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(00:00) sorry to condo investors Ottawa rocks that’s where I’m a least fan farewell golf season all listen more on the truth about real estate investing for Canadians greetings investors my name is ran cedo landlord of 40 plus different properties through my career since 2005 realtor since 2010 and together with my team at I real estate we have helped investors transact on close to half a billion investment properties among my clients are 45 Millionaires and multi millionaires and accounting we help them achieve uh this through education and
(00:30) coaching and I get paid because we’re realtor anyways uh that was all hold in Ontario but until around last year uh the writing’s been in neon letters on the wall cash flow is no longer an option for the everyday investor governments of all level let it be known we are not welcome here in the opportunity for better cash flow diversification in the USA and avoiding the LTB or rtb if you’re BC was available along with scalable mortgages in the USA thanks to technology advancements it’s crazy how technolog is making life better anyways
(01:06) sadly we’re uh we’re slowing down many many what’s slowing down many many canans investing in the south is they’re holding pre and new construction condos some of them are houses as well but uh yeah they’re all pretty tough the options aren’t great for those who are holding those types of properties especially those who lost their jobs uh I had a new new condo investor share with me this just this past weekend he owns a beautiful 300t brand new condo with the lake view uh the property is into GTA and it’s south of south of Lake
(01:38) Shore and has beautiful views he paid $900,000 for it which sounds about right and it only rents for $2,400 it’s outside of downtown so apparently the rents aren’t as good after multiple attempts to redtive over higher prices his original asking price was over $2,800 I believe he said uh and and cut cut down to 2400 is what he’s getting now so after hard costs which means mortgage taxes insurance and condo fees of course he is negative $2,000 a month and that’s before you factor in any sort of vacancy leasing fees bad
(02:14) debt repairs and maintenance so in reality his negative cash flow is significantly much more now not all being real estates are bad I hope this just the show is the truth about real estate investing however it’s harder to find those markets and investors who can execute a quality investment deal if you listen to Andrew hines’s final podcast I recommend that you do I’m experiencing the same thing he is I’ve invited gers onto my show and it’s crickets uh not all of them but for many of them it’s crickets only to find out later there
(02:44) through the news or the graine that some of them are having financial troubles uh even though some of those gurus out there um I I have friends with them on social media uh anyways uh they’re still out there raising capital for their projects or they’re borrowing in hard money loans AKA private borrowing private lending they’re selling courses and coaching Etc they’re running meetups and and speed networking whatevers and they’re turning down exposure on my podcast this is the truth about real estate invest show so what you 17
(03:16) listeners uh faithful listeners thank you for all of you as well uh what you may not know is that before we do record I do ask guests if they’re okay to discuss losses uh both what’s in the news and not in the news I also uh do reference checks on guests of the show uh by contacting people unsolicited like they’re not providing me reference checks I actually don’t even ask for reference checks I’ve been around long enough to know who does business with who uh if nothing else I know people in the in pretty much every real estate
(03:44) market for investment I can just simply dial one of them up and they’ll take my call or return my call anyways uh so I simply contact people in the same markets as them or people I know have done business with them either as a lender borrower as a contractor what have you and uh anyone who’s engaged with business with them and ask them for a reference check as they are potential guest in my show uh most people know how protective I am of my reputation and of my 17 listeners there’s no reason to put you in front of harm that’s not what the
(04:13) show is about if you are out there reference checking folks uh like a coach or you want to invest with somebody whatever feel free to check them out check out if they’ve been on the show before now being on the show is not an endorsement by any means nor is it a condemnation that they haven’t been on the show uh we we are not perfect I am not perfect uh I’ve lost money too uh anyone who says they haven’t lost money is lying to you and there are those people out there who who coach and and raise money and say they’ve never lost
(04:41) money anyways uh I’ve actually added we’ve actually added show into show notes of some past guests of the show who are being sued or are bankrupt or going bankrupt or in the news so we’ put those links in the show notes uh and I digress so if you know good people that that you think should be on the show encourage them to come on the show or recommend reach out and recommend them yourself I’m always happy to interview good people who are good investors who know how to protect their client’s best interests if nothing else I really enjoy
(05:11) shining a light on the good people in this industry in order to nothing if nothing else we can cut out the bad operators speaking of good people who has nothing to sell you today it’s always fun to have a non-real estate professional in the on the show today’s guest is my good friend and past client Adam Johnson ready for it he’s got a lot of letters behind his name CPA CA you know those are the accounting designations this is one that’s not so common cbv for chartered business evaluator and CFA chartered financial
(05:42) analyst so uh Adam who at the time was my youngest client at the and we talk about that he didn’t have as many letters beond his name at that time and he’s not your average CPA uh so as mentioned he is a Charter Business valuator and Charter financial analyst making him one of less than 100 people people in Canada with all three designations he even ranked number one in the country on his Charter Business valuator exam uh but really sets him apart is his hands-on experience with one of Canada’s biggest investment Banks
(06:12) Banks Banks they say that right Banks where he analiz stocks and work directly with Equity Traders so these are people who make money dealing with stocks uh investor money big investor money which prepared him nicely for a long career uh in business valuations now Adam’s expanding his investing to the US after Ontario deals made no longer made sense uh and he’s the founder of synthesis valuations he’s he opened that business quite a while ago and he’ll detail that in the interview uh where he provides top tier evaluation reports for
(06:43) everything from mergers to shareholder disputes not we recorded this episode on September 17th so that was before the most recent pair of hurricanes Helen in Milton that devastated Florida the deadliest Helen was the deadliest for uh hurricane to make landfall in Katrina since 2005 uh each each uh the combined damage from the two hurricanes is hundred billion that’s $50 billion each for context uh for context that major storm that passed through Toronto in the summer had uh it caused 1 billion in damage so between
(07:20) these two hurricanes that’s a 100 times more damage my thoughts and well wishes are with Florida I’ve linked I obviously sourced all my resources so I’ve links in the show notes on the article to back up the $50 billion damages per uh per hurricane uh for your business valuation needs Adam’s website is synthesis valuations.
(07:44) com now what’s someone with so much stock in business valuation skill doing being so overweighted in real estate investing let’s ask Adam please enjoy the [Music] show hi Adam what’s keeping you busy these days well I think before I came out here I was working on a couple of different valuation files for a few companies that I’m valuing but also getting caught up on some news that I think actually is pertinent to uh many of your audience members who are Real Estate Investors or looking to be Real Estate Investors because we’re on a sort of interesting news day recording
(08:29) this September 17th where new inflation data just came in mhm and we also got the news about extending amortizations to 30 years for all firsttime home buyers in Canada and raising the insurable limit right yes for insured mortgages from one1 million to $1.5 million so there’s actually a couple of headlines I was digesting before I was on my way out here and then you know come from the context of someone who looks at the states like $1.
