** 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

** 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.

** 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

** Transcript Auto-Generated**

Erwin 0:00
The best investment according to the CEO of the local Builders Association, the opportunities and risks for builders and real estate developers, the membership group attended by the who’s who and local real estate. That and more on today’s episode of The Truth about real estate show for Canadians. My name is Herman Seto host of this 300 Plus episode show since 2016. This show is ranked number 81. On business in business category on all of iTunes. Happy holidays, everyone in what a week, the Federal Reserve in the US. The folks who control interest rates in the US just announced they are holding rates, and they expect to cut three times next year. Assuming point two 5% Cut each. Each of those cuts, that’d be a three quarter of a percent. And it’s been sending the stock market soaring. And I’m a bit surprised Ron Powell is showing his hands so early in doing a complete reverse on everything else he’s been talking about, up until this point in sharing their plan for cuts. So yeah, everything they tried to fix is all being undone pretty quickly, just based on his words. Anyways, the application to real estate investors to real estate is a is that many expect housing prices to go up go up once rate cuts begin, including shark tanks Barbara Corcoran, as she believes that real estate prices will reverse as soon as the interest rates begin. I’ve included that note in the shownotes. I link to the article in the show notes and interview of shark tanks Barbara Corcoran. The implication for Canadians is their own bake candidate increased rates faster and higher than the Americans did during the last two years. So it’s natural the natural expectation that the bet candidate will cut steeper and faster than the Americans. So we should expect more than three cuts in 2024. The markets are already expecting a rate cuts about four or five rate cuts in the tune of 1.25 to 1.5% by the end of 2024. And those cuts are coming expected to start maybe as early as spring like March ish. So based on history, cause and effect, we should expect to see the market pick up the real estate market pick up an activity increase an increased housing demand pushing prices up, which is a good news, which is good news to many current real estate investors. And this is notice to anyone who’s been sitting on the sidelines who’s looking to get into the market, we’re probably at the bottom, we’re approaching the holidays, and that’s typically a great time to buy. And again, we’re looking the market is expecting rate cuts in the spring or even mid year of 2024. My clients are taking advantage by financing their acquisition of US income properties using their home equity line of credit. Since home equity lines here in Canada, their their interest is is variable because it’s based on the prime rates and with rates expect them to fall in Alright already a current hit home equity line prices, interest rates, it’s cheaper the financing is cheaper financing than going through an American lender. And as long as they can cover the interest and payments, this makes a lot of sense. Positive Cash Flow and no rent control, of course will help a lot in reducing the risk of such investments. I really can’t wait. Based on the information that’s been coming out, I really can’t wait. And also, unfortunately, the extensive amount of research I’ve done in investing in the States, I really cannot wait to sell some Ira properties here. As mentioned in the past, I might have three houses being listed the first second week of January. The timing seems appropriate to again, as mentioned shark shark tanks Barbara Corcoran saying the market is about to pivot. We can end with lots of HELOC. And I’ll have a lot more HELOC. Once I’ve sold three houses will have a strategic advantage over the Americans. This is again the Americans American banks only offer the currently at this time. They currently only offer 30 year fixed mortgages. So they are more expensive in terms of rates. So thereby, you would have to expect that American buyers will stay on the sidelines longer, which would give Canadians the flexibility and the strategic advantage of of getting in for the Americans do because why would an American want to get a new mortgage today at near peak interest rates onto more serious matters. I’d like to take a moment to reflect on the alternative humans out there being negatively affected by investing on pre construction or speculation. There have been many, I’m hearing this all over. It’s all over social media all over Reddit. I’m hearing in my circles as well. There will be many people who will be walking away from their 15% deposits on pre construction condos or houses and they’re on the hook for any additional costs and losses incurred by the builder and when they go to resell that property, in combination with a slowing economy, there’s job losses out there, pretty much all the banks are cutting of how our finance more cuts as well. And they’re supposed to be the most solid institutions that we have in Canada. In a country with massive affordability issues, someone was going to get burnt. And let’s not forget the renters who are praying to stay in their rent controlled units, as a move could be a disaster and having to pay today’s outrageous market rents. A friend of mine recently told me that his downtown Toronto condo that he’s owned for about two years ish bought pre construction, it’s a two bedroom, two bath, and he rented it out for $3,500 Plus utilities. This is in the Liberty Village, which just west of downtown Toronto, and that’s still negative cash flow. So that’s not an easy investment. For many. This list investors pretty pretty well deep pocketed. And the rent has gone up $500 over a two year period. That’s pretty rough for most tenants out there. If the federal Liberals wonder why their polling numbers are looking so bad, well, the bills come due all that spending they did all the reckless fiscal and monetary policy they’ve been doing. And also the fact that did not have the courage to force municipalities to revise their zoning to allow for higher density. And they’ve simply allowed immigration to just exceed the supply of health care, education and of course, housing. All the while the Canadian economy is shrinking in real GDP terms. The numbers are actually even worse. If you remove the economic growth from directly from immigration. If you remove immigration, we are we are actually negative four quarters in a row in terms of GDP, real GDP per capita. And housing affordability hasn’t improved that much. And it’s about to get worse, roll up page. They’re all over the news this week. As they’re forecasting Toronto housing prices to increase by 6% by the end of 2024. So price movement is going to reverse is what they’re predicting, between rate cuts and rising prices. This is why I’ve recommended to my clients to wait for a rising market. So to wait till spring to sell or later, they can hold as long as they want as long as they can to sell in order to sell and maximize their sell prices. We investors need to need all the help we can get as investment properties that have long term tenants in them. They are incredibly out of favor in today’s market. So help is on the way not help the markets improving. So that will definitely help all investors.

The housing crisis still exists, though, it’s actually gonna get worse with the lack of new development going on. There are deals out there for short term gains for those with deep pockets and strong stomachs. Like I mentioned, there are literally percussion, Washington Well, there are newly built condos and houses that are being returned to builders, you better believe those builders are motivated to let those things let those things go at deep discounts. So there is opportunity for those who can stomach it and have the deep pockets. I still believe those who create housing will, they will continue they always have and they will continue to be profitable investment businesses if executed correctly. And hence we have a very serious expert today. And our guest is Michael Cohen Williams, who is the CEO of the West End West and Home Builders Association. MC w as he’s known to his friends. It’s an acronym for his name, has spent his entire working career in planning and building it with a degree in such from Ryerson University, followed by 18 years at Ontario homebuilders association for taking on the big job as a CEO for almost the last three years at the west end Home Builders Association. I know several members of the West End homebuilders Association, that’s a mouthful. And they are a close knit active community of members with the most major players there, including folks with hundreds of millions of dollars worth of real estate. The cool part is that these crazy rich builders are very approachable and humble. In my experience. With all the development craze I’m seeing on social media, if you’re one of them, I can’t recommend enough that you check out your local nonprofit Builders Association or the Ontario Builders Association, because the prices are quite a precedent members but it’s quite low and expect high value networking. There’s a saying in Chinese. My parents always said it. And I say find the direct translation is the best things are cheap and quote high quality, which is why I’m so frugal and always on the hunt for good deals. You can connect with them CW on Twitter. I’ve given the short link it’s twitter.com/mike J CW. Again links are in the show notes. website is www dot West and HBA dossier. Mike is happy to speak to anyone interested Joining. So just reach out, tell him you heard him on this show. Please enjoy the show. Happy Holidays, folks.

Hi, Mike, thanks

Unknown Speaker 10:12
for coming on the show. Thanks for having me excited to be here.

Erwin 10:15
So what’s keeping you busy these days?

Speaker 1 10:18
The fun never stops in the housing industry. You know, I guess the market has slowed. But there’s a lot happening in terms of public policy at the municipal level, provincial level, some big federal announcements recently. And you know, despite sales, not exactly bursting at the seams, the last number of months, you know, there’s there’s a lot of stuff still under construction, there’s a lot of activity of that has

Erwin 10:44
many builders actually taking a pause in terms of building because for example, like one of my neighbors, actually one of my kids friends father works, he actually represents a whole large number of like, lumber, lumber, lumber and drywall providers. And he said they just hadn’t, they’re on pace for another record year.

