**Transcripts are auto-generated.

 

Erwin  

Private loans go bad and bailing them out lessons for managing 150 million in a downturn with California that before we get to that Welcome to the truth better real estate investing show. Thank you too all the time listeners who leave five star reviews on any platform and shut up to all those listening on Spotify, emitting five star reviews, I’m just returning from a retreat with my mastermind group and entrepreneurs organisation conference in the lovely Victoria BC where I met several successful victim entrepreneur foreigners, including real estate investors. Some of them do midsize development projects, like for example of starting with a four Plex, and then they tear off the roof, and they add two more units on top and they dig and underpin the basement to add two more units to the basement. So they took what was a four Plex and made it an EIGHT Plex. So basically they’re gonna double the rent. They’re probably gonna do more than that though, another developer owned hundreds of acres in the Niagara region. And then they’ve since sold that off in pieces to builders. Another builder I met is happens to be from Mexico building develops in both Mexico and in Vancouver. He does midsize use large, not large but a mid size residential with commercial on the ground level in the symbols land. For example, he he shared how he bought a couple houses next to each other in Vancouver, which is going to develop another investor I met flipped hotels way back when he bought them distressed from a bank during a recession, paying very little pennies on the dollar. And then later turned them around and sold them off. And these were big brand hotels at the end product was a big brand new hotel that you’ve likely heard of before, likely stayed in before. One thing I really enjoy about being part of these events and entrepreneurs organisation is connecting with entrepreneurs and investors. And what’s great about them is is how honest they are we actually go to have to go through extensive training to belong to this group, which involves being vulnerable and speaking from experience. And yeah, we don’t small talk much. Instead, we go pretty quick. And because we’re all we all have many things in common, we cut most of the bullshit. And again, we go straight to the truth pretty often pretty quickly, which is what I enjoy. I enjoy learning and I enjoy hearing the truth. Also, there’s no solicitation rule and the network folks can’t do business together. But one party to a conversation must invite the other person to pitch there is no unsolicited pitching possible and members must meet a certain financial milestones and have be signed off by one’s accountant. So again, everyone at least has achieved a certain level of success to be part of the membership. It’s not like those weekends. You know, I’ve been to like those weekend real estate whatever’s and just the last one I was at as last by complete stranger. I was interested in investing in their development project, their second ever development project. Yeah.

 

Erwin  

Damian, I was originally from Mexico. He’s, again, he’s the Mexican Vancouver developer asked me if you would be a guest on this podcast. Naturally, he asked what podcast he’s obviously not one of our 17 listeners, like the vast majority of Canadians. So I tell him what’s called the truth about real estate investing show for Canadians. Damian then proceeds, he whips out his phone. And he asks, Are you on Spotify? So yeah, we’re on all major platforms. And I told the name of the show, we typed in the search. And to my pleasant surprise already on Spotify is 4.9 4.9 out of five with 49 Reviews. So there’s not nearly as many reviews compared to Apple podcasts. But the rating is higher. So all of a sudden, I’m feeling very confident in that Damien is honoured to be a featured guest of the show. So yeah, for all you listeners, I know we do have a lot of Ontario guests I know. And but you know, sit tight, we do have some folks coming from the west coast shortly. So thank you to all who have left a five star review on either Apple podcasts on Spotify, or wherever our platform releases on. It does help me book excellent guests of the show, you know, the more listeners we have, the more five star reviews we have, again, that helps me attract high quality talented people. And then by having better guests on the show that helps us improve that we all improve as a collective, and learning from how world class investors we will learn from their mistakes, their best practices, and what makes them tick. So that you make take it away, you may leverage the experience of others in order to bring you better success in your own business. And because who knows what the recession will bring. From talking to the big time ballers again, in the real estate side, I met several people who have made well over 2 million in real estate. So again, they’ve made over 10 million, write their own 10 million they made over 10 million. They got their eyes open for opportunities. No one really knows where things are going. But everyone’s got their these guys who are doing quite well for themselves. They get their eyes open and those who are leveraged. Well, those folks are not having any for sort of fun, but that’s just real estate stuff. There were other successful people outside of real estate investing. But before I get there, there should be no surprise. A lot of successful real estate entrepreneurs out there. That should come as no surprise but this wasn’t an entrepreneurs conference. So there are many other experts speaking including the owner of 100 got junk. I think I’m sure many of you have seen their trucks going around. I believe they are the largest junk removal company, at least in North America maybe the world, they do over $700 million in US revenues, some 100 million US and revenues a year. So he had some stories and lessons to share. I shared the sign an NDA. Before that speech, free speech was given after the we had the founder of HootSuite sharing his story, and what he’s doing with this venture capital fund. He’s ready $100,000 checks and mentoring young Canadian tech entrepreneurs. So very fascinating stuff. There’s many ways to make money, both morally and ethically. Well, yeah, again. So there was this mind blowing expert. My mind was mostly blown by the AI expert. This gentleman went viral as he was able to hack into his own bank account in five minutes using an AI tool to fake his own voice to beat the voice recognition protocol on his bank account, the CEO of the bank, called Nicholas has named the speakers named Nicholas, the CEO of that big column shortly after asking for advice. I’ll be inviting Nicholas onto the show. And I mentioned that we have many wonderful listeners who have given the show a five star review AI in the real estate context. However, Nicholas has shared how he designed and delivered a website, a very, very impressive website for real estate developers purposes. So it’s a gorgeous looking building, I think it might be Mason as a custom home builder. But anyways, the content so everything that went on the page, he said, It took him about 15 minutes to create using a number of AI tools. So he shared that this business model will dominate going forward, who can create a replicatable business model using AI to save time and money? The analogy he used this there is no staples, easy button, a human being will still need to put it all together and assemble it and review it for accuracy and quality. And whoever successful at this model will put the slower more expensive companies out of business. So you better believe me? I’m looking into all areas of our business, including property management, on how to better implement AI, then I’ll have I’ll do some later in the show. Actually. Personally, I’m always afraid of the future, which leads me to research and take action. Real Estate Investing makes a tonne of sense to build wealth. It’s it’s less difficult to do the most than most ventures, and it’s honestly the right solution for most Canadians most of the time, if done correctly. Speaking of being afraid of the future, I’m always worried about my kids. I am a hyper overprotective parent in particular, them being bullied from my experience of being bullied was not enjoyable at all. It really hurt my confidence growing up and self esteem and I wouldn’t wish it upon anyone. Hence I’m hacking my kids self defence by having them trained the most effective, efficient self defence martial art, which is Brazilian jujitsu. My kids got just last week, we’re finally promoted from wealthy white belt to grey slash white belt. I can’t expand on the belt system. But anyways, they got promoted, the delays were caused by the pandemic. And that wasn’t any fun, and I honestly couldn’t be more proud. My son being only seven. He shares almost everything to his classmates. He really has no filter, the happily shares a story of that time I tore the back of my shorts while trying to do what’s called a bomb drop on a trampoline in front of my kids and my family friends. Thankfully, I was wearing underwear my son even shared to the class bully. The class bully happens to take karate, and my son he takes Brazilian Jiu Jitsu, the bullies response, he has no interest in messing with my son. Mission accomplished proud dad moment check. Speaking a mission accomplished the head of the Bank of Canada raise rates again by point two 5% to further slow the economy and the real estate market just like they were slow to respond to all the government pandemic money flooding into the economy. inflation rates were well over 4% in 2021 debate, it looks to be overshooting on rates now, as we’re now at an overnight rate of 4.75%. While inflation over the last two months were 4.3 and 4.4. So yeah, we’ll see where things go. My prediction is inflation rates slow. So again, who knows what the candidate is gonna do. But to me, it is what it is I can control what the government does. I just read and react. The way I see things is the housing markets recovery. It’s been too fast in my opinion. After the downturn, the downturn went pretty quickly in terms of how aggressively it fell. And in my opinion, the recovery has been very aggressive and fast. And some of my rich friends out there, they’re having trouble getting their offers accepted in Toronto, and they’re they’re offering you know, hundreds of 1000s of dollars over asking, but yeah, these elevator rates should still the recovery as financing gets more expensive, which means more tenants for us existing landlords. Not that we need that much more help considering the hundreds of 1000s of international students coming each year. If you bought smart in a college or university town, just like our clients always do. Well. You’re laughing. Speaking of buying smart normally I wouldn’t be promoting one of our I would mastermind tours in Hamilton, which is coming up June 24. But it’s already sold out. So stay tuned for next time. Our next event is online, virtual and online. Via zoom. The iWin meeting is Tuesday, June 25. At 7:30pm. We will be sharing the highest and best use real estate investments for the beginner investor slash developer to maximise returns while helping society at the same time. Yes, you can make a great return and Do good for society, which includes creating more homes and density. Now, onto this week’s show, you know about the downturn, we just experienced, and like many of you has curious how the private mortgage companies fared. So I reached out to California whose company manages 150 million in private mortgages. That’s right. 150 million assets under management that they lend out to for alternative use. They’re not like a bank. Like the like the big banks. They are small 100 We’re dealing small compared to the big banks. It’s not small to me, though. Cow tells it like it is he shares how many mortgages went sideways during the downturn, what lessons we’re how Kyle and his staff put up time and money into taking over failed burr projects and flips, major renovation projects to finish projects and sell them off in order to make his clients whole. Why? Because it’s the right thing to do. Treat other people’s money better than you treat your own. If you want, invest your own money into your project, and you can pay people back when deals go bad, then don’t use other people’s money. If you don’t believe me, ask bankrupt investors, how they, you know, we’ve had bigger investors on the show, ask them how much other people hate their guts, people’s money, who they lost, and we can’t pay them back. So instead of using other people use debt pipelines, and I all use the deadly first mortgages, largely first mortgages and home equity lines. It’s cheap, and you don’t have to give up control the project. You don’t have to give up any equity in the project. And it should be everyone’s first option. If those things aren’t, were never available to you. I think you need to question let me move question. I think your priority is go make more money in your day job first, back to Carl’s interview, we journey back to when he was an alternative financing borrower because Carl was a was he was taking courses he’s doing value add projects, so he was buying, doing major renovations renting them out and then getting new mortgages. So he needed short term money to do those those sorts of projects. And then came 2017 When the more distressed has happened and Carl had limited financing options, but he needed mortgage money short term mortgage money in order to continue funding his value add real estate investment strategy in business as the saying goes necessity is the mother of all invention. Kyle found other sources of private capital then he started brokering his own deals. He comes from a financial planner background as well yada yada yada, I’ll I’ll explain. He now manages a fund. How’s that for yada yada? Chuck is going from a duplex triplex investor to managing $150 million fund in Cal limits just like we do on this show. It’s never all sunshine and rainbows as mentioned some borrowers of his went sideways and Cal shares how those deals went PostScript and how what happened when he had to take them over and also his lessons from the downturn. Child also has contrarian opinion of promissory notes as well. So you do not want to miss this episode about the truth about being a private lender. Now, as we are covering secured as investment here comes to the disclaimer. And I mentioned I looked at for you how to use AI more and more. So I used AI to write to write the disclaimer that’s coming up in a separate AI tool to voice the disclaimer and it’s did it all for free. So this also saves you all from having to hear me stumbling mumble. To reach out to Kyle and company website is cap gap and ft.com Again, it’s cap gap mft.com And his email is info at Kyle for mortgages.com. All of its in the show notes please enjoy the show.

