’re going to be paying Americans typically put like, they like those HUD mortgages were 3% down. So they’re gonna leverage at 97% 97% on like a Florida half million dollar house at like, you know, 7% is is an expensive payment every single month. So I’d love to see it go down. Honestly, I don’t see it, I don’t see it going down much at all, I see this thing flattening out. But you know, I am not an economist, I’m not going to say anything. But even still, when we’re buying the multifamily, we’re, we’re running our numbers that the cap rate is going to go up, we’re running our numbers that the interest rates are gonna go up to, right. So we’re putting one and a half percent more on it over the next because usually we’re doing a three year project. So we want to make sure that we’re not going to be one of those, you know, syndicators for the larger stuff that’s gonna get us in trouble, when we’re going to refinance, I want to be, I’ve never lost anyone’s money yet. And I don’t want to start. So which means it’s really hard to buy, because the sellers still have the mentality of last year’s numbers. So it’s hard to, especially the department stuff, you know, we’re kind of I’m kind of flipping back and forth, it’s clearly gonna confuse everybody, but maybe we should stick to the single family. But the last Friday, so we were talking mid November, you know, the Fed kept their rate the same, but the, the US government back mortgages dropped by a quarter point, right, because it can do like a prime minus sort of thing. So they did drop it to try and make it more affordable. So that could be something the Fed isn’t dropping. But the banks want to sell or want want to get mortgages, they they’re in the business of loaning money, and they needed new people to take the loans and people can’t afford the loans, they’re not going to take the loans and the banks don’t make money. Right? Not that we’re, the banking system is completely different in the US, most of these mortgages or mortgage backed securities, meaning that they don’t actually hold them on their books. Like, if you think about like a traditional Royal Bank, or CIBC, or TD or whatever, in BMO, in Canada, right? They’re gonna keep those mortgages on their books, whereas in the US, they’re going to securitize the loans and sell them in the secondary market. So insurance companies will pick them up, your grandma could go buy the mortgage on a property, right. So it’s a different sort of game. A lot of times they play in the US than in Canada, just the way everything’s done.

Erwin 32:41
On the bigger scale, though, of folks need to appreciate that, because the Americans don’t have it, because but it helps the Americans because they had their housing crisis. They had their crash with financial markets and housing markets. The Americans are, I think, 30% they’ve lived 30% Less household debt than we do per capita than Canadians. Yeah. So the so when I’m, again, I’m studying all this, I’m not an economist, but they have 30% less debt than us. So if there’s a correction, usually whoever has more debt, it’s worse. Right? Right. Yeah. You’re in a tougher position. And then it’ll it’ll the drop will be worse. So So yeah, well, while it is interesting, other Americans do operate it seems that they’ve, they’ve learned some lessons. But yeah, they have their banks or some of their banks are just smaller in generally so small banks that went under right right, that’s

Glen 33:36
another thing if you’re gonna put money in banks, you need to look at the FDIC is on on the bank which is like CICS in Canada, so it’s your bank count is insured up to right so you know, Bank of America bank account I believe has a $200,000 your accounts insured up to most banks are 100,000 from the small ones are 50,000 So if you go above that number, and then the bank goes under you lose the rest of the money you only get the insurance so you should know that your money is

Erwin 34:06
not diligence to be done. Which is why we have you on the show to start there. What banks are you with

Glen 34:13
us sir? Yeah, um, well I just recently started doing was we moved some accounts to mercury which is just like a an online bank. It’s like the equivalent of like PC financial or simply or, you know, the Canadian sort of online banks. And honestly, when it came out of simplicity, it was it was easy. We could do wires remotely and so it just met the criteria my bank account in that I was using before I was originally using progress bank in an ATM in the main branch in Huntsville, Alabama, because that’s where I started investing was Huntsville, Alabama, Alabama. That’s why I set that account up. But they recently started not liking foreign accounts if you didn’t set it up with a social security number if your settings I’d setting it up with an ITIN number and international tax ID number, which is what Canadian used to file taxes with the IRS. There, they came less favorable about it. So then they started first or cut back was they allow it only if I was part of it, because I was already an existing customer, like if I open new corporation, but my item was tied to it. And now I thought, I’ve heard some other people that just not even giving accounts right now, what happened with Bank of America, they’d pulled the same thing. They, they gave everyone accounts, and then they closed a whole bunch of the accounts, they weren’t really interested in the foreign ones. So they’ll give you a 30 day notice piece of paper. And then you can switch. Royal Bank did that about three years ago, they rural bank, in Florida, they went in closed a whole bunch of Canadian counts, which is mind blowing, because it’s, you know, basically, brother, sister of Royal Bank in Canada, or it’s RBC bank in the US. And I was at a meetup down in Florida, with all Canadians, every person was Canadian there. And they were like, half the room had Royal Bank Accounts are all getting closed at the time. But there’s like, I don’t know what’s going on. It happens. The thing is, the Americans, when stuff happens, something that was COVID, right? Something happens, they panic, and they make a drastic change, like they’ll stop lending, or they’ll close bank accounts to just try and make it safer for themselves. And they don’t think about sometimes what the bigger picture is, right? They just react, right? They make a split decision. And they don’t realize if all the banks stopped doing this, then where does the money go? It has to flow somewhere, right has to be held somewhere. And every time this happens, there’s always usually someone comes in and comes up with a solution. And in the honestly, that’s why hard money is such a big thing in the US is during the 2007 crisis, there was the banks all stop lending. And the hard money was the only thing that was available. And it just exploded. And now there’s so many hard money lenders, portfolio lenders, in the US that, you know, beat they came from these reaction of the banks holding.

Erwin 37:01
Sorry to step back up, you said Mercury bank was that mercury banking, I Googled Mercury banking for startups. So with mercury.com,

Glen 37:12
it’s pretty easy, you just have to, I think we need a piece of paper that says something that you know, utility or something in your name. Besides that, you know, just you can even use your Canadian driver’s license your Canadian stuff and sets it all up. So it’s easy, but at the other banks used to do that same thing to, you know, certain banks like TD, they used to require you to go in to set up a corporate account, but you can set up your personal accounts online, right? Royal Bank, you could do it all online before progress Bank, which is now you CBI, done in Alabama, used to be able to do it all online, or they still can do it online just aren’t really friendly to Canadians right now. Things change, though, you know, the thing is that, even with leverage rates, everything with American Canadians, sometimes, you know, it’s just all based on risk, right. And they’ll lower their risk and they’ll allow more stuff like two years ago, we are getting refinances at 75%. loan to value right now it’s 65. Because the risks high right, to be holding mortgages.

Erwin 38:09
You mentioned it earlier, Individual Taxpayer Identification Number, you mentioned what that’s for, what do you why do you need it?

Glen 38:16
Yeah, so you’re gonna need that to set up a bank account is usually where I’m going to, you know, where it’s going to come as a number, you fill it in the exact same as your social security number, or social insurance numbers, still nine digits fills in the exact same boxes, if it so social insurance, social security number, you put that number and instead, and you need that to file with the IRS. So social

Erwin 38:37
students number for Canadians, for non non Americans basically,

Glen 38:41
exactly right. And then you’re gonna need that to file your taxes, especially if you’re using like a limited partnership in the United States can be mandatory, if you do seek

Erwin 38:52
to be the best practice. Yeah, there’s a bunch of ways to

Glen 38:55
set it up. You can use C corpse as Canadians to and if you do, and you get dividends and that sort of way. And you know, technically you don’t need it off the start if you’re doing like a C Corp until you do a dividend. Because as soon as you do a dividend, now you’re introducing personal income. And now you have to file right. So off the start somewhere people if they usually that’s not the hang up, but it does take like a couple months to get your ITIN number. So some people like I just want to close and do stuff and they’ll pick a C Corp. People do use the LLC. That’s right, LLC is in the United States, but and I have used them as a Canadian, it is complicated to use them correctly. There’s a bunch of extra rules being Canadians to use them. And if you just treat it like a regular bank account and you’re leaving funds in there every month, you will actually end up leading to double tax so you can use them but you better know what you’re doing. If you’re doing it and also I honestly say just stay away from them. Because it’s you’re going to end up making a mistake and can revenue is going to tax you and IRS will tax you. But if you set up an LP or a C Corp you’ll you’re not going to you’re there’s trade agreements between both countries and you’ll be in a lot better shape.

Erwin 40:02
It’s just an observation I find the folks are trying to buy like several numerous apartment buildings they’re set, they tend to seem to lean towards LLC versus small mom and pop, who’s going to own a handful of properties seems to be the more simpler structures like an LP or C Corp.

Glen 40:19
What they want the a lot of people why even the Americans why they like to LLC is it’s right in the name limited liability, right? So they want to take the liability away, right, so that they’re not personally no one’s personally liable for this, right. And so that’s why they do it, right. But if you do it as a Canadian, like 100 foot level, it’s

Erwin 40:38
almost double tax,

Glen 40:39
you could get double taxed, what the main thing is, is no money, zero balance in your bank account at December 31. Because when it rolls the tax year that could whatever’s left, there could be double taxed. So you want to be pulling it back to Canada, pull it into your other corpse, just because so some people still will set up like LPs and how LLC is underneath to hold the properties, you can do that. But then basically, those LLC accounts are like holding companies that should be flowing up to the to the parent company, it shouldn’t be held and held in those accounts. So it’s just extra work, right? You just set that up as an LP, or a C Corp, and you don’t have to do that extra work, you can just leave the money in those accounts, because it can stay there.

Erwin 41:21
So to go back to buying, let’s talk about buying real estate. Yeah. What is it you’re looking for? Like? What are the criteria? Both in terms of market doesn’t location? Yeah, what are you looking for in a property?

Glen 41:35
So honestly, with everybody should be doing this, when they’re trying to buy anything, you need to make sure that there’s enough money in there for you and somebody else, even if you’re buying it for yourself. People get lazy when they have money, and they just buy stuff. And there’s not enough profit for two people, right? Budget it in for two people. Even if you’re like budgeted like you’re doing to do a joint venture, even if you’re not going to do a joint venture is the thing. It’s really a mindset change when you look at that. Because if you have to split some of these returns, you’re like, oh, no, I’m making like 13 14% on this turnkey property. This is perfect. Right? And then you people look at it and you realize if you had to split that with somebody, you’re like, well, that’s not good. I really don’t think other people would sign up for this right?

Erwin 42:21
I think, go sign up for REITs. Together. Split to eight to 12%. Sorry, Jen. Like four to six. Yeah, so just get a GIC at that point.

Glen 42:34
Exactly. You might as well because he could probably get those rates right now. Right. So we’re at least close and have the security and not have the risk of real estate or, you know, someone stealing the air conditioner, the furnace breaking all this stuff you like you might as well take a safe investment. Right. But anyway, for it depends where I’m investing what? What I’m sorry.

Erwin 42:50
First, obviously. So you want returns for to what kind of return what what are your target returns? And?

Glen 42:57
Well, if say I’m doing a burr, right. And what I’m looking for is for this property to cashflow like, I’d say at least $300. And I’m talking about like on a cheapo house, right. And these houses sometimes I can buy like a step back. Like for this kind of house, I’d look for something like for a 50,000 purchase a 50,000, Renault and ARV of like 155 160, right. Because of those numbers as long as we can do a cash out refinance at 65% loan to value which means we’ll do a perfect burr will extract all the cash and I want it when an after the refinance. So we can have like $300 at least to split. So at that point, it’s an easy sell to an investor because the risk to them is low, you’re gonna put your money in, you’re gonna get your money back in about six months, you know, depending on contractors and other things, right? But you get put your money in you get your money back, and then you still have a cash flow and there’s no money in the deal, right? So when I’m doing borrows, that’s where I’m kind of looking for with flips, it has to hit the certain chunk of money in not down to a certain percentage because a certain percentage, it’s sometimes can when you talk about cheaper houses, it it doesn’t it’s not exciting enough for people to be enticed to invest with you. Right. So even if you’re getting a 20% return on a on $100,000 house and it might not be enough right because they’re like that’s not enough money. He doesn’t he taught me to change my life, right? So it’s gonna depend on what where you’re buying like if you’re in Florida, you know, like an $80,000 on a flip would be just fine, right? If you’re doing a flip in, say Ohio, I want to make $40,000 typically on a flip after paying Realtors utilities, corporate setup all that stuff. And the reason is that way that there’s and I’m also going to be being very conservative on the ARV especially now but $20,000 is exciting when you don’t put put too much money right and you get turned in a certain short period of time. So a lot of it it all comes back to what is marketable. Like what is it It is actually exciting to other people, right? Because if you use a lot of times off the start even myself when I went down to the US, I use my own money I use my home equity line of credit from Canada took them equity from my house went bought a bunch of houses, but you get lazy when you use your own money, honestly, you you buy turnkey properties, they your money gets stuck in those properties unless they appreciate there’s no really other exits, you have enforced any value. You know, if you really wanted have a lineup of people to invest in your projects, have the money turn at a pretty good quickly, you know, give them their money back at occurred you could rate at a pretty good timeline, right. So that’s kind of it for the multifamily. We typically underwriting for an 8% pref, which means they get 8% cash flow every month, and usually a 16 to 18 IRR, meaning that they will get across the length of a period like so if we did a three year and then we do a refinance or three year and then a sale. That overall they would get like, you know, 18% per year as the return on that. And that’s super passive, right? That’s a syndication style.

Erwin 46:09
And they are the 16 ATR is what they earn. And

Glen 46:14
that’s including the exit and the cash flow, right?

Erwin 46:19
Should it ever not include those things?

Glen 46:22
I am just bummed USB. Some people like they think that, Oh, I’m gonna get the APR because always, you know, the paperwork will come out, it’ll be 8% pref. And, you know, 18% IRR, and they’ll go, they’ll think they get 18% and they get 18 on the exit, right? That’s

Erwin 46:39
what fairy tale is us. So promises, you need to really check.

Unknown Speaker 46:48
But I get those questions. That’s why I say which

Erwin 46:51
Yeah, which is fun is a perfectly fine clarifying question. But it’s more like just to confirm here, it’s more like, I’m getting better. person likely is not invested in real estate before.

Glen 47:03
No, no. And that’s honestly like some of the people who who are interested in that are people who they’re interested in real estate, but they’re terrified to do real estate, right. And they’re the perfect people, you know, to invest in that, right, they can still get their toes wet, they can experience it, and they can be as involved or uninvolved and they want to be and it’s the syndication model is registered with the SEC. Yeah, if you’re doing a joint venture, you’re gonna have to have some kind of active role in the project. In the United States, it’s illegal to have a, you know, like, a lot of times in Ontario, you always hear people go into the meetups, and they’re preaching joint ventures and they say active partner and passive partner, that model isn’t valid in the United States, you have to have active roles of some kind. Because otherwise it’s considered it should be registered as a security.

Erwin 47:52
Give us for Yeah, we’ve got some lots people get in trouble. Like the epic filler in Saskatoon that we were talking about earlier. Yeah. I want to talk about like now more interestingly, like your systems, because I want the listener understand, like, how do you make this happen? Right. So let’s start with, for example, work? How do you find the deal? Right? Like, how does it come to do? Do flyers come to your door? Do? Yeah. So like, how does the deal? How you? How does it arrive? In front of your nose? So you start looking at it? Yeah,

Glen 48:24
so a lot of it comes from connections that you make over time, right? So what you need to have is your inbox constantly having deals coming into it. And that’s one of the things that I’ve even had people, like I’ve had students in my class, and they’ll go, I just went and I can’t find any deals, there’s no deals that exhausts exist in the market I picked and I’ll be like, what market you pick, and it’s like a market demand. And they’re like, I’m like, you can’t find any deals in there. I’m like, I just closed like, you know, last year, like for this month, and that, that market, how you can’t find any of that hit these criteria. And a lot of it is deal flow you need to have, it’s a numbers game, if you’re buying every property that comes in, you’re paying too much, right? It’s the new most people aren’t going to be willing to take a discount, but people do take discounts because they need the money. Now, some people will take a subject to on their property because they need a certain amount that they may not need that money now, right? Sometimes

Erwin 49:17
sorry, but subject to so a subject to like if

Glen 49:21
you take over an American’s mortgage, right, so they registered for the mortgage in the US, you can split the deed and the loan, right? So you could sell the property, which would mean the deed would move, but the loan would stay with the seller. So they’ve already qualified for this mortgage and the mortgage can stay with them. It’s going to show up on their credit report. But you could take over that one. And those are amazing. That’s the cheapest mortgages you can get as a Canadian Think about if you could get a mortgage that was set up like two years ago when interest rates were low, with an American qualifying not you because as Canadians more risks our rates are higher than American every

Erwin 49:59
American So yeah, I don’t even know what we are. But you can

Glen 50:03
take those, you can split them. And then you can split the deed and the loan, and then you can, but the thing is it took a lot of it’s a trust issue is they have to trust you, right? So you’re gonna have to pour, because they have to trust that you’ve done it on the

Erwin 50:16
property, but they’re paying for it.