(08:58) 5 million and because I say to friends all the time who are who who you know like talking about real estate a lot of nice cities in the States you can buy Mansion for a million you can buy 4,000 foot house for a million or less than a million or less than a million yes but like it’s crazy everything’s crazy actually I just wanted to check what the bond prices were doing with the inflation rate yeah just tell tell talk about the inflation rate so you can fact check me on this spot but I believe inflation came in at 2% which is the lowest that’s been since
(09:31) early 2021 before inflation started to spike um a little bit softer than what I think most Bank economists were expecting or at least the average of Bank economists um and I think that will be welcome news for anyone hoping that interest rates set by the Bank of Canada will continue to Tren Trend downward excuse me yeah it’s interesting the bond rat’s actually up today Bond rates are up today oh I am surprised to hear that they must corrected the last few days the last few days they were down and then actually came up well I don’t
(10:05) know how much of that would be influenced as well by sort of Canadian Bond Traders having to figure out what the Federal Reserve is going to do because they have a big decision happening tomorrow as well um so that might have played into it as well and funny enough the Dollar’s flat today so it looks like the market kind of looks like they kind of knew this was coming interesting good well good job market now I having you on the show cuz you are a valuation expert that’s a very few words to describe your actual impressive history experience
(10:45) level tell tell us a bit about yourself sure so I run a Consulting advisory firm called synthesis valuations and quite simply I am in the business of valuing businesses um you can think about it in simple terms like that um as Real Estate Investors I think we’re all familiar with real estate appraisers and the work that they do you want to go buy a house or evaluate a property they give you an appraisal report they look at comparables um really valuing a business is sort of built on a lot of the same principles but the key difference is
(11:21) there’s a lot less uniformity among how businesses look right I mean um a pharmaceutical company with an early stage of drug is going to be valued differently than a manufacturing business and it’s going to be valued differently than you know a holding company with a that portfolio of Investments and so as business valuators we are trying to look at different data points and try to triangulate how much is something is worth um when we’re not in the context of a publicly traded stock and we don’t have a good indicator of
(12:00) you know what someone would be willing to pay for a business or a piece of business yeah because we Rec reconnected because um my wife asked uh to refer you to a client of ours and it was a a very small business with not a lot of Revenue so I can’t imagine it’s easy an easy job yeah I mean it’s not easy it’s interesting which is why I love doing it um but it’s certainly not easy but just some of the situations that you might see come across my desk right you’ve got transfers of businesses maybe that small business that you were talking about um
(12:40) being handed down from one generation to the Next Generation Um a tax accountant or a lawyer maybe Cherry wants to execute some sort of um tax plan to sort of be most tax efficient the Canada Revenue Agency is going to want to understand what the fair market value of the shares of that company was at that point in time let’s say you’re a partner in a business not publicly traded and one shareholder or one partner wants to buy the other out um they may on friendly terms engage to retain someone like me or there might actually be um a
(13:17) contractual clause in their shareholders agreement saying that they need to retain someone like me in the event that one is going to buy out the other’s interest divorces these get messy but where you have have a family business a privately owned business in many cases that forms part of the family assets or the family property that needs to be divided for Equalization um you will often excuse me see someone like me get involved to sort of establish what the fair market value is for that purpose and then lastly this is probably more applicable
(13:55) to public companies but there are many cases just for counting financial reporting requirements where a company who maybe has a subsidiary company or has completed a business acquisition of some sort and they need to look at the fair value of the assets they have acquired I do a lot of work in that space as well I’m a geek so I like this hearing all this stuff and just for for the customer for the listeners benefit like your background is you have your chared your ca um actually you have other designations don’t you there’s a few
(14:29) letterss yeah you have a CFA as well so you’ve spent a career in school cbv what’s the acronym for so so let’s just run through those quickly so yeah okay so I’m a chartered professional accountant um which I’m sure many of the listeners on this podcast are familiar with what CPA do an accountant yeah an accountant right um that said I don’t do typical public accounting work right I don’t I don’t even do my own tax return so don’t ask me for tax advice plus you have cherry for that that um I then sort of moved on
(15:02) to become a chartered financial analyst or CFA and that’s the designation that you would probably most commonly see used in the world of investment analysis and by that I mean making decisions to buy or sell stocks or bonds uh most equity research analysts working on Bay Street um investment analysts W streight investment analysts working for our Pension funds A lot of them would have that designation and that’s actually what I did for a couple of years was work on a team that put buy sell and hold recommendations on um our universe of
(15:41) stocks that we covered and then lastly the cbv that you asked about that stands for chartered business valuator which really I would argue is sort of the core um professional credential that’s widely recognized by Canadian courts Canadian accounting firms and the CR when it comes to some sort of business interest that needs to be valued in sort of a a notional or theoretical setting MH and you worked at one of Canada’s largest investment Banks so you know investing in valuation quite well I like to think I did yes right and then how
(16:19) did you decide to allocate your Investment Portfolio all stocks all real estate so I guess you could say I sort of believe in all of the above strategy when it comes to what our portfolio should look like I mean I I have stocks and Equity ETFs I have Bond ETFs I have actually some private credit that well simple I think it is offers um all of the things you would typically see in a tfsa or or an RSP or just non-registered Investments but I guess sort of early on in my career and we’re talking 15 years ago um I went down the real estate Road and
(17:03) if we if we looked at my balance sheet right now one could probably argue that I’m a little bit overweight real estate perhaps a lot overweight real estate but um I’m sure on this podcast that’s not gonna that’s not gonna cause too many um eyebrows to be raised I I’ll also add to that you know of the people I know who did really well financially with their investment portfolios it’s over overwhelming the real estate people maybe this is just who I’m surrounded by but yeah yeah no I mean I think I was biased towards real estate right maybe
(17:38) even as early as University you know I read all the books that most Real Estate Investors go on to read I read Rich Dad Poor Dad I read um Don Campbell’s book for Canadians specifically and so I think I was always sort of my mindset was skewed towards owning some rental properties eventually um but then I graduated in 2009 which was an interesting time um for real estate and obviously real estate fell very much out of favor after we were in the midst of a financial crisis and the US housing market had just suffered its most catastrophic
(18:20) losses quite possibly ever I’m not sure you can that’s I’m sure it’s up there yeah yeah and so you know when I was fresh at a university I had the opportunity to buy a condo downtown Toronto and really it was just sort of an easy decision for me when I looked at the cost to rent versus the cost to own just even as my primary residence we’re not even talking rental properties at this point in time it was about the same so would I rather rent for that price or would I rather own for that price and start deleveraging over
(18:55) time and paying off my mortgage over time m i chose to own and that’s sort of where it all started I there’s so many questions I want to ask cuz again we’ve qualified you as an expert in valuation I feel like I’m in a witness stand in court now yes you are this is a this is a contestes I mean that’s that’s what they say when they qualify people as experts at would you do the same deal today the same deal to purchase that first condo but at today’s prices though at today’s September 17th 2024 no um or at least it would be very difficult to
(19:36) do um the math looks very different right I mean I still own that condo so let’s actually just take it as an example because it’s real numbers I mean I paid $290,000 for that condo in 2009 I think the last bank appraisal that I did in 2021 when I did a refi on it mhm came in at $690 mhm I think when I bought it in 2009 sort of the the prevailing rent or maybe the cost to own would have been something like $15 or $1,600 a month and right now the rent on it is $2,800 and that’s what current the current residents are paying yeah which
(20:25) is actually at Market because that just turned over in April but I don’t have a a calculator in front of me but I think we can conclusively say that to buy a condo for $690,000 putting really using any sort of Leverage or any sort of debt um you would have to put a lot of equity into that to make that work even if you had the equity though would you do the deal doesn’t make sense financially no I mean if we talk about I mean we can debate about whether we should be using the term cap rate for a small Toronto condo
(21:04) but for your listeners cap rate just meaning like you know the net operating income I as the property owner am taking from that property dividing it by the value let’s do the math right now oh I already have your rent yeld 4. so 2800 right but but you need to dedu condo fees too right I’ve done similar numbers already I yeah so if it’s cons ative your cap rates around two and a half yeah that sounds I was going to say between two and three um that sounds about right to me so I’m not going to dispute that that sounds in the