 

AI  

Disclaimer. The Information and opinions expressed in this podcast are solely for educational and informational purposes and should not be considered as investment advice. The hosts and guests of this podcast are not licenced financial advisors brokers or registered investment advisors. And their comments should not be construed as recommendations or endorsements of any specific investment, security or strategy. investing involves risks, including the possible loss of principal. Before making any investment decision. You should conduct your own research and consult with a licenced financial advisor to determine the suitability of any investment for your specific financial situation and investment goals. The hosts and guests of this podcast make no representations or warranties as to the accuracy, completeness or timeliness of any information discussed in this podcast. The podcast is not responsible for any errors or omissions or for the results obtained from the use of this information. listeners are advised to use their own judgement and seek the advice of professionals before acting on any information provided in this podcast. The podcast shall not be liable for any damages, including but not limited to direct, indirect, special or consequential damages arising out of or related to the use or inability to use or reliance on any information provided in this podcast.

 

Erwin  

Hi, Kyle, what’s keeping you busy these days?

 

Kyle  

They are doing well keep him busy with real estate, the mortgage business, the new private mortgage fund and everything else. Family Friends, all that good stuff as well. So

 

Erwin  

I imagine you’re pretty busy like you do I have a good number of clients and a sizable team and you’re just starting new fund, which is probably a lot of money in it.

 

Kyle  

Yeah, it’s double digit number of corporations that I’m managing and operating right now. It’s all real estate base. But yeah, I feel like I’m pulled in a few directions. One of my goals in the new year is I’m trying to get a little more focused. Try not to, as you grow your real estate portfolio, some people, including myself, can be guilty of the shiny object syndrome. And I’ve heard that a little bit over the years pursuing different types of investments, but really trying to get focus. Now,

 

Erwin  

that’s actually an interesting point. Because like you’re at a scale that you’re quite large, and you push a weight around, including like, pretty large scale developments to how are you choosing to focus then going forward? You have lots of opportunity to look at the you know,

 

Kyle  

yeah, so you know, the personal stress is a big part of my new performance. What is this deal? What is my responsibility in the deal? What is my partner’s responsibility in the deal? How much investor capital do we have in the deal, and what’s the ultimate stress level that’s going to be put on the personal and the partnership in order to execute it, that’s a big factor that isn’t a normal line in a lot of people’s performance, but something that I take very seriously now. So we’ve done everything from small singles, triplexes, large, multi, large development, we’re definitely more focused on development deals, larger multifamily, and private lending. So those are kind of the three tiers. We are in the hospitality space with cottages and a hotel, and we’re gonna keep running with the hotel. But the cottage business is been great to us. I love it, we had over a dozen at our peak, but we’re definitely trying to lower that a little bit, just a handful of a couple of nice cottages that we liked, but not really trying to grow that business anymore.

 

Erwin  

So Kyle, when someone asks you to tell him about your business story. So for example, apartment building investors, real estate investors, they often talk about how many doors or may have properties they have. What do you tell people?

 

Kyle  

So a couple things. So first of all, I don’t talk in doors, I talk in AUM assets under management. So like between my private lending portfolio, the properties that I own, the properties I invest in, in terms of AUM, I’m well above 150 million in terms of assets under management. So that’s really the the language that I use, I stopped chasing doors a long time ago, when I do a deal. I’m more concerned about the lift, what am I buying it for? What am I spending on it? And what’s it worth when I’m done, I’m blessed to have a successful business that generates me lots of income. So I don’t need the cash flow from my properties to support my lifestyle. I’m not saying I don’t buy cash flow properties, because that’s, that’s still important. But I don’t actually need that money coming off the properties to support my lifestyle.

