BiggerPockets Podcast – Student Rentals, Multifamily, & the Silent Cash Flow Killer

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Student Rentals, Multifamily, & the Silent Cash Flow Killer

BiggerPockets has seen some extraordinary growth over the last few years. They have the #1 real estate investing podcast and recently did their 224th episode.

Below is episode 220 with Jesse Fragale where he talks about student rentals, multifamily and the silent cash flow killer. Full transcript is also below.

 

Full Transcript




[00:00:00] This is the bigger pocket’s podcast show to 20. What I found is that people are afraid or they’re a little apprehensive with apartments because they feel that there are these big deals that they can never do. And I remember early on somebody telling me the bigger the deal the easier it is to do.

[00:00:17] You’re listening to bigger pockets radio simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype. You’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from bigger markets does your home by real estate investing online.

[00:00:38] What’s going on. Everybody this is Josh Dorkin house. So the bigger pockets podcast here with my co-host the man the myth the legend in his own mind. Mr. Brown and Turner.

[00:00:51] Does that mean I’m a myth in my own mind as well. You’re everything in your own mind. That’s true. I’m the man the myth the legend Brendan Turner. Thank you. How you doing Josh.

[00:01:00] I’m ok man thanks for asking. You know you never really do ask me how I’m doing. That’s because I don’t really care. So it’s easy. I just skip right over it. So and yet I continue to bring you on this show. It’s weird. You know it is we’re here wasn’t for punishment like first round. Good good thanks for asking. Life is life. All right. It was kind of sick last week. That was a bit unfortunate but things are going well. You know we just had three new people start bigger pockets this week in fact. So today we had somebody join us. And yesterday we had two new people so it’s been crazy just lots of lots of change lots of movement lots of acceleration here at the company. Very exciting stuff.

[00:01:39] Yeah I haven’t actually met any of them I need to reach out to them via Skype today and you know give him a virtual you should do that.

[00:01:47] If I give him a hug. Like virtually like just you know get my hands on everything and you creeps us all out. People are used to it at this point it’s OK. But the Creative Factor. Yeah. It’s like the uncle who always touches you on old planets. Wait that’s not that everybody or just you just you and your weird calls.

[00:02:06] All right so I tell you something so I’m getting this kind of this new real estate niche sort of I’m trying to buy something a lot different and I’ll explain more maybe riches or niches which is this is working too. What’s funny about that is I feel like I’m a brand newbie again like I’m learning for the first time because this is kind of new and exciting so you know anybody who’s brand new to real estate what you show is brought to you but are you still saying I’m just saying I’m with you I get what it’s like to be a newbie you know because I’m I’m a total newbie when it comes to this. And we don’t know more about that kind of bigger pockets than ours. I talk about it usually there bigger pockets that comes weapon are. But with that. Speaking of webinars. Does it have anything to say about that but what do we get to today’s Quick.

[00:02:48] Tip. All right so today’s call. So this has nothing to do webinars other than that there was video so I equate it today is you know we’ve been doing a lot more video content here and bigger pockets and some really really high quality stuff in fact Josh is. Was he your nephew is that right. Zach is incredible video and he’s been doing a ton of stuff with video anyway. We’ve been doing like actual walk through the properties and all these other cool things and we we’re putting them out in two places. We’re putting them on our Facebook Walbert and Facebook live if you go to Facebook dot com sites bigger pockets make sure you’re following us there and you’ll get to watch them live and ask questions on the fly which is really cool. Very very cool yeah and then we usually take them not always but usually take them and we download them and we put them on YouTube as well later. So make sure you Subscribe to our YouTube channel which is of course YouTube dotcom sash. Bigger pockets.

[00:03:32] Check it out. Cool. Awesome. So we’ve got a great show today. This is sure to 20 a bigger pockets by guests than you could check out the show notes. Bigger pockets dot.com slash show 2 2 0.

[00:03:45] Also of course we would love it if you have not yet subscribed to us on iTunes stitcher soundcloud wherever else you are listening or watching. Please do go ahead to subscribe button and if you can leave us a reading a review we do always love that.

[00:04:00] Before we get on to today’s show we we’ve got a word from our sponsor don’t what do we do.