(21:37) ballpark so why why would you buy a 2 and a half% cap rate condo in Toronto um when you could literally buy a GIC right now or a Government Bond that yields more than that there’s really only one logical reason and you would you would do that um which is if you really feel strongly about using that condo as a hedge against future price inflation which would have to be driven by pretty strong belief that prices are going to continue to appreciate in Toronto after they’ve just had probably their best run um you know
(22:23) up until about 2022 in a very long uh period of time so yes there there’s a good mathematical argument that I should just actually sell that condo and move on um put my Equity elsewhere I decided to keep it really as a matter of convenience I would say right it’s there it had zero vacancy turnover uh or sorry zero days of vacancy when it turned over um in April I can walk to it if an issue comes up so I can actually self-manage that one but if if we were just looking at Raw numbers it would not be MH a great
(23:02) return on investment so tell me about the states you’re investing in the States now why decision to do all that like you’re already like you do quite well sure your comfortable living tal yeah no okay so I guess what did I buy in the states and I guess I’m going to back up here again another 12 or 15 years so I bought that first condo in Toronto um a couple of years later was actually right before I was working in that job analyzing stocks uh renewable energy stocks I was subscribing to we had these things called magazines back then they
(23:45) were like hard copied magazines and I you’re still a young guy too talking about way back when when we had magazines I know but so I subscribed to this magazine called Canadian real estate wealth magazine and I read this article about this guy who dubbed himself Mr Hamilton jerk um and he was sort of explaining at that time and we’re talking fall of 2011 I think it was the investment thesis for Hamilton and I was actually finally at that point ready to buy you know a true rental property not just one that I lived in
(24:23) but one that I was going to buy and rent out purely as an investment and I made a cold call to Mr Hamilton we went out one Saturday I think looked at three listings in Hamilton and that same weekend I put in an offer to buy one of them so that was in 2000 that closed in January 2012 remember what we paid for it I should $1,000 for a semi detached house in a you know modest but reasonably nice um called the sack yeah on the mountain yeah the mountain yet I still have that property as well and so that’s sort of
(25:01) what gave rise to investing in the US was I didn’t really do a whole lot in Canada between that uh purchase in 2012 onward in part because oh at least you did well I did well um and I was also really at that point CU that post is 600,000 today probably something like that yeah nice triple yeah exactly um I had been you know thinking about starting my own business which I did in 2016 I remember that conversation right and so at that point my focus became on making sure I had enough liquidity to start a business which is at odds with
(25:41) real estate investing but I what I will say about that nice house in Hamilton is that it it’s the gift that keeps on giving I mean I refinanced it in 2015 to take a little bit of equity out which gave me a bit of liquidity buffer to actually start that business right sort of allow me to take that risk um yeah your investment property financed your your new business in a way yeah and then if we fast forward to 2020 when the pandemic started that’s sort of when the idea of actually investing in the states took hold for a couple of reasons M um
(26:19) one like everyone I was stuck at home um in in what I guess was a new Prime newish primary residence um downtown Toronto when I turned that first condo into a rental and I was I found myself you know spending an inordinate amount of time on Zillow searching through listings in different markets different cities sort of as like a virtual Escape when it was really difficult to travel right or or pretty much impossible to travel and then that’s sort of when the you know the wheels started turning I could very quickly just look
(26:59) at certain rent to price ratios in different markets and then I thought about it and to your point about cap rate that we were talking about earlier at this point that first condo in Toronto was close to being paid off or or you know almost paid off the Hamilton Mountain House had a pretty modest mortgage even after the refinancing and so I had access to quite a bit of equity on which my return was really not that great right like just on a pure cash on on market value of equity perspective and so I I thought more
(27:39) seriously about actually taking some of that equity and putting it South of the Border and it wasn’t really that much of a leap for me because you know at this point i’ had been used to managing a manager managing a property manager that is in Hamilton um I’d learned a few things about you know the challenges that come along with owning real estate as a direct investment uh and really to me managing that manager um from you know a thousand miles away wasn’t really that much more daunting than managing the manager and
(28:26) Hamilton other than understanding and giving myself a good understanding of the crossb nuances between Canada and us which there are several is that a hard you are an accountant oh I mean it it took me some time to get there but yes I was able to get to the point of comfort to actually take the leap so in June of 2021 I bought my first property in the US which was a A Beautiful 2006 bill build 1827 Square ft um three bed two bath house in a pretty nice subdivision didn’t need a lot of work in Fort Worth Texas oh or work okay so Dallas’s
(29:18) neighbor yeah yeah it’s sort of a forgotten sister city um it was a little bit obviously 2021 was a super hot Market in most places in North America just because of where rates were I mean if you were in American you could get a 30-year fixed mortgage for 2 or 3% um prices were shooting up I think I actually bit on seven houses before I bought this one oh was that hot eh and and Fort Worth was a little bit cooler than Dallas interesting and so still got the numbers to work but I pulled the trigger on that and it gave me me
(29:58) relatively few headaches and so I kept going with a couple of more can I ask you how much you paid for the hose so that was $292,000 us okay just to repeat though for listener’s benefit 2006 Build 8 1,827 foot three bedroom two bath now I thing about American houses their bathrooms are big yeah they are I think this had like a nice Soaker tub in it right and double syn yes yeah so so a six-piece bathroom I believe so yes yeah I actually was clarifying that with my home inspector the other day like oh yeah I have a six-piece bathroom in my
(30:36) rental property I don’t have that in any of my houses yeah no it’s not something you’re going to see here right but I mean land prices in Fort Worth are also a lot lower than they are given that you’ve got this geographically unconstrained land mass on which you can build whereas we have you know natural barriers here right we have the green bell we have the lake um there’s we have to build up obviously and and not out in the same way that they do in in the Dallas for Worth Metroplex yeah can I ask what your rent
(31:13) is so it actually just turned over as well as of August 29th but I believe it was at 2300 so the same tenants actually stayed there for three years MH and good yeah and took I looked at the move or move out inspection photos took really good care of it fantastic and so it started out lower than that like it wasn’t 23003 years ago but we did gradually get it up there and then was a b was it pretty effortless pretty painless that one was pretty effortless right so it does I mean it’s part of an HOA some HOAs are
(31:54) more annoying than others as I’ve uh found right so condominium board yeah yeah yeah exactly so it’s still like a it’s it’s a detached house but you’re still subject to sort of the rules around how to keep your lawn looking what type of shrub you can have I don’t think this HOA the rules are quite so stringent um there is another HOA that I dealt with that is much more of a pain to deal with in that respect but um there’s an easy workaround for that which is don’t buy a house that’s part of an HOA but this one was yeah of of
(32:29) the four us properties that I have this has been the most headache free for sure very nice yeah we we’ve had issues in Hamilton for example the condos uh I don’t know if we’re if invest us investors are being just targeted but they were just heavy-handed like um just how immediately the the uh enforcement notes came for like putting your recycling garbage bin back mhm yes right just uh yeah it seems heavy-handed anyways so the US investment been going well yeah I mean it’s I’ve done four now they all are very different well two of
(33:05) them are the same but I characterize them as being different and it’s sort of with each one I’ve embraced a little bit more risk and we can sort of talk about the consequences of some of that risk but let’s talk about it um one of them is in Florida is not two are in Florida so let’s back up and and get to the journey of how I ended up in Florida so after you know for that very first one I was sort of just in my mind dipping my toes in right um and then I sorry done quite well 2200 on a 292 property yeah it it
(33:40) was a solid buy um I didn’t I didn’t get a screaming deal on it like I think the bank appraisal yeah I had to fight for it I think the bank appraisal came in at 295 so maybe I walked in with who $2500 in um built-in Equity or something but that was dipping my toes in right I wanted to really try this experiment I put in very little of my own money because I used Equity from a heok I think on the Hamilton Mountain has is my down payment 30% and got 70% loan of value from a US lender and so it was really a 100% debt
(34:20) financed deal um and after it went okay maybe about six months later I I decided to dip my toes in again stuck with the same Market um this time it was a little bit more of a risky Buy in that it came from a wholesaler actually um but again it was a similar story different city Denton Texas which is a little bit more to the Northwest home to University of North Texas that was a 2300 square foot for bed 2 and 1 half bath um built into 2007 was actually a little bit I’m going to say less nice on the inside than the first one just I think