 

Erwin  

Right. So when then what do you do with the money within within the properties to continually

 

Kyle  

reinvest the cash flows coming in on those properties, reinvesting and buying more larger deals? Those type of things? Right, right. Right. Now, one of the things that I’m doing in my portfolio, when I talk about getting focused, is I’m selling a lot of the small stuff to allocate more towards my fun, which is private lending. So looking to get a little bit more passive. I’ve been in the grind for 10 plus years. And so it’s nice to try to direct a little bit of cash towards passive investments, we’ll get to

 

Erwin  

the fun in just a moment. But I want to say thank you for sharing that. That is your investment strategy in the apartment building space, because it always concerns me, I see a lot of marketing out there on like, current building multifamily about being a means to retire. Like to me, that means you only see a steady cash flow to retire. But you’re saying you’re reinvesting it all in versus like I fear for the novice that gets into it, if novice will often overpay, because that’s just the position they’re in, they don’t have those relationships to get a deal to come to them. And then the cash flow would not be sufficient to for them if they quit their job.

 

Kyle  

I see it all the time. And we use that novice example of they’re trying to find a money partner, and they’re gonna be like, the property is gonna cash for X amount every month. Yeah, but can we really take that out of the account? Can we really leave? I know, we have a repair maintenance budget, and we have vacancy budgeted and all those things. But can we really take that couple $1,000 a month out of the account and spend it in a lot of the deals that I’m looking at and I’m analysing the answer is no, that money needs to stay in that account unless both partners are prepared for cash calls later. But if we’re taking the money out to put it back in later, what’s the point? Right, yeah,

 

Erwin  

yeah. And then you see deals from both from your mortgage business and from your own whatever crosses your desk for your own portfolio, right? That’s right. So you see a lot. deal flow is not an issue. Right, right. Because your clients are bringing you deals as well to evaluate for them for financing purposes, right?

 

Kyle  

That’s right. Oftentimes asking if I know anyone who wants to put partners who are interested, we don’t broker partnerships. We broker private money, but people are often looking for partners looking around the deal by the coming to me saying how is this going to be Find out so I can project a performance to a partner, those type of questions.

 

Erwin  

So let’s talk about say someone brings you a deal and needs money. You said that you broker private money. What if you need a first mortgage on an apartment building? That’s not?

 

Kyle  

Yeah, of course. So we’re a full service mortgage team or brokerage. So we deal with the big banks, the big lenders, alternative credit unions mix, the entire spectrum of lenders, we deal with in other private so institutional privates, like mechs, we also have our own private money, we have our own fund money. So it’s based on what the client needs the best interest of the client, we can run them through the run them through the spectrum. What we’re seeing a lot now and this is I’ve been seeing this for a while, is a lot of the purchases aren’t being done with the eight rate lenders, they’re being done with an alternative lender to get in help stabilise the property. And then once the rents have been stabilised, utilities passed on, fixed up, etc, then the property’s more stabilised to go to a CMHC type lender to go to a big bank or credit union etc.

 

Erwin  

Interesting. What’s like the like the baseline for someone to go alternative versus a lender. Like, well, what point because I’m a novice to this area.

 

Kyle  

The biggest thing, the biggest thing that I see is, especially in today’s environment, with the higher interest rates, when they’re running an noi calculation, the amount of down payment required to go straight to a big bank right away on a multifamily type deal is pretty large. So and this is also going to go back to kind of the profile of who this person is and what they’re buying. If you’re buying a relatively turnkey apartment building. So maybe it’s not like top market rents and a beautiful condition, but the rents are decent, the income and expenses are okay. And you’re buying it on market, you’re probably looking at a 30 40% downpayment, just based on where the rates are today. That’s what we’re seeing on a on an average basis. Now, if you’re but what we specialise in is we finance a lot of the really dilapidated stuff. So buildings that are really low rents really rough condition are gonna go over a major overhaul,

 

Erwin  

right, evaluate strategy, the value

 

Kyle  

add strategy, so we’ll finance those at a higher loan to value because there’s going to be significant capital injected behind us. So those are the type of strategies we need more specialise in. But if you’re buying an A, the truth of the matter is, if you’re buying a a rate type deal and apartment building, that’s an eight rate deal, you’ve probably not got a great price on it, it’s probably been sold at a pretty fair market value. Most people who are going to sell a good building aren’t going to give it away. Most of the people who are giving selling an apartment building at a discount are because it’s in rough shape. So when you’re buying something at market rate, and you need traditional financing, it’s a pretty large down payment. So 30 40% Down payment that we’re seeing a lot, which is causing those borrowers to say, Hey, can I go with something a little bit more alternative to get into the deal, so I don’t have to put so much money down, it will impact my cash flow, but at least I have less money down upfront.

 

Erwin  

Because they need to preserve cash for the rent. Oh,

 

Kyle  

that’s right. So even though it’s good buildings that are in decent shape, there’s still some units that they want to try to turn over, there’s still certain things that they want to do so

 

Erwin  

right. So then in an alternative, I know that’s a broad topic, but then an alternative mortgage that alternative lenders situation, how much down does someone need them

 

Kyle  

alternative, so it really is gonna range they’re gonna consider an ROI, it can be as little as 20. Depending on the private deal we’re looking at, we fund private deals with as little as 15% down, that’s got to be a big value add though, we got to see a big lift on the property. But 20 25% in the alternative space, a lot of credit unions are still doing 25% Down 25 year rims. So the CMHC is the holy grail of this space. But the truth of the matter is a lot of deals aren’t actually going through a CMHC because it’s not quite working out the way it needs to to fit inside their box. So credit unions are picking up a lot of a lot of that slack. Right now. They’re doing a lot of 25 year AMS 25%, down a little bit higher rate, but gets you into those common sense type deals, and aren’t great cash flow to the gate, but it gets you into the property with a reasonable down payment and you can start doing improvements to management, expense reduction, turning over units when possible, getting rid of delinquent tenants, etc.

 

Erwin  

Fascinating and then much so bad and depends on the investor themselves on their ability to unbearable cities, their resume their background,

 

Kyle  

and that’s what I always call the investor profile. Is this a high net worth person just looking to park cash? Or is this a couple of who’s really trying to expedite their growth or a couple or an individual is really trying to expedite their growth and grow fast and use real estate as a means for retirement. So that high net worth Doctor Why are you just parking cash, they might not care. They’ll wait for the building to turn over that other profile might be looking for a more aggressive strategy to turn things over.

 

Erwin  

Right? Right, right. And imagine you met a lot of these hustlers. I’m sorry, I’ve worked on the word hustlers.

 

Kyle  

Yeah, I appreciate somebody with hustle. I appreciate with somebody who was willing to put their nose to the grindstone and get a deal done. Or I’m blessed to work on both sides of it, where I have, I have a lot of people who are willing to hustle and grow. And I have a lot of high net worth people who are just looking to park cash and deals. So it’s really been a blessing for me and growing my business. Right.

 

Erwin  

And then Colin, I want to talk about your private lending business. Can you start with where you started in the private lending business? And now where you are now? You’ve gone you’ve gone far?

 

Kyle  

Yeah, yeah, I’d love to. So I got my start. And I’ll tell you a little background. So some people might know me, some people may not. It’s 2023. Today, I started investing in 2013. So 10 years ago. Now, I feel like when I say I’ve been in the business for a decade, it makes me feel old. But I’ve been in the business for a decade. I started with my first couple of deals with pre construction condo, single family home, a triplex, and I came from the financial services space. So I was a financial advisor. So I was really into, you know, the cost savings and the the cost of the money. And for me, I started off with partners, so I partner with people, so we get a low cost mortgage. And in 2015, I went to a real estate education company, you know, an HGTV star from that is coming here town going to teach you about real estate. So I went to one of those and I learned a tonne. And I learned about the Burr and the flip to yourself strategies where you buy renovate, refinance, repeat. And I remember for the first three years after that, I would say all the time, I don’t know why anyone would do private money, just burn, just burn, just get your money back on. You don’t need private

 

Erwin  

parts of a lot cheaper back then though.