[00:04:06] Could you do more real estate deals if you didn’t have to waste your time looking for financing. Are you ready to scale your real estate business and do more deals. Well let’s make that happen. Our bigger pockets partner is patch of land a nationwide lender that is ready to fund your next deal. Patch land is a private lender with a proven track record. Funding investors just like you got to fix simpler project perhaps a buy and hold even just a refiling cash deal. There’s no reason to wait. But that our schools page up patch of land dot com forward slash. Bigger pockets. That’s a patch of land with lots of bigger pockets or give them a call at 8 8 8 7 1 0 6 7 3 6 8 8 8 7 1 0 6 7 3 6.

[00:04:46] Our guide so Today’s guest is Jesse for Ghali.

[00:04:50] Jesse is a real estate investor who has focused on college rentals for the first part of his career. And then he actually ended up transitioning to a larger multi family. I just closed on an 11 unit property. He’s also a commercial real estate agent focused on leasing out properties. So really smart guys got some fantastic wisdom. Am I a good guy overall So let’s pay attention let’s give him some respect.

[00:05:17] Let’s them in like Ali like the respect you gave him during the recording.

[00:05:22] What. I was trying to introduce. Yeah yeah yeah you know. You know we’ll see how respectful you are when you bring him in. I’m extremely respectful. Let’s bring him in. Jesse hold on. Hold on before we bring him in. Let’s let’s talk about this it seems like you got a bit of a problem here. No I got no problem. I mean we have an issue. I’m just saying you made some made some funny jokes at Jesse’s But don’t I always make you generally make jokes at my expense today. You you you you you rely on just a little bit. Not a bad thing. Jesse and I are friends. I’m going to be a love between friends. You know you watch your soap operas together and stuff. I know it’s real. Can we bring him in. I don’t need this animosity here when you bring him and do it do it.

[00:06:05] All right. All right guys let’s bring him in. All right Jesse welcome to the show man it’s good to have you here. Good to be here.

[00:06:12] Good. So Jesse tell us about yourself. Where are you from. Where are you. Where are you doing this real thing from then. How did you get into it.

[00:06:19] OK. Actually first I just want to say that every time Josh you get on this show and you get the bigger pockets podcast intro it gets me going Man if I was me up to it.

[00:06:30] Yes just see you for John.

[00:06:35] But yes I like. But you know it’s all good for Golly it’s great it’s essentially a name it’s not the easiest one don’t kill. Well not yeah Brennan just said. But the background for me is I started investing in real estate in Toronto. I live near downtown Toronto area.

[00:06:52] By the way I got into it you always hear about guys or you know some some reason to get into something because of a girl. Well I was too young for that at the time. It was it was all because of a car and a very specific car it was that 1999 viper are cherry red with the old big old G10 engine in it. So it just give you guys some contacts. So my father is a mechanic by trade and I saw his two brothers. They came from Italy. The whole family came down here and started an automotive company basically a garage. So I’m a really big car guy. And when I was growing up my dad had a really cool younger friend about 10 years his junior. That was a real estate investor and he would invest in single family and I think Brandon correct me if I’m wrong you’re at about 50 units I think from the last show that.

[00:07:41] Yes he thought pearler 52.

[00:07:44] You know what. So this guy his name was Mike. He had about 30 units. And now when I was about I think it was 10 years old. I saw this fiber and I think back then they repeated over a hundred thousand on my driveway and I was like whoa. I’m like that is the coolest car. And even to this day I mean it’s kept up with the times. And I went to my mom I think at the time and I was like you know what is. What does that guy do. What is that like. Because everybody has their vision of what success is when they’re young. And to me that that was it. And she told me Well Mikey invests in real estate and the stock market and I started asking questions and Anyway’s throat from there to when I got my first deal. I started reading books like you know Kiyosaki has books on on business and real estate books in general. And then I made my first purchase when I was in university and I was a student rental property on William Street out in a suburb or a city just just west of Toronto called Waterloo.

[00:08:42] OK. So you said you were inspired by Mikee by my this college investor because he had a red car.

[00:08:50] He had a red car and he had 30 rental units. So basically she said it was he invest in real estate. And oh that was really interesting to me at the time and I didn’t understand what that meant. Sure. And as I got older I started to realize what he did was single family homes investing and built up a portfolio he was 20. He would have been about my age now and he was in his late 20s and he had built a portfolio of about 30 and change and whatever impact that had you know being that young and seen you know that kind of car and now success is defined by a car. But I think as a little kid that was a big that’s all.

[00:09:26] I think that’s cool. Yes. Did you buy the car.

[00:09:30] I was getting way ahead but I bought I bought a very different car last year because I’m a big tuner guy I bought a 1985 Porsche Carrera when they brought the career name back.