Speaker 1 11:02
For some builders, things are slowing down. But you’ve got to remember to build a home. You know, it takes a while, like even a single family or a townhome, you know, that could take six months to a year. But when you’re getting into the multi residential high rise, some of these projects are literally under construction, 567 years. So even though the market has slowed in terms of new home or resale, home sales, the actual construction activity is very busy based on pretty strong years and 2020 2021 2022. In you know, things slowed down on the construction side during the pandemic, but the sales were strong coming out of that. So there was a bit of a lagging effect. So the actual construction activities very strong, which is great for our economy. There’s lots and lots of people employed in the housing sector, whether it’s books like you and I, or, you know, the people actually on site swinging the hammers, bankers, lawyers, it’s, it’s, you know, it’s the largest industry in Canada, in terms of total employment, and it’s a huge diversity of opportunities.

Erwin 12:13
Now, for listener doesn’t know who you are you this is your second, just a second time round two. So only round two,

Speaker 1 12:19
I get invited for round three, we will see how the day goes. Round two was supposed to be months ago.

Erwin 12:23
But I know that a lot of things going on. Yeah. regret taking those taking the promotion. I see for listeners benefit, like, tell us about your journey, and also your journey in the real estate industry.

Speaker 1 12:37
So I was born in 1981. Oh, you’re gonna I’m a child of the 80s. Yeah. So I went to school for urban planning in late 90s, early 2000s. So my professional background, I’m an urban planner, urbanists love city building and everything that comes with it’s a big transit nerd. So I’ve worked for when I first graduated a couple builders and then worked for the Ontario Home Builders Association for 17 years doing urban planning work related to public policy around housing, land developments, a lot of I’ll call it macro planning level policy. So rather than, you know, how do you push building exercise? Why do the planning process it’s more what’s the provincial legislative framework around our entire land use planning and development system? I moved on from that role and can’t even remember now 2020 2021 and took on the role of CEO of the West End homebuilders association. So we are a nonprofit association representing the new housing and land development industry in sort of the Hamilton Grimsby, Burlington areas, sort of the west end of the Golden Horseshoe, so to speak. We have 300 member companies, about 65 of them are home builders. And when I say builders that you know ranges from the custom builder building like a high end one or two units a year to renovators sort of doing conversions, to really niche interesting stuff. And then on the large scale stuff, the folks building towers with the cranes up in downtown Hamilton or missing middle infill or subdivisions, and then the balance of our membership is sort of the rest of the construction industry, you know, trades banks, urban planning firms, sort of the, you know, firms that produce steel, lumber yards, etc. So, our organization represents the interest of the residential and land development industry and so there’s a lot of Government Relations in AD You can see a lot of education and professional development, a lot of events, you should come to one or two of them,

Erwin 15:08
I sent I sent you guys on behalf. So

Speaker 1 15:10
yeah, lots of lots of networking events in business opportunities for people working together in the industry.

Erwin 15:17
For example, I just went along and asked her permission, username, but I sent along a client of mine, a mother son combo. She joined, she blasted those other organizations. And I said, Why not join Mike’s organization, because, you know, everyone who’s got their name on a sign along with QE W, who builds something like 300 homes, a summer type thing, or towers, like they’re all at your Meetup part of your organization. So if you want to meet the big players that go there,

Speaker 1 15:50
so if you’re involved in the industry, it’s a great way to for business networking. Even if you’re not a builder, if you’re somebody that wants to do business with a builder, whether you sell, you know, we’ve got folks that do really interesting AV equipment or technology or different products, and it’s one thing to have a store and try to sell it to a couple consumers. It’s another thing if you can sell it times 300, right, one shot to see what builder that’s installing in their home,

Erwin 16:20
or at least bounce the idea off someone who builds 300 homes a summer, like, you know, that’s a highly qualified opinion.

Speaker 1 16:27
Yeah, and I look at housing, like, home isn’t a home, like we think of maybe what a home might have been when 1960 or 1980. Like, today, in 2023, they are complex machines for living in, whether it’s the technology that’s involved in them, whether it’s, you know, some pretty sophisticated heating, ventilation, air conditioning, you know, as we’re sort of addressing climate and energy efficiency issues like these, these are very complex builds. Now, it’s not just throwing up a bunch of sticks and bricks in a roof. So there’s, there’s a lot of different companies involved in the industry, a lot of innovation. And, yeah, it’s it’s a really interesting sector to be involved in, in 2023.

Erwin 17:18
And then my standpoint is like, I’ve read many aspiring builders and developers on listening to this, and I wish them all the best because we only get out of this housing crisis. Well, not the only way. But adding supply would be a great way. And just from my experiences, observing, like people who create housing generally get ahead in life tends to be great investments.

Speaker 1 17:39
Generally, the only caution, and I know you’ve got an eager audience, it is a tough business. Oh, yeah, absolutely. It’s a high risk business and high risk community high reward. But, you know, the road is littered with those that, you know, have tried their best and tried to be innovated in and work their way through it. So it is a tough business. It’s a highly political business, which is, you know, one of the major challenges, like if you’re building a car, or a widget or a bakery, like you don’t need to go get approval every time you want to sell a muffin, or, you know, Ford doesn’t need to go get an approval every time it sells a car. So the timelines are long. For better or for worse, you do need capital, you know, land, labor, and capital are sort of the three major inputs. And in today’s interest rate environment ain’t easy. I don’t I don’t envy the position a lot of folks are in, especially when they’re highly leveraged.

Erwin 18:42
And that seems to be the formula for exam. I’m a geek at this stuff. So just observing developers that went under back in like, Oh, 708. Generally, they went under because they couldn’t support their, their, their financial obligations, generally, because they had a lot of debt.

Speaker 1 18:55
Yeah, the the industry learned, I think a lot in 8990 91. We’re going back aways, that financial, huge. Toronto housing crash. Yeah, massive in a couple of very large companies like Olympia and York and and Bradley went under. You know, I don’t think we’re going to face that kind of situation. But you know, there are companies out there and stressful situations. But the rules around bank financing have changed a lot for projects to move forward. Especially in the high rise sector, that’s probably you know, there’s a lot of risk there. And, you know, that’s, that’s not for people that are new entrants into the market, but when you’re building a 5060 storey tower, you’ve got to get into between 60 and 7370 and 80% pre sales in advance with deposits before the banks will, will finance or move forward with the construction loan. You know, loans that size are often syndicated with multiple players, sometimes not just the schedule bank, sometimes sort of mezzanine players as well. So it gets It’s complicated. There’s a very serious underwriting process. And that doesn’t say that there’s no risk to the system. It’s just, there’s a lot more safeguards and backstops. And I think due diligence than perhaps there was 30 years ago. But you know, things happen crossford went under, in 2000 22,021. And, you know, at the time they had for massive sold out projects under construction in Toronto, and these weren’t little projects. It was 80 storey tower at young and Gerard 30 storey tower at young and college 260 storey towers in, in Yorkville, like these were sold out under construction projects. So there is risk

Erwin 20:44
the pandemic them.

Speaker 1 20:47
No, they they ran into some financial trouble. Just they were over leveraged and construction costs went up significantly during the pandemic construction costs have continued to go up. Stats Canada came up with a data point earlier this summer that from 2019, beginning of the pandemic till now or I guess earlier this summer, hard construction costs are up 54%. So that’s running higher than the rate of inflation. And you know, I mentioned earlier some of these projects, you’ve got 567 year timelines. So the challenge is, if you sell a condo unit in, I don’t know, 2019 2020, it’s a huge project, you got to get here 70 80% pre sales, so it might take two years, three years to hit that, then you finally get under construction. And if you’re building a 50 6070 storey tower, it’s going to take 567 years of construction. So you’ve got to have a pro forma when you go to sales, recognizing that you’ve got a five, six or seven year runway, and costs go up, like you can lock some things into contracts, but the cost of concrete, windows, labor, etc. You’ve got to build in contingencies. And for some of these projects, that there are projects right now, I know we’re sort of more Hamilton Oakville focused here, but there are projects, be it downtown Toronto or downtown Vancouver that are very large towers that if they haven’t started construction, and they were in sales years ago, they’re not starting, they don’t they could be 100% sold out and the revenue is not enough to to build the actual tower.