(35:07) it had been an investment property for longer the owner I think was just tired landlord Adam can you bring up can you bring up um Denton Texas on the on the screen I’m a visual person yeah sure it’s trouble so we have two Adams in here t y just like it sounds Texas for the benefit we are U we do have a screen and we post this on YouTube as well so shout out to our YouTube channel real estate that’s name oh wow that’s pretty holy cow that looks like nice can you click on the map Adam not even airport wow what is this
(35:56) building here I actually wait have you been there I’ve been I’ve been to I’ve been to the house I haven’t been to this building wow so the key the key to this house the reason the reason for the buy was the school district it was located in in Denton and yeah so your Greater Dallas Fort Worth it’s still yeah still commutable distance to DFW but to the north yeah yeah um but it is sort of a city and it’s a small City in its own right um but Americans are all about their school districts right and so I did actually sort of vet this and
(36:35) research this and talked to a couple people that this was a quite desirable School District as was the first one actually interesting yeah because I was looking North as well like mckin and up to Sherman as well right so I’ve I’ve actually I went to Sherman last year on a a property tour where a company with um sort of marketing new builds but yeah I’ve never shman is uh depends what you’re buying I guess dep what you’re buying like just for my my target was to stay under 300 the more under 300 the better but it’s really hard to find a new build
(37:12) around like under that oh yeah no I agree with that and so this second one in Denton was I had to go a little bit above 300 because in that second six months of 2021 prices continued to go up um so I think that that one was about 3 316 was what I paid for that one mhm and what’s it renting for it is currently renting for 202 which 2200 which is actually down a little bit from the first one and I think it was really a time of year effect um unfortunately the previous tenants decided to sort of leave late fall I
(37:58) sort of missed a good chunk of the rental market and so I was willing to concede a little bit to get somebody in there um last January but still compared when you when you take that rent to price ratio um compare it to what we see Canada up here it’s a different story that said I will say this about Texas I do think those were two decent buys um I like Texas or say Texas as a whole Dallas for worth um attracted me for you know a number of reasons right the rental price ratio we talked about um it’s the number two choice of reats for
(38:38) markets right yeah I mean Invitation Homes which owns 84,000 houses in the US has I I actually was looking at this this morning out of curiosity I looked at their data for the last eight quarters they were net buyers um in the Dallas area so that gave me some peace of mind um Diversified economy like when I went to Texas I did not want a Houston which to me just seemed a little bit too exposed to um oil and gas and also a bit more exposed to hurricanes as well MH you know DFW we’re gonna get to Florida we’ll get to Florida right um
(39:19) DFW its economy is a bit more Diversified right like I think it’s something like 20 of the um 500 companies are headquartered somewhere in the Metroplex and it’s across Industries right you’ve got American Airlines Southwest Airlines AT&T I believe there there Texas Instruments um messen I believe is there if I’m not mistaken and so it just it made a lot more sense but the one thing Sor just add to that outside of tal you won’t find that in Canada right in terms of economic diversification or even just that many that number of forun 500 head
(40:01) offices oh yeah 100% um and actually if we’re talking about Toronto as a financial Capital um one interesting read I had in the Wall Street Journal recently is that JP Morgan Chase now employs more people in the state of Texas than it does in the state of New York um they’ve moved another camp or opening another campus there and so gfw is actually sort of becoming a regional Financial Hub in its own right so those are all the things I like about DFW so you’re using your valuation skills to make sure you have a
(40:37) good investment yeah I think that’s I think that’s more actually just real estate fundamental Common Sense yeah I I don’t think that takes evaluator to figure that part out where the evaluator cab comes in would be the thing I don’t like about Texas and I’m sure you found this after owning a place in San Antonio is the property taxes yeah mine’s like 5,000 what your so on that $292,000 house in Fort Worth the 2024 tax bill was $8,400 cuz one other thing that I found and and for context that is more than I pay on my primary residents in Toronto
(41:15) which I paid more than a million dollars for last year and what I found is that compared to impac in Ontario where I think we actually take it for granted and we get a little bit lucky mhm they take a very long time for tax appraised values to catch up to Market Val right yeah forever the tarant county property assessor and tax collector and the Denton County property assessor and tax collector I can say with some hindsight and certainty are very fast to recalibrate those two things so seems like sounds like it’s annual yeah and so
(41:56) they see that the property has changed changed hands for $292,000 in 2021 they’re not giving you the benefit of the doubt that it was you know last impac assessed in 2020 for something well below that they’re going to actually look at the property records see that that transaction took place and Market to that and so that that is unfortunately just one of the things about Texas as a whole and certain other states but wait are you you going to fight it prices have come down have they not I could probably protest that one in
(42:34) um tarant County if I really wanted to um the Denton County one I think is probably closer to being right in my opinion because I think I think the tant county the Fort Worth one I think was tax appraised for 370 which I don’t think it would sell for right now I think it would be more like 350 345 so I don’t know what do the maap 345 over 370 time 8,400 is that worth my time fighting some tax assessor maybe maybe not much time I’ll get to it so shar’s actually gonna fight on my behalf for mine sorry sh Shar is gonna fight on
(43:13) yeah I mean if you if you’ve got somebody to do it for you then I would say sure go do do it for me but I but I make my living selling my time too so for a lot of money well yeah I I I know what I know what a unit of my time is worth and I haven’t gotten around defending my Taran County property taxes may just poke your pm and see if they provide that service I don’t believe they do I have a pretty Bare Bones PM in DFW if I’m being honest I mean they do um eviction protection they’ve done a pretty decent job on the Fort Worth
(43:50) one the the Denton one I just say as I said about an HOA that’s a bit more aggressive that would be the one in Denton um so I have to get them sort of more involved to remind the residents to bring in the trash bins just like you said and you know I think they have somebody sort of driving around the streets every day just to take a look at things like that so it is the dent one’s more annoying overall than the for worth one um even though it’s was probably might have actually been yeah it would have been a lower price per
(44:26) square foot to buy um so that was late 2021 oh sorry I just want to get some context actually your your prices are still going up even though you bought you had to fight for your property interesting I mean the party was still going on when I got in in 2021 right um they didn’t I don’t think they really peaked until mid 2022 when Central Bank interest rates and so both sides of the Border started going up um so in that sense time did a little bit of work for me in probably the six to 12 months um between when I bought those and when
(45:10) sort of the peak happened and and prices started retreating a little bit right but you’re up like 60 Grand on a 292 property yeah and it didn’t it didn’t take that long to get there now you must be pretty happy then I I was pretty happy with that one yeah you know Le less happy with the dent one but very happy with the first one cuz it was it was still when things were going up um and I sort of knew that I had a I I could see right after losing it on seven properties before that but also be trying to be careful and prudent
(45:42) not to overpay um that the the legs of the party probably still had a little bit more to go before the music stopped so to speak is the same property manager between the two properties yes yes so that’s nice at least you can consolidate that way it’s one conversation rather than two agreed and the you know obviously being in a big metro area like that you’ve got access to a lot of property managers should you feel the need to change make a change and that was one thing I kept in mind as well when I was looking at where to buy first
(46:21) was I wanted access to a slew of property managers which in a huge metro area like that is obviously not an issue that’s one of the big differences between the States and Canada is uh property manager met property management companies in the states actually have resale values actually you’re the perfect person to comment on that because that’s what I hear based what I’m seeing like I hear about private Equity firms putting money into property management companies in the states I don’t know if I’ll see that here in Canada ever not not anyone I
(46:56) know in the community oh you just mean in terms of like the significance of property management as a sort of sub industry in the United States it just seems to be a viable business versus uh it’s just you don’t really see anyone scale here locally because it’s there’s not enough cash flow and it’s too difficult to tenant profile tenant relationship business relationship with your customer yeah now as as a business valuator I would actually say that a property management business is pretty challenging right you’ve got M unless
(47:27) can get that growth that unit growth it is all about scale right you’ve got razor thin margins and so I think to do it well in the 21st century um the firms that are able to be competitive in pricing right having a pretty good technology platform that’s like a gien that’s table stakes and just figuring out how to sort of deploy a limited number of Human Resources MH across a a broad geography so in fact it’s a different company that I use in Texas and in Florida two different companies but both of them operate in several Metro areas
(48:08) and you might be talking to somebody on say an accounting question or a property maintenance question and if they’re just coordinating something behind the scenes they might not even be in that same Metro um which has its pros and its cons but I understand that having having sort of looked under the hood and seeing financial statements of a property management company and also just using some commercial common sense it is a very difficult business to make money in and you don’t really get to the point of profitability until you get