[00:09:41] So that’s that’s my little project and I sighed.

[00:09:44] Yeah. Yeah. Tell us about the student rental. Go for it.

[00:09:48] Is ok. So the student rental. I was living in a property when I was in school there with my buddy and he was house hacking while in school so he had four of us paying him to live there. And I sure you’ve heard this story before. I was like you know what I’m Why am I paying this guy why am I paying my buddy for his place. And it kind of inspired me to look for places down there. And one of the benefits of being a child of divorce is that you know when you get a bad answer from your father to invest over and be like a mom.

[00:10:18] So what happened. And I just want to say my parents are both very entrepreneurial people in general but my dad rightly so at the time I think I saved up maybe 25 30000 by the time I was 19 20 I was working construction in the summers and he said basically I like the idea. The answer is no because you have no money. You’re playing sports and school and there’s no income. So I tried that on and on for size. Talking to my mother and she was able to cosign. And so at the time if I remember correctly I know everybody you know everybody including myself are always interested in numbers. I think at the time it was 10 percent down and it was going for about 250000 the property but the issue isn’t the cash down it was more of getting the guarantee her getting you know somebody to sign off for you. And so I got five female Waterloo’s students that were already preexisting leases a little bit under market but now it was supposed to be this guy that’s pretending I’m 10 years old. And then the students Meanwhile I’m at the University a couple of kilometers couple miles down the street.

[00:11:22] So you didn’t actually live in the property that you just bought as a rental purely the rental.

[00:11:26] Yes. So what ended up happening is that because I signed a I think it was a one or two year lease with the guy was with I don’t want to leave him high and dry. And I assume the property with five tenants currently living there. So I you know I decided to do that. And then I kind of you know that led to the next kind of investments I slowly made.

[00:11:45] What kind of rents were you getting from these five female CEOs.

[00:11:49] The house was renting for a just under 24 hundred dollars per month. And so you know back then you know I don’t know if you guys if you’ve seen our market it’s probably the most comparable in the states to Denver New York. San Francisco it is extremely tight. My background is a broker by trade but I work in commercial real estate. And I mean we have the cap rate compression that we’ve seen is just incredible your stuff is going you know a pretty significant property is traded below a 3 percent cap which is all mine is pretty small.

[00:12:22] So who’s buying that as it come back to profit.

[00:12:27] So again it’s going to a story that we’ll dig in that. So like I don’t know much about you like since that point I mean what have you done what’s your like. What’s your what’s your thing.

[00:12:35] What do you. What do you do. Brianna wait wait I admit that you know prepare to do that on us. I do it on purpose. I want to I’m going to be revealed that when I. Oh is that right. I want to be surprised. So it doesn’t surprise me what do you do. You know I was talking to a Canadian I’d be a nice guy and give them exactly.

[00:12:53] Sorry. I just cut you off there. You said what did you do.

[00:12:55] What do you do. What do you do. You sorry. They say oh if they.

[00:12:59] Since then I’ve gotten into I’ve moved from student rentals. Basically from that I rolled that into another property a couple of years just for context. I was 2008 I think it was the first rental. So you guys felt the recession obviously much more than we did but they were still depressed prices here. So with that appreciation I was able to get into a few more units. I got up to the point where I was at I think thirty five dollars sorry it’s 35 beds. So that was thirty five students by the time I was leaving university and then I started working full time in Toronto. And what I started to realize was that the property management piece first in a rental properties as I’m sure a lot of the listeners know it’s a big component and you need a very solid property manager if you’re not going to be in town. And I was kind of getting tired of having properties where the maintenance and upkeep and the capital expenditures were significantly higher than you know safe for instance like your brand in a single family home or where I wanted to be which is multi residential. I wanted to get into apartment buildings. So since then I bought I think three or four more student rentals than I switched into. These are fairly popular here student condos so student rental condos and what we do here because the market allows it is that they gave you a two year free property management and a two year rental guarantee. And the thing that’s interesting with that is the one thing that people really like is the fact that there’s no upkeep.

[00:14:25] So long story short I went from there and I’m proud to say I know when I was talking to Alexandria. There were pockets just prior to this. I think I was in negotiations for my first apartment building and we closed about six days ago.

[00:14:39] And so that’s. Yeah. So we’re pretty excited about it. That was an 11 year and it wasn’t it that was an 11 unit.

[00:14:45] And somebody has to tell us why now.

[00:14:50] OK so you went you went from the student housing to the student condos and then the next step was was this big multi that you bought the it all on your own.