Erwin 22:33
My mutual friend who introduced us to using even telling me like there are builders who are just building at a loss just to maintain their brand and to keep their people busy.

Speaker 1 22:41
Yeah, you got to some companies, you got to keep the machine rolling, so to speak. For most reputable companies you know, if they’re in real trouble, they can but for most companies they want to deliver their brand is important. The handshake the contracts important they they want to deliver for their customers, their customers are putting a lot on the line when you go into new home sales office and you want to invest in that community in that future. That That means a lot, right? So it’s, it’s a tough market right now, with the sheer volume of cost escalation, it has really put a lot of projects into a difficult place. And, you know, we’ll probably get into it more detail. But, you know, with the Bank of Canada rates. When you listen to the news, or hear people chatting about it, it’s all about mortgage rates, which which it is for the end user, whether you’re buying something new and you’re going into the bank, and you know, you want to put down a deposit and or buy a home or buy a resale home and you’re looking at you know, five point something percent or more five year mortgage rate or whatever the variable rate is now, like that’s one thing when you’re buying a million dollar home, but when you’re building a two or $300 million project, and the timelines are stretched very long, and you don’t get your revenue until you close a few years ago, you get a construction loans in the three 4% range now, eight 9% Here in the secondary markets you’re over 10% with long timelines with political uncertainty around approvals. It’s a risky business.

Erwin 24:38
So where are we at now? So actually, one thing I want to add to them is that from the consumer side, like this seems like there’s good deals available as long as you can finance it as long as you have enough cash for a down payment. Preferably more cash like 50% down but like like, like like the condo market, for example, I decal and stats and, for example, condos, the I think the September number was I think there was like five months of inventory of condo listings, which is like, well into buyers market. So there’s opportunity for people

Speaker 1 25:05
100% I think we, you know, when the market slows, right, there’s always opportunity. There are builders out there, that’s, you know, might not quite be at that 70 or 80% pre construction financing. And there, there may be deals to be had to try to, you know, they want to sell they want to get to that financing, Mark. You know, there’s some existing buildings that are I’m talking sort of the new construction rather than the resale side, you know, there’s some existing buildings that are up or under construction that have some inventory. And, you know, we’re talking about interest rates, unfortunately, there are some individuals, some folks out there that maybe over leveraged themselves that maybe bought a couple years ago, and you know, I don’t know they, they bought a six or $700,000 place, they need to pull out a $500,000 mortgage, and it’s come time to close and they can’t close. You know, they they purchased in a different environment where they thought that they’d have a 3% mortgage, not something more, and they just can’t meet the monthly carrying cost or the bank simply won’t close. So there are some individuals that perhaps are in some distress that maybe there are deals to scoop up. The assignment market, as I understand is a little hotter than normal. I know builders don’t love the assignments, but like they got to close. So I think 2024 will be interesting, because there’s a lot of condo projects that are going to be wrapping up. And the question is, is everybody gonna be able to sell I think a lot of people will close, but they’ll probably be more the probably more opportunities. And I don’t love when there’s an opportunity when somebody is in distress, but there’s probably more opportunities in the next year with some folks that can’t close is

Erwin 27:02
the unfortunate reality reality of speculators, if you didn’t have solid plans to close because someone, someone can close and they, if they put it up for rent, we will probably ever rent have a rental right away. Because the rental market is just on fire.

Speaker 1 27:16
I mean, I closed on an investment unit in July. I bought in 2019. So despite some market instability, you know, around $1,000 a square foot

Erwin 27:28
Oh my God, where is it?

Speaker 1 27:31
It’s a loft conversion. The Westin bakery Lofts at Logan in eastern awesome conversion project, shout out to Rob Cooper with the Altera they do amazing work 1000 square foot. Wow. This is the reconstruction it’s long timelines. Right. So yeah, I was actually just looking at some of the stuff last night and we basically closed almost five years to the date that we bought, like it’s a couple of months short. And you know, it’s a couple year sales program, things were slow down during the pandemic, in terms of the builder moving forward, and loft conversions are complicated. So it’s not a simple build. But yeah, we’re renting close to $5 a square foot, which is insane. But that’s, that’s the market out there. Like I say there’s pressure on the price per square foot on the new side. But on on the rental side. If you’re in Toronto, you know, Hamilton, wherever you are, like if you’re close to transit, it’s, you know, it’s just Location, location, location. And in the hot market, the last number of years, a lot of people made bets on DNC locations. And I’m sure the entry price point was different. But when the market turns, the locations hold up.

Erwin 28:58
It’s less risk. This is less record risk in general, but it may not look as good on a spreadsheet. So how so before we were recording, for example, I was asking you, I was just telling you how I was or I was on the news that landbridge mall and Hamilton there’s two towers being built 300 units like Oh, fantastic. This is the two towers, and they’re only 12 stories each. And I thought, wow, that’s like the center of Hamilton mountain. It’s like basically the commercial shopping hub. Tesla’s building, building out the service center, they’re like, that’s all great news. But like 12 stories like I thought I thought that Eric could support a lot more. Because who wouldn’t like for the malls benefit you’ve built in customers, I’d want as many as possible. And for the people who are gonna live there, there’s a mall.

Speaker 1 29:46
We’re seeing a lot more of this, this trend and I’ll get to the height in a minute. But just like in general, the planner sort of our term for this is this is gray fields, not brownfields gray fields were throat North America, you’ve got lots of either dead malls, dying malls or malls that are doing all right. But there’s a lot of parking and you know, perhaps it might be, you know, higher and best use of land to reinvest and bring in some residential, like

Erwin 30:16
our mall right here across the street. Like there’s lots of vacancy inside the mall and the parking lots humongous

Speaker 1 30:22
and you build in customers by having people living there permanently. Mostly, you know, a lot of these malls are well located either on highways on transit. So we’ve started I think, in the last 10 years, right across North American if I zero in on sort of the greater Golden Horseshoe or GTA in Hamilton area, you know, some of the first malls to do it like you you look at Yorkville on the subway in Toronto, and in the parking lots there, there’s all kinds of towers going up. So sort of the call it the locations on subway started going up first. Sure, Waze got a whole bunch of towers, Fairview mall, and the shepherd lines got a bunch of towers at Bayview mall

Erwin 31:03
surrounded by towers, right? So

Speaker 1 31:05
for the for the pension funds or real estate investment trusts and whatnot that own these, or you’ve had new kind of REITs emerge. So you know, smartcentres used to just be a mall, they, they they own malls and where the Walmarts are got a REIT. And they’re starting to look at all of their assets and looking not to sell off with condos, but to have an income stream in terms of interest terms of rental, Canadian Tire is looking into it. So you’ve got, like Loblaws is looking into it. So you’ve got I think it’s choice three. So you’ve got North American or Canadian wide companies that are looking at their land assets, especially as we’re shifting, the population is growing like crazy. And we’re shifting more and more towards intensification. And you know, I like to say a lot of the easy sites are gone

Erwin 32:02
because old fill places lots of space.