(48:43) hundreds if not thousands right of units do you know how many houses under management your property management company has I know it’s not yours but the one that you’re yeah no we I’d actually be curious to look that up I mean I know the the one in Texas probably does at least a thousand um and that’s a good number just in Texas are they just in Texas no I’m saying like they they’d have to do at least a thousand across a few Metro areas I don’t know how many they have in Dallas Fort Worth hundreds in Dallas Fort Worth for sure I don’t
(49:16) know whether they cross that threshold just in Dallas for worth um and then the Florida company I was actually down there last week to meet the maintenance and and also sort of turn it into a you know somewhat of a time away for fun her team had just in the cape CR Fort Myers area um 300 herself and I think she had a counterpart who probably did another 200 so I think they had a bit 500 which makes me think this company in Dallas W worth I would not be surprised if they got well over a thousand in Dallas worth
(49:57) right this this is all interesting CU we haven’t actually talked about this off camera so this is all this is all I’m learning here too and hopefully the lessener is getting benefit from this as well uh the smallest property manager that we’ll use at share is uh 3,000 houses in that City okay yeah so you know when when we’re talking about property manager we’re talking about different scales and context so you know a PM company with 3,000 houses under management that City it’s probably worth something right oh as a business yeah I
(50:25) mean if you’ve scaled to having that many let’s call them contracts because that’s I guess really what they are month-to Monon contracts recurring income yeah we we you know in business valuation speak if we were looking through this or at this through the lens of uh accounting standards and a business combination we probably say that there is some commercial Goodwill associated with those contracts or those customer relationships so I agree I mean it’s different than just one person who manages you know a dozen or two dozen units on their own
(51:05) for individual investors which are all you know all over the place but um I I agree with you that there are a lot of like I was sort of overwhelmed by choice when I was interviewing property managers and in DFW because there were just a lot interesting and then how is that were they were they like wanting your business or were they like yeah I mean they because here’s so different no they they were like the one company had a full-time like business development manager whose job it was to bring in okay business so yeah they they were
(51:44) aggressive and wanting clients right yeah because you’re property manager do they have such such such roles in divisions between responsibilities yeah no he he was a full and you know he pitched himself as I’m an investor too right like he talked about his his units that he owned and how they manage him so it was very much the at least perception that they were trying to sell of we’re investors too we’re not just managers but wow they had they had a person just in business development oh yeah again I’d have never seen this in a
(52:20) local like the no I mean this team yeah like would it surprise me if they had 3,000 units under management like the sort of threshold you look for no it wouldn’t because to support that sort of headcount you would need to be there I think but even like your Florida PM 2 300 houses under management yeah like unheard of well and and that’s that’s in a relatively smaller metro area too right that’s for Myers which is somewhere I think between half a million and a million people depending on where you set the boundaries
(52:57) is it that many I didn’t even know that Fort Myers yeah okay you want to talk about Florida yeah let’s talk about Florida so you know let’s sort of fast forward to 2022 okay so after the the Texas after after Denton which was December 2021 um I was having a little bit of fun with this and it was Omron happened is that right that would be that would be just Fort Meers if you okay if you Google um Cape C Fort Meers MSA okay so Fort Meers is 96,000 population as of 2022 I thought it was that sounds low to me but again cuz
(53:39) you’re all looking at [Laughter] tourists are we are we going to find the population of uh so it looks like 760,000 yes that that sounds about right to me yeah that’s actually pretty big it’s grown a lot over the years um which I think has been a help and a hindrance at the same time but if we fast forward to 2022 um you know I had these two single family rentals they were still even at those prices still fairly hard to cash flow just because I was basically buying them with 100% debt right um so that was more of a capital structure
(54:29) not advising anyone to do these things no that that was more of a capital structure issue than that they would have cash flowed if I actually put the 30% down in cash yes um so I was sort of actually let’s dig into that so why why why would you do that then why would I do that okay so in business valuations we have this concept called a firm’s optimal capital structure right um I like this show well it’s like I’ll take myself back to fourth year strategy class in University where we had to play this computer simulation game and one of the
(55:06) things we had to control as the you know fictitious executive management team was how much debt the company was was taking on and there’s sort of this concept in in financial Theory right that there’s sort of a a graph that’s like a semi a vertical semicircle um in that there’s benefit to adding debt to a business to a certain extent if you’re trying to maximize value for shareholders right um Deb you’re the shareholder in this case yeah yeah I was yeah shareholder my my own little real estate portfolio but even if we apply
(55:47) that principle to business debt is cheaper right in a theoretical sense it is quote cheap cheaper to borrow from the bank than it is to get somebody to invest equity in a business typically because Equity comes with a higher risk right the bank would get repaid first in the event that a business or a property goes belly up and then investors are left holding whatever’s left over so Equity investors typically demand a higher rate of return than a debt lender would MH so you’ve got that element you’ve got the fact that interest on debt for a
(56:30) business or for a rental property is tax deductible so that makes the debt even cheaper and as long as you can you know use debt as a practical tool without using too much of it there’s sort of an optimal point where a business can service its debt use that capital to grow but not overburden itself with too much debt such that you know making Debt Service payments comes at the expense of investing into growth projects or anything else right and so when I when I S just pause you there like what you just explained there is
(57:14) what how pretty much all of our clients got ahead and made millions or multi-millions in real estate and at the same time this there’s this current group of investors who went well past that uh they were they weren’t borrowing cheap money from the bank they were borrowing money from private individuals along with lender fees and much higher interest rates no exactly right there there’s a sweep spot where you can use it responsibly and enhance your returns as an equity investor yeah Sweet Spot enhance your returns yes yes
(57:45) that’s that’s sort of what I think a textbook would say um and yes I had used debt right 12 or 15 years before when I bought that hair on the mountain or when I bought that condo in Toronto most of it was paid off a good chunk of it was paid off and so I had two properties and I I suspect your listeners may be um familiar with the concept of loan to value right they should if they’ve ever gotten a mortgage before right so right at this point because of how much the Toronto condo from 2009 and the Hamilton house from 200 12 had
(58:28) appreciated and the debt balance had gone down over those 12 or 15 years because your tenant was paying your mortgage essentially I now had a very low loan to value ratio on those two properties your mortgage is very small Rel in relation to the current value of the property correct like they were probably worth around that time let’s say one point three million and I probably had combined mortgages of 200,000 right and so what what’s my loan to value on that we can pull out of our phone I think your Equity was 1.1 that’s
(59:13) my mind went well there’s that too but but what was that Equity doing at the time not it was sitting there it was kind of idle so what my loan to value ratio would have been 15% the business valuator and me knew that I could afford to if I looked at the portfolio as a whole and that’s how I looked at it as opposed to a property by property basis I could probably afford to lever up and add some debt if I wanted to grow right if I wanted just to sit back and maximize my quote cash flow then I should have sold and bought properties in cash but at
(59:50) this point I’m still working I hope to be working for a good number of years yet and have a decent amount of sort of career Runway ahead of me and wasn’t necessarily relying on real estate for cash flow just yet my mind sort of shifted more to how can I use this equity and grow REM me again how old were you when we met 28 I was 24 when we met in 2011 so yeah okay now I remember now because you held the record of our youngest client for quite some time I guess I was knocked off my drown at some point yeah then jokan got you I
(1:00:28) think it was 21 or 22 oh yeah that would do it so yeah 22 was the Toronto condo and then I think 24 was the first true rental and then a good sort of decade of nothing and then 35 sort of realizing well this Equity is sitting there MH my business my valuation business was more at a point where I felt more comfortable adding a bit more financial risk to my real estate investing sort of lined up with the timing of when I started looking in the states and that’s sort of why I decided to add as much debt as I did your
(1:01:11) journey to uh buying at least for the states actually most of our clients were very similar very tiny mortgages on their principal residences that’s why they felt comfortable Levering up so just to provide the listener context on who in reality who the everyday investor really is almost nobody has cash um almost everyone’s using or using existing or creating new home equity lines to to invest yeah responsible way to do it yeah no like but Equity can be used as a powerful tool if we think about that Hamilton Mountain House it gave me