[00:15:01] Yeah that’s right. So what I saw was that I’m sure anybody has been a real stay long enough you know you understand that at least I see four ways that you make money out of real estate and why it’s so attractive. Number one is cash flow. Number two is either forced depreciation if you can do it. Commercial’s a little bit more like that or appreciation in general. You know we don’t bank on it. I think as you know you guys usually stay on the show as well. And then the last two I feel people kind of forget about until they they sell or get into real estate and that’s the tax advantages of real estate. And then that’s the sort of the tax advantages to having real estate what you can do with your your income. But the last one is not until you sell. Do you realize how much Principal you’re paying down. And while we all love capital gains I mean it’s profits awesome. You pay taxes on it. And as I started to sell my student rentals I wanted to position myself to start to get apartments to start pooling some money. And you realized that you paid your paid down to principal that amount so that you’re taking out the capital gains piece but really that that for savings plan that now allows you to go do something else. And just briefly one thing that’s a lot of Canadian investors are really envious of in the States is the 10:31 exchange you guys have.

[00:16:14] That’s not that’s not a thing here and that has implications for the fact that we just don’t trade real estate as much as you guys just that people don’t know.

[00:16:23] 10:30 one exchange I was talking about there is where in America we can take properties to you. You sell your property for and of course I’m not a CPA I’m not given legal or tax advice here but you can sell a property and then buy another one within a short timeframe. I think it’s like six months and you don’t have to pay taxes on the sale you does that you defer the taxes further down the road. And some people will just keep doing that over and over and over their whole life. And then when they pass away or the you know the kids inherit the property though all the taxes kind of disappear. It’s one of the greatest benefits you have of being a realtor that you can really is basically you or your partner in to look at as your partner with the IRS there. Like I was like hey you did a pretty good job on that property. Just keep our money a little longer and put it in the next deal you can buy something bigger and then pass it to them like Ira. Yeah it’s a pretty nice benefit there. So but I do I like I like that you broke that down. I call those for wealth generators like cash flow appreciation of the tax advantages and the principle getting pay down. And in every real estate deal pretty much has one two three or four of those mixed in there and somewhere.

[00:17:22] I mean I talked to a guy the other day who was wanted to buy a rental house but he was talking about his rent a house and he’d have Z I mean he was paying over market for it. There was zero cash will he be losing money on it. And you know I’m talking about it now like this is just a terrible deal don’t do it. The more I talked about it the more I realized well into his position the tax advantages and the principle pay down you know and well and potential appreciation because I was in southern California you know maybe you can make it up for like I wouldn’t recommend a newbie doing it but you know every deal is got those somehow he’s got to figure out where they’re at.

[00:17:51] Yeah and you know what. There’s one that I always say cause a lot of the books you know if you’ve read real estate books for a number of years those always come up. The fifth one for me is the one I’m a really big behavioral kind of behavioral economics behavioral finance. It’s several sciences in general I think the last few years there’s been a lot of books on this. And the one for me is that there’s a book that recently came out I think it was kind of a play on the wealthy barbers called the wealthy renter. Now if you guys have heard of it it is usually talk. I don’t know. I talked about the why renting is in a lot of ways better than owning and there we’re talking about principal residence here and stuff stuff you know Grant Cardone always talks about this your principal residence. You have mobility. But what’s interesting is that when you actually break down that OK say you’re renting and then you can make this amount of money that you know you could save by not owning for you know for some reason in some theoretical situation. Oh you would position that money to do something else like invest. But the psychology is a little different because once we have that $300 Where does it go. Oftentimes it’s nowhere it’s just gone. And I think the discipline that that real estate affords people is that because it’s so illiquid you can’t access your money very easily.

[00:18:59] So sometimes you’re a little bit more irrational. You kind of sit back you can’t pull money out of it and you pay into this savings plan that you’ve kind of created up and that’s actually how I look at bad deals like I have a few houses that lose that lose a little bit of money.

[00:19:12] You know maybe a break even and I’m like you know what. Worst case scenario it’s forcing me every month to save a few hundred bucks because my principal is going down every month. My tenants are paying my principal down on the properties for 10 years now and you know worst case. That’s what it does.

[00:19:26] And it’s not just the principle pay down but I mean over time that principal pay down means your rents are obviously going to go up right. So ultimately once you’ve paid that note off if you’re going to hold on to the properties now your income is going to jump. So yeah I know how it works as is.