Speaker 1 32:05
I’m a Toronto transplant so the easiest Oh go now when you come out to the 905 like huge opportunity in the malls are where a lot of the opportunity is I said Hang on one

Erwin 32:16
second. So my family my dad’s practice we used to be in Market Village and we’re Mark we’re gonna be like, I know it’s not Toronto, but since the other side of steals give me grace me but

Unknown Speaker 32:27
I don’t go north of steals

Erwin 32:30
the world ends Edge of the World Go

Unknown Speaker 32:33
north of bluer but

Erwin 32:36
but they tore down that mall. And they’re building a tower in before recording us talking about the you know how in Asia for example, like every mall is generally in a tower. Right? They have like several floors, including below the grade several floors, and that’s the mall

Unknown Speaker 32:51
and the heights there are taller and what we’ll come back to Hamilton but

Erwin 32:54
but the point though, is that, would you say the easy steps taken but will we ever see that happen? Like if Sherway gardens like torn down and then replaced with a tower with Sherway gardens built within?

Speaker 1 33:05
At some point there I’m gonna get the name wrong but it’s at Richmond in John there was like the Scotiabank movie theater there that yeah, like a mall. But it’s a movie theater with a bunch of different stuff like that was only built in the late 90s. Like they’re knocking that down to build towers and build a new movie theater in the base. So cool. You got to the land values have to hit a certain point to sort of, you know, when you’ve got a parking lot, there’s a certain amount of construction costs that go in like you’re demolishing a parking lot. That’s not a large existing structure. And it’s not just the cost of bringing down the structure. It’s like what’s the what’s the current value when you look at the rents, the leases all of that so you know, one of those I don’t know, maybe not quite dead malls but malls that weren’t doing super well. If you go a couple you know we’re recording from key VW in Trafalgar you go a few exits down towards Erin Mills Parkway, there’s their Sheridan mall, massive parking lot, not a super successful mall like they’re looking at intensification, opportunities there Mississauga actually have a great location for an amplification. So Mississauga has kind of got within their urban planning structure in the long term. They’ve got five or six malls that they’re looking at, like whether it’s Sheridan mall, whether it’s I think it’s North common. And then Oh, my God, Erin Mills Town Center. They’re looking at these assets as areas to sort of intensify over the next 10 or 20 years. So we’ll come go further out, you know, talked about lime ridge and Hamilton. I mean, 12 storeys doesn’t seem like all that much. But I guess sort of the demand land value there. It’s a bit of a different equation than if you were looking at your way. Now. Maybe if they looked at it, years later, it would be different. There’s the east gate mall in Hamilton, which is going to be the last stop on the new LRT Line. They’re looking at a lot more than 12 storeys there. Great. So there’s multi Well towers being considered, but again, that’s on a future that’s going to be the anchor of a future, you know, rapid transit lines. So there’s there’s lots of puzzle pieces.

Erwin 35:10
More than 12 stories but poor libraries, Malden,

Speaker 1 35:13
small doesn’t have the LRT. Okay, I’d go taller, I want to see 50 stories 60 stories Saturday, I don’t know.

Erwin 35:23
Because that’s the only way we can really get squeezed prices down. In terms of like your skills, the scale of economy, you

Speaker 1 35:30
get obviously efficiencies when the when the land value is x and you can squeeze more units out of it, then you you bring down the land value per unit. You know, there are construction cost efficiencies when you’re stacking and you’re going taller up to a certain point, once you get to 50 or 60 stories, there’s issues around elevators, mass damper systems in terms of building sway, etc. So you start losing some of those efficiencies at a certain height. And then you’ve got to jump to a next much bigger height or, you know, eat a lot of costs.

Erwin 36:03
I was reading an article a couple of months ago, you probably saw it as well, but like, like a certain there’s a certain height until if you don’t get above it, then it doesn’t make any sense. And there’s, I believe, you know better than I would, there’s some condos where you have to take an elevator and need to get out to take another elevator even further higher. Yeah,

Speaker 1 36:22
I on a personal level, I wouldn’t love that I used to live in a 40 Something storey tower, and it was we had three elevators, it was great. But you know, once one or two elevators are down on service, or it’s moving dates, obviously complicated. So I encourage buyers out there, don’t just look at the suite, don’t just look at the location, how many elevators are there that that makes a difference in your day to day quality of life. But yeah, or in Toronto is 75 stories, I think there’s like a second elevator lobby. And there’s some buildings, you mentioned, the idea of putting a building on top of a mall, you’re seeing some buildings where, you know, you might go in at the ground level. And then you got to take an elevator to the 10th, Florida like the sky lobby, and then you change to the elevator to your unit. Or, you know, different elevators for for parking. So when you get into we’ll call it hyper intensification, which to me is sort of like the Manhattan ideation. And there’s a lot of really cool projects going up in downtown Toronto or Vancouver. But you get into some really complicated architectural and design issues when you’re on a postage size, lot. And you’ve got to have, you know, the garbage, the entrance to the parking the lobby of the mail room. All of your internal services. Yeah, development is fun.

Erwin 37:45
So then to know your question, I’m sure that listeners probably pissed at me for not asking you earlier. So where are the opportunities? So for example, I get I get new developer builders always asking like, I’m interested in buying land lots of land and sit on it or build something on it, is that something once you get into these days, I

Speaker 1 38:03
wouldn’t recommend buying and sitting on land with the political dynamic. You know, the provincial government reversed a bunch of Boundary Expansion things recently, and we’ll see what happens with that. But that’s, that’s an extremely, extremely risky and politically fraught, exercise that can literally take decades, I’m not joking, like decades, so So to move forward to new piles of cash, then you have to be very, very well capitalized and be prepared to lose it all or, you know, I, I know, people in the industry where individual projects aren’t like a decade, it’s like their career spans, you know, a 25 or 30 year project to bring a raw piece of land and actually deliver keys to, to that buyer. But to go back to your original question on sort of, where are the opportunities and you know, if you’re not super well capitalized, and building a tower, or buying land, to me, it’s all missing middle housing, sort of that niche infill products, which, you know, on a personal level, I just find more exciting, like it’s cool kind of neighborhood level, trying to find opportunities, be it buy something existing that can be either renovated, retrofitted, come down and split up and put in a multi small multiplex in whether it’s in the 905 and in more suburban context, or whether it’s somewhere, you know, in an urbanizing corridor, like the LRT or the future LRT corridor in Hamilton, there’s so much you know, I find it cool infilled design like there’s there’s a lot of opportunity there. And I think that’s what people are hungry for right like most people are renters all that stuff. Yeah, buildings are first time buyers like In the so called American or Canadian dream that you’re going to go to school, work hard, get a good job and get that house with the white picket fence, like, most people don’t have the ability to buy a $2 million dollar place. And most people also don’t want to drive to Sarnia or own sound to be able to afford something that’s maybe not at that, you know, million and a half, 2 million price point. So what I find interesting about the missing middle is you’re not necessarily in a tiny condo unit shoebox in the sky, you can have an interesting design, you can still be in touch with the community because you’re on the first second or third or fourth level. You know, even if you’re higher up you’re still at the treetops, you’re still looking at the window with the squirrels running around and can see people on the street you know, opportunities to have mixed use and beds and retailing it I think that’s that’s the future we were chatting before the show about like other jurisdictions like our our future in this region in areas probably going to look a lot more like Europe and you know, maybe on the Manhattan as Asian component a little more like Asia, but you know, I don’t think all of Hamilton or Oakville is going to be skyscrapers, it’s going to be more of this infill kind of stuff.

Erwin 41:16
Well, I support like, like cities wanting to maintain character, because then you kind of lose, you kind of lose everything if you if you get rid of a character and like historic buildings, and lots of parts of Ontario and Canada have, you know, houses that were built in the 1920s and earlier, so I don’t think anyone wants to see that go away. Now, so say you’re a beginner investor, what kind of missing middle infill project would you like to sink your teeth into?