Glen 50:19
Yeah, exactly. And so they have to know that you’re actually going to do these payments. And, you know, whether you’re doing this or you’re because you could sell stuff subject to as well. You got to protect your own interest, right, you would not be aware of what’s going on, right? They need to be aware of what’s going on. Like, a lot of times, we’ll set up a servicing company in the US, which is totally different. Like typically, if you had a bank loan from RBC bank in Canada or Royal Bank in Canada, you would pay Royal Bank the payments in the US, you pay a servicing company that would pay RBC bank, right? And you go, why well RBC bank, they could securitize that loan, sell that loan on the secondary market. And you just keep paying the servicing company and they pay whoever the servicing company will collect all the escrows, the insurance, property taxes, the principal, the interest, disperse stuff, wherever it needs to go, homeowners associations, whatever, and they just follow instructions, just like a title company, or a lawyer would do in Canada on a closing, but it’s on a monthly basis. But then, if if you set that up, and you’re the seller of the property, you’re gonna get your money every month, or you’re gonna get a notification that they didn’t pay, the taxes haven’t been paid, certain things haven’t been done, because you need to know that. And if you want to be passive, you don’t want to have to be doing this. You just want someone else to do it, and then give you a notification if something’s not going right. But you need to be in in the know. Right? So that’s a little bit different, how they set it up.

Erwin 51:44
It’s something that anything like that exists here. That’s not that’s not even agreement for sale. It’s that. Yeah, yeah.

Glen 51:49
No, it’s there is I was talking to some other people and had another name for it, where they were kind of doing the same sort of thing. But you could possibly do that as a purchase lease option in Canada. But you wouldn’t able to move the deed, you’d have to keep the deed,

Erwin 52:02
previous stays, seller triggers land transfer tax cuts.

Glen 52:06
Yeah. Well, honestly, though, a lot of people, they, they want the deed so bad, especially Canadians, we want to own the property. But you don’t need to own these properties, you just need to control the properties, right? So you could in the US, you could register a contract for deed, right, which means they don’t have the right to sell without getting a first right of refusal. And if they you don’t pay, you did some foreclosure instead of an eviction in that in those situations. So you protect your interest. But think about it. Same thing, whenever a sale happens, the taxes change, right? Guess what, if you took control the property as a lease option, keep your taxes down. You could keep your possibly your insurance down, because there’s lots of advantages to not owning the house. Right. But everyone really

Erwin 52:48
motivated seller who trusts you.

Glen 52:52
Ya know, in sometimes it’s with those people who are usually open to that is usually investors, right?

Erwin 52:58
They’re like, no other options.

Glen 53:02
That’s like some of those things. If you see houses that don’t meet the requirements for government backed funding, right, then, you know, there’s something wrong with the D, there’s something wrong with the yard, the property line, there’s a million different reasons that that could not might not qualify the condition of the home, then there’s, you know, that’s the opportunity to come up with a seller financing lease options, this subject to Yeah,

Erwin 53:24
all right. All right. All right. We’re not we’re not. So from past connections, deals coming into your inbox. Yes.

Glen 53:34
Yeah, so past connection. So like, who are those like, could be wholesalers, right? There’s tons of wholesalers, there’s like, you know, Canada is 1/10 of the size of the US. And wholesaling is way more common in the US than Canada. So there’s literally like 100 times as many wholesalers in the US as there is in Canada, there’s so many wholesalers, so it wholesalers, some of the best deals I’ve ever bought are from property management, realtors that can’t sell stuff, you know, expired listings, if you keep on their list and you’re willing to buy them, they have houses that they’ll sit on the market for a year because they’re in real rough shape or whatever sometimes whatever the situation is a scary looking crack in the foundation, whatever some of those you can buy them you can with a lot of them I guess get a professional to go check them out see what I’m in for beforehand and if it makes sense we do it we just bought a property in Florida where half of the foundation was cracked off like so people are probably listening this and can’t see that but like Outlook crack off and you know they’ve sinkholes all over Florida and it dropped one quarter the other like a foot and just snapped to the concrete.

Erwin 54:34
So I prepared and sorry how thick is the concrete pad but I don’t know. Yeah, it’s really slow It’s no joke. It’s the foundation of the house.

Speaker 2 54:45
Oh yeah. But with with that we wait so

Erwin 54:48
the foundation is cracked and doesn’t the house bend with it?

Glen 54:52
Yeah, there’s a little bit of flexibility. You get someone with you know structural background. Check that out. You get hurt. Make sure to go into check that out, you get the foundation guide, quote out fixing that. And what they do is they, we pull permits on it, they jack it up, they fill it with this foam stuff underneath, they pin the two parts together, you rip all the floors out, redo the floors. And you you make sure you do this all with permits, because otherwise you’ll never sell that house again. You

Erwin 55:17
have to you’re doing virtually to see third party inspections.

Glen 55:20
We are going to do some extra inspection before we even start. Yeah, yeah. Awesome.

Erwin 55:25
Yeah. So you’re taking on other people’s problems, other people’s various, that’s

Glen 55:29
problem solving is the number one game but this real estate thing you want to make the most money solve a lot of problems,

Erwin 55:36
right? People don’t want to touch

Glen 55:39
we had some properties in Toledo a small portfolio, and the the seller and the buyer, they got in this whole fight and they were my property manager was involved. And she’s like, Glenn, can you come in and help this, they’re all planning to sue everybody. Everyone is planning sue everyone. And I got on the phone, I talked to the seller, I talked to the buyer. It was about prices and everything else. And I can’t remember the whole story. But there was there basically everyone was gonna sue each other. And it basically it came in and I said, hey, they’re walking away on the deal, the current buyer, if I came in at this price, could I just take the whole thing solve the whole problem? And they’re like, that’s less than the current contract? And I go, Yeah, but we could solve this problem right now. Right? Do you want to go to court? You want to be up there for six months? Do you want to be fighting you want to sleep tonight? How’s it gonna affect your wife in relationship? How is this all gonna go for you and they ended up going, You know what, we’ll just take your thing, we’re not gonna sue anyone, everyone signed off, they won’t sue anybody. And I took that came in and took the portfolio at a cheaper price than even the first investor had it under right. Solving problems just fine. And we bought houses worth property lines going right through them. Nobody can buy them. We just call up an attorney who specializes that how much is it going to cost me to move that property line, right. And they’re like, You need to get the neighbor to sign off on it, go talk to the neighbor, see what they how much they want for the land, you know, then go put property under contract, sign the paperwork with them over the line, get the the survey done, the attorney will draft it all up and file it with the county and you’re done. Right? A lot of stuff to solve, but no one wants to solve it. And you don’t qualify for a lot of lending. So people can’t solve it because most people need lending.

Erwin 57:17
Yeah. So we talked about how deals get in front of you for two. So So now with that neighbor, for example, with a line of credit lines going through the house, so you get on the plane, now you’ll fly down and go talk to the neighbor.

Glen 57:29
So I know I don’t do any of that. Because I want to make this a business. So I’m going to have people on my team, right? So every every market I’m working on, I’m going to have team members down there and like that could be anyone that could go over there. You could hire a public notary to go over there, you could get a what I did in my case was I hired my property manager and said, hey, I’ll give you 100 bucks, go over them. This is how I want you to negotiate it. And there’s also a property manager I’ve done a lot of projects with so they’re comfortable and understood I was doing and they negotiated the deal for me like they said, you know, the, the woman who was there said we want $4,000 For the land. And she came back to me you know, they wanted 8000 I was at 4000 Something like that anyway, and they called me while I was on site while they were talking to each other and I was like okay, let’s do six we can get this all scheduled and sent and then basically sign some paperwork and talk to the attorney right so it’s sometimes it’s easy sometimes it’s not. I can

Erwin 58:27
put it was like like the neighbor own the land that part of the land. The house is already on. I’ve never seen it that bad. Yeah,

Glen 58:35
well, even in. So there’s a downtown Kitchener for instance, Ontario, there’s a whole road that all the lights are on an angle or the houses are on angle in the corner of all these houses on a whole road, right downtown Kitchener is screwed up. Right. So it happens here to a corner

Erwin 58:53
on the wrong side of the lot. Honestly,

Glen 58:55
what I believe happened is it was an extension on the house and somebody didn’t check. So thing. Oh, wow. So it

Erwin 59:04
was totally done with permits. And a survey was done by a bunch of drugs got together to do something. In addition. Yeah. Wow. Yeah. So then yeah, so that’s not a bad price to pay for land? six grand.

Glen 59:22
Yeah, that was 20 feet by 150 feet. Right. So it was at the London lab. But it’s different. We are also in Alabama in the country. Like we’re not even in a city where like they’re all farms around us and you just needed a little bit of a stream of farmland so it’s farmland is not worth the same as like a house. You know, like we’re residential land. Yeah. So again, it

Erwin 59:46
was rural. I can’t believe the house. Was that close to the lat long? Yeah, I actually got over it with an addition.

Glen 59:54
That’s the thing like some people didn’t even realize that like the in that case, the lot line was going right down. On the edge of the driveway, and they built it, and it stretched, and it only stretched a couple feet over the line, right? Because they were cutting that grass. And they assumed it was their yard. Right. And I guess whoever, when they, I assume they did permits whenever they did that they must have gotten I don’t I don’t know that part of the story. I don’t know how to fix it.

Erwin 1:00:18
Fantastic. So and then. So you have team members on this ground, but you rely on? Because actually, it’s good question. How often are you on site?

Glen 1:00:27
So we went down to Cleveland, and what was that in August, and we went to a real estate meetup. We shook hands. And we went and toured some properties the next day, and met some contractors and built some teams and some relationships wasn’t necessarily necessary to go there. No, but it’s nice to have that personal touch to it. I’m with Dayton, we were down in Dayton and Toledo, I think in July, and we went down and I just went for dinner. We went and I took some of my students with me and we went and took some of my existing projects or on the go, didn’t need to. Most of the time when I’m going there, it’s it’s to shake hands like this as I go down to shake hands and kiss some babies like be like, just make face and you know, you know, you know sometimes we bring gifts so I like to bring down some Canadian maple syrup. And you know they love it, right? They’re just it’s just like, you know, it’s it doesn’t cost much it’s like a personal touch to the whole thing. And they remember you from it, right.

Erwin 1:01:27
Got it. Like, go well, I was gonna ask you, but I’ve never been to

Glen 1:01:33
Jacksonville in my life. Heard it’s nice. Yeah, it probably is ever I was in Florida last time was there was a Tampa time for us, Cape Coral and Fort Myers area. I can go down to Miami or I just usually it’s vacations, right? I don’t I haven’t vacationed in Jacksonville before. I haven’t vacationed in Cocoa Beach or Melbourne or Cape Canaveral either. I haven’t seen any of that area before in my own eyes. You don’t need to rely on people.

Erwin 1:02:00
How many properties do you think you’ve seen of your portfolio?

Glen 1:02:05
If you want to ask me that, like two years ago, it would have been really low. Really low. As of recently I started traveling because it’s a business expense. And it’s kind of fun. Fun, yeah. But honestly, I’m

Erwin 1:02:21
having fun. Like what yeah, what’s what’s,

Glen 1:02:23
usually take some other people with me, right? Like, you know, students or business partners or JV, whoever, and we go see some stuff. And anyway, but um, I’ve seen probably about half now. But I, a lot of times I went 2021 I bought a lot of properties, I don’t think I saw a single one of them in 20 Oh, during COVID I didn’t see any of them. Were still buying all the way through. We didn’t see any of them. So it’s not necessary, but it does help. It does help with you know, you know, relationships and stuff like that, I’m not going to downplay that you don’t need to. It’s more important in multifamily. To be honest. We were offering on the properties in San Antonio, Texas on the eighth unit in the 92 unit. And the 105. When we got our team to go there, we didn’t physically go there, but our property manager and that they went and toured the property and shook hands and met people. And whenever we submitted our offers, they said you’re the second lowest offer. But you’re the second year the second offer we are considering. And the reason is, is because the other people didn’t tour the property. They don’t know if they’re serious offerings. Yeah, they don’t know if they’re just going to once they put this under contract want to tie it up and waste. Yeah. They’re gonna find more problems lower their price and it’s not even a good valid offer right in the contract thing. So riskier. No, yeah, there’s so much riskier. Yeah.

Unknown Speaker 1:03:49
So

Erwin 1:03:50
it’s actually years ago, like, I think one years ago, Hamilton, like just the market wise. Sellers would take our agents would take offers where they had not seen the property yet. And then the policy changed pretty quickly. Yeah, so no sight on no sight unseen offers allowed. Well,

Glen 1:04:09
even right now what we’re wanting is more getting offers on these houses. We want to see proof of funds with the offer, right? Because, yeah, you can change our status on the MLS for for sale to Pending. And then it’s gonna go relisted afterwards when it comes back. I don’t want that relisted because everyone goes, stink. Why is it relisted what? Someone else didn’t want it for some reason. I don’t want it to be because of financing.

Erwin 1:04:36
That’s the worst reason because with all these course graduates out there, there are literally tying up properties and then go into trying to find the money to close on it. They never had the money to close.

Glen 1:04:46
So we want proof of funds and even in finding other people wondering, you know, when I’m putting offers and they want proof of funds, and honestly it’s it’s good for everybody to have that. And it’s kind of an inconvenience for me to show proof of funds. Some times but you know, what it does is it makes you have, you know, I like to call it my all ships on and off, and I’ve said on air, but I like to have the you need that money, right? I don’t have a job, right, I need that money if you don’t have a sale for a while, if you have some repairs or something, and some of these projects in the cash flow doesn’t come that month, I still need to pay my mortgage and do all these things live, I need to live. And I need to be not close, I don’t want to be tight and stressed out. So I usually keep like at least 100 grand, just sitting in a savings account, just so that smooth out the bumps if stuff happens, you know, like for instance, last, last fall, we didn’t buy it all we stopped, mortgage rates jumped and we just Whoa, I didn’t have to buy, right? I don’t have to buy so I’m not going to buy until I figure out what the heck’s happening. I’m not gonna keep buying into a recession, because that’s what I thought was happening at the time, it turned out it was a little bump. But who knows, right? Um, I don’t want to have to be in that position, right. So it’s good to have that money. And then you have to have a proof of funds. And so you’re gonna have to save money and not put all your eggs in your basket. I did that at one point in my early investing career in the US, I was buying all these properties. And I put my entire line of credit in the US. Do you know what happens? Like your line of credit payments? If you’re doing renovations, there’s no money come in? How do you make the payments on your line of credit in Canada, if all your money is in the US, it comes from your like nine to five job. And then that puts pressure on your own living in your house and it puts pressure on everything and it’s miserable. Like it’s like, you need to have your oh shit money, you can’t survive. It’s mentally at least the way I look at it, you have to have that you need it for funding, you’re gonna need it for mental mental wellness.

Erwin 1:06:44
And now let’s talk about property management. Because I think this is one of the I think it’s a big part of the conversation. I think many people overlook. Yeah, what are you looking for in a property manager?

Glen 1:06:54
A lot of things. I literally just recorded a new video about this yesterday. 40 minutes, just fresh,

Erwin 1:06:58
easy, just all

Glen 1:07:02
30 minutes of questions for the property manager. And then why ask those questions. But a lot of it is I want to have alignment with these property managers. So everyone always goes, I want to have the cheapest rate. You’re like, oh, no, no, no,

Erwin 1:07:15
let’s

Glen 1:07:17
talk and I’m telling you, my students, they’re like cheapest rate, I’m gonna shop around. So I find this Oh, my God, like six percents like going the low bid contractor

Erwin 1:07:24
is asking for

Glen 1:07:27
one some things I don’t like is some of them. The way the property management contract is worded is it’ll say like 10% of the rent equals this amount. And then in the following line below that, it’ll say that amount is your monthly property management fee. If you see that in your contract, you need to clarify on that because that means you are under the impression that it’s 10% of the rent collected. But that’s how they came up with the number. That’s not what’s in the writing. If it’s in done like that, what they’re going to do is if your property is vacant, they’re still charging you that property management fee. Oh, boy, you don’t want that, right. Um, a lot of them too. They’ll charge an upsell of 10% on top of maintenance calls, if it’s a third party contractor, because they’re managing it or they’re gonna go check on it. That sometimes that’s not a big deal. We just did windows, we replaced all the windows, our property in Toledo and that was like $24,000 paying 10% Extra on that Sox. Like that doesn’t make any sense, right? Because it’s so many windows because it has full

Erwin 1:08:28
scale project. That’s pretty monotonous.