 

Kyle  

Well, 2018 happened in a hurry. And that was when the stress test came down the mortgage lending market tightened. And I still remember my first private deal the first time I’ve worked with private money, my lovely wife, and I Chelsea bought a property in 2017, right before the change, and she got the mortgage in her name. And we sold the property right into 2018. And we tried to port the mortgage and we had a new deal closing in a month. And they said no, sorry, miss you, you don’t qualify anymore. So we called her out. And we ended up finding our first private loan for a deal that we were going to do and we borrow that money

 

Erwin  

well from the subsidy.

 

Kyle  

And that’s when it kind of dawned on me, oh, maybe I can’t burr forever. And maybe I need to do something beyond the banks to accelerate. From there, a board a little bit more private money myself to fund my private, my own deals. And then about a year after that a lawyer that I work with still to this day, called me and said, Hey, Kyle, I know you have access to a lot of investors and stuff. Start telling people that you have access to private money. I said, Well, do I and who knows? Yeah, I have myself and my clients have a lot of capital. And we would love to finance the type of deals that we’ve been financing for you, your broker, your licence to talk about this stuff. Let people know that you have access to private money, we’re not guaranteeing anyone we’re financing their deal, just that we have access to him. Well, I would say that phone call pretty well changed my life, because I didn’t know any better. And I just started telling everybody. And what happens when you in this space start selling people that you have access to private money, and your phone rings, and it rings a lot. And we’ve been blessed to be able to develop over a relationship of a reputable private lender, we’re not the cheapest game in town. We’re not We’re not a discount private lender. But if I commit to a deal and say I can get it done I we get that deal done. So we’ve been a reliable source for a lot of investors to help grow and scale their portfolio. As I mentioned, I’m not the cheapest game in town. I’m not a discount private lender. We are a premium cost private lender. But when you need a deal done and you need a reliable lender you can count on and we commit to your deal. We’re gonna get that deal done. And the

 

Erwin  

industry has changed a lot because a friend of mine told me that privates are now have to be brokered, is that something that happened recently, last few years,

 

Kyle  

specifically with registered funds. So if you’re going to deal with the registered accounts, you have to have a broker and if you have more than five accounts, you need an administrator. So yeah, it’s absolutely it’s really best to have a broker involved. And I’m not, that’s not a broker bias. I will tell you, I deal with some of you in the real estate investor scene, if you will, the community of a lot of people that we see on social media doing with doing investing. I work with a lot of those people. And what a lot of them have discovered is our broker fee is 2%. We charge 2% to broker a deal. And what they realised is

 

Erwin  

just clarify, that’s the LEND amount of the total value of the property. My job as a realtor.

 

Kyle  

We’re like different 2% on a different amount. Exactly, yeah. So what a lot of these people found at first they they’re like, Well, it’s, you know, I could save that money if I raised some money myself. But what they realised quickly is if they don’t have to go through all the administration compliance, everything that we do to put the money together, they can focus on getting better deals, if they could do one or two more deals a year that make an X number of profit, paying me the 2%, to put the money together as a load off and actually more profitable for them. So as a newer investor, you have to learn how to raise money yourself, you have to be able to do it. But when you get to that pendulum of scale, it almost becomes less expensive to have a broker handle that side for you. And you just negotiate better deals. When you’re at the finish line of a deal negotiation. You’re like, I gotta get this 2% less, because I gotta cover paying Kyle on this deal. So that’s how a lot of the lookout,

 

Erwin  

I think many people need to understand like, how much stuff costs, like, for example, everything you need to do for your regulatory requirements. Yes, absolutely. We get to the fun and a bit, and you can tell me how much it costs you.

 

Kyle  

It’s a lot.

 

Erwin  

So this is awesome. So sorry, you mentioned that you’re working with a lawyer who had a tonne of money. Has the journey changed? Is that still the primary source of your capital? Your private money? Land? Yeah, no,

 

Kyle  

I like to call that my confidence was my confidence money. So it wasn’t out there. Just you know, I wasn’t full of it. Right? I was I was telling the truth, I did have access to private money. So it’s certainly a partner of mine and somebody that I still work a lot with to this day. But that also gave me the confidence to start talking to other private lenders, and start telling them that not only do I have other people who come to me to lend their money, but I now have borrowers coming to me because it got to the point where when I started telling everybody that that first layer couldn’t do all the deals anymore. So I saw that I call that my confidence conversation. That’s where I can put myself out there as a private lending broker. And not only did that attract a tonne of borrowers, it gave me the confidence to talk to other private lenders and say, hey, I can help you.

 

Erwin  

Okay, right. And you’ve raised a lot of money. You mentioned 150 assets under management, under 50 million, apparently is a lot of money out there. Is that your experience?

 

Kyle  

Yeah, there is. And you and I talked about this previously and one of the things that I’m really passionate about or it’s part of my core beliefs, there’s a lot of money out there, but there’s a lot of people that don’t respect the money and they treat OPM like a gimmick other people’s money yeah. Oh yeah. OPM, other people’s money like, Oh, I’m gonna get OPM, I’m gonna get OPM, they do big blurbs and videos, OPM, OPM, I don’t talk to people, I don’t talk to people about their OPM, I talk to people about their retirement account, about their children’s education fund, about their lifelong savings, about the equity that they’ve scraped together in their home. And when you start treating people like a gimmick, OPM, you’re going to struggle to raise money. But when you start treating people and their money and their hard earned savings with the respect it deserves, and bringing them secured lending opportunities, where they’re even owner in the property, or they have a registered mortgage position on title, you’re gonna find that the access to money expands very, very quickly, including referrals. People start telling, hey, I’m working with this guy, we lend your money. It’s a registered mortgage position. You know, this isn’t some fly by night operation. You’re lending your money as secured mortgage. Oh, really? What do you get a double digit return? Wow, tell me more. And they tell their friends and they tell their friends and high net worth people hanging out with high net worth people. And the high net worth communities. Talking about money is not a faux pas. It’s not bragging or boasting, it’s sharing and growing together. And so when you become a trusted source within those communities, your name travels fast.

 

Erwin  

So I’m naturally curious, who are your lenders have a high net worth individuals that are lending cash? Or are we even talking about like Mom and Pop who are lending like HELOC money?

 

Kyle  

Yeah, a little bit of everything, a little bit of everything. So certainly high net worth people with registered accounts. So RSP money TFSA money, definitely high net worth people into retirement. They paid off their house, they opened up a HELOC and they use that equity in their home to help service their retirement. And this isn’t a secret anymore. I give it I give it off pretty much every anytime somebody asked me about this, but I’ve got a great deal of capital from entrepreneurs who have holding companies and operating companies sitting on retained earnings. So maybe they own a manufacturing company. Maybe they’ll know windows and door companies. They’re our contractor. They were a plumber or a mechanic and they opened ran a business for years and retained a lot of money. In their corporations, they don’t know what to do with it. They don’t know what they can spend it on. And but people aren’t real estate investors, but they aren’t real estate investors. But they have invested in real estate, they have a shot that they own in some core area that’s worth a million bucks now and they paid 100 grand for it 20 years ago, the other house in the in the burbs that they paid 200 grand for, that’s worth 1.2 million. So they aren’t trained real estate investors, but they understand that real estate is a good investment, they made their money somewhere else, they don’t want to give you a landlord, and they’re sitting on these retained earnings. And that’s been a great source of capital for me, for those type of people who understand that real estate’s a good investment, their time is spent on their business, which is manufacturing or plastic park, but they want to put it into real estate without spending time or energy and private lending is a great spot for

 

Erwin  

them. Right? They want their net cash flow without putting the effort. That’s right. So Kyle, before we recording ends, we’re just gonna talk in general terms. So we’ve both done really well in real estate, a lot of people have done really well in real estate. Some people got it wrong, lost their shirts lost the other people’s money as well. So the loss of other people’s shirts, whereas private lending now and for example, before we were recording, I was gonna ask that I said someone’s gonna ask her opinion on promissory notes.