Speaker 1 41:43
I think there’s two distinct routes. You can go with sort of the renovation conversion, buy in, you know, so there’s been some legislative zoning regulatory changes in Ontario that we used to have something called exclusionary zoning where this was North America wide were basically wide swaths of, you know, everywhere from San Francisco to Vancouver to Toronto to Hamilton, Oakville, Mississauga. wide swaths of land were only single family homes were allowed. You couldn’t, you couldn’t even put a secondary suite in, you couldn’t make it a semi detached. You couldn’t buy and split a lot and put in a semi or a townhome. It was it was singles only. And it sort of excluded all other highs and typologies. I think as the housing crisis has gotten worse and worse and worse, and young people simply can’t aspire to ever afford to live in the neighborhoods that you know, a lot of them grew up in. There’s been a lot of pressure politically to sort of, I’ll call it open up zoning to be a little more permissive. And we’re not talking about putting up towers or mid rise in existing communities, it’s maintaining the character with something, you know, planners, often called gentle density or invisible density, like, if you’re walking down the street, you’re not really going to notice the difference between a three story infill little apartment with six units and a two story single family home next to a semi like a lot of our historic neighborhoods in Hamilton or Toronto, or Vancouver, or Montreal or a whole mix of stuff, it’s it only became like, after the advent of the automobile in sort of the post war suburbs that we got into this weird pattern of like only single family homes, and massive expansion suburbs. So that’s where I think the opportunity is either on the conversion side of buying an existing single and got it or renovate it and put in you know, split it up into two or three units, or put in a secondary suite in the basement or or sort of a laneway house in the back or above the garage. So then you’ve got the opportunity there to to have a couple units in terms of an income stream, and most importantly, rather than one family living there, now you’ve got two or three families living there. They’re utilizing the existing infrastructure. And you think about neighborhoods, like how do you have a cool neighborhood with a independent coffee shop on the corner, a cool bar down the road or, you know, an independent grocery, you need customers, you need people. So I think there’s an opportunity across a lot of the suburbs for some intensification, where you’re increasing the population and existing areas, which increases opportunities for all kinds of other businesses. And I guess the other path instead of conversion is, you know, you buy a property, you knock it down and you either sever to build a couple small properties or yet, you know, you take that single family home and put in a tiny townhouse or a little multiplex where there are four units.

Erwin 44:57
So I get this like a friend of mine just came on the show And he didn’t know his name is Mackenzie he lives in Calgary. Yeah, she bought a house a single family home on a 60 by 100 lot. It’s gonna tear down this Calgary, he’s gonna tear down build a town sorry for townhouses on it. All of them were basement suites. So they can have eight units on what was a single family home lot.

Speaker 1 45:20
And that’s what we got to do. Like our population is growing like crazy. And we need opportunities everywhere. So we say we need to build up in and out and up means a hell of a lot taller towers than we’ve had before. And we’re, you know, the GTA has got more cranes in the skyline than any other jurisdiction in North America, which is healthy, but our population is growing so fast, it’s not enough. It’s not really affordable, you need to grow out with some strategically located urban boundary expansions for new communities that are built differently than the kinds of communities that we built in the past. You and I were chatting before the show, like if you go to Trafalgar, and Dundas in North Oakville like, those are new communities. And they’re being built densities, far higher than any of the suburbs that were built in the 70s 80s, or 90s. And then the last is we need to grow in so that’s in our existing communities. And that’s the opportunity for the missing middle or your example of the single family lot that became four townhomes and in the basement suites, so you go from one unit, eight units, not incredible. If we could repeat that. And it doesn’t always have to be one, eight, it could be one to two, one to three, one to four. But from coast to coast across Canada, there are massive opportunities. And these are, you know, strategically located and existing communities that have services have character have a vibe, places people want to live,

Erwin 46:42
when the aid gets really tasty for an investor, though, you’re getting more people to step up, when the returns are there, then more people will do it. Right. And like free, like I know how difficult it is to get things done. Like I used to live in Burlington, Burlington, and we won’t get into how tough it is getting things built there. But like, for example, I was looking to East Austin, where prices are incredibly affordable. And those neighborhoods have reputations for being extremely developer friendly. So would you consider investing further away, out of home, out of your home city,

Speaker 1 47:13
I’m not super familiar with the US market. So I’m not the right person to ask. But, you know, obviously having a diverse portfolios useful i On a personal level, I like to be able to see feel touch. My real like real estate, to me is it’s real estate, it’s real. Like I like it as an investment vehicle in terms of it being a tangible asset, and I manage my own assets and know our tenants and, you know, there’s a different kind of comfort level there. But you know, when you mentioned it being so much easier in Austin versus here, I think a lot of the reason we’re in this housing crisis is the level of bureaucracy the level of control I mentioned earlier, everything’s a political approval like, but

Erwin 48:01
isn’t it by design, because it is a democracy, it is the the voters generally do not want density in their backyards.

Speaker 1 48:08
100% agree, but that’s why we need to change, we need to come at things from a perspective of housing abundance. Maybe not every investor would like to hear that because I think one of the reasons why housing has been so lucrative isn’t an investment is it’s the opposite of housing, abundance, we have a system of deliberately constrained supply, and our democratic institutions have led to that. So we have a bizarre system where existing residents and neighbors seem to get a veto over who comes to their neighborhood. And to me that’s fundamentally wrong. Especially in a growing society, and it’s, you know, the local interest is different than the public interest, and the greater good and our greater good and a lot of that local interest. And, and I’ll get slammed for saying this, but a lot of it’s like, a particular demographic, you go to any public meeting, where there’s, you know, I don’t know, a six storey mid rise being proposed in an existing neighborhood like go to that public meeting and the demographics pretty similar, right.

Erwin 49:14
What’s the local homeowners?

Speaker 1 49:15
Yeah, a lot of old white people who have money

Erwin 49:19
that’s just who lives there though. Yeah, versus like in a in a more fair and more fair argument would be the future tense should be there as well but they don’t know they’re the future home occupants.

Speaker 1 49:31
Nobody speaks for the future residents nobody speaks for the young folks or the new immigrants or the those that are international students and permanent you know, non permanent residents

Erwin 49:44
they’re not giving up voting booths they’re not at the at these meetings they’re not the not mostly as charged at the locals are.

Speaker 1 49:52
And you know, I’m still gonna vote to the locals in that, you know, people fear change, and for better or for worse development, housing, our industry is all about change. But if a candidate is going to be successful in the future, this might be one of the biggest issues, if not the biggest issue that we’re facing as a country, that young people are screwed. Like, you can go to school, you can get a good job like good luck.

Erwin 50:22
You’re screwed. Unless you average parents. Yeah, yeah,

Speaker 1 50:25
if you can’t afford a house, if you tried richer parents, that’s, that’s not really what we should be be building as a as a country. And, you know, we’ve had some, we’ve got some very successful post secondary institutions where we’ve got like, the best and the brightest from all around the world are coming here. And they’re coming here to learn, and they can’t afford, afford to stay or find suitable accommodation. So we’re educating them, and then they’re, they’re gonna leave or young people are gonna leave. And, you know, our growth, growth is a good thing to have. But we have so much growth, that we’re not keeping up on housing and infrastructure. And we need to fundamentally change how we approach housing, and it’s, it’s politically uncomfortable politicians. You know, they’re listening to the existing residents, and those existing residents typically are well housed and the plight of the 26 year old doesn’t matter to them.