Glen 1:08:33
So like but there’s there’s there’s sneaky stuff that they slip into the contracts like, right, you want to see who’s on their team? What can they do for you? Do they do properly? You know, everyone could do a property management turn. But you know, what level who who are the team members on that property management? Like who can they like it? So say there’s an electrical problem with the house? Are they calling an electrician? Or do they have an electrician on their staff, because if use a third party electrician, you might pay in 40 $50 an hour for this person, if it’s on staff, your contract, at least most of them say for on staff calls, maintenance calls, it’s $15 An hour plus repairs. So that’s huge. You’re paying $15 an hour for the electrician, instead of like 40 or 50, though, for $50 for the type of thing. So it’s who is who do they have what are they doing? And some of the big companies like the one we’re working with in Cleveland, they have plumbers, H fac, electricians all on staff. Alright, so that changes your numbers, right. Whereas a lot of them they stub it out. Some of them don’t charge that extra 10% fee, but I’m just wanting people to know some of them do right something to ask. Oh, the lease ups. The lease ups are certainly before

Erwin 1:09:41
we move on before we move on maintenance. Let the Cleveland pm how many doors houses do they have under management?

Glen 1:09:48
I think it’s like three grand 3000 or something like that. Right? Yeah. So

Erwin 1:09:51
what I want Canadians to appreciate is how much larger the property managers that are in the States. Like they’re enormous, like Oh, yeah. Do you know anyone personally in Canada who have H fac people on payroll? You know, right, you’d have to be production company. But

Glen 1:10:09
the thing is, it’s also a lot of them, it depends on states, right. But a lot of the states, the property manager is more regulated than it is in Canada. So most things are looser in Canada than in more regulated in Canada. But for property management’s the opposite, you have to have a broker’s license. And you have to have a realtors license. And you have to have a property management license, right? So they should have this stuff. Otherwise you might be, you might not be able to get the same insurance, like, if you’re going to do like a renovation, like a fix and flip loan, you’re gonna go to the bank and get that kind of financing, they’re going to ask for all those licenses, because they’re going to cover your own their button. And you should ask for those licenses too, because it covers your but also. And if, if they don’t do what they say they’re going to do, you can put a lien on the license, which means they can’t pull a permit until they settle this, guess what they’re going to settle the issue with you. Right? If you don’t have that information, you can’t put a lien on their license. So it’s, it’s important to have all the information and if you are having trouble and you ask for the information, they’re never gonna give it to you, they’re gonna give it to you, when you’re signing the contracts and setting it all up. Right? It’s easier to get it when things are going well.

Erwin 1:11:16
Yeah, so you brought up a great point, they need to be licensed. And they probably if they’re a business of that scale, they likely have to have licenses in each of the trades as well. I get to have an h fac business you need, the business needs to have its own license, usually a part of the owner, one of the owners, or or management have to have licenses in those trades as well. Like that, I think for most Canadians looking for a PM, that should probably be one of our criteria, and qualifying a park manager, how many trades do they have on staff? Because that means less cost for you?

Glen 1:11:46
Yeah, what can you even do with them? Right? Because like they could do a renovation for you, maybe, maybe if it’s light, right? Maybe some can, some can’t, right? Maybe they only do 10 turnovers for you. Maybe that’s as far as they go. Right? You know, it’s just figure out what what they can do for you what, you know, Oh, it wasn’t talking about lease up for us. Some of them, they charge you a month off the start. So I’m gonna charge you a half a month. So I’m gonna have a flat fee on this change, it can be a lot, right it can be, it can be a lot of difference in price, right? Because you know, your first month’s gone. So typically, they’ll charge rent a full amount. So if your rents like 2000 a month, they’ll charge you $2,000 You’ll get to as low as rent, but it’ll go right to the property manager because their lease up fee, some of them will charge you the property management fee on top of that. So you’re actually in the negative after the first month, in the second month. It’s a prorated rate because they they moved in on the 15th of the month before so you get prorated in the second month, and might not be the third month you actually get rent. Because all these things in a lot of people that’s a shocker, right? Because, you know, if you’re not used to using property management,

Erwin 1:12:52
or you may make maximum make make some concessions as well, because the rental market is not as strong in the States generally as it is like, you know, it doesn’t have

Glen 1:13:01
the same demand usually not zero vacancy, like Ontario, Ontario,

Erwin 1:13:05
like our dysfunctional housing crisis. Let’s create some good things for us. Yeah, but yeah,

Glen 1:13:12
exactly what you need that you have to have that in Ontario to, to you know, if you’re gonna put your money in for in have to deal with these terrible evictions and terrible rent raise rules, you better have zero vacancy. If you

Erwin 1:13:24
live near Waterloo, which is a wonderful place to invest. You choose not to. But I used

Glen 1:13:30
to. I used to have a place in Waterloo. I used to have a place in Kitchener, I used to have a bunch of places in Cambridge. But I sold them all off. I don’t have any of them anymore. I steps on Strathroy, one in Strathroy as well. But I I sold them off, I don’t know, five years ago, I think the last one I sold off during COVID, the Strathroy property I held on for a long time.

Erwin 1:13:49
So you have zero rental property, just this house we’re

Glen 1:13:54
sitting in and that’s all I have is my my principal residence is all I have in Canada.

Erwin 1:13:58
Yeah. So I get to that point.

Glen 1:14:01
You know, it’s you go. I don’t know if I haven’t planned on going down this route. But a lot of people that they go, Well, my property cash flows really well, because I set this mortgage up back when the houses were 300,000, right? Even though they’re worth like a million or 750, whatever the number is right now. And they’re like the cash flows really well, because I set it up a long time ago. But you got to think about the ROI, the return on your equity that’s sitting in that property. And sometimes when you do the math, you’ll be astonished because you have like $400,000 of equity sitting in the property and you’re like, you know, subtract off the costs to dispose of the asset, right when you sell it. But you’re like, what could if you’re only earning 2% or something on that you’re like on all that equity, like you could put that in a savings account and earn more money, right? Like, you don’t have to go invest in the US. You can go into private lending. There’s lots of options to do it, you’ll like it, but if you don’t do an ROI calculation, you won’t even know where you’re at some of the

Erwin 1:15:01
I’d also add to that I think people need to look at their numbers, what they look like 10 years from now. 510 years from now? Yeah. Because because the rent control, we can’t raise the rents while our expenses just get higher.

Glen 1:15:13
Yes, unless you do a Cash for Keys and their switch account,

Erwin 1:15:17
how do you maintain any cash flow? If you’re doing Cash for Keys every, what? Five years? Here’s 510 12 grand I want you how much did cash but afford that you probably shouldn’t be getting rid of them.

Glen 1:15:30
Yeah, the whenever I see that I usually the times it makes sense is if it’s a five plus, like commercial finance property of five plus units. And because then you can, you know, it’ll improve the net operating income, apply it to a nice low cap rate in Ontario, and you’ll get your money more than your money where if you give them five or $10,000, to leave, and then you, you move the value of the house, the building by 75 grand and you do the refinances every five years did, you know then have money to pay everyone to leave and start over again. But it does. It can make sense. But it can’t make sense. It’s

Erwin 1:16:03
it’s finding a 456 Plex that makes sense with a reasonable cap rate, like it’s Republican like three, four. Right? Yeah. And then yeah, so you’re not making any money?

Glen 1:16:15
Well, it was it was easier to make it make sense when the interest rates are lower, and make the difference, right? Between the cap rate and the integer interest rate. But now with the high interest rates, it’s, everything’s getting tougher. I mean, same thing happen to the US. When I want to sell houses, it’s tougher for people to buy them, right, because they can’t qualify for that much, that much payments every month, right? You want to sell a place in Florida, you’re gonna sit a little bit longer, because no one can afford those payments on it, right? Same thing you want to refinance, same thing, it’s, everything’s a little tougher now. Both countries everywhere. Because

Erwin 1:16:53
I want I want to talk more about the properties now. Cuz you mentioned price points, like you’re getting in for like, 50 80,000. So these are these are like AAA houses, right? doctors and lawyers live in these things. Ya

Glen 1:17:05
know, they’re usually like, in the city, like there, that, you know, for that kind of price there. We buy all different kinds, right, I’ll still buy a $400,000 house. But it’s easiest. You want to make your numbers work, it’s a lot easier on cheap stuff, right? Your ROI guys are going to be really high, right? You’re going to deal with

Erwin 1:17:28
a lot better cash flow, your IRR tend to be higher, you

Glen 1:17:31
have a lot more tenant turnover typically to in those those areas you’re going to have you know, you better be more vacancy, more Repairs More all that stuff, right? Because it’s it’s a toss up, because a lot of people will skip that all that right. We skip that part of the the underwriting, they’re like, Oh, it’s just, you know, this, what the rent is, is how much it costs and just works for

Erwin 1:17:52
vacancy. Nothing ever goes wrong with renovations?

Glen 1:17:57
Yeah, so, ya know, yeah, different different price points. I don’t know, like we, what was the question earlier about the, what are these properties like? Um, so it depends, right? But the thing is, we’re buying these like the ARV is are like 151 60, right? Still sounds really cheap to Canadians. But those it’s still really cheap. But those are like, not as cheap as the there are houses that have a RVs of like, 50,000 if you fix them up. But those are going to be in the rough neighborhoods, what I would prefer to do is fine. Right? Yeah, yeah, see neighborhood or a C plus neighborhood. And then you can get get something that will like, you know, people want to be actually want to live there with their family, right? Maybe they’re in an apartment building, they want to move into a real house or something like that, where there’s, there’s, there’s an upside to move to it. And honestly, that’s one of the things I get, I just pop my head and way off topic. But I have a lot of students that do the class and then they go, I want to go buy all these houses in Cleveland or wherever. And I want to do duplex conversions and turn on the basements. And I’m always like, no, don’t do it. Because no one’s gonna rent it. And they go Why would no one rent it? Because I’m like, because they don’t have 0% vacancy. And is there any go if they want to

Erwin 1:19:16
choose to live in the basement unless they have to write that like if you grew up if you live if you’re like an adult living in your parents basement, like something you brag about?

Glen 1:19:27
They would rather live in like a house that’s, you know, 90s or 80s ish, right? It’s not hasn’t been updated, that rents for like, you know, 700 bucks 800 bucks a month, then pay $600 and live in a basement that’s properly renovated. Right so you’re just gonna have a lot of vacancy even though it’s beautiful and you know if it was an Ontario would be leased up in a second. That stuff doesn’t doesn’t fly.

Erwin 1:19:48
Right. Right. So yeah, people didn’t understand the markets, right? Oh, yeah.

Glen 1:19:52
Yeah. What because in places that will work where there’s a you know, low vacancy, you want to go to California, which I would never recommend but you know it’ll have like a more similar market to Ontario and that might fly there I would say it would probably could fly in Florida except there’s no basements right so it’s in most places there’s no basement so won’t really fly you could maybe it has to be expensive enough for it to make sense. You want to go into New York or something like you know, New York New York probably make that work there. It has to be expensive enough for it to make sense to people to go down there.

Erwin 1:20:25
No, it doesn’t make sense like like no like retail for our basement is like $160,000 retail Canadian dollars for for basement conversion here. Let’s fucking that’s a really good sized downpayment for something but states or maybe two

Glen 1:20:36
years the prices are way different in the US I’m full, full rehabs the houses for like 60 grand like I’m talking for, like new siding, new plumbing, electrical H fac, new drywall, the whole thing, right new roof. It prices are way cheaper. So I don’t and that’s the hard part too is even when I’m working with people who are contractors or home inspectors in Ontario, when they go down there. They just they’re like none of this works. And you’re like, prices, everything prices are way different, right? Minimum wage is way different than

Erwin 1:21:13
how many like what some what can you give me some minimum wages in in areas you operate? I

Glen 1:21:18
think I think minimum wage in Ohio is now 825 or something like that. Yeah, yeah. So it then you go, Well, I’m not You’re not hiring those people. Right? But it trickles through the whole system. Right. But you go, but you know, hey, we’re gonna do a clean out you’re gonna if the contractor is good, the whole bunch of college students that just need something on the weekend, and they’ll go and fill dumpsters right for about an hour. Right? Which she’d never find someone to do that in Ontario. Right. I’m

Erwin 1:21:48
in trouble against one for 25 an hour. Yeah,

Glen 1:21:50
it’s it’s hard work. Yeah. So it, it just trickles down. It’s it is cheaper to do that. I want to get my ensuite and my house here and outside of Waterloo. renovated and I was blown away by the cost. I was like, what? Like, what? Because I think they wanted like 60,000 for the bathroom radio for what I want. And I was like, no, no, no fun. I’m like, here’s all the materials. I’m like, I picked it on the low side, like, this is what I want in there. And they’re like, oh, yeah, I’m like, how does it cost so much installment?

Erwin 1:22:20
And, like, I want listeners to understand like that hurts and economy when when when labor is expensive.

Glen 1:22:25
Well, there’s also not enough trades, right? So if there’s not enough trade, the economy pushes the prices up, because they they can charge that Right?

Erwin 1:22:34
Which just means inflation, housing inflation, specifically, because we’re talking about housing, renovations and costs and replacement costs. Yeah. Now, I want to ask about properties, do you? What properties do you sell versus keep?

Glen 1:22:53
Ah, it’s gonna come down. So typically when I’m working, so I’m doing this as a joint venture. So excuse me, I’m doing this as a joint venture. Ideally, the first joint venture I do as a flip almost every time because you don’t know what they’re like. You’re already working. Right? If you’re if

Erwin 1:23:14
you want to be married long term to your JV. Some people, Jason case.

Glen 1:23:19
So armies Yeah, no are amazing. And some of them you realize that this is going to shave years off my life. And some of them it isn’t amazing. And it might not be that not that maybe it just doesn’t work out between the two years some maybe your two alphas and they need to control more. You never it’s always different things. But yeah, no, I usually will do a foot first. What was the original question, I

Erwin 1:23:43
guess to write these probably decide between the song song? Yeah. So typically,

Glen 1:23:47
first one is a flip. With a project. I usually run the numbers both ways. And well, it’s hard to have the conversation with sometimes it works better certain ways. Sometimes it’s my personal preference, like I want to do with flip because I need some money for whatever else, right? I’m doing other projects, and I need to anticipating buying an apartment building in six months. So I’m going to like do some flips because I need to fund it. And I honestly, I m&s my own projects as well, like it’s good alignment of interest, right to put your own money and as well as not just raising the money. So I’m going to make it work both ways. Sometimes it’s going to be you’ve, you’ve done seller financing, you have to do a long term hold, right? You just that’s the only way it works. If you refinance, you don’t have that good financing anymore. So it doesn’t make any sense, right? You know, same with a subject to you got to be ready to be doing a hole, right, and the longer the better, right. So sometimes the strategy is going to dictate it. Sometimes it’s the market is going to dictate it if you’re looking at the projections, and you think that this because you can look there’s a Google App and you’re like some of markets, I work and they anticipate a 3% Negative 3% appreciation rate in 2020 for some markets they’re saying 7% appreciation rate. So I don’t build my stuff. Any my numbers not appreciation is not in my calculator, but I need to know where I’m at. I don’t want to be going into something that’s going to lose it it just doesn’t make any sense right. So those might be the market to flip in some of the stronger markets like the Huntsville Alabama they’re anticipating, like that’s the 7% appreciation this next year when a lot of the US is saying negative. But they don’t really notice it’s all gonna change changes one second as soon as they change the interest rates. Everything changes so but anyway, I’m you do your best to know and be ahead of stuff, you know what companies are coming in. You know, so for instance, if you wanted to invest in Columbus, Ohio, the Intel plant is being built there. It’s like billions of dollars or they’re sinking in their high paid trades coming in from all over the world, high paid people to build these chips. So it just gonna be good jobs good. It’s gonna good go out there. It depends on the market. Right? What you’re gonna do. And in Florida, I only flip, right? So I don’t have any rentals in Florida. And people go, why not? And I go, Well, it’s cuz rent to value ratios, right? So on, like, say, $100,000 house in Ohio, I could rent that for like, 12 $1,300 a month, right? But $400,000 place in Florida, it’s not going to rent for like five or $6,000 a month, it’s not going to be above the 1% rule. It’s gonna be below, right. So you’re going to have the 400,000 I would place the rents for 2500 a month, right? So if I’m going to leave my money or leave some equity or whatever in the property, I want to make it in the market where I’m going to make you know make the most Yeah, most cash flow right. So I still want to be in all the different markets people go Why do you flip there because it’s incredible. Like flipping Florida is incredible. It’s a market that there’s it’s hungry, it moves fast. It gets appreciation. It’s exciting, right? It’s easy to get investors to new Florida. Can people are in certain Florida, people think they know understand Florida? Right? You still have to explain it to investors,

Erwin 1:27:05
but I’ve been there before, versus many people have not been there parts of America. If

Glen 1:27:09
you say I have this amazing project in Cleveland, they go. Okay, tell me about Cleveland. What? Why Cleveland? Why would

Erwin 1:27:15
wanderings already left? It’s over.