 

Kyle  

Yeah, so promissory note is a swear word to me, here’s, I’m gonna say about that. In terms of any type of scale business operations, promissory notes should not be part of that. Okay, so if you’re trying to be a serious real estate investor, and raise serious capital, and become an authority in the industry, and somebody that people can count on, as a place to invest in, and you’re doing promissory notes, I think there’s a shelf life on your business. Now, what I will say is, there can be a time and a place, if you have somebody you very much trust, and you have a long standing relationship. And there’s a small amount of money that you’re going to do for a very short term, 3060 days, clear exit strategy, and you really wanted to and you’re okay with doing that, I still would not condone that and think that’s a good investment. But that’s your call. But if you’re an investor, now, especially in today’s market, there was a time there a couple years ago, where the borrowers were almost calling the shots, there was almost more money than borrowers. So the borrowers were like, I don’t want to pay the legal fees to secure it. So the investors like, oh, I want to return, okay, I’ll do a promissory note. And it’s just crazy to me that people would spend more time researching their vacation than researching the security where they’re going to put hundreds of 1000s of dollars. So the answer is promissory notes. Don’t do them. It’s not a good investment for you, borrowers, your long term devaluing your brand. Lenders, you’re writing your money on a napkin, don’t do it. So secure your money, right, get a registered mortgage position, the way the market has changed recently. There’s a lot of demand for capital right now. Thanks, if lightened up mix and tightened up, the lenders have tightened up as a bond pa lender demand, demand, why not secure your money? Why not pay the lawyer to secure my money is my

 

Erwin  

money, it’s not that much money. That doesn’t cost much. It doesn’t cost?

 

Kyle  

And it’s funny, because I have people, some people will say to me, Hey, I saw that deal you just posted, Kyle. That’s a second word. I don’t know if I’m comfortable with that. And I would say didn’t you tell me you have $200,000 on a promissory note to somebody. I trust them. Okay, whether you trust them or not, register a second position charging charge the property. And I want to speak broadly about this. And this is specific about anything but in the event of a catastrophic failure of a company or business. The secured lenders get paid. First, the secured lenders can be released from the proceedings, and God the assets, take for them to deal with the unsecured lenders, sit and wait and wait for wires, professional fees, trustees, etc. All of these things, all of their fees come before your principal. And this is so important when everything’s rosy and happy and everything’s going well. And nobody thinks anything about a promissory note. But when crap hits the proverbial fan, the unsecured lenders are lucky to get pennies on the dollar. And that’s not an exaggeration are quote, pennies on the dollar. So secured lenders. However, if you’re a first position mortgage, what does that mean? You get paid first, you get paid first. If you’re a second position lender, after the first position lender, you get paid and you’re charged in that order. See You don’t have to wait for things to go through a big process. When the property is discharged, who’s in first they get paid first is their money leftover, you get paid second. So from a risk perspective, you want to be in first whenever possible. But if you have somebody you trusted, and you want to go along to them, say, Hey, I’m just gonna take your property with a second mortgage, just so I’m in line, just so there’s no question about where I am in line. If they say, Oh, well, can’t we just do it as an unsecured note? No, why is trying to flag that is a red flag. And why is it not important to you that my money is secured. And like I said, two years ago, there’s the market was in a weird spot where borrowers were calling the shots. If you’re a mon pa lender right now, and you got some money to put it into the market. This is my favourite line. And I’ve used this for years. It’s called the golden rule of lending. And the golden rule of lending is he or she, who has the gold makes the rules, they who have the gold, make the rules. So if you’re lending your money, and somebody says, I don’t want to do a promise, I want to do a promissory note. I want to pay legal fees. Thanks. Have a great day. Thank you in this market, secure money, get a registered position on property.

 

Erwin  

All right. I just wanna remind the listener, we had a lawyer on just like month or two ago, he’s a sole lawyer practice practice, and he’s working on 32 Power sales himself. So yeah, like, you can’t tell me it doesn’t hit the fan?

 

Kyle  

It does. It absolutely does. The people who are secured, but when shit hits the fan, the people who are secure, I’m not saying you’re not going to get have any stress in the scenario. But you’re going to be able to sleep at night. Your money is registered against something. There’s bricks and mortar tied to your money.

 

Erwin  

The reason why we invest in real estate, that’s why

 

Kyle  

your real estate, right, so if you’re unsecured, you’re not tied to anything. And I can assure you, you’re going to lose sleep at night.

 

Erwin  

That’s funny, like the promissory notes almost an analogy for fiat currency. When you’re out there hustling hard. Would you rather have something not secured by anything?

 

Kyle  

Yeah, I mean, I hear the odds are pretty good on blackjack and roulette. You know? And you laugh and everyone laughs when I say that. But that’s honestly what I believe when you’re doing a province or a no, go to the casino. Put it on block. Gamble. I don’t need either. I see all the time. I’m too financially literate to gamble. The odds don’t make sense. I can’t

 

Erwin  

I just don’t make sense. So Kyle, your name kept on coming up. So you can you can respond however you want. But your name kept coming up in the car like Thank you, Kyle, people are saying like, Thank God, Kyle should hit the fan. Thank God, Kyle was there to back it up. Can you elaborate on any any specific or general stories you want to share? Because shit does hit the fan, right? And then what?

 

Kyle  

In 2022, we were blessed to never have a default. Okay. In 2022, we had two different companies that went under, in total five properties. So three with one company and three with the other not going to get in any names or specifics or numbers or anything. But in my overall practice, we had five properties go into default over two companies. One of the value ads that I’ve always told my lenders is I’m an investor first. And if shit hits the fan, I will do whatever I can to, to help. And in these scenarios, the company’s the underlying companies that owned the properties that we lent money to went under. But the assets and the deals we lent on, were actually okay, like they were still decent deals. So the decision that I made along with my team, two agents on my team helped contributed some capital to me to help me get to recover these assets, we made the decision to buy all five properties from the power of sale process, we back paid our lenders the interest that they were owed for the months of the period, months of the power of sale period. So there was no loss, and they were out of the bankruptcy proceedings. And out of those five properties, it’s now this all happened in approximately September, we’re in April. Now, one of them has already sold, one of them is listed, and the other three are all being listed in the next two to six weeks. There’s some weather issues that we’ve been waiting on. For the exterior work to finish. In all five of those deals, all of my lenders will be receiving 100% of their capital back all interest, the only thing that they’ve had to do is had to stay in the deals a little bit longer than they want it to so I could get the construction done. But we were able to recover all the assets. And I’m not going to make any money on buying these properties. I should about breakeven, there’s two that I’m going to lose a little bit on two that I’m going to break even on and one that I should actually make a few bucks on to cover my other losses. So I hope to break even on the whole thing. And we made the decision as a team that if we You’re gonna take a loss by doing it, we wouldn’t have been able to do it. But we made the decision if we can at least break even to protect our lenders, I was willing to put the time and energy into doing that. And I will say this as a as a final thought on that, in no way is this a guarantee that I could do this every single time. But if I can, and if it makes financial sense for me to go in and step in and recover at the outset, I’m more than willing to do that, once again, we we earn a good income for what we do. And I want to make sure that I step up and take care of my people when a problem happens. So

 

Erwin  

that’s pretty impressive. Your own staff put in their own money, too.