(1:01:45) liquidity when I needed M to start a business right I at least had the foresite to refinance that before I quit my job to start my business credit yeah had you know you had income toal when I was lendable um but then I dialed it back for several years while I was building that business because believe it or not building a business from scratch is actually kind of hard and the first couple years weren’t necessarily as rosy as I would have liked but then I got to a point where I felt comfortable adding more leverage to the
(1:02:25) real estate portfolio mhm to grow that let’s call it $1.3 million of asset value into something bigger um so that hopefully down the road that will provide a you know a good piece of the foundation of the whole Investment Portfolio when you go when I go back to your original question of how do I choose to allocate my money um I’m now probably back to being overweight real estate MH compared to what most CF would probably tell me to do but what would a cfp tell you to do well I mean I think most a lot of cfps think more in
(1:03:04) the world of build an 8020 or 6040 portfolio of equities and fixed income and call it a day which isn’t wrong there’s benefits to doing that it’s more liquid it’s less risky it takes takes zero effort um but I also think you know it’s it’s more volid and you can’t use any leverage to do it that way yeah I’ve mentioned it many times a show uh without leverage real estate’s not that great an investment no and you’ve probably said this but I’ll just repeat it yeah please the expert right I mean sure what if if the
(1:03:46) average uh price appreciation for houses longterm is 2% I’m just making up a number I actually don’t know what it is 2% and you know a a 7030 Equity Bond portfolio can get you 7% you should go for the 7% right no not necessarily if you were buying a a a house in cash and earning 2% on that like if you bought that $690,000 condo today with cash then it probably doesn’t make um a great investment out of the gate but if you’re buying a property with some leverage with let’s say 25% down I don’t know what terms your us borrowers are getting
(1:04:45) or your Canadians um borro in the US are getting right now but let’s say 25 or 30% down that 2% asset appreciation so long as the cash that the property is cash flow break even that 2% asset appreciation would therefore be 8% Equity appreciation because you only put in 25% so 2% Time 4 is 8% I think that’s where a lot of people get mixed up reading articles in the financial press of you know real estate isn’t a great investment agree if you’re adding no leverage to the mix um and you’re just accepting that 2% price appreciation and
(1:05:34) getting no cash flow and and and and let me show you something ad can you Google dig capitalist $100 asset that should find me what I want visual visual capitalist yeah that’s the first one then keep searching for add $100 to it $100 you need dollar sign so I love this chart you already blocked four on this page alone so there a stock market scroll down atam okay so $100 becomes I want to go to go to Real Estate because we’re talking about real estate yeah so uh Cas index says that over a from 1970 to 2023 the US home
(1:06:23) prices have grown 5 and a half% so the average house in the USA average so you and I don’t like being average we’d like to beat it but even if we got an average return of 5 and a half% on the property are you happy Adam if I can use some leverage and turn that 5 and a half% going do something higher 100% leverage but yeah yes yes are you me I would be ecstatic yeah no I mean I am but my time Horizon in in that is very long term right I mean there’s this expression I heard once and I think it’s worth repeating you don’t day trade real
(1:07:05) estate oh expensive right transaction and so when you’re gonna buy it your time Horizon has to be long enough to be worth it MH well the REITs their time Horizon is 10 years right the the typical read is they’ll sell the property after 10 years but their time R is high Horizon’s 10 years yeah this ain’t no flipping this ain’t no you know not even five we’re talking about 10 year right so the mentality of big money big big capitalist money it’s very different than the everyday investor other than you and I 10 years
(1:07:41) is no problem for me no and it’s not for me either I mean so I’m Now 37 so when I went back to the deciding to build more my portfolio again I was 35 34 when I bought that first place in Fort Worth and again I I I think that time’s sort of going to hopefully do the heavy lifting for me on those properties in the same way that time did most of the heavy lifting for me um in 2009 and 2012 now are my expectations as high as what they were in hindsight of how the cond in Toronto and the house on Hamilton Mountain were formed from
(1:08:30) 20094 we had historic runs no and so you know I think people just need to be careful and and calibrate their expectations for what’s normal because you know that was not normal 20 yeah 2009 to 202022 so basically I’m going to call it most of my adult life um we saw interest rates move in Only One Direction down we saw real estate prices in Canada and I guess after it recovered in the US move in Only One Direction which was up and I think a lot of people sort of fell into the belief that that was going to sustain itself for the the long run and
(1:09:14) then when higher interest rates kicked in in 2022 the party finally stopped and the music finally stopped at the party sort of like I feared that it would in 2021 but had a little bit of confidence just sort of seeing all the buying activity um that it would continue for a little bit longer and I could at least sort of get into a sound Market um without grossly overpaying and then letting time do its work from that point forward yeah CU again 53e sample here 5 and a half% price increases over over that period
(1:09:48) every year on average on average right yeah no I’ll take that I’ll take that all day I’ll take that um in part also because I think you’ve probably heard this analogy too right I can’t remember where I read it so um apologies to whatever author I’m I’m not attributing this to right now correctly but if you think about real estate investing right um how did this author describe it you’ve got sort of it’s like it’s like a three course meal cash flows or appetizer very hard you know harder to get mortgage pay down principal pay down
(1:10:26) deleveraging whatever you want to call it is the main course just sort of the hold buying and holding the holding is generally what sets people up for success and then appreciation is like the dessert so um if you can buy a property and get 5 and a half% appreciation over a 25 30 year period while that property is being paid off then you’re going after yeah after 25 or 30 years you’re going to be quite quite pleased with that decision I even think back to the days of that Hamilton Mountain House I looked at it more from
(1:11:05) the perspective of and I I didn’t even even though I worked in evaluations at the time I didn’t sit down to actually calculate what my break even rate of return would need to be but if you put 20% down on a house and it breaks even for 30 years or whatever my amortisation was at the time and it pays for itself after those 30 years even if the property doesn’t appreciate I have just increased my invested Capital by a five times right free and cleed offset yeah and then at that point it’s cash flowing so you know it it was sort of a
(1:11:50) fairly easy decision with enough time Horizon to look forward to can we talk about Florida in Florida well we can talk about Florida yeah so I had avoided Florida for the longest time like when I when I was picking my first US real estate investment I ended up in Texas obviously um there were quite literally dozens if not hundreds of markets that you could choose from in the United States right that was actually the hardest part at the beginning was like oh where am I going to start looking because that influences a lot of other
(1:12:28) things like getting financing Property Management like we talked about where to create your limited partnership yeah understanding Market rents whatever I had avoided Florida because of when I bought my first US property which we now know was in the uh Dallas Fort Worth Metroplex I had considered Florida at that point which was 2021 I mean I had some familiarity from going to Florida most March breaks um my aunt and uncle were snowbirds who wintered in in Southwest Florida but I had you know the the phobia or the fear of a hurricane
(1:13:14) hitting my property and uh you know I believe that climate change is real and the number of hurricanes that hit Florida particularly the gulf coast is real and buying a property that was in the potential path of a hurricane was just a bit more risk than I wanted to stomach and so that’s sort of why another reason why I started in Dallas Fort Worth was it hadn’t been quite as prone to extreme weather events in the last several years as the State of Florida had been what was frustrating trading was despite all of the reasons
(1:13:58) not to invest in Florida people continue to move there and you know the party’s still sort of going on to a degree um I think I read projections recently from the state of Florida suggesting population growth of something like 320,000 people per year between 2024 and 2028 um and so in a way it was almost like this is a crowded trade but I almost feel some sort of need to follow the crowd to a degree um and part of it also too is for Canadian borrowers investing in the US one thing you will find is that financing can be a
(1:14:52) bit of a roadblock a bit of a challenge and where I own my two properties in Florida um I was able to work with a great sort of small Community Bank who really did not care about the fact that I was a Canadian without a Us credit score and they’ve been fantastic to work with so everything sort of lined up and then I was also looking for a little just bit of diversification in terms of asset class right I mean in in Dallas Fort Worth I had two fairly nice excuse me single family houses um Florida sort of gave me an opportunity
(1:15:35) to I guess we can say diversify into more true you know multif family in the form of a duplex and then also a seven unit um sort of small apartment building as well which really was underwritten more like a commercial property and a commercial property is actually arguably easier for a business valuator to Value because it’s just a function of net operating income and uh the prevailing cap rate though this was in 2022 when interest rates were already starting to move upward so trying to really nail down what what the stabilized cap rate should