Glen 1:27:18
Indianapolis, they’re like, where is Indianapolis? Right. So it seems like so it depends on on the market ends on the area. But it also depends on what the strategy is right now, like so sometimes I’ll like, right now we’re doing probably 5050 birds and flips for the single family stuff. But the before we were doing 7030 On the flip, so we’re doing a lot of flips last year, right. And it was just we were taking money from flips, and we were investing in long term holds, right? We weren’t taking original money and putting it into long term hold through taking profit and putting in the long term holds. And so that way, the investor always had all their money back. Right? Which if you can do that strategy, they will have a lineup of people wanting to invest with you. If you’re taking a lot of money and holding it in projects. It’s harder to raise the money because they people want their money back. Yeah.

Erwin 1:28:16
We’re running out of time.

Unknown Speaker 1:28:17
I talk to you all day.

Erwin 1:28:19
I can listen all day because I’m learning. I have like 12345 pages of notes. Glenn, you have a workshop coming up or tours you want to call it? This is a tour that’s going on in Florida.

Glen 1:28:32
Yeah, so we’re we’re planning it’s still in the planning process. We’re probably thinking early February. We haven’t put a firm date to it. But I’m in Costa Rica for the last half of January, so won’t be then. But or probably early February. We’re going to do a property tour. I think we’re going to start in Brevard County, Florida like Cape Canaveral area. I want to see like a single family flip a single family short term rental a single family burger. I want to see a commercial Plaza maybe a 20 or 40 unit apartment building try and get a mix of everything. And I have some speakers to actually educate through the whole thing instead of just looking at properties and I was also having firm this up but I think I’m getting a bus and I’m driving the hour and a half up the coast to Jacksonville and doing like one day in Jacksonville one day and Palm Coast because they’re different ones like a see a massive city and the other is like a beach town. Right so it’ll have a different feel different numbers. And some people are going to be more attracted to the beach town because of you know, personal part to it. More people are just I want the apartment building in Jacksonville, sir. Well, let’s start organizing that but yeah.

Erwin 1:29:44
Yeah, amazing. And then you have a podcast I understand.

Glen 1:29:48
Yeah, I actually have to but um, yeah, so I have a Canadian investing in the US which is the most popular podcast and I also have the podcast advanced real estate investing talk, which is just me are and Darcy wants a syndicator. One’s more into like, small Maltese and mobile home parks. And when we started this, I was all of a single family guy or one to four units. And now I’m doing the big stuff too. But um, we just have a different perspective, we just do a talk show kind of thing. We had bring up a topic, we all have a different idea on it. And we look at things differently completely differently. So that’s kind of, yeah, and

Erwin 1:30:22
where can people find these? For more information on the Florida tour on the podcast,

Glen 1:30:29
I haven’t put it in website I’ll probably make something like Glenn southern.com/property tour has doesn’t exist yet. But maybe I’ll make that today and put something coming soon or whatever. Or you just email me Glenn at Glenn sutherland.com. One and Glenn. I’m not the double n. And then I’ll just email you or jumped on my my list because I’ll probably blast it out. My list is on the website for Glenn zone.com. But I’m not a big list builder. So if you’re just as good just email me, whichever works.

Erwin 1:31:00
Glenn, thanks so much for doing this. Thanks for educating me and or something listeners.

Glen 1:31:05
I’m sure you got a lot more than 70. Thanks, everyone, for coming on the show. This is fun. Thanks, man.

Erwin 1:31:12
Thank you for watching. If you want to learn how to invest in real estate from scratch, my team teaches beginners how to use the number one investment strategy that I personally use in a virtual free training class every month. Go to investor training.ca/youtube. To register for next class. That link is also in the description as well. I publish at least two to three videos a week here. So subscribe if you want to keep learning from seasoned investors like myself, my guess? And if you’re just starting out, feel free to ask questions and comment below. And I’ll do my best to answer each of those comments and questions myself. Again, if you’re ready to learn the nitty gritty about real estate investing from a professional investor register for our next virtual class at that investor training.ca/youtube Thanks again for watching. See you in the next video.

 

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/kfwFTH5w-aI

 

** Transcript Auto-Generated**

Erwin 0:00
This guest has experienced growing and managing a portfolio of 20,000 apartment units while serving as executive director of investments at Canada’s largest apartment building owner. For context, I think everyone considers Grant Cardone an expert in multifamily in the multifamily space, which he deserves, and he manages he manages 12,000 apartment units. Here, our guest today has 20,000 apartment units under his belt. Dimitris areas of focus, though is not socialist Canada, but rather the landlord friendly states of the USA. He’s from Toronto, but his new his next investment will be hundreds of miles south of Canada. And Dimitri is gonna explain why and what markets and property types he’s targeted. You want to pay attention and take notes as I don’t know if there’s any easier way to build a portfolio that will cashflow six figures, as that is my plan. All this and more on this week’s Truth about real estate investing show for Canadians. I’m Ron zero your host. I’ve been in real estate investors since 2005. Four time award winning realtor and coach to investors since 2010. I’ve owned over 40 properties my team and I have transacted on over $414 million worth of income properties. Three interactive past clients, including 45 self made real estate millionaires. It is my desire to bring zero cost truths about how to successfully invest in real estate to mom and pop investors pull no punches. There are no get rich quick schemes, none that are successful without excessive risk. This is about what can you investors are doing, what mistakes are made, what tips and tricks they have implemented, so they may so we all listeners all 17 listeners at all may leverage from their experiences. Happy New Year, everyone. That was a mouthful. Happy New Year everyone. As we step into this fresh chapter of 2024 is not just the calendar that’s seeing in the beginning. This time of year is especially important to me as my daughter celebrated her 10th birthday on January 1. So so on New Year’s Eve, I don’t come anywhere close to midnight, because I need to get up early. I need to buy strength the next day. Because we need to celebrate, as it was, as January 1 is to special occasions decided to try a new recipe. crispy skin roasted pork. And that’s what we Chinese do. That’s what we do celebrate special occasions, including the years it was delicious. Yes, we could have bought the same thing at a restaurant but I tend to use higher quality ingredients and what restaurants do. And but cheap agent me loves to take cheap cuts of meat and make them taste like one of the best things ever you’ve ever seen. Speak speaking and delicious, I set some ambitious goals. Consider it delicious. As part of my New Year’s resolution. Over the next two to three years, I’ve determined that I’m going to transform my real estate portfolio that is entirely here in Ontario. It’s appreciated wonderfully, thanks to lots of cheap debt and immigration and NIMBYs that restrict supply. But it is a pain in the butt to manage. And I prefer something a bit more passive with an aim to generate cash flow again of over $100,000 per year. Which is something next to impossible to do in Canada without you know, heavy heavy dash cash down payments, which I don’t want to do. It’s a it’s a journey I’ve been through and I thought we’ve thoughtfully planned through this and I’m eager to share how we’re gonna get to that $100,000 piece of financial, financial peace and freedom. That’s my goal. And I think it’s a very reasonable goal for everyone to have. And even if it’s not your goal, you can make it 50,000 You can make it 10,000 A year you can make it $200,000 A year you make a million dollars cash flow year. Again scale to your liking for myself on your start with $100,000 in cash flow per year. The first phase has nearly kicked off, which is the listing for sale of my three stun rentals near Brock and McMaster University’s I was just chatting with my clients one of my clients informed me that they heard a friend of theirs rented their property a six bedroom house for $850 per room plus utilities. Oh wow. Is the markets nuts supply is short for rentals. For my own properties the final touches are being added the repairs are almost complete. I should have started the repairs are complete No no, the repairs are almost complete. The cleaning photography teams are done. And by the time this episode airs, these properties will be listed for sale. And again absolutely absolutely time these properties to hit the market at the peak of student rental demand from pulling my clients were students there again like I mentioned there is very little supply out there which is great for great news for myself, as there are a moment For some savvy investor parents out there who want to make that financial correct decision, in my opinion, to own a student rental versus paying your rent, again, it’s 850 bucks rent per month that seems to be the going market for foreign okay, how is somebody I’m understanding, it’s a pretty decision when the kids friends will pay that pay the rent will pay rent, and that will tends to cover the mortgage. And I said prices of housing tend to rise. I’m personally bullish on on the entire real estate market specifically houses, not condos, condo markets quite soft right now. And we’re going to be competing continue to be soft until the market, the buyer market works through all of those, the excessive number of pre construction condos that are built available for assignment. Anyways, so I’m going to closely observe the market this year 20 in 2024, and next and at the market gets back to peak, you better believe I’m gonna sell off the remainder of my income properties, which are mostly duplexes in Hamilton and reinvest my capital in a market that welcomes investors. The next type to my journey, which I’ll start likely in q1 of this year, is it will take me over to the US border of course, I’ve set my sights on acquiring where I’ve set my sights on inquiring income property, I’ve already found a property had it actually underwritten by share. It is a detached house built post 2000 nearly 800 1800 square feet with four bedrooms, two bathrooms and a two car garage. Now think about that. What does that cost in your own neighborhood. The location is super convenient between a new Walmart Supercenter brand new Starbucks less than 12 month old Starbucks in a Samsung and microchip manufacturing plant set to employ 2000 people. So this word is property is located is just outside Austin, Texas, Austin being the state capital of Texas. Possible and the best places to invest in America from my from my research interests. So a property I’m looking at is in Taylor, Texas population just over 16,000. And they’re going to game to the mall, they have to gain 2000 people roughly, because that’s how many new employees the Samsung plant will get. So that’s an increase of well over 10%. And hopefully there’ll be fighting over my property, assuming I own it. Anyways. As I was trying to claim to mine, I could do all the due diligence in the world. And it would still amount to a drop in the bucket compared to what Walmart and Starbucks has already done. They’ve done they’ve already done the heavy lifting in terms of research and do diligence, in my opinion, and with an asking price of only 325,300 25,000 for an 1800 square foot detached home. And this is a seller’s market. So I expect I can get the property for less money, then, of course, naturally you weren’t, you’re wondering what the what the expected rents would be the forecast is 2100 per month plus utilities. So that is about an 8% gross rent yield. And if you are an investor, you know if you can find something that’s 8% gross rent yield, you should be digging into it further. Note that this is the appreciation play that I intend for my portfolio. For much better cash flow. I’m planning a trip to Tennessee for my next property. Property after after Texas. In today’s guests, Dimitri will explain why in the interview. As my friends in in clients can tell, I am super excited about real estate investing again. All you veteran Canadian landlords know you can appreciate what we all have been been through again, I’ve been in landlords for almost two decades, Holy Hannah.

Again, as I mentioned, shares are underwritten this property for me. And my plan is to let them handle the investment. I like my investments boring. I think we get enough excitement and satisfaction out of helping clients build successful portfolios. So I don’t need to do anything exciting, like flipping or developing. That’s just not for my risk appetite. I asked as in I despise risk. Hence, I’m Phil yet by Power team with an institutional grade asset manager. I’ll let Dimitri our guest today explain what the differences between the property manager and an asset manager since he actually works for one and has been working one for for over a decade. So stay tuned as I embark on this exciting chapter. onto this week’s show. Dimitri Borstein is CIO and co founder of share was formerly the executive director of investments at Starlight us real estate residential, with a direct involvement in over $7 billion of us residential real estate transactions. He is a seasoned institutional investor with experience in all aspects of real estate. For me he’s passionate about about just like I am about leveling the playing field for retail investors in the competitive landscape of us single family rentals, because for those who don’t know, the institutional investors are already gobbling up the same properties that that I’m looking at. And so if you enjoy this presentation, if you sorry if you enjoyed this interview if you enjoyed last week’s interview, which many people have the messaging that we did, with last week was Carmen with the CFO of share today as a co Chief Investment Officer, Dimitri, they will both be speaking at our us investing workshop this Saturday, January 13. Our guest speakers include Andrew, the CEO, Carmen last week, this week, we have Dimitri. So we have, again, a lot of heavy hitters, we have the owner of lens city, Scott Dillingham, the only investor focused market mortgage broker I know of who can offer us commercial style mortgages to Canadians for income properties. Not that commercial lending is better than residential mortgages, the property and the cash flow is what the lender focuses on. So it’s way easier to qualify, especially for those of you who have lots of corporations or self employed, it is way easier to qualify for a commercial property or commercial mortgage than it is a residential loan. Also, in theory, one can have unlimited mortgages. I’m your host of the event, and we will be teaching indirect investments, as in the owner owns 100% of the property investor owns 100% of the property. That is the definition of a direct investment, no shares, no jumper, no joint venture partnerships, no private lending, none of that little back and fashioned income property ownership in line with how my clients the number of 350 plus, and I invest in real estate. So the links are in the show notes. And We have indeed sold out the in person portion. Worse yet, my clients have been DMing me and texting me to asking if they can still come? Yes, you can. I saved you seats and owners row. For everyone else. Unfortunately, we do have plenty of seats available online. This is being broadcast, I presume we’re doing this as a hybrid event. So you do not want to miss this and also understand this is likely the last time we will do a live us workshop. As I mentioned, all of our guest speakers, they are very expensive, busy people. So that’s why this is last of all I talked last time we will do this live and in person. Alright, so and please enjoy the show.

Dimitri, what’s keeping you busy these days,

Speaker 1 12:34
everyone. Um, first and foremost, I’m very happy to be here, it’s really excited to be on your podcast. What’s keeping me busy these days, it’s work its share. It’s trying to, you know, build, build a platform for our clients that help them, help them compete with institutions when it comes to owning and buying real estate in the US.

Erwin 12:56
So that’s a mouthful. So I did ask you this question before we were recording, what advantages do the institutional investors have over the everyday Mom and Pop investor?

Speaker 1 13:11
I think first and foremost economies of scale, you know, buying power, you know, expense management, you know, a lot of those kind of allow them to operate things more efficiently operate their assets, you know, access to data to help, you know, formulate their decision making. Those would be really kind of at the forefront of what their advantages are. And, you know, having a team that, that you that does the investing for you, you know, whether it’s accounting, whether it’s, you know, market research, whether it’s underwriting, you know, there’s a lot that goes into, you know, buying a property investing and, you know, it’s it’s hard to do it yourself. And, you know, I kind of found that, even myself, when I was working in the institutional side of Indian suicide things, it’s still, you know, very time consuming and difficult to go do it on your own on the side.

Erwin 14:07
It is. And that’s probably the reason why I stayed out of the states because for forever, like, you know, I’ve been around real estate investors forever. And so I knew back in like 2008 Knology and really regret to say this, but even back in 2008 Like we everyone knew everyone that was in the community here investing in real estate here. All knew that there were landlord friendly states in the US, this is back and like, Oh 708 Yeah, and I’m kind of disappointed in do more something about it. But like I coach clients, I work with clients is realtor. So when I take clients out in the areas that I invest like St. Catharines, Hamilton, you know, I have I have a lot of access to information that they don’t so let’s say my client comes from like West Toronto, and we’re driving around Hamilton in the identify certain house and they say, oh, like what are the rents here? What the tenants like? Like okay, so my client owns a house just you know, for downs for four doors down or like the next street over. And this is what the tents are like, this is the rents, right? This rent looks like this was renovation budget, right? I have a lot of personal experience to give to them. And I’ll even set my own properties like four streets over. And like, so this is my tenants, this is the market rents, right? And a lot of that information is not available, because you can’t go on to GG and find historical rents and things like that. They won’t tell you anything about like, what the tenant profiles are like, and sorts of things like that. Now, you having the experience of working in an operation with 20,000 units have access to all sorts of different operational live information.