 

Kyle  

So yes, they did. They lent the money to me to take secured off the properties just so that said, yeah, they put some money in, well, there were agents on my team, they had their clients and they wanted to make sure that they we want to step up, like I said, the companies that we lent to failed, the specific assets that we were secured to, were still decent deals, the companies went under for other factors, the specific deals that we were on weren’t the problem. So we made the decision, because of the properties in their condition at the time had we sold them, the lenders would have taken a hit. So for me to spend six months managing some construction projects. It’s been a lot of work, I’m not going to I shouldn’t sugarcoat it. It’s been a lot of work. But I said this earlier in the podcast, I didn’t know if you’re going to specifically bring this up. But this isn’t OPM. To me. This is people’s retirement, this is people’s children’s education funds. This is their home equity. And if something happens, it’s not like hey, sorry, new OPM, I’m gonna go get new money, we got to do whatever we can to help these people.

 

Erwin  

And to the novice investor, I think they should always whenever judge an investment or investor they’re partnering with, just simply ask yourself the question, will they shed a tear? If I lose my money? If the answer is no, Ron?

 

Kyle  

Ron, some of the criteria that I look at when I’m underwriting deals, is I want to know, if the deal goes bad, what will the Operator do? Will they go get a job at McDonald’s to help make this right? And by and large, I’m right, I when I when I underwrite a deal, and 2022, I missed on two. But in the grand scheme of my portfolio, that’s quite a small percentage. One other little tip of give people when it comes to lending money, and partnering with people, I don’t do this as much just for loans anymore. But I certainly do this with partners, if I’m going to partner with somebody. If we’re going to be a partner in a business, we’re going to go out for dinner. And we’re talking about religion and politics. And I hope we don’t agree. But can we have a cordial conversation? Can we agree to disagree? Because if you’re going to get into partnership with somebody for five or 10 years, you better be prepared to have difficult conversations. Yeah, right. So get marriage is a marriage. There’s benefits to a marriage that you don’t get in a real estate deal as well. So you better be able to have those tough conversations.

 

Erwin  

You’re getting married, you better talk politics and religion before you tie the knot.

 

Kyle  

And like I said, some people are like, Oh, well, what if? What if we don’t agree on it? Well, I hope we don’t. I hope we have a difference in opinion.

 

Erwin  

Let’s figure that out. Now, for later, before we have babies together. And

 

Kyle  

if there is a difference that we can overcome it, great, thank goodness, we had this conversation. And if you’re blue, and I’m red, or I’m red, your blue, or whatever that is, and we say, hey, that’s an interesting point. I’ve never heard somebody bring up that side. I’m gonna think about that more. I’m not gonna change my my votes. But I hear you, and thank you, or vice versa, Hey, I hear your side as well. That’s interesting. Maybe we’re not going to vote for the same team. But at least we’ve had a difficult conversation, and we’ve come to a reasonable understanding.

 

Erwin  

So just to add to that, you’re already going into a real estate relationship. So I’ll just throw in if you’re going to go into a personal relationship you should bring up real estate is about as well as the investor, I want to buy more real estate. Are you down with that, like me? I’m anti debt, and then like, you’re gonna have challenges.

 

Kyle  

I have a couple of things I want to say about that. Recently, a friend of mine posted on social media saying, What do I do if my spouse isn’t on board with real estate? And I responded with divorce. I’ve been in this business for a decade, and I’ve seen many people that I had a call with five years ago, call me back just recently saying I finally got rid of my spouse, I’m ready to buy real estate. And it sounds like a joke. But that became an issue for them. One person had this goal on this ambition, and the other one did. The other. The other thing I’ll say is you There can be boundaries that you put in if one person doesn’t want to sign debt, whatever. But

 

Erwin  

I have the clients too. I have those clients.

 

Kyle  

It’s a difference between not interested and not supportive. Right? If they’re just not interested, they don’t want to sign on all these mortgages. They don’t want to do the calls and evening and weekends, but Honey, do whatever you want, whatever you want to do whatever you want to sign for. Yeah. Don’t touch your house, don’t touch the house, do whatever else you want. So

 

Erwin  

alright, let’s talk about fund. Yeah. What are you thinking?

 

Kyle  

I’m thinking my lawyers and accountants did well, so far. We’re cheap. Yeah. We’re well into six figures and starting the fund and accounting and legal fees. It’s not for the faint of heart, guys. You’re gonna pay accountants and lawyers a lot of money and still be shocked at the amount of stuff they’re asking you.

 

Erwin  

Yeah. And ongoing fees, like ongoing Opportunity Fund exists, they’re gonna be ongoing fees.

 

Kyle  

That’s right. That’s right. And what I was shocked about, and I just want to say, because if they hear this, the team of people we hired were fantastic. They were amazing. I couldn’t have done it without them. But I was shocked at the amount of stuff that they still had to ask me, I get another bill for X amount of money. And I was like, but I still have to answer all this. So just be aware, if you’re going to do it that if you’re a newbie, don’t start a fund day one, you need to have some background and some stability underneath you before you start spending this level of capital on a phone. But I am a firm believer that the fund models are the future of investing in real estate. I think the classic JV splits, you go on title, you do the work, I think there’s a shelf life on that type of stuff, I think it needs to be done. And in the fund model in the future, for private lending, it makes life so much easier for not only the lenders, it’s much more passive for them, but also for the borrowers. When you’re dealing with an individual private lender, and something comes up on a deal, so you’re going to be 90 days delayed. Well, that private lender, even though they’re not supposed to, they’re not supposed to commit to anything until they get their money back. When buys a cottage and they need their money back instantly the terms up the borrower needed a 60 day extension, the lender needs their money, it just creates a lot of stress. So having the fun model eliminates a lot of that emotional and the trigger in that the fun can extend the fun can do more things without that individual emotion in the deal. Sorry,

 

Erwin  

because life happens to 100% Yeah, things happen. Like, you know, car accident injury, the big see things happen. Yeah, 100%. How does that change for the lender, or the borrower pick one place to start.

 

Kyle  

So for the lender, the benefit to the lender in investing in a fund is, first of all, there’s no more downtime between deals. So you don’t do a deal, get your money back, wait for a new deal, do a deal, get your money back. So it’s invested in a pool of mortgages, so it’s always out to work. It’s also more passive. In the current model, you have to go, you have to look at an eel ask your questions about the deal. I like to deal I sign the paperwork for the deal. I go to the bank and get the money for the deal. I go to the lawyers I signed for the deal. I wait for the deal to pay back. In the new model, you do your due diligence upfront, you ask your questions upfront, you deal with our end, you go through a declaration of trust and our om all upfront. Once that’s done, you put your money in the fund, set it and forget.

 

Erwin  

Right. So that’s the regular regulated under Ontario Securities Commission. Yeah, so it’s

 

Kyle  

getting as well. So and then you get a monthly distribution. So setting up again, if you’re lending with registered accounts, it’s substantially less fees to be doing a share purchase of a fun than doing self directed mortgages. It goes from about $500 a year to $75 one time, so it’s much less expensive to do the fun model. The other big benefit that this is gonna have for people is we can drip the returns now. So if you’re getting a monthly distribution, you don’t need that for lifestyle, you can reinvest in compound it, we have many clients who are sitting on a bunch of cash in registered accounts because they get their monthly payments. They can’t it’s too small to reinvest. So you have to wait for it to reinvest the other side of it too. And not that we’re still not attracting very high net worth people is the minimums are much less. So $10,000 is the minimum, we have an introductory rate of 3000 where people can get in a little bit less right now. But the standard minimum is 10,000. In the current private lending space, you really have to have like 50 to get in, but more realistically, it’s 100 to get in so much lower barrier to entry in the fund model.

 

Erwin  

Because I’ve heard even Some lenders don’t talk to you unless you have like 250. And my mom seems to keep going up.

 

Kyle  

In urban, it’s that I guess it’s the market, it’s real estate values. If you have a $500,000 deal, and you got 10 people putting in 50k apiece, have you ever tried to herd cats? I would say it’s easier than dealing with 10 lenders on a deal.