Erwin 51:23
I’ll never forget help a neighbor association was fighting these new student residents next to McMaster University, saying they thought it was too tall, six storeys, or whatever. height this is exactly what you should want densification of students in one area, so they stayed out of your neighborhoods, otherwise,

Speaker 1 51:40
but they fought back to build throughout the neighborhood. I mean,

Erwin 51:44
yeah, like, what was in their best interest? You

Speaker 1 51:47
move right next to a university and don’t like students like, okay, but

Erwin 51:52
didn’t you fight the building that’s going to house all the students? Right, you should be encouraged No, build up to 20 stories, build up the 50 stories, I want all the students in the neighborhood, they can all live in that building. This

Speaker 1 52:01
is why in my view, the provincial and federal governments need to be a lot more assertive, because the municipal governments, you know, councillors are beholden in, you know, MPs and MPs are elected to but they’re a little more distant from the day to day cut and thrust of neighborhood politics. You know, your average local councillor, the stuff they’re hearing about is development and housing issues, or I don’t know, the snowplow didn’t come this morning, or people don’t like people parking on the street, like it’s very neighborhood driven constituents and issues, and they’re extremely responsive to the development issues. And we need to find more ways of getting to a yes. And the easy answer is often no. Or it’s Yes, after a whole series of compromises. And you know, the number of buildings that have been built in this area, all through the GTA and Golden Horseshoe where, you know, I don’t know what’s proposed at 20. storeys, it goes through two years of planning process and negotiation with the neighborhood and counselor, and oh, you know, they chop off three or four stories, and somehow that’s the success. Oh, we got it down to 16 stories success, everybody’s happy. It’s sort of like, well, the developer, a builder was willing to go for 20, we just lost four stories, maybe that’s 40 units of housing that we could have had. Now, we don’t have? Well, you multiply that over hundreds and hundreds of projects over the course of a decade, like we flushed 10s of 1000s of units down the toilet over negotiations in church basements, because somebody doesn’t want to shadow on their tomato plant for a few hours a day. Like what what’s our priority here? And

Erwin 53:42
then we forego all those property taxes as well, the city collected? Yeah, and

Speaker 1 53:46
everybody that owns property right now knows, like, there’s so much pressure on our municipal budgets with inflation and property taxes, like the best solution is as assessment growth, and that’s new housing. And yeah, all of those, all of those, I guess, invisible or ghost floors that never got built, those would have been a lot of property taxes.

Erwin 54:11
And now we’re now I don’t know where it’s going to end up. But in the news, the proposed tax increase for Hamilton was 14% for next year. So here’s your here’s the tax bills come to be paid now. And also as Bill 23 is also basically we have to subsidize developers to build Oh, I’m gonna push back

Speaker 1 54:29
on you on that. One is Bill 23. In the municipalities had been very good at blaming. They don’t want to take responsibility for their own problems. So they want to find a boogeyman so they blame the province and blame developers Bill 23 did make some changes to the development charges act. It does not make any changes to the development charges that private sector for profit Builders pay for anything they build beyond a couple $100 taken off on on community housing. Everything else is full freight. They have removed Oops development charges from affordable housing projects. So if Habitat for Humanity, the YWCA or another nonprofit builder shows up to build below market, nonprofit housing. There are no development charges. Now philosophically, I wonder like, Why the hell were they playing development charges to begin with? Like, should we be full freight and taxing housing for the most vulnerable like that that should be where the government’s trying

Erwin 55:27
to help out because they stopped building houses. So you need to subsidize someone instead? Yeah. So

Speaker 1 55:31
that the changes in Bill 23 are entirely focused on nonprofit affordable housing. There are some reductions on purpose built rental, which we’re hardly building any of any way. And it’s things like, I think it’s like a 25% reduction on three bedroom units will like that’s the stuff that we, you know, we should be designing our tax system in a way that tries to encourage certain things. But in the current environment, like we tax housing, like cigarettes and booze, it’s like a syntax. If you buy a new house 25% of that straight up taxes, straight up taxes. So you wonder why we’re in this mess, like at the average costs, you know, I’m just gonna use round numbers. If the average cost of a new house or new townhome somewhere is a million bucks 250 of that taxes. That is insane. And that’s

Erwin 56:22
all the taxes combined all the taxes together. Yeah.

Speaker 1 56:25
So you’ve got the federal government’s got the GST, so that’s 5% right there that there were rebates structured for homes between 350 and 450. But good luck finding a house for under 350,000. You’ve got the provincial share of the HST, which is 8%. You subtract a $24,000. HST new home tax credit, but that’s, you know, nothing in the grand scheme of things. So you got the 5% plus 8%. So you’re at 13%. Right there. You got about 2% land transfer tax there, you’ve got a you’ve hit 15%. There’s all kinds of other smaller fees and charges that go to the province. So you’re already at 15 16%. And then you’ve got development charges, which are massive, they can be over 100,000 a door in some jurisdictions. You get to the smaller units like apartments, cottony a one bedroom, two bedroom condos, like depending on which municipality you’re in, you’re still over 5060 $70,000 for those. And then beyond the development charges, there are community benefits charges. In low rise, you have Parkland dedication, we need parks, so I don’t have a problem with that, per se, they take 5% of the land on a low rise project. But on a high rise projects, they take cash in lieu. So there’s some municipalities that that’s 20,000 $30,000 right there. So yeah, things we need, like parks, but like it adds up. And then all of the permit fees, planning fees. So that’s the straight up taxes, they easily hit the 25% there. And then in terms of the total tax envelope, like all of the workers and trades on site, they’re all paying WSIB they’re all paying income taxes. And of course, the company itself is paying corporate taxes. So yeah, you have about 25% Straight up taxes on the purchase price, and then there’s other layers of tax embedded in so you’re probably easily over 30% Evil builders. Yes, the evil builders that are generating massive amounts of tax revenue for our provincial and federal governments, building new communities, putting a lot of risk on the line to build a product we desperately need, and it’s taxed as if it’s booze or cigarettes.

Erwin 58:49
I still think the municipalities have screwed up and not. Because because they’ve blocked develop so much development made it so difficult that the bills come to do. That’s just how I look physically look at it from an outsider’s point of view. And also don’t understand why it felt like the new bill never came due for the pandemic. Like for example, let’s take Toronto, for example, that the TTC was still operating well, while no revenue was coming in. I’m not surprised don’t blame things like that, you know, bills 23 under the bus.

Speaker 1 59:17
I mean that the whole transit system is a whole other conversation like we need transit for cities to run.

Erwin 59:21
We do but let’s just be honest about where the expenses are coming from. Yeah, but Bill can do well, they’ll

Speaker 1 59:26
defend central province help there but I think you’ve raised it right like the bills come due for the pandemic and part of the increases in the lack of development is a lack of development. So

Erwin 59:37
there’s a lack of property taxes and when it comes to development

Speaker 1 59:40
in municipalities don’t have enough different revenue tools. And it’s either you know, it’s basically property taxes or like the the thrusts so much on the backs of development and one of the reasons why you mentioned Austin earlier like most jurisdictions, the United States don’t have development charges in any way shape or form like we do they they got it Some different kinds of impact fees. But Ontario is pretty unique in it being around 25% is tax, you don’t get that American jurisdictions, you don’t get that across much of the rest of the Canada except for sort of the the Lower Mainland in Vancouver is also a very, very high tax environment. But you go to Alberta or the Maritimes yeah, there’s development charges, but they they don’t have the scale of taxation that we do. So we’ve dug ourselves a pretty deep hole that we’re in this housing crisis, we need to build more, are planning systems broken? And we tax the hell out of new development? But I don’t have any there’s no silver bullet, there’s no easy answer, because, frankly, municipalities do need a lot of this revenue. Back in the day, the Feds in the province put more money into growth related infrastructure than they do now. Everything has been downloaded to municipalities and effectively municipalities have then downloaded it onto the private sector. And then the private sector, like our builders aren’t paying the development charges, it gets embedded in the cost of the housing. So you’re young first time homebuyer or the investor who’s listening, you’re paying for all of that infrastructure, not upfront, you’re then embedding it into your 25 year mortgage, and you’re paying the amortization on that infrastructure, growth related infrastructure. So it’s, it’s the homebuyers and the investors that are paying for all of this embedded in their mortgages, it’s pretty painful.