Speaker 1 15:40
Yeah, no, for sure. I mean, you know, if you’re trying to get an answer, about, you know, these questions that you posed, like, what are the tenants? What are the rents? You know, what kind of challenges could there be in this specific location, there is no better information than owning something nearby. Right, having, you know, your own financials or your own insights into that location and knowing, you know, what’s, you know, in the apartment world was, what was the traffic? You know, how’s the leasing? What’s your rent growth? What are your renewal growth, I think that’s always going to be even better than, you know, third party research that are calling around to try to get this information. And that’s, you know, part of, you know, part of how we want to have it at share as well, right, you know, we don’t have that skill, but we work with third party managers on the ground, that a lot of times do, right, so they are already managing for other clients. So they have that level of insight that, you know, help us you know, streamline our decision making and make us you know, more more informed when it comes to, you know, zeroing in on certain neighborhoods, and zip codes, etc.

Erwin 16:53
So, my local property managers are often small shop, often it can be one individual, in any sort of any sort of, like, significant work that needs to be done, they have to go third party, they have to go, you know, I know, I have a fence guy, I have a plumber, I have a concrete guy. Right? My point is, they don’t have anyone on staff. Like my, my bigger my, one of my property managers I use, it’s a little bit bigger. I think there’s four full time people within the company. What’s it like, in America? What is the scale of a property manager? In a target city that you invest in? Yes,

Speaker 1 17:31
so slightly different, I mean, slightly different. Yes. The reason I say that is because during the wrong there’s a lot of, you know, smaller Mom and Pop type managers, especially, you know, in the single family rental space, they’re the type of shops that, you know, we’ll look to kind of manage for an investor that owns one unit, maybe two units, etc. Right, very similar to, you know, what you just described, but then there’s the whole other side of things, which is, you know, the institutional manager. Now, these, you know, some of them will have 1000s, if not 10s of 1000s of units under management, you know, have, you know, significant economies of scale and specific markets, they, you know, some have been around for a good amount of time, some are more recent, kind of driven by the, all the innovation and tech. And they don’t, it’s not really worth that in their time and for for their business model to, you know, onboard one off investors. So their growth is, you know, with all the institutions with all the, you know, private equity shops, all these larger investors that are going in and buying in bulk, you know, that’s who they want to be managing for, they have, you know, the accounting capability. They have all the, you know, renovation maintenance team, you know, they have sometimes even GCS and how sometimes, you know, they just use ones in the market, which, again, they have good relationships with, and, and power over, just given their scale. And those types of firms, they want to, you know, they want you to have scale, right, so, what, what we’re doing and share is, we’re actually able to work with those institutional managers, because to them, they have share as the client, you know, they report into share, and we are the ones that are then, you know, really breaking it down to the individual owner, through our platform, right. And again, through that we do get economies of scale, you know, will will pay less in property management fees than you you would if you try to go to a local smaller mom and pop shop, but also, again, work with groups that you know, have more knowledge, better capability and are able to execute things more efficiently and these contracts are not very sticky. You know, a lot of times they will have outs so there is incentive from that pm side to make sure they’re, you know, they’re not forgetting about that. A property’s under shares management because, you know, there’s, there are alternatives. And you know, that’s why the third party model, I think works, works really great. Right?

Erwin 20:07
So as an outsider observing and researching the US market, what I noticed is that it seems like property managers are like fighting for your business, like you are, you are in demand as the customer, if you’re big enough, if you’re big enough,

Speaker 1 20:21
yeah. Ya know, for sure, I mean, both, you know, in the single family space, and, you know, across the other asset classes in real estate in the US, yeah, it’s a very competitive landscape. And it’s great for your, for your ability to manage expenses, because as as you grow bigger, you know, you have power on on lowering costs, right.

Erwin 20:42
So so you as the investor or as the real estate owner, you have power in that relationship. Yeah. Versus here. Property Managers can be picky on what properties and what clients they take on. Because that’s the market is just different. Because they there’s not many options for property managers, like I was just having. I was just golfing with Andrew Hines, for example. And he used to be heavily in London, Ontario, London, Ontario. And I was joking with him, like, I went to school in London. So I’ve been following London market forever. So that was a long time ago. So for 20 years, there has been no dominant property manager in London, Ontario, for example, that’s a big city for Ontario. Yeah, I call it Big City for Ontario. And there’s nothing for someone who travels regularly to the US. So, yeah, let’s get into it. So. So you were executive director, I start like investments. You’re, I don’t know what how you describe it, but you’re managing the portfolio I

Speaker 1 21:43
was working on for the Talon, they’re more focused on the investments, so sourcing, anything from sourcing opportunities to, you know, closing it. But throughout the time, I did have, you know, times I was spending with asset managing properties, and kind of involved in the operations of the assets as well.

Erwin 22:02
And then disposition to do much disposition, like you’re selling. So we

Speaker 1 22:07
definitely had dispositions along the way. I mean, you know, sometimes it would be m&a type transactions, where you’re selling mergers and acquisitions. Yeah, sorry, sorry, mergers and acquisitions. of selling kind of a portfolio or a full fund, but definitely one up disposition as well. And that would be kind of under my my realm as well. Right.

Erwin 22:24
So I know, from my own ignorance, I wasn’t actually really familiar with an asset manager does. Can you describe the difference between an asset manager and a property manager?

Speaker 1 22:33
Yeah, I mean, in a nutshell, the, you know, the property manager, they deal with, you know, the day to day operations of the property, right. They, you know, they’ll, they’ll handle the leasing, they’ll handle, you know, the repairs and maintenance. And, you know, their, their business model is, you know, try to keep their client happy, spend as little time as possible on, you know, their own costs and payroll to, you know, to manage these homes, from an asset manager point, well, you’re focused on is performance of the portfolio of, or of a specific property. And you’re focused on, you know, how do I maximize return? You know, how, you know, what are the decision making that needs to kind of go into in these critical times, and, you know, really analyzing those and, you know, coming to a conclusion that could be anything from Is now the right time to refi? You know, or what is your financing strategy? What kind of mortgage? Know what kind of term? What sort of flexibility options, but then also, you know, should I renovate to a high standard today? Right? Should I, you know, a lot of times you’re buying a home, there’s often opportunity to upgrade the kitchen, put in quartz countertops, and the backsplash and now the gooseneck faucet, but are you going to get paid for it? Is there going to be a return on your investment? Or is there a cap in that sub market on the tenants would the tenant will be able to pay? So those are the type of strategic decision making because if they’re, if you’re not going to get paid on it right now that you’re better off deferring, you know, that upgrade program until a later date. Right? So those are really a decision are like focusing on growth and liquidity and the overall returns of your investment. So

Erwin 24:23
I think most investors can appreciate what that what you just described, because most most investors if as long as we’re not in London, Ontario, they hire a property manager to take care of the property of the day. Their job is to do what you just described. And now you are part of a larger team, where you’re not. Yeah. And how big was the team that just that was just focused on how many people were on like your team.

Speaker 1 24:48
I mean, we would have had around seven people on the investments probably a bit over around 10. Again, it fluctuates because we grew fairly rapidly during my time when I was at Starlight, but I mean the company as a whole right now including everything kind of in Canada being the largest landlord. I think there are over four not 500 employees,

Erwin 25:09
but the largest landlord in Ontario, Ontario in

Unknown Speaker 25:11
Canada. Yep. Yeah.

Erwin 25:15
Surprise You guys are under the news more. Don’t know if you read the McLean’s article from from the December, Starlight was mentioned in there

Unknown Speaker 25:28
it’s a tough, tough business, tough business, but

Erwin 25:34
it’s just you have exposure to that, like I don’t know what you can share. But like, tenant, tenant unrest is significant in Canada. Like we’ve I’ve never seen it this bad before like to live in Queens article, for example. There’s hundreds of tenants, her rent striking in downtown Toronto. Yeah, right. Have you ever seen anything like that? In the USA? No.

Speaker 1 25:54
I mean, definitely not in the markets, you know, we were investing or, you know, where we’re focused, even right now. I gotten there’s a lot to be said about landlord, landlord friendly laws. But obviously, you know, that that tenant feedback is coming from, you know, an overall state where, you know, they have, they have things that they’re unhappy about, right, whether that’s affordability, kind of really driving it. And, you know, I think it’s there’s a lot to be said on why that’s an issue and you know, what can be what, what can be done about it? And you know, who’s really at fault when you understand I getting this

Erwin 26:34
on this show? I got? I think I 17 listeners know, I’m

Speaker 1 26:38
tapping out. I don’t want to be involved in these issues anymore. Exactly. But I think you know, those, but I

Erwin 26:43
think the better. Let me reframe the question is, in the areas that you target for investment in the US, what would happen if the tenant decided to rent strike?

Speaker 1 26:51
I mean, he would file an eviction and, you know, probably within anywhere from 30 to 60 days, you would regain possession of the premises and go back to releasing and, you know, a lot of the times, sorry,

Erwin 27:05
so here in Canada, for example, like we launch on a process, yeah. Eventually we get the sheriff to actually like, you know, let the tenant know, you need to move out and change, we’re changing the locks. What’s the process? Like? Because, say, because I know, I’m gonna be remote investor. Yeah, I’m not gonna be physically removing anyone. Yep. So what is

Speaker 1 27:25
Yeah, so our property management kind of handled that, and we would oversee it, but basically, you know, if a tenant stops paying rent, you kind of give them notice and file an eviction. And usually, you know, you’ll get your court hearing. And again, all of this will take anywhere from 30 to 60 days, 60 days, until especially a court order for, you know, for the Sheriff’s to come and, you know, clear out, you know, clear out your rental property and you getting back possession, kind of release it to a better paying tenant and try to pursue, you know, the uncollected amounts and damages from the evict a tenant. Now,

Erwin 28:05
again, I’m pretty ignorant on this. My understanding is that in the US, generally, they don’t like here in Ontario, for example, and if we please BC, as well, we have a separate almost legal system students have to residential tenancy. Like, it’s not the same in the States. Is it not like when you said like, you go to court or did a court order? Let’s regular court?

Speaker 1 28:26
I think it will vary a bit by by jurisdiction in the market. But yeah, I mean, there’s obviously a specific system for how you, you go about the process, but it’s, it’s definitely not like it is in Canada in terms of how long it takes and how backed up it is and the, the favorable terms that tenants get, even though they’re not, they’re not paying rent and are squatting for lack of a better word.

Erwin 28:56
It is a, like, I come from a bank, like, when I worked at IBM for seven years, I was the the business I worked in was, we were in risk management software. And, you know, and I don’t know, it’s just natural in my nature, I see risk everywhere. So, you know, I’m coming from Yeah, you stack and Ontario rental property, against the stuff that you’re targeting in the sunbelt states or even like Ohio, for example. Yeah. It’s, the risks are completely different.

Speaker 1 29:29
Yeah, it’s, it’s, I get, I think, what what you’ve seen over even the last, you know, 1824 months during this high interest rate environment is the resiliency of the asset class. Right, you again, compare it to other sectors of real estate or even performance of, you know, other large companies. Again, the resiliency has been at the forefront. And, again, it’s driven by, you know, driven by the strong fundamentals in the space

Erwin 30:00
Okay, I don’t even know where to go. So again, I had to congratulate you on your English, because from your bio that you sent to me, you came to Canada 10 years old. Can you talk to that? I know, this wasn’t an authorized question. Do you know why your family decided to move?

Speaker 1 30:22
Yeah, I mean, and in short, I think it was just more opportunity and the stability that a country like Canada offers. You know, for my parents, I’ve talked to my dad, who kind of was the driving force behind the decision about it, but, you know, a kind of the end of the Soviet Union. And then the fall of the Soviet Union, you know, in the turbulence and the uncertainties that you had, you know, kind of drove drove them to Canada, I think they visited a friend kind of in the in the early 90s. And, despite it being a massive snowstorm decided that it’s, it’s a good place to kind of relocate, and, you know, for having two young boys again, you know, Russia does have military service to a certain degree. So I think that stability is what drove the decision making

Erwin 31:13
instabilities. Like, yeah, like, basically invading, you’re leaving a country whose economy and currency is failing? Yeah.

Speaker 1 31:26
It’s hard. It’s hard to really kind of understand it, because Thank you, you’re never Well, young. And also, thankfully, we haven’t faced that here. So most people have, yeah.

Erwin 31:38
Are your good friend of mine. He’s been he’s, he, he lived in Moscow for quite some time. He’s been older than me. He’s Russian. Obviously. He’s been through two economy, economic and currency collapses. So like, who better to ask like, how do you survive these things? Because it’s pretty well documented how much debt we have in Canada. We’re pretty bad. We’re pretty bad. And his his advice was his experience. Sorry, was real estate gold, and earn money in US dollars? Yeah. And so I, you know, he’s not my dad. But you know, my point is that I kind of live by these things now. Right. And I think it’s rational for every Canadian listening to this is that it makes less sense to have some US dollars in your life. I couldn’t agree more, including US assets and all sorts of things. Yeah. Now, you went to business school in McGill, a superclean in exchange in Singapore. Now you intern in accounting? Do you have your CPA?

Speaker 1 32:35
No, I didn’t. I mean, I was an undergrad, I was considering kind of going down the accounting route. So that a few summers working in at a CPA shop and, you know, large consumer good company and then a kind of reporting division, or realize that’s not necessarily what what made me made me excited. So I kind of pivoted more towards kind of pursuing a career in real estate.

Erwin 33:04
Now, okay, so I, I was talking about this before we started recording. So I talked to many new people to real estate. And often someone’s goal is I want to be full time real estate, you know, and I want to make six figures a year. And after I get to know them, like, they don’t have much background real estate, oftentimes, they don’t have any, any sort of business or finance or economics background. So the point is, it’s gonna be the learning curve is gonna be steep. And now they’re gonna go about going buy apartment buildings, with their own money. And even worse, like mom and dad’s credit and their money and stuff. Yeah. So often they’ll say to people, like, why not get a job that pays you six figures, maybe not right away, but get a job in industry for a developer or REIT, and then learn the ropes. So that is the path that

Speaker 1 33:53
Yeah, exactly. So I found that I kind of started off my career on the debt side.

Erwin 34:01
Again, you know, to choose paying debt, so, yeah,

Speaker 1 34:04
so it was with a large Canadian private lender, CMOs financial, basically, in an underwriting capacity as an analyst, you know, helping, you know, put together the credit memos, the risk memos that get approved, you know, as you’re going through credit committee, you know, a real estate owners trying to get a mortgage, whether that’s on an acquisition or a refinancing. And I thought that was, you know, a really interesting way to start off my my career in real estate. Again, if on the debt side, you’re focused on what are the risks, and how are you mitigating them, right, you don’t get to share in the upside when things go well, so you really want to make sure you’re focused in on on the downside and the risks that you have no downside to your point earlier. You know, kind of wanting to you know, focus it on that seeing all the risks. You know, that’s something I always knew I wanted to have as well and you know, wanted to make sure, you know, you’re not just focused on the good, but you you’re cognizant of, you know, where hiccups can come and you know how to deal with them and have the foresight to, to kind of expect, expect things. But I always knew I did want to kind of transition to the buy side of real estate kind of in, you know, whether it’s real estate, private equity, or working out or REITs. So when an opportunity came to kind of join this new newly formed division of starlight focused on the US, I, I took, you know, I took my chance, and it worked out, I had a great, great time there and got to be part of a shop that was a rapidly expanding, very transaction oriented, super fast paced environment that keeps you keeps you on your toes. So, so yeah, and I think, to your point, it’s, you’re right, I think, you know, the the learnings you get a, the access to mentorship, right? You know, people that were running both CMOs and starlight, like, they’re industry veterans, they, you know, some have actually gone through downturns. And I’ve seen, you know, have seen things that, you know, me coming out of university and, you know, early 2010s, like, I didn’t have that, right. So, to a certain degree, you are learning from who you’re working with, from people from people’s experiences, and helping kind of formulate your own views and, and ideas about how, you know, both from a managerial style, but also from an investing style.