(1:16:21) be was a bit more of a challenge so were you there before before un or after un just before so I yeah so this is my fears of investing in Florida came to fruition um and uh the seven the seven unit building would have closed in May the duplex which was sort of opportunistic and unexpected but it was a listing that I found on Zillow managed by the same management company that was managing the seven unit and long story short was being sold by a guy who had been he he he was a this this is a great story cuz I found I went online saw who
(1:17:02) the owner was but their motivations were for selling and it was a personal trainer and fitness coach who sold nutritional supplements um but I believe that it was concluded that some of his supplements included ingredients that were not totally 100% legal and so in the words of the selling realtor when I called her up one Friday afternoon oh yeah they put him in The Slammer but he’s out now in case you’re wondering and I was like well I wasn’t actually but we H disclosure but yeah but we hammered at a deal that
(1:17:43) closed on September 15th of 2022 and hurricane Ian I believe was maybe 10 to 14 days right after that oh my God and you know at oh yeah it was a slap in the face um and it looked like it was going to go north hit closer to Tampa but at the very last minute took a turn East and um Cape Coral Fort Meers got the brunch of it and I certainly was not spared and all of that but I mean it was a sort of validation of my concern in the first place of the RIS associated with Florida so that last that hit trono and miss
(1:18:26) Saga that was I think it’s approaching a billion in Damages hurricane Ian for context was $13 billion worth of damage yes I believe it was the third most expensive storm in US history and the most expensive storm in Florida’s history H yeah and then how’ that affect your properties so both of them needed new roofs that was the main damage like neither of them are in um flood zones so that that wasn’t the issue it was more wind than water was the problem and for the you know the seven unit building it ended up not
(1:19:09) being the end of the world because when I bought that property um the roof was sort of on its last legs and I was planning I’d already underwritten that I would have to replace that one in the near term and I was actually able to get a little bit of insurance proceeds um that I probably wouldn’t have otherwise gotten on that one to do so but the other the duplex from the inspection I was not anticipating to have to um replace it out of the gate but I did as much of a journey as it was to negotiate with insurance companies in
(1:19:50) one of the most litigious states in America um ended up walking away a little bit out of pocket but not totally scarred I think the I think the bigger long-term issue for Florida and other states prone to naal n natural disasters is just how is the insurance Market going to play out I mean Florida has had a bit of an insurance Price crisis over for the past two years since Ian and that owners insurance premiums have doubled or or tripled in some cases right is that your experience it was my experience that the seven
(1:20:35) unit policy probably close to Triple but that’s not really an Apples to Apples comparison Because the actual coverage expansion increased after we put on that new roof but it was certainly like it it was a huge increase and now I say you know Texas I don’t like the property taxes Florida I don’t like the insurance so pick your poison which one’s worse or find a state that doesn’t have either as a problem yeah that’s why that’s why I’m looking at Kansas City Missouri property tax my property tax on the property I was
(1:21:11) looking at was like, 1500 right or how big of a h how valuable of a house uh 1,200 foot Bungalow um 152,000 sounds pretty good to me yeah off Market rents for 1300 yeah purchase price 152 yeah so you’re almost at that 1% Ru there is a small rental probably like 20 um but again I really like the economic fundamentals of Kansas City Missouri but 5.
(1:21:41) 9% cap rate so that factors in insurance and uh and property tax no I mean that’s about as probably about as good as you’re going to do on a single family house I would think I mean I more for the we have clients getting sevens in the Memphis Tennessee interesting okay bit older house though it’s like 1950s house or 1960s so a bit older um but yeah yeah very good so uh would you do these Florida properties again um I go back and forth on that one right I mean there’s there’s obvious reasons to say no I would never want to do it again but there also some
(1:22:20) reasons to say it was a good learning experience um I developed a very good relationship with this Community Bank um I was able to on the on the seven unit one right it was actually both of them really treated more like a commercial loan and so it was actually a pretty easy approval process I’ve got fairly low rate fixed term debt um for some time it’s being amortized over 20 year period so a good chunk of principle has already been paid down and I guess you know I’m still looking at everything from a portfolio
(1:23:07) wide picture and that over time this will hopefully deleverage um free up Equity or just continue to Del leverage to get to the point that that rental income or a portion of it turns into free cash flow I mean the one thing that the Florida properties got me that the Texas and and certainly the Ontario properties did not was the best rent to price ratio so I mean if we look across the portfolio now I was just doing quick map before I came here gross runs across you know 13 units in separate properties in three
(1:23:57) states or provinces are about 28,000 Canadian now a good chunk of that is in US dollar so that number is going to go up and down with the exchange rate but if I can just sort of let these ride um and pay themselves down that’s $336,000 a year in Gross rents in today’s dollars if I can optimize operating expenses to be about 50% of that then what’s that $168,000 a year I would be quite happy with that if we can just eventually get them paid off over the next you know 15 20 25 years and what do you think you planning
(1:24:45) on any future Investments what do you think your next investment will be I actually think right now my my most rational move is to just sort of wait sit back Del leverage right when when I talked about optimal capital structure earlier I went from having arguably not enough debt on the portfolio in 2021 whatever that was to some might argue the upper boundary of enough or perhaps even too much much so I think you know well the the Curious side of me loves looking at properties looking at new markets going on Zillow um the rational CPA side of my
(1:25:40) brain says probably the best move at this point is to just throw some excess cash flow at a couple of the uh the loans under underpinning everything and freeing up Equity freeing up cash flow um because at this point do I really need to take on that much more risk in my life um the answer is probably not to get to my goals but it all depends on what what every individual’s goals are right I mean um I sort of have an idea in my mind of what I would like my portfolio to be in say the next 15 or so years I can probably cut it off at this point and
(1:26:34) just let the Loans pay down maybe accelerate the pay down of some of them and continue to allocate other money to stocks and bonds as a traditional investing approach as well um but we’ll see ask me in a couple of years and see if I stick to that because I think I probably said that in 202 22 and look what happened I know it’s not exciting for the listeners benefit is though because we have lots of guests who come on and just grow and grow grow and grow but then you know there’s a whole bunch of people losing their shirts because they
(1:27:06) grew into areas during a bad time to grow um now my question would be if you were in buy mode MH where would you invest so because I haven’t been in buy mode for a couple of years now on either oh yeah either side of the Border I don’t know that I’m the best person um to really even give an opinion on this but I guess I can give my my 10 cent or two cent opinion but I mean if we just think at a high level for your listeners particularly looking at the US you’ve got the midwestern markets like the like the St Louis or sorry was
(1:27:48) the Kansas City or St Louis say Kansas City Missouri the Carolina yeah right so you got Kansas City St Louis other Midwestern Market markets are probably going to have better cap rates higher cash flow out of the gate do they have as much appreciation potential as a DFW I honestly don’t know the answer to that question just because I haven’t researched those markets enough to really know um obviously Texas I already talked about I do think the economic fundamentals are there but the property taxes unfortunately just kill the numbers on a
(1:28:27) lot of deals M Florida I’m in no rush to uh deploy any more money into after the you know the somewhat scarring experience the Carolinas have actually been interesting to me because just from very anecdotal small sample sizes when I look at you know rent to price ratios on Zillow while I’m lying on the couch it seems like Charlotte for example North Carolina would be a market that would take a lot of boxes for me and you could probably make a deal work um what I don’t know is just well I I haven’t done enough
(1:29:07) research really on it to happy to share mine with you sorry I happy to share mine with you okay well I’ll you you can share yours in a minute but you know you’re still gonna get a little bit of the the hurricane risk I suppose but not nearly to the extent that Florida would so that’s probably my my piece on the Carolina so I I I think Charlotte could be a viable option if I were to get back in the game but who knows when that’ll be and what will have changed but what what’s your thesis on the Carolina yeah because I was like deal in Savannah and
(1:29:39) the insurance wasn’t that bad I that’s Coastal right so a lot of the Carolinas are coastal as well uh then if you are looking at the Carolinas then you probably want to look near where Toyota is building their next Plant it’s A14 billion investment probably create somewhere around 5,000 or 8,000 new manufacturing jobs so anyone who knows like Honda and Alliston or like Toyota and Cambridge knows what that what that did to their markets wock Ontario what part of what what city is that in I have it in my spreadsheet yeah happy to share it with