Erwin 1:01:33
Because the CANS been kicked down the road, and someone’s gonna have to pay for it, somebody’s got to pay for it. And now the next generation is really gonna pay for it. Yeah,

Speaker 1 1:01:42
and we talked earlier about like the escalating cost of construction, that it’s running higher than inflation. Well, let’s not just build a house or build a tower or like for municipalities, building a bridge, building a road, building a sewer, building a library. Construction costs are up across the board in terms of the material hard construction costs. And sorry,

Erwin 1:02:06
can you break that down, like how is labor materials compared to pre pandemic, for example,

Speaker 1 1:02:11
there was a study I mentioned earlier of the, I think, the top 11 municipalities in Canada, and they said that the hard construction costs were up to 34%, since the beginning of 2019, just before the pandemic, you know, I can tell people that costs are starting to use a little bit. sales activity has slowed, there’s still a lot of stuff under construction, but there’s not a lot of new stuffs, starting construction. So demand is starting to ease off. So there there is a light at the end of the tunnel in terms of some of those costs, starting to ease up and talking to some builders, when they’re looking at go forward contracts. It’s not quite as bad as it was before. There’s a little more competition. But you know, we still have labor shortages. It’s it’s not all bad things are getting better. But we need to build a hell of a lot more with the population coming. So this if things are easing, that’s great. But like the long term arc, we we’ve got, we’ve got issues.

Erwin 1:03:18
Where do you see prices going? It’s November 2023. Right now,

Speaker 1 1:03:23
I don’t know I don’t have a crystal ball. I mean, I I think as long as interest rates remain elevated, probably pretty sideways. If we actually have another 25 basis point increase, like I could see them dropping a little bit. It’s funny. So there are two different markets, the resale and new. On the resale side, there’s more room for stuff to drop, because if somebody needs to sell their house, they’re going to sell their house. And there’s lots of people that don’t need to sell. But you know, there are divorces, deaths, people moving jobs, like there’s always people that need to sell, and if they need to sell they’ll drop the price. Whereas on the new construction side, the cost of land is the cost of land. Labor may be easing a little bit, but not significantly. And they still need contingencies in we just talked about the cost of materials. And then of course, we just finished the conversation on taxes like I don’t think the City of Hamilton or Toronto or Oakville and Mississauga are going to massively cut development charges. The province and the Feds don’t sound like they’re going to massively cut GST or HST or land transfer tax, although the beds and provinces have reduced or eliminated GST on purpose built rental, which is an absolute game changer in terms of making those performance work, so that there are positive things happening, but it makes it more difficult on the new site to actually cut prices. So they just they just won’t watch. So that there are projects sitting on the sidelines that are probably ready to go but if they can’t If the revenue can’t cover the expenses and costs, they just won’t

Erwin 1:05:04
launch. So they’re ready to go in terms of they have their approvals, they just haven’t started selling them yet. It’s that

Speaker 1 1:05:09
or where they’ve started selling them and sales aren’t really going anywhere, and they’re not going to cut their

Erwin 1:05:15
prices. Right. So, so they’re willing to wait, oh, wait, I

Speaker 1 1:05:20
mean, you may see a tiny bit of easing off, but you’re not going to see big price cuts,

Erwin 1:05:25
what are the laws in the way just like strong capitalization, strong cash positions, I

Speaker 1 1:05:30
mean, if somebody’s in trouble, then then they may be willing to to cut prices. But the the other component here is like a builder or developer, like it’s not 100% capitalized themselves, like they’ve got partners and financing and the banks, right, like the banks, you know, you’ve got your term sheet, the banks aren’t going to move forward on a construction loan if the project’s not viable. And if you start slashing revenue, in an environment where the banks are getting even more conservative, because they’ve seen where prices and costs have gone up over the last number of years, they want to see a contingency. And of course, there’s the higher interest rate environment. So there’s, there’s a, there’s a profit squeeze. But then there’s also a squeeze on the financing side, because, like, money’s not as liquid as it was before, like people everybody’s tightening up. So to me, that just means on the new side, I don’t see prices coming down. But as I said, on the resale side, yeah, they could ease up a little bit. Like, I’m hopeful, and I’m sure all your listeners are hopeful that the Bank of Canada will start easing up at some point in 2024, I don’t think it’s going to happen early 2024. But whenever it does happen, I think you’ll see a lot more optimism in the market, because once once they start cutting, they’re probably not going to turn around and start going up again. So that’s sort of an indication of the long term, you know, I don’t think we’re ever going to get back to where we were at the depths of pandemic, we’re basically like it was the lowest it could possibly be. But you know, as we ease up a little bit, I think more buyers will come back into the market, there’ll be more optimism and things will start moving again.

Erwin 1:07:17
Because that’s the funny thing is we are housing crisis. But there were in a buyer’s market, though.

Speaker 1 1:07:24
But that’s the long term problem is that the population is still growing, people are still coming. So we’re in a weird spot right now. Because when you start like,

Erwin 1:07:35
well, the people coming in aren’t allowed to buy either, because we have foreign buyer taxes, but they

Speaker 1 1:07:39
need a place to live. So whether it’s investors buying and they can rent. So investors environment now. There’s still a lot of housing completions happening right now, by virtue of the stuff that started construction before. So there’s a lagging impact. So if in 2023, and 2024, and maybe 22, you know, we’re not starting a lot of new projects, that doesn’t really start showing up in sort of supply deficiencies for two or three years later, as to when they’ll be complete. So if things have slowed down this year, or next year, it’s the issue is two or three years down the road, when there’s a lack of completions, there’s a lack of stuff coming on. And that’ll be potentially, when the markets going gangbusters again, because interest rates have come down more people are buying, we still have the population growth. But in that very moment, there’s not going to be a lot of new stuff coming onto the

Erwin 1:08:29
market. And then we’re back to Hunger Games for housing. sad state of affairs. So we already mentioned that you don’t see prices really coming down for for new construction. So there’s no technological, major advances that will cause deflation. And in real estate, unlike that YouTube, I told you about, I saw with the 3d printing of houses.

Speaker 1 1:08:49
So one of the biggest, I think bolts of the industry that I’m in is we had productivity is an issue. We have a serious lack of skilled trades. We’ve got wave of retirements, like a if anybody goes to a new construction site, you’d be surprised by the average age if you walk around. It’s not a bunch of young guys.

Erwin 1:09:11
Oh, they’re near retirement, then. Yeah,

Speaker 1 1:09:12
there’s a lot of folks near retirement, we, the government’s done better. There’s there are more new entrants coming in now than there were before. There’s a lot more people in the apprentice ship system. But there’s such a gap, especially with retirements coming so one of the biggest issues our industry faces is we’ve got to improve productivity. We need fewer people to do more. And one of the biggest ways that we can do that is more technology shifting more towards modular pre production. If you look at other jurisdictions in Asia, in Europe, there’s a lot more modular factory built housing and I don’t necessarily mean the whole house is built in the factory. I mean, you know, you’re building a mid rise or a high rise there may be like wall assembly components that come in on the back of a flatbed. Truck and then there are assembled so I was in a plant in Sweden back in 2017. And it was amazing, it was looking at these these wall assemblies where, you know, they could tell me there’s exactly 36 nails and the precision is within like, a couple millimeters. And you know, there’s seven layers to the wall in terms of all of the insulation vapor barrier or whatever. And rather than being assembled outdoors, like we do here in the winter, while the winds howling, right, like, it’s, it’s built in a factory environment, just like we build cars, and then it shows up on site. And it’s kind of like, I don’t know assembled like Lego or mechanical, versus each piece by itself. Any

Erwin 1:10:39
idea how much cost savings are in such a model,

Speaker 1 1:10:42
you probably pick up costs somewhere, you probably lose costs somewhere. So I don’t have an exact figure for you, I think that the main eye opening component is the productivity and less manpower required. Let’s go towards the automation. So there’s, there’s cost savings there in two ways. It’s the productivity in the labor power, but there’s also speed these these projects are able to be built faster. You know, one thing that’s has you know, it hasn’t taken off in Canada yet but there are some mid rises being built out of like mass timber wood versus concrete and because the time it takes concrete to cure and all of that you can build a mid rise wood building faster than you can build a mid rise concrete building, but there’s, you know, other credit and logical issues there. Right, but

Erwin 1:11:37
it’s also fire retardant. YouTube, that

Speaker 1 1:11:39
one as well. Yeah, the mass timber like people sort of think, oh, it’s wood, it’s gonna burn for like a match. It doesn’t it’s like these, these mass timber is sort of cross laminated timber, you know, their burn rates. Some of them when in tests lasts longer than steel, like the steel will melt before. Like, these wood columns are thick, like they will char and harden.