Erwin 36:36
Something, I warned you, I could tend to go off script, Corporal like this, I’m just teasing. Because when I was on a call with you to determine my own buying preferences, like, again, thank you for that. I thought it was awesome. And I cannot believe you don’t charge for it. I think I think so many people would benefit, especially people that are looking at deals locally. Like for example, I hear I hear Canadian investors, like BC, Ontario, they’re going to like New Brunswick and buying apartment buildings. I’m like, What is even the population in New Brunswick? It’s very small, are sorry to offend anyone? Or they’re going to like a city in northern Ontario I’ve never heard of. Right. I think they think they’d benefit from at least asking you for baseline. So sorry, let me let me take a step back. Again, from a camera from a business go back background, I look for baselines everywhere. And that was part of schooling as well. And you went through it as well. Like, for example, like the cap M model, like we had to have a risk free rate. Yeah. Right. What is the risk free return? Right? And that’s your baseline? And then and then I’ve just gone from there is like, you know, what is my baseline and other investments? You know, so for example, in the stock world, everyone always says, you know, s&p 500 was the average return of this of the stock of the index. Now, if you can beat it, great, how much risk return all those sorts of things? Yeah. And no different real estate. I can make money in real estate, very safe and boring in these certain ways, GIC whatever private land, whatever. And I’ve always been looking for what I consider the most passive as possible was boring as possible real estate, but direct ownership? Yeah, because I went upside, right? Because that was my experience, the path to, to actually generating a significant wealth is through direct ownership of real estate. Right, meaning I own it, with not sharing with anyone else. Right, other than the bank and my wife. Right. And that’s what led me to share. That’s why I really enjoy what I see in terms of your investments and share, because I think this is now my baseline that everyone should at least consider look at, when comparing their own investments to it.

Speaker 1 38:48
You know, I mean, yeah, no, definitely. I mean, look, I, again, you describe it very well, I think that’s what really drew me to, you know, teaming up with Andrew and Carmen on UNbuilding share, you know, as I mentioned earlier, you know, doing it yourself is very, you know, very time consuming, there’s a lot of nuance in venturing out into the US, which is where I always kind of knew I’d want to do it if I was buying myself, you know, having a private so

Erwin 39:17
let me just pause you there, because I want to frame the question in that, like, you live in Toronto. Yeah, you’re very well versed and have access to more information resources, and anyone who’s ever been on the show on buying a property in Canada. But where’s your next income property going to be?

Speaker 1 39:34
Yeah, I mean, I would I would look to the US for sure. That’s always kind of been my my viewpoint, a owning primary residence already in Canada, exposed to the Canadian real estate markets. You know, big believer, like both, you know, Andrew and Carmen and a lot of people like in diversification, I think you want to have exposure to different markets, different drivers. So for For me would definitely be looking to kind of buy something in the US. And that’s been the challenge, right? I looking forward to 2024 to kind of to start doing it myself.

Erwin 40:10
And to give the listener context like Andrew and Carmen cashflow a lot more than more than 90% have written vows to investors I know. And then so again, like looking at baselines and also again, like looking at opportunity. Like, what I was telling investors is, like, for example, a new investor, I always tell him like, it’s good idea to have a look at 20 100 houses, go through 100 open houses, for example. And then once you’ve done that, you kind of understand what the top 20% looks like. So Carmen and Andrew, in terms of cashflow are easily in the top 20% of investors. I know. So I want to learn more. Right? That makes sense.

Speaker 1 40:48
Yeah, definitely. I mean, I’m learning I’m learning from them, as well, right? Because, you know, what they’ve experienced what they’ve, what they’ve done. Now, there’s a lot of learning between all of us on the team. But But ya know, I think kind of diversifying into the US is, is a great, you know, is a great path for for Canadians for a number of reasons. So

Erwin 41:10
when I asked you about like, what, what is going to be your next income property that you purchase? Because I think that’s a good question. I have been Yeah, it’s a question I’ve been talking to, like, several other investors, like, what’s your next income property going to be like? Because, because, because that tells me a lot of information about them, talking about the risk, their risk preferences. You know, like, for example, a friend of mine, he says, he’s gonna He’s gonna tear down houses locally, and build eight and 10, plexes? And who will sell them or keep them? Like, I like, That’s awesome, man. I couldn’t do that. I don’t personally, I don’t want any more long term rental tenants. Right. And also development is not the easiest, right? So what would what would? What would? What are your next three properties? For example, what would they be like? Because I want what for listeners benefit? I want them understand, like, give them more specific yet, hands on mental picture yet on what it is that you think is a good investment? Based on? Yeah, a lot of experience. Yes.

Speaker 1 42:06
Again, and then there’s personal preference that comes into it. So, you know, this, this will just kind of be be mine. But I think, you know, what I’m, what I’m trying it for myself is I want to you said I want to kind of get to a handful of properties. So I think you know, my target is really get get into three properties as quickly as possible. Just so again, you know, different markets, have some diversification, no single tenant exposure, etc, you know, from my risk, risk profile, you know, and kind of being my personal entry point, direct investment. I’m kind of, I want to start off with more of your, you know, your lower risk type properties. So, you know, I probably target something, you know, in Austin, something in Atlanta. And, and something in Columbus is where, where I’ve kind of earmarked for myself, I think it gives you kind of a good diversifications of what’s driving those markets and the general US economy. And I want to look for, you know, the properties that are probably 2000s or newer.

Erwin 43:13
They don’t as in the yearbook. Yeah, yeah. Yeah. So built after a

Speaker 1 43:17
year. Yeah, that’s probably like less than 20 years old, you know, don’t require a lot of work right now. You know, they’re located Good, good access to schools, you know, but still have that relative affordability. Compared to, you know, some other markets in the US, right, so we track a lot of different data points and metrics for our clients. And obviously, you know, I look at those myself, but I think between, like,

Erwin 43:47
deposited there, when you did you have access to, to several different sources of data, you have access to way more information than any retail investor out there. Yeah,

Speaker 1 44:00
no, that’s definitely the case. I mean, I think that’s, you know, part of what we offer as the asset manager for for our clients. But yeah, and as you know, as we look at that data, you know, you you see certain patterns, certain trends, and that helps, you know, helps you narrow down your focus. So, you know, to kind of wrap up what I was what I was saying before is, you know, that newer profile Lescott will work because I, you know, I think I’d want to try to time it for myself where the renovations and that upgrade, I’m going to try to line that up with when I want to do refinancing when the interest rate environment improves, right. So as I go to look to up finance, probably opportunities to do the renovation there and maximize your your rents because now there is some strong headwind when it comes to rank growth in the single family space in the years to come.

Erwin 44:54
Can you tell us talk a little bit about what is the economic environment in the air Is that you targeted for investment? Like right now? Where’s it going? Because, you know, because again, you have more access to more information than most people do. So when people ask me my opinion, like, again, it’s, again, each markets quite different, is very different than Austin, Texas,

Speaker 1 45:15
for sure. But that’s but that is why, you know, you want to build a portfolio, right? You know, you want to have access to both, because in certain years, you know, with certain job announcements, you never, you never really know, what might kind of have a short period of time with outsides growth. That’s why you diversify. So, you know, you you get exposure to the different drivers. In terms of what’s happening. I mean, it’s been obviously an interesting time for for real estate investments, you know, there’s no hiding, hiding behind the impact that the rising interest rates have had. I think, you know, the single family space has been super resilient. Um, you’ve seen kind of no prices hold firm, partly driven by, you know, people are locked into long term mortgages and 30. Year, yeah, 30 year, they’re not really looking to sell. So there’s lower inventory. And while you know, there is more capital on the sidelines, and probably, you know, less deals being done, then, you know, in the peaks of 21 and early 2022, you know, it’s the assets performed well, so, you know, that capital will return and, you know, as, you know, as the interest rates drop, as kind of, a lot of things kind of normalize, you know, they’re the general fundamentals aren’t going away, the, you know, how, like the discount of renting versus homeownership, you know, the job growth, the resilient economy and, you know, access to, like you said, the US dollar and US assets, which is always going to be a draw for, for for investors, both retail and institutional.

Erwin 46:56
So I can make geeking out on this stuff for quite a while, ever since I started my my real journey down this rabbit hole of us investing, just understanding trying to get a better understanding of the US economy. For those who don’t know, like, for example, the, like the USA is, is by far and away the number one economy in the world. Like, it’s a very big gap between them in Chinese. And I’m not as convinced China to overtake them. And I don’t, I don’t know, even if they do doesn’t matter. Like, it’s still gonna be a great place to invest. I think partly because of the financial crisis of Oh, 720 10. They’ve had their correction. So they end in I think it’s part of the I’m guessing as part of it, that they have way less debt than we do. Right. If for Canada, for example, in pure Polly bear has made it much more apparent in today’s conversation. If you add our federal and provincial debt in Canada, I think we’re like the third highest debt to GDP in like the world, at least among the developing countries, I’ll pull up the upload the graph, and I’ll share it another time. And then when you add our our consumer debt is among the highest in the world on a GDP basis. And at the same time, our GDP per capita is falling, we’re gonna fall to the bottom of the g7, probably within a few years. Right. So like, I’ve been there again, the same time the Americans like they’re investing, I think it’s like $7 trillion in bringing manufacturing back to America, like, and then. And then on the Canadian story, like, I think we having you have two major manufacturing stories, one in St. Thomas, one in Windsor. Right. So that’d be like, about 6000 8000 jobs can be the two of them. That’s a drop in the bucket compared to what the Americans are doing. Yeah,

Speaker 1 48:43
I mean, it’s a different scale of, of a market as well.

Erwin 48:47
So what are you seeing in terms of the difference between, like, start at the macro level? What’s the macro argument? Why do you want to invest in the US?

Speaker 1 48:55
I mean, I think, again, it’s the stability behind it. Right. Again, the US dollar is still the reserve currency. That isn’t changing anytime soon. But look, US also has high high debt level they do. Right, so they’re nowhere near ours. I think reserve currency too. So

Erwin 49:18
a lot of different things. 100%. But I

Speaker 1 49:21
do think, you know, spending needs to get under control, not just in Canada, but not not just in the US, but probably in a lot of places. And that will be for the good of our global economy. You know, to your point on China, again, China’s facing some negative demographic headwinds, right with an aging population. You know, we see what’s happening there real estate birth

Erwin 49:45
rates crater. Yeah,

Unknown Speaker 49:46
unemployment is high. Right. So

Erwin 49:49
the US because their birthday is actually very healthy. Yeah. And their unemployment is their employment is wonderful is quite good.

Speaker 1 49:55
Oh, yeah. 100 100%. So, you know, I think a lot of the As factors like, aren’t really challenging us as kind of the, you know, the number one economy. And, again, you know, when you look specifically to, you know, single family rentals, and, you know, there’s a lot of talk about, you know, different innovation different, you know, like aI taken away, so people aren’t gonna need a place to live, right, the beauty of residential real estate is, you know, you were going to need, you know, we’re going to need a roof over over our heads when we’re sleeping. And, you know, these markets that are more affordable, that have the landlord friendly laws, you know, they’re driving employment growth, and they’re getting people to move there, because they have a better, you know, they have a better quality of life, whether it’s climate costs, etc. So, you know, looking at those macro trends and factoring in that it’s in the US, it’s safe, we’ve seen some of the resiliency, and we’ve been over the last, you know, two years, I think they’re so great, great story for, for why a long term investor should should have, you know, part of their part of their holdings in US single family rentals. So

Erwin 51:13
tell me more about what US single family rentals mean to you? Are you going to Airbnb them? Are you going to put in the basement suite?

Speaker 1 51:22
No. So I mean, you know, it’d be more kind of a traditional long term tenant, I mean, you always explore opportunities, if there is if there is for, you know, an additional unit, but it’s not nearly like it as a candidate, because you’re able to, a lot of times just cashflow them without any of that. And, you know, there is a strong demand preference from the renter for having the space, not having the noise you have in apartments, you know, post COVID and COVID. And post COVID really kind of shifted the trend in that direction. And there’s just an imbalance of, you know, the supply and demand between what’s available for living and, you know, the households that are looking for, for a place to live. And that’s been been great. And I think, you know, with short term rentals, it’s, again, you know, something we, we’ve chatted about, you know, he don’t know, kind of where where things go, I know, Andrews probably chatted with you about kind of looking into it, but, you know, the stability of the long term tenant, your ability to ride out any, you know, unforeseen macro changes, you know, that’s super helpful. And I think, you know, if you’re looking to invest in, you know, USSF Rs, like you’re looking for, you know, a good risk adjusted return, relative to what you’re buying and right, it’s not, it’s not crypto, it’s not high growth, you know, tech stocks, right. But that’s, that’s part of the equation, right? So for me, that’s, that’s what it means to me. Because if I’m looking for that, for that risk, I’m gonna go to something else. Right. For me, SFR means something stable, something predictable. So there’s our single family rental. Yeah, yeah, single family rental. And, and yeah, so, you know, growing up portfolios, allows you to kind of, you know, better plan for the future and really grow, grow your wealth and take advantage of a lot of tax incentives that come along with it.

Erwin 53:21
And what attracts me about this model, as well as that, again, I mentioned earlier that pretty much every investor that comes to me, their goal is six to generate six figures of cash flow a year. And to me, buying single family homes, under an asset management model, where you don’t have to share any of the profits or equity with anyone else, to me is the easiest way to get there, like, easy in terms of like its scalable findings available. And I can do it remotely, and not really have to worry about too much.

Speaker 1 53:55
Well, that that was the gap that that existed, and that’s what we were trying to kind of address was share, right? You know, building a portfolio retaining control, retaining the ownership, or having the upside, you know, having, you know, decision made control on when know, when you refi you know, when you sell, right, like, having that ability to notice your investment and ultimately, like, we’re suggesting what you should do, but you get to decide it, right. And the gap that existed was, how do I do that efficiently? Not just where I live, because, you know, I mean, you know, kind of locally, but, you know, if I wanted to buy an investment property, you know, a few years ago, my options were very much so like Canada, I have friends that are Realtors I know you know, know the trades know everything, but how do I how do I go to the US? How do I choose between the different markets and the realtor? That’s what really attracted me and I saw it and that’s kind of what I was talking with, with Andrew and Carmen kind of more than advice History capacity early on, when it was still like kind of a fractional, you know, fractional idea. You know, that’s what really drove me, because then this direct, like, with the change to kind of streamlining direct ownership, you know, you’re you’re leveling the playing field for retail investors that doesn’t exist today, right? Because, you know, the big institutional asset managers, right, they’ll have funds with, you know, high net worth individuals, as investors, they’ll also have funds, with the big institutions, pension funds, insurance companies, even in those you see the difference in controls that, you know, the pension funds, and the big LPS limited partners on those investments would have versus, you know, fractional or owners of, you know, a share from the retail side and those funds, but also the control, right, and the control and the fee structure, right? How much of the profits are giving up all of those, you already see a bit of an uneven playing field, so well, and let alone the benefits of direct ownership versus that that model. So filling that gap was something that I really resonated with me. And you know, why I kind of made that made the jump to pursue building it for for our clients.

Erwin 56:16
So let’s talk about some numbers that, for example, like we talked about, because someone listening will say, why don’t is buy a REIT, why don’t you do why don’t need to go through an asset manager, like a share, for example, and have direct ownership? What does what, what additional charges would an investor have to expect if they’re going through a REIT? In owning a property?

Speaker 1 56:36
Yeah, I mean, look, charges will vary. I mean, different ones have different structures. But I think, you know, we’re very, you know, we’re very competitive when it comes to the fees we charge, both on the acquisition and ongoing from an asset manager perspective. And in drops, as we grow, we help you grow your portfolio. I mean, a lot of no private funds, you know, you are giving up a share of the profits. Right? It’s, a lot of times it’s in fine print, and not always really understood by not fine print, but it’s in the legal in the legal definitions, not that people don’t know it, but that guy mechanics, right, they’re just passively putting in money, getting their dividends on a quarterly or monthly basis. And then, you know, when the asset manager or, you know, the executives of the fun decide to sell or do anything, they kind of get their distributions, right. But again, they don’t retain the control. And a lot of times they’re giving up a portion of the profits, because that’s how the asset manager is compensated, which I

Erwin 57:39
understand. Yeah. But here, at the small level here, like I’ve had guests on the show, and like any sort of real estate influencer out there is either usually generally generally selling courses, or they’re raising private money to borrow or to look to joint venture, as in like, say, you and I bought a property together, say it’s Hamilton. So I know more about Hamilton than you do. So I’m gonna get 50% equity, you’re gonna have to pay 50% equity, but generally, I’m gonna ask you to put up all the money and you get the mortgage as well. I mean, so versus in shares model, I get your guy’s level of experience and your relationships. And you don’t take an you don’t take an equity position on my property properties. No, so that’s what really excites me. Because most people again a lot of people get into that sort of stuff. But again, like you guys are just well above in terms of capability and relationships, experience and knowledge and track record than another retail investor. Like even myself, like I’ve got, you know, I’ve owned over 40 properties personally. Done. Don’t forget I forgot we’ve done like 440 million worth of real real estate transactions. I still know Jack compared to you guys.

Unknown Speaker 58:59
I’d be modest but yeah.