(1:30:10) you later um and then OIC the company that manufactures OIC has a $4 billion investment and I think also in North Carolina uh 4 billion investment to create 1,000 manufacturing jobs and uh I’ve heard good things about it um the the weight loss drug yes oh you’re not well no I wasn’t sure if you’re were like I’ve heard good things about the drug itself yeah or the the manufacturing facility where they’re making it I I just the way it came out was kind of entertaining though this is not my field um but again I I have friends in the in the training
(1:30:49) space with patients and apparently it works well and uh you know you offer weight loss in anywhere in North America it’s and it’s if it works there’s a very high uptake on it in the United States anecdotally I believe um and I mean the commercials are catchy right so I had no idea what it was but man they had a lot of money I think they had Super Bowl commercials for probably yeah right uh but then to my point you don’t see this investment in Canada you don’t see an automotive manufacturer putting up 14 billion you don’t see a drug
(1:31:21) manufacturer putting up 4 billion right and those two alone are in the Carolinas okay yeah no that would be intriguing for sure yeah yeah all right any any final thoughts for The Listener like you’re still a young guy and a lot of our listeners are around your age yeah no I think I guess if I were just to sort of summarize some of the things that I’ve some of the themes that we’ve touched on today first one would be time right whether we’re valuing a stock or we’re valuing an OP or we’re thinking about investing in real estate or we’re
(1:31:57) thinking about investing in the form of a small business I would argue that time is actually probably one of the most if not the most variables that can set us up for Success right you know as I said before I let time do a lot of the heavy lifting um in my own real estate investing I hope to continue to be able to do that to your point on age and so you know there’s that saying when you’re investing in stocks time in the market is more important than trying to time the market and I think the same is also true in real estate as well so
(1:32:46) you know regardless of which asset class you’re you’re looking at the longer your time Horizon statistically speaking the better your chances of success so that would be one um number two I probably sound like a broken record but that business valuation concept of of optimal capital structure um thinking about debt as a tool that can be used responsibly to grow I mean I I certainly would not be in the position that I’m in had I not taken advantage of debt when it was relatively inexpensive and I mean I get that we’re sort of at a
(1:33:39) in a completely different era now and things are harder and maybe that means that buying with less Leverage is is the more prudent option than it was you know say two three four years ago but at some point you can calibrate things to make the math work um and and if you’re in a financial position where you have sort of enough cushion to absorb any blows that come your way like a hurricane in Florida for example for example um you’re obviously in a much better spot and so there there is a reason that I hit the pause button
(1:34:22) for about 10 years before I I got back into things a third would be I guess if you’re going to well invest in anything really but invest in real estate invest in stocks being willing to sort of embrace risk and give yourself permission to make some mistakes if you buy a property um I don’t care if it’s the best property the worst property what I can guarantee you is you will probably look back at some point in your investing career and say oh I made a mistake here and if you beat yourself up over it um you’re just sort of diminishing your
(1:35:08) chances of long-term success and I I’ll give you an example here one being that Hamilton Mountain House I think it was not too long maybe a year in the roof on that one went I mean we’ve done the inspection I thought it would hold up for maybe another five years or so but sometimes inspections things don’t according to things don’t go according to plan even compared to an inspection and so it sucked I mean that probably killed the cash flow on that property for that yearh and having come from you know an academic in then a corporate environment
(1:35:49) where we were sort of rewarded for Perfection and for not making mistakes it took me a bit of time to embrace more of a risk mindset and live through that and say okay well this didn’t work out according to plan is it going to kill me in the long term and after I was able to get over that psychological hurdle and think back to that first variable I mentioned which is time I realized a little bit of short-term pain doesn’t change the game plan and that’s how I’m looking at Florida as well right now right if I had if I had looked at that
(1:36:36) new roof in 2013 for the Hamilton Mountain House and let that deterred me from investing and I simply said oh you know on a cash onh basis this year was rough so I’m just going to sell the mountainous and redeploy by the the capital into stocks I’m quite confident I would be kicking myself in 2024 now I I’m not expecting that the next 11 years are going to be like the past 11 years but I do think that having some willingness to make mistakes and learn from them was something that I sort of had to learn um as an otherwise
(1:37:20) fairly perfectionist type person young at the time yeah and and I guess that sort of leads into my last Point too which is just having realistic expectations for people getting started I mean if you’re buying your first investment property in 2024 and you’re listening to this and then 2034 rolls around and you look at that house or that whatever piece of property that you bought and it hasn’t doubled or tripled in value you should not consider consider that a failed investment right the Tailwinds that we had as we’ve
(1:37:58) discussed for the past 15 years or at least as long as I’ve been owning property you know it’s easy to say oh of course this worked out because you bought in 20 2009 or 2012 and you would be right like it it makes it look easier than it actually is real estate investing has some hard moments to it and so I would just encourage people starting to invest to sort of level set their expectations and give themselves enough time so that they can achieve that five and a half percent sort of long run and it truly needs to
(1:38:39) be long run in order to have a a good likelihood of achieving that chart before if you work at the stock number mhm which is the big performer mhm it works out to just over 10 a half% right including dividends for the S&P 500 okay so like Leverage example leverage example of Leverage real estate would beat that W easily yeah you’d be in probably the low 20% range may maybe less than that if you’re a Canadian buying in the US and only getting 30 or sorry 70% loaned value but yeah somewhere what 22% maybe even 25% if you’re lucky 18% if
(1:39:28) you’re not using as much leverage which would probably be the case in today’s environment for uh for us property certainly but we’re also not including mortgage pay down right or cash flow exactly that’s yeah that this is just the dessert piece that I talked about earlier the dessert piece which we’re very happy to consume yeah it’s taste to dessert but oh yeah as you eat your cookie it’s what makes us rich right all right Adam thanks so much for doing this it’s been I think I’ve been bugging you for a while to come on this show I think you
(1:40:02) have no this was fun um it was good to be here hopefully the audience can take something away from this um but I I genuinely am a student of this stuff and love talking about this sort of stuff so it’s been fun where can people follow your journey should we give them your website yeah I mean yeah yeah you you can sort of find my contact info on my webite it’s synthesis valuations.
(1:40:36) com I don’t know if you have show notes or something you can put that in we’ll put in the show notes yeah and then you can also find me on LinkedIn as well if they just search Adam R Johnson they’ll find you Adam N Johnson in fact I think if you go to linkedin.com and Johnson see what pops up no not the English English football player he looks just like it he’s also a convicted felon I believe oh is that a problem at the airport no well no I have an exess carard but 3100 Adam Johnson’s in LinkedIn try try doing Adam Johnson um CA CFA CBB oh yeah those are unique
(1:41:30) identifiers there you go look at all those letters I love the links in the short notes I’m Johnson CPA CA cbv CFA that’s so you’ve proven you’re smart I hope so and then yeah like I guess you just don’t well both in but done well both in real estate and business if you say so sure yeah I don’t know the numbers but you would no I mean I I’m sort of happy with what I have built right I mean real estate investing sort of one piece of it running my Consulting advisory business is the other piece of it um but I think between
(1:42:20) the two I can hopefully over the long term you know build my own destiny and that was sort of the Catalyst for all of it right yeah including quitting your day job and I remember the day you told me you you’re quitting your day job and yeah that was eight years ago that was eight years ago and it’s been a fun eight years and that’s why I was wanting to pull you on the show like real estate gave you the freedom give you the working capital to take that leap it did yeah in that sense that mountain has has been the gift that
(1:42:48) has continued to give because it funded the creation of the valuation firm and it continued to fund the the US purchases down the road so lucky perhaps yes but there’s that saying I’d rather be lucky than good any day of the week and if you can be lucky and also try to be good make smart decisions um take some lumps but still try to minimize your mistakes then that’s sort of the the best case scenario I prefer the definition of luck being the intersection between opportunity and being prepared something like that yes
(1:43:33) all right we’ll leave it there thanks so much for doing this Adam you’re very welcome good to see you thank you for watching if you want to learn how to invest in real estate from scratch my team teaches beginners how to use the number one investment strategy that I personally use in a virtual free training class every month go to investor training.
(1:43:54) com also in the description as well I publish at least two to three videos a week here so subscribe if you want to keep learning from seasoned investors like myself and my guest and if you’re just starting out feel free to ask questions and comment below and I do the best to answer each of those comments and questions myself again if you’re ready to learn the nitty-gritty about real estate investing from a professional investor register for our next virtual class that’s at investor training.com

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