 

Erwin  

I think you should do an open house with novices and have them come into your offices and see how hard it is to do a raise. Good idea. Because I don’t think people don’t appreciate how much admin work goes into what you’re doing into brokering a deal. Because you have one side, you have the borrower and the other side to the lender. And then like you said, like there’s all these personal things always come into play, you know, I’m, I’m at the cottage, I can’t review documents until Monday, or all I’m going on vacation, I can read can this wait till Friday? borrower needs the money in 48 hours? Right. But I’m telling you, it’s it’s slowing me consolidated. So I have a quick question for the fund. And what kind of transparency do people have in terms of like, what they see going to what deals in terms of like, do they see anything about what kind of deal goes into into the fund,

 

Kyle  

or not lending on specific deals anymore. So we have a trustee model. So there’s four trustees in total, that oversee the lungs and the management of the money, we are bound by our om to only do secured lending. So whenever we lend money, there’s a registered mortgage position on the property. So no napkins, no IOUs handshakes, keynotes anything like that registered mortgage position, we are bound by certain loan to values depending on the tear of the or the share class that you invest in. But in terms of the specific deals, there is no say in terms of the lender perspective or the investor perspective. It’s a language I have to change job right now I deal with lenders in the fund I deal with investors. And there’s no saying what projects we’re investing in or lending on. Now, that being said, we are committed to a quarterly update, we’re probably going to do monthly, but we’re committing to a quarterly update of just what deals we’re currently and how are those deals are going more of a newsletter type model than a individual property thing. So and this is, and this is different strokes for different folks, we have some people who very much like knowing I’m lent on 123 Main Street, I’m in first position, I know what it’s worth, I drive by it every third Tuesday of the month. That’s okay. But we have many people who also more information isn’t necessarily a good thing for them. They get nervous when they get updates, they, they really do want something more passive, and where they’re incentive spread across a bunch of things. If there’s one problem at one property, they don’t know they don’t care, they’re not worried about it. So it can be a little bit different investor profile potentially.

 

Erwin  

So what’s gonna go into the fund in terms of deals that you’re gonna fund?

 

Kyle  

Yeah, so we are a income fund a mortgage trust. So I’ll give you a little little rundown on this are REITs. Many people are familiar with a REIT. A REIT is a real estate investment trust. So it’s basically a fund that buys real estate. The underlying legal structure of a REIT is an MFT, a mutual fund trust, that’s the legal structure they use underneath it, but it’s known as a REIT. It buys real estate. A mech is a mortgage investment corporation. So that’s what we started to build. That’s what we were going to do building MC, which likey REITs is a pool of investments. But instead of buying properties, you lend on mortgages. So the challenge with a MC though, is you can’t exceed 50% residential mortgages, which means a an apartment building a 10 Plex counts as a commercial mortgage. So we didn’t like that restriction. We love apartment buildings, we love lending our apartment buildings. So what we did is we created a, it’s almost a new class, there’s only a handful of other people in the country who are doing this. But it’s a mutual fund trust structure. But it’s designed to only lend on mortgages. So it’s designed to just lend on secured mortgages. Now the cool thing about our structure is in the event of either an individual disaster or a large scale disaster, like an economic downturn, our mortgage trust, because of the underlying structure that it’s built on, can own real estate. So we need to if a deal goes sideways, and we need to recover that asset and take it over, we can our structure allows us to do that. So we put a tonne of thought energy and accounting legal fees into building this structure that we believe is not only amazing for our investors in terms of lending and investing their money, but it allows us to protect the principal in the event Enter the disaster.

 

Erwin  

So you can take possession of the property and character you’ve done in the past is take possession, renovate it, whatever you need to do get ready for sale, maximise your exit price. Exactly. Why would you even do this? I know someone who did a sever and build on one, they had to take back and property. And it was like 50 foot lot, it actually made sense for them tear down the house and build build two semis. Yeah, that’s something you would do too. So complicated question.

 

Kyle  

I would say no, then this is what people have asked me many times. So our targeted returns within within the fund are 811 and 14. Disclaimer, you have to go through the EMD. It’s got to be suitable all of those things. But our targeted returns within the three funds are 811 and 14. Yeah, see SQL in Nevada legal advice, accounting advice? Absolutely. Should we expect more like are you going to exceed these returns? And the answer is we’re really, we’re not planning on it. We’re planning on consistently delivering them. And being a stable income fund. Right? We’re not an equity fund, we’re not going to do a deal that’s going to hit it out of the park and hit a way bigger return. Right. That’s not what we land, just above the rates that we’ve quoted, you apt to deliver those returns consistently. And we have a great stable of borrowers ready to do that. So to answer your question about what I sever and split and all those things, the answer is if we take over an asset within our plan is not to maximise the investment deal. It’s just to protect principle and get the money out. Now, if there’s ever an opportunity that comes into the fund that goes into recovery, on my answer is I would probably buy it outside of the fund. To get my make sure the principal within the fund is protected, the income has stabilised and if an opportunity came, I would look at purchasing outside of the fund. Because this is an Income Fund. This is about mortgages, or underlying structure on properties only to protect. It’s not a it’s not a way to generate higher returns within the fund,

 

Erwin  

I have spoken to some private lenders who had deals go bad, I’d imagine they someone would sleep better at night, if they’re in a fund that’s regulated under the Ontario Securities Commission versus having to go through the process of power of sale or whatever, or you taking control.

 

Kyle  

Then I mentioned this earlier, there’s many people who go through suitability and go through all of these things. And they come out as a very aggressive, you know, advanced investor, and that has a high risk tolerance. But when a deal goes bad, no matter how much how much you say you were comfortable with it, when it’s actually happening it, people get nervous, they get scared, it’s a lot. And all of the little updates can actually create some more stress for people. And in the fund model. They’re just they don’t see that stuff, as long as they’re getting their their return. Even if there’s challenges going on on specific loans within the fund. As long as we’re still able to maintain the yield. They don’t have to hear about all the nitty gritty little challenges that are causing the fund manager stress, as long as the yield is being delivered.

 

Erwin  

So Kyle, we always like to talk about what’s the worst case and the truth about real estate investing. We talked about earlier about what if someone just did individually, like one to one lender borrower? How bad can they get? So for example, a friend of mine lent a second mortgage on a house, she wanted to be passive. But of course, the borrower did not let the lender know that she was behind mortgage payments. And my friend and I find out until the bank had already started proceedings to take back the property. I believe the immediate cost to the homeowner and borrower was over $10,000 in legal fees that someone has to pay. Can you speak from your experience? Like what is it like for on if you’re on your own type thing? If someone’s trying to do a private land deal on their own? And then the deal goes sour? What’s the worst case? Yeah, because in my experience went to see with no different tenants, if they’re gonna miss rent, they usually don’t tell you not in front of the borrower, if they’re gonna miss them. If they’re gonna miss the payment, they usually won’t tell you. You’re already in trouble at that point, then,

 

Kyle  

yeah, as a second position lender, you are at risk of being fully wiped out and not getting any of your capital back. Okay, so that is a genuine risk that you have in second position, especially for the top of it, if you’re not on top of it, right. That’s interesting thing about deferred interest as well. If you have a deferred interest deal, you might not know that something’s going wrong, because you’re not getting paid until the end.

 

Erwin  

So you have even less chance of getting a red flag. Yeah.