Erwin 59:05
So take me through an example. So like you mentioned Austin, so I’m going to selfishly ask about Austin just because I’m, I’m going to be going down there. What is it you’re looking for, in terms of a property like to paint us a picture? Like is it a detached Is it a triplex is what is Yeah,

Speaker 1 59:21
detached single family home, you know, typically, you know, it’s in the suburbs of these these major cities. You know, again, me personally, I for myself, I’m, I’m looking for something right now that doesn’t probably require the heavy renovations but has the potential for the value add in a few years time where you know, you can lift rents. I’m, you know, again, focusing on neighborhoods that have good accessibility to employment. Good Good schools. But again, it really depends on the what is the capital you’re you’re looking to invest in. And what’s your risk tolerance within within the space? Right? Obviously, Austin is a more expensive lower yielding market. More expensive, more more expensive relative to you know, you know, whether it’s a plant or for saving Dallas, right?

Erwin 1:00:25
Oh, sorry. Let me just get the listeners in context. I was like, a friend of mine sent me a house because a friend of mine was looking at Waterfront houses in Austin. So he sent me a listing and was like, this is just gorgeous. 2600 square foot for like, I think it had a huge lot. Lately, at least at least half an acre. Back down to the river. It was is it looks like a very nice cottage. Four bedrooms, three full bath. It was asking million US in Austin soft is a market so it’s sold for is currently pending? For 875 875,000. American for waterfront property, about 30 minutes from downtown. So that equivalent property and Ontario in on Toronto, again. So for the listeners benefit Austin, is the state capitol million populations, almost a million greater areas about 1.7. Yeah. This is no, this isn’t a small town. So you know, even if that, let’s just use a GTA that probably doesn’t the GTA it’d be well over 3 million. Yeah, right? Easy. This is 875 American. So when you say expensive, it’s, it’s different for Canadians. And sorry, and we’re not even talking about that price point, when you know, your target price, we’re

Speaker 1 1:01:43
talking about, you know, really barely below, even 500,000 in a market like Austin, but generally, you know, for our, what we call a kind of a Class A profile, which are newer, better located in these kind of large sundown markets, you’re probably looking sub, you know, under 350,000, for the home for for the type of investments we’re kind of gearing our clients towards, but again, you know, Austin would be higher than that you don’t generally see a lower yield there. But, you know, Austin’s got some great drivers for, you know, long term investors know, both from their economy being at the front forefront of tech, you know, the tons of company, federal tax environment for corporations. But, you know, there’s, there’s also supply, right, there’s lower barriers for new construction, you know, you know, all these things that we were tracking, as we, you know, we formulate our decision making. But, but yeah, and then, you know, it’s a high end, the reason there’s just just for the listeners, the reason why it’s it’s kind of lower yields in Austin and Texas, generally is because they have high property taxes. So again, all of that is factored into our underwriting and when we’re evaluating opportunities, but you know, for me, as a long term investor, I want to focus in on having exposure to that appreciation over the long term. And then that whole diversification kicks in where you then want to complement that with maybe something more, you know, straight down the fairway, like an Atlanta that’s got, you know, it’s not number one in any category, but it’s kind of doing well across the board, whether it’s new, you know, what’s being built, what is the job growth, employment, revenue, growth, etc. And then on top of that, you know, factor in, you know, that Ohio property, something a bit higher yielding, you know, something that might have not be one of the lowest places from from the big cities in terms of new construction, but you also don’t see the wage growth or, you know, the appreciation that you would in some markets, right, so I think on that on the balance helps you offset having no exposure to an Austin. That would be kind of my my approach.

Erwin 1:04:12
So the Austin property under 303 50. So it’d

Speaker 1 1:04:17
be an awesome Robinet probably be looking kind of in that sub 400

Erwin 1:04:20
range, and then what we’re to rent for,

Speaker 1 1:04:25
again, I’ll be depending on the neighborhood, but you know, they can push three if not even above $3,000 in rents, again, depending on where it is the size, etc.

Erwin 1:04:38
That’s really good. $3,000 of rent a month plus utilities for a property worth under 400,000.

Speaker 1 1:04:46
Yeah, yeah. Again, it’s sort of neighborhoods. But But yeah, I mean, mid 2000s. If you even go kind of to some of the B class type of neighborhoods within Austin, I think it’s it’s arguable

Erwin 1:05:00
so to give you context like for folks who’ve been around as long as I have, like, you know, I’ve been investing since oh five. So even like 1012 years ago, it was any anytime like we were all buying houses for like 200 grand detached house or to be in Hamilton can be Oshawa can be Cambridge, Ontario to be Barry. To undergrad we buy a detached bungalow, a three bedroom, one bath, one bath, right? And then that would rent for about 12 or 1300. And again, we all would love those days again. Right? So even use 1300 as because they’re 200 Plus utilities. So 1300 is about 15,600 per year. So your gross rent yield is about so your annual rent divided by the value of the house is almost 8%. Right? So you can still find a percent. Yeah. And boring. And using what I consider a boring investment model, like hasn’t It’s simple. It’s it’s safe. There’s no flipping here. No. Yes. renovations? Yeah, exactly. Because, you know, we’ve had conversations about, you know, you know, about the the level the extent of renovations we Canadians do Yeah, we do basement suites. Yeah, there’s 60,000 dwelling garden suites for 300,000. You know, even the garage renovation suite, that’s 120 130,000, you know, months of renovations permits all sorts of things. Versus you just walk into something. Yeah.

Speaker 1 1:06:31
And do I mean, you know, you’ll always have a little bit of money you you want to put into it. You know, how much you’re talking about? A couple $1,000 minimum, but renovation to me in rent, right. But it’s a lot of it is like, you know, smart appliance like like smart locks my thermostat. It’s just things that streamline management. But yeah, I mean, even you know, sometimes you’ll go in and maybe do new flooring, but yeah, you’re keeping things to kind of, you know, 10,000 on those homes pretty, pretty easily. And now, there’s always opportunities where you can go spend the 30, the 50 to 70,000 and really, kind of bring the property to a completely different standard. But yeah, again, it’s we evaluate each opportunity kind of on its on its own when when we get granular into it to see if that’s if the timing is right. And if there’s a return on investment to do that.

Erwin 1:07:24
So often you’re looking for like a seven, eight, gross rent yield.

Speaker 1 1:07:27
I mean, I get that could be a bit. Yeah, I mean, an optimistic scenario for sure. I mean, I think there’s definitely those opportunities that come by and

Erwin 1:07:37
you have to talk. Yeah, yeah.

Speaker 1 1:07:40
But But yeah, the price points, like, again, you know, to your point, like, somewhere in Austin, like there is. There’s a wide range to where the price points are. Where, no way. It’s

Erwin 1:07:52
75. Back in the water. Yeah, we’re looking for for investment. Exactly,

Speaker 1 1:07:55
exactly. And you’re not gonna get that type of yield, no. No’s,

Erwin 1:08:01
awesome. Also bring this up, because and then folks are willing, they are happy to welcome the challenge me, in my observation of how investors are doing right now, like local local investment community, generally, the folks who’ve been around since prior to Oh, seven are faring way better than any investors come in the last five years or so. Right. And I’ve mentioned this forever is that if you’re going to hire someone, like a realtor, or hire a coach, or an investment partner, who’s going to like the expert in the deal, they got to have at least 10 years experience. Right. And so that’s why I say like, when I talked, if I talked to the investor from who’s been investing in Ontario some or 10 years ago, then they would go gaga over these numbers. Versus someone who’s been consuming social media content over the last five years, is thinking I gotta Airbnb. I gotta basically, I got gardens. But I can just walk into the single family spend less than 10k in renovations and I can gross rent yield 78%, which is what we were doing 1012 years ago here. But again, the job story is way better there. And before we’re recording I was talking about like, I think we all appreciate AI is going to be very important to the future. And then large components AI is computing power, which means microchips. So then how do you invest in AI? AI friends at Microsoft, so they like we missed the boat on Nvidia? So, but again, I come from real estate context. How do I how do I how do I have an AI play in real estate as an investor, which drew me to following the microchip manufacturing story in the States, which led me to Austin, which led me to Taylor, Taylor, Taylor, Texas, which is a suburb of Austin, which is where Samsung is building their microchip manufacturing plant, which will have like two to 4000 jobs and stuff. It’s one of those numbers between two and 4000 new jobs. And so when people talk to me like isn’t like whatever it leaves, figuratively hold some headlines about the US economy like, what about this? What about this was this like, worried about the housing market? Like, you know, I’m gonna, I’m gonna have a house within a 10 minute drive of two fourths, two to 4000 people moving into into the town, who are making six figures as a job, let

Speaker 1 1:10:17
alone you know, the massive Apple campus you have in Austin and Dell, Tesla. There’s the the job story there has been has been great. And the quality of life is is really attractive to, to the, to renters. But, ya know, I think I mentioned I was looking at a deal. And back in my old life, on the institutional side, it was a new construction deal. And I think I was touring it, it was on the market, right before Samsung came to look to potential just by just the house, I was all the people working on building that plan. So it’s always, it’s always funny to see kind of that trend. You know, as the big the big relocations get announced, and a lot of these jobs come really, really does help the real estate industry. And I definitely agree with you that you know, you want to be tracking that and looking for that and having some foresight into like where you know, what is going to be kind of that next road cycle.

Erwin 1:11:17
And this is a wonderful analogy of the ability of a retail investor versus an institutional investor. I’m doing this from my computer, you’ve actually been to all these places, numerous times, and been inside buildings numerous times in all these target cities for investment.

Speaker 1 1:11:33
If I had to upgrade my iCloud on my iPhone many times based on all the photos I have saved from touring properties.

Erwin 1:11:43
So again, like this is the difference between what we’re capable of as a retail investor versus the resources and experience that you have. So I jokingly told you that I’m honored and humbled when people ask like, Erwin, what prop were you gonna buy in the States? And like, I’m gonna go ask them to a tree. Why should we buy it? And to be fair, like, I had this in conversation with clients? Yep. If you’re from Toronto, you’re not from Hamilton, and you’re not from St. Catharines. You know, it doesn’t serve as my client to ask them, what do they want to buy? Like, I’ll tell them like, this is where we make the most money? What option within it would you like? Right, so it’s kind of like, we’re in your sandbox now?

Speaker 1 1:12:26
Yeah, I mean, I think that’s, you’re you’re definitely spot on, I again, there is a personal side to it, where, you know, you want to be investing in something that you’re comfortable with, you know, you understand now we, you know, with our clients, you know, we spent you, you’ve seen it yourself, like a good amount of time kind of explaining things, or getting on the same page, really understanding what it is that fits best, as, you know, your specific by Basik, what is the criteria that you’re looking for? But it’s, you know, it’s a, you know, know, your customer kind of approach, where we zero and really what fits best? And, you know, there are people that have their own views on a market, that’s theirs, you can have that right. They might have some, they may have lived there before that you can come to us. Yeah, yeah, you can come to us, hey, I want to focus in here specifically. But there’s a lot of yeah, there’s a lot of definitely investors that have a general idea, but are more market agnostic, and, you know, rely on on shear as their asset manager to kind of, you know, guide them into where the opportunity is, you know, looking best based on an actual review of numbers based on discussing the assumptions with the stakeholders, you know, the PM, getting everyone on the same side. Now understanding what’s going to, you know, what are the costs going to be specific to that property. So I think that helps helps you make the decision.

Erwin 1:13:56
That’s the awesome thing about we get to talk to you, because it was your idea that I that I have, because I again, I was thinking your brain about my travel plans in Austin. And then you suggested, Why not look at the suburbs in the corridor between San Antonio and Austin? Yeah, I’m like, that makes a ton of sense. to San Antonio is also probably one of the best places to invest in Texas. Yeah.

Speaker 1 1:14:17
Yeah. I mean, that’s one of the four kind of major major markets in Texas. And, you know, I think, you know, from an investment standpoint, I definitely think that’s a great area I do during my run I love North Austin, a bit of a higher price point. You know, there is the job story there is phenomenal. The schools are, you know, very desirable. But South Austin has been seen massive, massive growth and you know, that proximity of having no attracting families that might work. And one person works in San Antonio, one works in Austin like that, that is common. Right, that’s a good demand driver for your rental and definitely worth which I can tell when you’re, you’re down there.

Erwin 1:15:03
It’s it’s interesting because my, my friends in Alberta invest in Alberta, they do the same strategy. they’ll invest halfway between Edmonton and Calgary. Right, because we have perfect hedge between the two cities. And again, same thing, like some people work there, some people work there. So again, man again, you better do, it’s a great hedge. I like that. I love that. I love to manage my risk. You mentioned a high yield in Columbus, can you paint us a picture about what you’re buying? In Columbus?

Speaker 1 1:15:29
Yes, so I mean, higher yield. I mean, you know, there’s obviously tiers to kind of, you know, the trade off between what, you know, what you can expect over the long term and appreciation versus today’s yields. In Columbus, like, you know, I’m probably trying to compensate for, you know, some of my, you know, what would be in my portfolio, it’s a bit lower yielding like Austin, and I’m looking, still probably sticking to a very similar type of property. I mean, it’s harder to find there’s less in terms of newer, newer construction, but maybe it’s already been renovated by a previous owner, again, somewhere where I’m not going in and spending a ton of rehab dollars day day one. And, you know, probably going outside of kind of, you know, the the really Class A type of neighborhoods and getting more of something with affordability where you know, you can, you can see kind of, you know, still have strong coverage from you know, what your rent what your tenant makes to what they’re paying in rent. And then that’s kind of what draws me to like a market like Columbus and Ohio, some of the other markets in Ohio is, you know, their household income to rent coverage. Is, is very strong, right. And I think that’s always very important. And you want to have some of that, because that does help you manage, you know, increasing rents, year over year, which you can without rent control.

Erwin 1:17:00
Well, you, you mentioned that that’s a bad word here. Now. You mentioned affordability, because that’s a massive problem here, right now is anyone anyone who’s an Ontario landlord, they know like, there were everyone’s receiving applications where people cannot afford, like, right on paper, immediately, they know right away, like their their income, started the the rent, to their income just does not work.

Unknown Speaker 1:17:21
What are you? Like? What are you seeing?

Erwin 1:17:24
Well, first of all, see me she’s guideline is that total household expense should not exceed 30% of gross income. But we’re seeing 4050 60% In terms of applications. It’s tough out there here, but you’re saying it’s

Speaker 1 1:17:40
Yeah, I mean, I like I mean, in the markets were looking, I mean, it generally, like you’d look to a requirement of three times, you know, three times rent. But, you know, what you’re seeing generally, would be, you know, high teens to low 20 percents, really rent income ratio, it’s not affordable. Ya know? That, yeah. And I think, you know, yeah, certain markets, it’s, yeah, it’s sub 20%. Again, you know, household income, and, you know, these people they have, no, they’re not going to move out because you’re increasing rents by $100.

Erwin 1:18:21
So, Ron Butler, who’s a pretty big influencer these days on social media, especially Twitter, he’s a mortgage guy. And what’s interesting about him is I guess he’s because he’s so successful, like, and he’s old, and he, he cares. He just says whatever he wants. So he, when he when he was on the show, he said, I asked him like, what’s your advice to young people? His advice was, go work for a major multinational that has had headquarters in the US and find your way there. Because I forget the name of the company said it was, I don’t know, like might have been like Procter Gamble, like wherever their head offices is like, you can get like a 3000 square foot there. And you can be making great money through this. This is Procter and Gamble’s an example. You make great money at Procter and Gamble, and you love a 3000 square foot house for like 500,000. Right, you can actually live a really good life. Affordability wise. Yep. And that’s kind of been what I’ve been telling young people these days as well, is you at least need to figure out options because I’m big on options hedging. You know, I mean, that you can probably get conversations

Unknown Speaker 1:19:28
with us relate on that end.

Erwin 1:19:32
Even for yourself, I bet you’d made a lot more money if you’ve just worked in the States.

Speaker 1 1:19:36
Yeah. Well, I mean, especially with kind of spending most of my career involved in us real estate. But and my brother actually lives my brother and his family actually live in the US or city. He’s in New York, he moved out there for undergrad. Um, it’s kind of kind of stayed there. But yeah, look, I’ve I’ve explored the US it’s partly why, you know, if I want to be buying In the US, I’m looking at some of the marks I don’t want to live in. I mean, Austin would kind of be at that forefront. I think for me. Yeah, I think for us if I was to move there and always kind of really be between Austin and Denver, kind of be the two cities I’d want to live in, personally. But, but yeah, look, I mean, I think my opportunities would have been great in the US. But you know, there’s also things that tie you down, and, you know, keep you in Toronto. And, you know, part of that is, you know, the sacrifices my family made to get us here. And, you know, being being close, helping out my, you know, my grandparents and getting all the wisdom that they pass on while they’re still with us. So that’s what’s kept me out. I’m happy about it. But I do know, traveling, traveling helps mitigate and helps you form your opinion, where, what, what may come next?