Erwin 1:12:03
I think I saw it on your Twitter, either you are you or someone else. We’re conversing about it on Twitter. And that’s where I learned about mass timber.

Speaker 1 1:12:10
It’s pretty like it’s taken off big time in Europe, especially in Scandinavia, we’ve got some mass timber stuff going up here, not not as much as I thought there would be when the the building code was changed in 2015 or 2016. There’s some more code changes coming. But yeah, there’s there’s a handful of projects in the Toronto waterfront, there was a demonstration project in Vancouver at UBC, that’s actually 18 floors. Couple in the waterfront and Grimsby. So they’re here in there, it hasn’t taken off in a massive way. But there are a number of companies that do build mass timber.

Erwin 1:12:42
Super cool. And I circle back to the membership like what what is a member? Because I think everyone, I’m cheap. So naturally, I would go to a nonprofit to see what I can learn who I can network with at least try it out. Right? Like, well, how much is the membership at Western homeowners, homeowners association, for

Speaker 1 1:12:59
a builder, it’s around $2,000, an associate member, which is a non builder, I’m not going to have the exact number, it’s somewhere around 14 or $1,500. And that all year, for the year, and it also, we’re a three tier association. So with that fee, you automatically become a member of the Ontario Home Builders Association, and the Canadian Home Builders Association. And there’s all kinds of benefits there networking opportunities, same as a gym membership, it’s not much. Yeah, it’s an integrated network, from coast to coast from St. John’s, Newfoundland, right out to right out to Vancouver Island.

Erwin 1:13:36
And again, like all the biggest players will be there. All of

Speaker 1 1:13:40
the biggest companies are there in terms of those building, building our cities, building our communities. And as I said, it’s not just the builders, it’s, you know, the lumber yards, the financial institutions, there’s tons of small independent businesses, because they find it’s a great way to you know, rather than spending all your money on advertising into the, you know, this the sea and hoping somebody sees you, it’s very targeted, you join an association, you know, it’s kind of like a chamber of commerce, right? You join an association, you target a potential, particular client base, and you get out there and you network, and you show your product off and get some business.

Erwin 1:14:21
So I don’t like giving advice, but shouldn’t everyone who’s considering being a builder or developer be a part of their local Builders Association?

Speaker 1 1:14:30
I wouldn’t say everyone. I think ethical, strong business practices are critical. And look, there are some people out there that have a different way of doing business and we don’t want them as part of our membership.

Erwin 1:14:42
I assume they’re good people that listen to the show, so they’re likely good people. All

Speaker 1 1:14:46
right. Well, for all your listeners. Check out just Google West End Home Builders Association. If you’re in the Hamilton area, if you’re in a different area, check out the Ontario Home Builders Association. And you know, though there’ll be a list thing there of, you know, the London Kingston wherever you are there is a local chapter.

Erwin 1:15:05
And then how if someone wants to join, What’s the process like? Do they get a free month or anything like that or everyone’s

Speaker 1 1:15:11
different. So for us in in the Hamilton area, we have full membership deal going on right now, since the beginning of November. If you join now you can become a member now, but you don’t pay your fee until 2024. And you basically you pay the 2020 for a year and you get the rest of this year for free once we got lots of events, we got our president’s gala coming up in a week, AGM where we’ve got some great guest speakers and economists coming. Couple of networking socials, we also do a lot of professional development. So those that are interested in building in the building science, like there are some pretty major building code changes coming up. And rather than reading about them or YouTubing about them, we’ve got some of the top like instructors in the country coming in for like detailed hands on course around some of the technical building science changes to the building code.

Erwin 1:16:04
You just had Dr. Mike Moffitt on as well as the past guys. Yeah,

Speaker 1 1:16:07
it does. So we did a really cool research project. I’ve done two or three now with Mike Moffett. So we had an event in the spring where he was our keynote speaker and ran through a lot of his research like he’s, he’s awesome. So, you know, it’s a networking event, but includes a lot of good information. So we’re all about information, professional development, education, a diversity of events. I mean, tonight, we literally have an under 40 pub crawl. So I don’t know how educational it’ll be. But, you know, there’ll be 5060 young entrepreneurs out and what better way of making business contacts or socializing, you know, over a beer at a pub somewhere. So we try to capture a variety of different opportunities and options. And look, if your social network is your business network, you’re probably doing pretty well.

Erwin 1:17:00
That’s awesome. That’s super awesome. Everyone should check it out. Thank you for like, 1450 a year. That’s, that’s really cheap. Compared to that, because I see like masterminds or whatnot being offered.

Unknown Speaker 1:17:13
I don’t think anybody should hike my fees. But

Erwin 1:17:16
yeah, fine. It’s still it’ll be a shadow of what like these masterminds cost, like 10,000 a year. Mike, we’re running out of time. Anything else you want to share that I haven’t asked?

Speaker 1 1:17:27
No, I mean, I hear a lot of pessimism out there about the market and where short term rates but yeah, it’s short term. I you know, the great thing about real estate is it’s real there. There are ups and downs. It is a cyclical market. You Canada is the place to be right that the population here is growing so fast that it’s causing challenges. But I think the long term arc for real estate investment for housing for land development, it’s a solid business to be in,

Erwin 1:18:01
because you don’t see anyone not. But developers are still buying land, like people are still accumulating stuff.

Speaker 1 1:18:09
It’s Mark Twain once said buy land, they don’t make any more of it. Yeah,

Erwin 1:18:12
you went I don’t know if you knew about Ontario. So fast here?

Speaker 1 1:18:18
Well, you know, sorry, the latest population estimates, I got my one stat here, Canada’s population grew by 1.1 5 million from July 22 to July 23. It’s the biggest jump and all of the g7. Our population growth rate is 2.9%. Like, I don’t think we’re going to maintain this level. But like, if we stay at that level, we will literally double in population in the next 25 years. So, you know, we’re we’re well on our way, you know, from the 40 million to 50 million to 60 million and and, you know, whole country is growing, but it’s places like the greater Golden Horseshoe Vancouver that, you know, we’re going to be superstar international cities in terms of just dynamic global cities.

Erwin 1:19:04
Any idea what our growth rates going to be going forward? Because I think there seems to be rumblings that the people in general are not happy with the with the growth rate it is and you’re seeing it with the government as well.

Speaker 1 1:19:14
I certainly support growth, we need growth, we need the labor, because we’re not having babies. Yeah, and the rest of the world to grow, you know, we got to remain competitive. That being said, I think there is fraying of the social fabric. And I think a lot of that has to do with the cost of housing. People want safe, secure housing.

Erwin 1:19:38
Affordable, affordable.

Speaker 1 1:19:41
Attainable, I use the word attainable versus affordable for your average middle class family like that sort of the nest egg and the idea of being able to buy a home and that could be a condo townhome, like whatever in and you know, that is sort of the nest egg of sort of Growing your equity and being able to retire and provide for your family and and that’s kind of been broken in the last five to 10 years. And I worry in the long run if Canada keeps growing at this pace, and if we don’t figure out this housing issue. You know, I don’t want to get too political. But I just think we’re seeing a lot more polarization in our society right now. That would, that could get worse, probably worse. If, if more and more people are left behind in housing is the key ingredient to a stable society,

Erwin 1:20:39
who’s most pissed off and who tends to protest young people? And they should be rightfully positi? They

Speaker 1 1:20:44
should, because they should be pissed off. I think I’ve said it a couple times, like you can, you can work hard, you can do all the right things, and you’re in your early 30s. And still living in mom and dad’s basement or, you know, with crappy roommates and an overcrowded plate like, that’s some Yeah, that would make me angry to

Erwin 1:21:05
Mike’s. Thanks so much for doing this. Thanks for the time. 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. 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 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 r