 

Kyle  

So, in first position is very unlikely that you are going to take a major loss, is it possible that you take a 10 20% hit on principle in first position, it is possible, it’s possible to take more. But depending on your underwriting guidelines and what you’ve done, it’s possible that you take a 10 20% hit for his position, it is very unlikely that you lose a large portion of your principal lending a first position, you wouldn’t do what you brought up about lending a second position is absolutely true, you need to know who you’re behind. Because there’s a lot of MCs that won’t say anything to you. If you’re if you’re there in first position, and you’re in second. If that’s me, I just have a moral compass, if I’m in first position on a deal, and we’re going into power of sale or default, and I see that there’s a second position there, we’re going to do some work to find out who that person is, and let them know what’s going on. Whether I don’t have any obligation to that, but I’m going to do it, because I want them to know we’re taking action. So if you’re in second position, make sure you know who’s in first, if it’s some Joe Schmo, private and you don’t know them, you might want to do some due diligence on that, if it’s a bank, most banks are going to be pretty quick on it, and will serve notice to all charges. So if you’re charging, second position, they’ll serve notice, if you’re in first position, there’s a chance you’re not going to get your interest, there’s a chance you can take a small hit on principle, if you’re going to take a big hit on principle, either the markets completely crashed, or you’ve done something terribly wrong in your due diligence, there’s a good chance you shouldn’t take a big hit on principle, if you’re in second position. If you do your due diligence, you also shouldn’t take a big hit on principle. But it is possible. There is a chance though that you could be fully wiped out, there was a deal that one of the properties that I mentioned earlier, somebody was behind us, we tried to work with them. We tried to we offered let them buy it off us to get they didn’t want to, they said they were Tinker chances, I guess. And they were fully wiped out. Nothing we could do, we were in first position. My duty was to my first position lenders, my moral compass tried to, I tried to help the second person to they took their chances and they were right to zero.

 

Erwin  

So So in the case of stripe, my friend, she was looking for a passive investment. And then she had to buy the property. So automatically went from not passive at all. Having to pay the legal fee, having to discharge the first taking over the property property needed work. So people need to understand that with the worst case it does happen. And then you gotta have the ability to close on the property. If you have to lose all your money, or lose all your money,

 

Kyle  

your money, so good for her for stepping up and taking it over.

 

Erwin  

But not everyone’s capable of that she’s a high net worth individual.

 

Kyle  

And this is another example of I have heavily tightened up my lending area, because of what happened. We were lending all over Ontario, we’ve now tightened it up to within three to four hours in the GTA. And I got to recover this asset. I don’t need to go there every day, but I need to be able to go there. So if you’re going to lend money to people, and you are that high net worth person looking for passive investment, just in the back of your mind, where is the property, because if you need to protect your money and get involved more, you might need to go to it. So a lot of the gurus or gurus teach about investment where the return is best, which I am a believer of that, you know, investor, you get a great return, but invest close to home when possible. And understand the risk you’re taking by investing farther from all

 

Erwin  

aspect into a bankrupt investor that lived in London at properties and Muskoka and Hamilton. Like Good Lord, that would take you a long time to cover that kind of territory. So Kyle again. So back to that you are a mortgage professional. To give us a bit of the we partake in the current market. Are you seeing more buyers coming out? Or like are the things dead out there? What’s going on?

 

Kyle  

Yeah, so we’re end of April 2023 right now. So and I’d love your opinion on this too, or while we’re chatting. But I have seen a big uptick in consumer confidence here in southwestern Ontario. And looks like we’re getting a little bit of stability in the rates. The bond market has settled down. The BOC has settled down and it looks to be relatively at bay. When things were going up so quickly. What I noticed with a lot of people, it’s not that they couldn’t make their payments. They were okay. They were just holding back because they didn’t know how high it was gonna go. And now that that’s kind of settled in. A lot of people are like, okay, yeah, we’re good. Now we can make this payment. We locked it in a fix for two years. So we’re good now or we went to our boss and asked for a raise. So we’re going to know whatever that may be. So I’m definitely seeing the consumer confidence up to coming back. I’m seeing the pro investors that I deal with didn’t stop they were buying the entire time. I’ll call it semi pro, the three to five property owners. They definitely are inching back into the mark. Get looking for deals. Right now. The duplex triplex four Plex game is pretty tough to get cashflow. So I still think it’s a great start for a lot of people, but you’re not going to be getting big time cash flow coming from those. So you got to know your numbers. I think for people getting started in the business, they need to understand construction and value add, they need to understand how to appreciate properties, because that’s, that’s the major plane, I’m predicting a bit of a, you know, my crystal ball has never been that great. But I’m predicting a relatively flat market for a while I’m not expecting major appreciation, I’m not expecting a major decline, we have major immigration coming in to Canada. For anyone who’s opposed to that you’re wrong, we need it. Our labour force needs the immigration we need. We need people here to helping us grow our labour force, but we don’t have housing for them. That is a problem. And that’s something that needs to be addressed, which is going to create buoyancy in our market. So that’s, that’s my opinion on where I see things are going and what we need. So I’d love to hear what you’re seeing to her.

 

Erwin  

So what I’m seeing on the street is recoveries coming faster than I expected. A house very close to me sold not far from its peak price in one day. So I think because the baseline would be like what the peak was. So then there’s buyers out there who are capable of going somewhere between what I think is fair market, and what was peak. Because they as logical that believe that we’ll be back there within a few years. And we’re losing to lots of people who are buying for themselves. And those people are generally willing to punch harder than we are for pricing. In the end, it’s a broad spectrum in terms of like turnkey, and even disaster properties or having multiple offers that we operate most in the star category. The luxury market, I think is nice. I’ve heard some people say well, actually market never really slowed down, because a lot of those are cash buyers. So they don’t care about interest rates. But yeah, we’ll see where things go. I feel like, you know, my own pricing, you know, I’m thinking like one to 5% appreciation from here, not major, something along lines of inflation. Alright, because I’m not sure what you’re seeing in terms of construction costs, but my contractors not quoting me cheaper.

 

Kyle  

I’m right there with you. You know, I’ve been 3% guy on my performance forever. performers have always been at 3%. Because I thought that was a relatively inflation type number. So even when things were 20% on my performance, I was still three, because I knew at some point, if it was 2020 20, it was gonna have to be 10 minus 10. At some point, right. So I think that’s, and in terms of the construction costs, there, it has not gone down. I met with a couple of my contractors recently who give me good pricing. And they say they were reviewing things with their accountant, they really get into the bottom line of things and they have to charge more. Like they’re all their soft concert WSIB their their car insurance, their tools, their the equipment they,

 

Erwin  

like you mentioned, like people are asking for raises, asking for raises,

 

Kyle  

raises, they want benefits they want RSP matching, they want all of these things right?

 

Erwin  

In pension, even though they’re striking.

 

Kyle  

Is it stuck it into the irony of CRA striking tax season?

 

Erwin  

Yeah, you find you suspect the day, the government’s union instructed the remote workers to leave home and go to join the picket line. I thought that was hilarious. You may not virtually protest you must go protest in person. Wow. Kyle, thanks so much. This has been a blast. Any any final thoughts? Where can people follow along? Where can people learn more about your your, your mortgage fund working people? Yeah. You and your attorney? Yeah, cop

 

Kyle  

cop mft.com. info at COP cop mft.com for anything on the fun if you’re looking to get invested info at Kyle Ford mortgages if you’re looking for great mortgage brokers, full transparency with a lot of the viewers a lot of the mortgage brokering I have my team handling that now. I got incredible agents that will be available for you, Scott, Scott, Steve Oh, Chris lane, don’t eat Ariel ago. We have great great people on the team that can help with the mortgage side of things kept MFT for investing in the Fund and Kyle forwarded message on Instagram. I don’t really try to grow that but I should say I want to share more content there. So yeah, Google me I try to try to share my wealth whenever I can share my information whenever I can. So

 

Erwin  

I like the idea that you’re sharing your wealth but

 

Kyle  

share my information.

 

Erwin  

Kyle again, thanks so much for doing this. I had a blast. Hope you had fun. Thanks for having me.

 

Erwin  

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

 

 

To Listen:

 

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

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

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

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

Youtube: https://youtu.be/oyBG_yPIUvA