Erwin 1:20:51
Let’s come back to the Columbus example, what kind of price points are we looking at? What kind of range? You

Speaker 1 1:20:57
get? I mean, I think, you know, what, with with those type of opportunities, we’re probably looking at that too, I’d be probably looking at a kind of two to 300,000 range. Now Columbus, you know, within Ohio. It’s kind of more of the on the premium end of the markets, right, like you can kind of dip, or

Erwin 1:21:13
there’s ghettos over there. I think I think most of us know, visited Ohio, was all over Ohio.

Speaker 1 1:21:19
Kind of like, and, but But yeah, I think it’s just, you know, some some interesting trends and some interesting data points there that we’ll

Erwin 1:21:29
be doing the Intel plan. That’s yeah, yeah. I think that’s like, again, like 234 1000 jobs,

Speaker 1 1:21:34
the medical industry is doing very, you know, very well, there.

Erwin 1:21:38
I believe the tech industry is doing well. Yeah. Yeah, you know,

Speaker 1 1:21:42
there’s definitely, you know, always kind of looking at markets, I think, you know, we want to kind of expand where we’re really, we’re really focused, where we’re seeing our deal flow. I mean, it’s already pretty extensive. But, you know, zeroing in on markets, making sure we kind of know, you know, the, the experts as well that we can, you know, rely and discuss, you know, the micro locations, right, because your first view is you’re looking at things a little bit more of a high level, you know, whether it’s pictures of the listings, you know, general review of the area, but then during due diligence, like where we’re, you know, we’re making sure someone’s out there when zeroing in on the micro location. And, you know, that doesn’t mean we were going to move ahead with every deal we get under contract for our clients. And I think that’s, you know, that’s, that’s important, because that’s not that’s where we’re aligned with our with our clients. And I think that’s always important to mention.

Erwin 1:22:38
It because you guys, you guys don’t really make money on the first deal. Yeah, how you make money, as soon as the client buys numerous property

Speaker 1 1:22:45
Exactly. And builds, builds, builds that portfolio and unlocks, you know, the true fruits of the asset class.

Erwin 1:22:54
And I have lots of questions still, what is the rent but the rent the rent range be for your Columbus property? That’s two to 300k?

Speaker 1 1:23:03
Yeah, I mean, I think for for Columbus, I’m trying to think of some recent deals I look at so so many of them. So I don’t, I don’t want to misspeak. But I think I’ve definitely kind of seen some things that kind of renting and, you know, a bit more than, like, 1500 1600. Us Now, again, area dependent, you know, as we look at some of these older, you know, more inferior located properties, you know, your rents can be as low as, you know, low 100, low 1000s. But there are definitely opportunities where and, you know, tenants that can afford now even pushing, you know, closer to 2000 if it’s if it’s a larger property, again, per square foot sometimes will be more indicative in terms of in terms of rents, because property is even a three bedroom can vary in size dramatically. But yeah, that’s some some stuff I’ve seen. I’ve seen that recently. Yeah,

Erwin 1:23:56
cuz we buy three bedrooms here in Hamilton for like, 600 square feet and paid $700,000. So so let’s just let’s work with an even number house that rents in Columbus, Ohio for 1500. Why should I expect to pay for the house?

Speaker 1 1:24:14
Yeah, I think, you know, in that $300,000 range would probably be very, very realistic for for that

Erwin 1:24:23
policy. Rather being Austin.

Speaker 1 1:24:27
I yeah, I mean, I may be a bit either, because, again, we’d have to, I’d have to kind of check on some of the neighborhoods because I’ve been, I’ve been looking a little bit more kind of newer on the higher end, but I think I think you can, like you should be able to see it better, better rent yield. Sorry, a better like cap rate. Rent yields a bit trickier because, you know, taxes vary state by state. So I don’t necessarily always focusing on the right yield. Because I want to look at what is going to be my cash flow and my actual yields of the prop Pretty. But But ya know, I mean, I definitely kind of think you know what 300,000? You Yeah, you definitely probably push by probably low on that $1,500 estimate for for Columbus.

Erwin 1:25:12
That’s a good point. And I know you’ve had these challenges and working with Canadians is like everyone has their own way of doing cash flow analysis and writing their own portfolios. Most people don’t even have performance, you saw that when I sent you. For context, for listeners benefit, a client of mine asked me to have a look at the new construction condo deal in Hamilton, it was included pro formas. And I just laughed at it, because it omitted so many things, and the rent was completely overstated. And I know you you share your in your work that you’ve had challenges with communicating with investors and investors, that probably investors in general, about numbers, because you come from the institutional world where it has to be fully loaded costs. Yeah. And they have to be accurate, as much as you can be. Versus what someone who’s selling a piece of real estate is. And that’s and that’s an all spaces of selling real estate.

Speaker 1 1:26:10
Yeah. It’s the same. It’s the same institution same institutionally. Right. Right. Your brokers putting together their their projections for a year here will vary, it will differ greatly from what the the buyer thinks there. Yeah, year one, numbers are gonna look like.

Erwin 1:26:26
So not just paint anyone? For general? Yeah, it’s how it should be. In general, I always find sellers numbers are lights on expenses. In inverse very commonly, for example, in the small shop Mom and Pop home building, often Mom and Pop are doing a lot of the labor themselves. Yeah, and then those, so there’s no expense for that. So then, so then your net operating income, your cap rates are not right. Right, what they’re pitching is an eight cap is really five. Right? So but you share in your brain at work? It’s because you get called out? Yeah,

Speaker 1 1:27:04
look, I mean, look, you’re you’re looking for investments on a long term, you know, a lot of your assumptions, to a certain degree are straight lined with a view of like, what it will run over, you know, your whole period of, you know, call it that 10 years. But yeah, you know, where we’re trying to be granted, like, we want to, we want to have you thinking and kind of showing you that, hey, you’re gonna run into costs when it comes to this, you know, even on whether it’s on the purchase, you know, a lot of people admit, you know, thinking about what is it going to cost until I have a tenant in there, right? Because you close on a property or you have expenses right away, not just your, you know, mortgage, you’re on the hook for the utilities, you might be paying taxes, you should be kind of accruing for taxes, right. So all of that should kind of go into you thinking about how much money do I need to invest into displays to get me into a pain, like to get me to the point where I have a paying tenant, and I’m collecting rent of it. And you know, from that rent, what are the costs I’m going to incur? You know, what I should be factoring in and, you know, how is the next buyer when I when it comes time to sell, if I want to sell in 10 years or 15 years? And, you know, how are they going to look at it? And how are they going to underwrite, you know, is it going to be an attractive investment for them? Right. So I think those are very kind of important things that you want to look at when, when you’re buying.

Erwin 1:28:35
So for anyone running out of time to meet you, thank you for making me. It’s been, it’s been great. I’m glad you you enjoy it, because I could keep you for another seven hours if you have way more questions, and I’m sure the listener has way more questions to Martin trying to go to his is that. So we have a workshop January 13, Saturday, January 13, you’re gonna be there. You’ll be sharing your party your experience on? We’re gonna be going through some concrete examples. I think that’s part of it. Yeah. Awesome. Awesome, because everyone was once more numbers. So thank you for doing this. Anything else? We should share anything? I didn’t. I didn’t ask you about you want to cover?

Speaker 1 1:29:18
No, I mean, I think we’ve covered a pretty extensive amount of stuff I get, I think, you know, what’s always kind of important for me and, you know, you’ve asked me this question, you know, before is and really to summarize on what we talked about is like, what are what do we recommend for for landlords and, again, I can’t stress enough like that you want to aim to kind of build a portfolio, have it be diversified between the different markets, you know, between the type of properties, you know, within your portfolio. Again, I think having someone kind of be a partner for when it comes to asset management is just been a gap for retail index. astor’s and, you know, retaining that control. But, you know, having someone focused on strategy, rents, you know, tracking the data, I think, is super, super helpful to kind of, you know, eliminate some of the risks that you got to have doing it yourself. And a lot of times that pm that’s not what they’re focused on God conversations with property managers that want to work with us, because they’re like, you know, they might have retail clients, they’re like, they’re asking me these things, but that’s not what I’m paid for. Right. And that’s an important thing to remember. And then I do think, you know, and if we’ve had this conversation, you and I, but setting a goal, right, like, what am I trying to get to? You know, is it’s $100,000 in 10 years? In cash flow, yeah, in cash flow, right? And figure out like, what, what do I need to do to get there? Right, what does I mean, in terms of how many properties that shouldn’t be buying the next three, four years? You know, what am I doing with the capex, you know, et cetera, formula in that plan, I think, is always great, and kind of working backwards from it to try to, you know, to understand it, that’s what, you know, the, the session that you are referencing, we’re going to be doing like, that’s, you know, some of the stuff we want to we want to touch on to kind of help people get a better understanding of what these you know, long term goals looked at look like when you break it down to the next few years?

Erwin 1:31:23
Because I think I think everyone should at least gun $400,000 in cash flow a year. And then you’ve helped me model that for myself. And then, but then there’s always the first steps, like we kind of talked about in your example that we had is one of my first three properties. Right? Because Because I think that’s where people need to focus is what are the first three properties? And I think everyone needs to look at this, at least a baseline and Compare all other investments against it. Right? Yep, definitely. Makes sense. And you’re talking about risk. So I can’t I can’t let you go without asking. You call it climate risk. Yeah, and oh, what is? There’s, there’s I have a bias because, again, I have friends who’ve been hurt by hurricanes in Florida, specifically Florida. So again, I bias an emotion that’s in the headlines in the it’s an all over the news. What is what is it from an institutional investor standpoint?

Speaker 1 1:32:24
Yeah, look, I mean, I think the the cost for insurance, especially when it comes to Florida, has seen crazy increases over, you know, the last few years and even again, this year, you know, but for us, yeah, the climate risk is, you know, when a you don’t, you’re paying a lot more for insurance, because the insurer knows, they will probably incur losses on your property, and to where you don’t have visibility into, like, what those costs are going to be in the future, right? Like, you want to try to formulate an opinion of like, I’m going to be raising rents, my expenses are going to go up, but you want to be able to control that, right? insurances. I don’t have any control over what my insurance is going to be like, next year, that’s, you know, driven to me by, you know, the insurers and the reinsurance and everyone kind of involved in that industry. And that’s,

Erwin 1:33:17
that’s, that’s, but it’s specific to certain areas, and it’s not happening other places in the country. Well,

Speaker 1 1:33:23
is that right? But the amount of lat Yeah, oh, I mean, insurance is going up, somewhat nationally, but he’s out, but it’s really going up in the areas that have high climate risk, because, you know, insurers are getting tired of taking the losses on, you know, billions and billions of dollars due to, you know, climate related events that, you know, have caused significant damage. And, you know, Florida being kind of the driver behind it. And, you know, even us on our master policy, like we have a pretty cool, like Master policy for foreign clients. So if anything is managed under share, like we have a master agreement to ensure that’s able to provide our, you know, individual landlords, their standalone policy, the same coverage, they would get themselves, but at a cheaper cost, because they’re spreading the risk over a diversified portfolio where share has an interest in as the asset manager.

Erwin 1:34:16
So basically, a retail investor gets to pay wholesale prices. Yes, exactly. Exactly. For public management. Yeah,

Speaker 1 1:34:22
exactly. So on the insurance Island, right, we, you know, we pretty much were flat across the board in terms of our rates everywhere, except for Florida. And the highlight that the counties that were already very high, probably four times higher than anywhere else would pay for insurance went up another 25%. And the counties that were, you know, the Lower, lower risk counties in Florida, that probably would have been like, you know, two times higher than, you know, some of our other states that we’re targeting, you know, they went up almost double All right. So, again, that’s just, you know, insurers trying to offset the losses they took on that on that region. And I think the reality is not having visibility into it, if you told me, Hey, I’m underwriting these numbers right now, and the deal still works great, I just the trade, the risk, return trade off, isn’t there. So, again, not saying don’t invest into Florida, I think it’s good. In a large portfolio, you can take on some of that risk. You can’t have, you know, if you have 10 properties, or five, whatever, you can have something in Florida. You know, why? Because that’s diversification. Because if insurance in Florida goes up, 20%, but everyone else stays flat, you’re fine on your overall expense on insurance. But, you know, having myself be in there, like, with one property? I don’t like kind of that, that lack of visibility. But

Erwin 1:35:54
if my objectives cash flow, it’s probably not something I should include my portfolio.

Unknown Speaker 1:36:00
Yeah, I mean, in terms of like, when you say, like,

Erwin 1:36:04
I just think of a financial advisor advising you on stocks, we got this one where we know the dividend is gonna get worse.

Speaker 1 1:36:13
I mean, you know, to compensate for that Florida does have other great, you know, factors for why? Well, and why people are investing there to a certain degree and why people are moving there. Right. But, you know, I think you can still kind of cash flow there. And, you know, you can go to areas of Florida, where climate risk isn’t necessarily elevated. But you’re suffering because other parts of the states Yeah. Because

Erwin 1:36:44
you might get lumped in, you do as a whole, your insurance

Speaker 1 1:36:48
will just put my example, in terms of what we saw, in terms of our 2024 renewal rates, right. And, again, those are some interesting insights. You, I’ve talked to that with some of my old peers and people I know in the industry, and it’s just like, you don’t want to be mentioning insurance costs to people they’re not, they’re not pleased, especially if they hold Florida assets.

Erwin 1:37:08
Because then a friend of mine, he was telling me that he has a place in Florida, I believe, I don’t believe he is. I believe he owns a free and clear so he can have these you can consider these things. But he’s considering self insured. Yeah, that’s what

Speaker 1 1:37:22
that’s what like, it’s, you laugh, but that’s why the institutions

Erwin 1:37:28
How do you justify that conversation with your investors? How do you how do you have that conversation with your lender? You’re at the you’re at the show the funds and yeah,

Speaker 1 1:37:37
yeah, yeah. I mean, it’s, it’s insane. I mean, I, I wasn’t doing that. So I probably, you know, buffed up some people’s brains a little bit more, and we can kind of revisit that, but

Erwin 1:37:47
so good lord, they’re gonna have to basically have a reserve fund to cover repair costs related to climate risk, and

Speaker 1 1:37:55
then some other things. Yeah, yeah. But I mean, it’s just the costs are, I mean, my costs, but sometimes, like even finding someone to do it, right. Like, that’s, that’s the those are the negative headwinds that are kind of tracing back in those areas. And then again, for residential, it’s probably a bit better still than you know, for

Erwin 1:38:14
Dude, this is like self insuring your health care, right? Like for any pet owner already does this basically. Like you can’t it’s pet my own state pet insurance is extraordinary expensive. So peacefully, people self. Yeah. Self insurance, basically, you pay out of pocket. Yeah. It’s gonna be in sort of like nobody likes doing that. Now, imagine that for a property. Soften insured doesn’t basically pay out of pocket for damages. Good lord. Yeah, I don’t like risk. Again, I have my biases around. So this is not that’s

Speaker 1 1:38:46
where the personal preference really comes in. Right. I think that’s great. I

Erwin 1:38:50
mean, we’re not are you how many how many clients you advise him to go to Florida? No,

Speaker 1 1:38:54
I mean, we’re not right. I mean, unless unless someone’s coming to us with Florida being their mandates. Yeah. But, you know, if someone’s looking to buy a portfolio, and they want some exposure to Florida, like I’m not, I’m not pushing them away from it, because I do think there are rationales for that, but no, we’re not really pushing people to Florida, because most people will share your views.

Erwin 1:39:18
Crazy. Alright, Dimitri. Thanks again for doing this. Yeah, no, it’s

Speaker 1 1:39:22
my pleasure. I love listening to podcasts. It’s nice to kinda get to be on the other side.

Erwin 1:39:31
Thank you for watching. If you want to learn how to invest in real estate from scratch, my team teaches beginners how to use the number one investment strategy that I personally use in a virtual free training class every month, go to investor training.ca/youtube To register for our next class. Then links also in the description as well. I publish at least two to three videos a week here. So subscribe if you want to keep learning from seasoned investors like myself, my guess? And if you’re just starting out, feel free to ask questions and comment below. And I do the best to answer each of those comments in questions myself again if you’re ready to learn the nitty gritty about real estate investing from a professional investor register for our next virtual class at that investor training.ca/youtube Thanks again for watching see you in the next video

 

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/EMFe89aiio0