[00:19:41] I love it. I love that psychological thing there. I mean like yeah people don’t. If they had an extra few hundred dollars a month they’re not going to invest in something else. Most likely they’re going to buy nice girl shoes or nice TV or whatever. But having that house when you actually own the property it forces you to. I think that’s smart. Let’s go back a little bit and talk about the Managing the studio rentals a little bit because that will be.

[00:20:01] I mean that $35 they 35 10 unit tenants I mean there are three beds. What’s that like. How do you do that. How do you manage. Do you have a manager.

[00:20:11] I needed one. By the end of it it’s. So when I went into university I was playing football at the school I went to. I was probably more social then when I really started having to kind of manage the properties. I think there was a tipping point 20 probably 20 you got to think it is about five six five or six students per unit. Right. So I think there was a tipping point about three properties that it was just it was too much too much to manage wall while in school. And that’s why I actually ended up leaving one year early finishing my degree by commuting and working in Toronto just because I you know it was just something that you needed that safety net at that point. One one story I mean you you really you really do earn your stripes and ends with student rental especially when things go go wrong and one of the big things was that that third property that I purchased they had there was water damage. I think it was about three or four months after I purchased that there was significant water damage and what it did was it caused quite a bit of mold in the basement. And I remember I remember hearing I remember talking to the construction guys after and to figure out what the extent of the mold was and I remember this is literally the worst day of my life when I heard that figure and it was $13000 to fix it. And it was eight eight thousand dollars to get everything to remediate or 13000 to remediate another 8000 for construction.

[00:21:38] And 22 year olds like a bag of bricks. I was just well and you know that you know when you’ve just been punched in the guy that was the feeling. And luckily I had kept all my profit within the company so I was just barely able to cover that. So did insurance there was no insurance. Yeah. So it. Because it wasn’t a flood. They said basically I went back and forth with the insurance companies on on the extent of the damage. And the reason for it being cause and for whatever the circumstances this is going back years now and trust me I find it as hard as I could but how it is there is just say and that’s why I think real estate if I ever have a kid you know and you know a girl or a boy I will definitely say to them you own a rental property for a certain time in your life because when I started in university I was doing the flooring I was you know there being that guy doing all this stuff and learning and then outsourcing what you did. But I think it does build a lot of character having these properties. So anyways to answer your question I stuck with the student stuff and then in my last year school I went to a property manager that specializes in student rentals there’s a lot of them in the university towns and they basically took it over. And you know you pay a little bit but you know if it’s a good manager they save you they save you the aggravation you know and that’s why we always talk to people about factoring in property management.

[00:23:06] When you buy a property lots of people say well I’m going to manage it. I got this. This is easy. And you know it’s all good. Well guess what. It’s all good until you’re no longer wanting to manage your own properties. And then you have to pay somebody. And if you didn’t account for that you know all of a sudden what was the cash flow. Property is no longer a cash flow on property. So you know it’s Hopefully you weren’t in the red after you took on property management.

[00:23:32] No you know that’s the one nice thing with student rentals there you know that’s a little hole in there. Yeah you could say that for kids in there either it’s all license or license stuff. Yeah I know that’s that’s the reality is you’re going to spend a little more on that stuff but the cash flow is a little bit. It’s a little higher.

[00:23:49] Awesome. That makes sense just because a couple of quick things that I ask you about. First of all a good tip you mentioned in there just like a tip the draw to what you said. Talk to your insurance agent. People like you about rentals take you to incentive what’s covered what’s not. Because I’d be miserable if you have a $20000 thing. It’s another reason why I like you know a lot of things people buy rentals and they think that their cash flowing you know really well then they’re hit with a big expense. And you know how goes. You know I had you know the house had burned down a year ago year and a half ago whatever was now burned all the way down but they burned the kitchen right. Like yeah insurance covered majority of all that. But the tenant is still evicted him. It was in the process of eviction that it got burned down. And then today I ended up losing $15000 out of my own pocket on the deal. I looked at the cash flow. Everything I saved up for the past 10 years it was $15000. In other words that one event killed my entire profit for over 10 years on that property just like that’s crazy.

[00:24:40] Yeah that was the property that we were hanging out at the lounge when you got the tax on the effects I might add I might have burned your house down. Yeah. Yeah. You mean your house. Yeah.

[00:24:49] It’s funny you mentioned that because one of the impetus for myself to move into apartments was the idea that it’s it’s Nope it’s not a perfect science right. It’s a bit of an art and a bit of science when you’re trying to estimate how much you should put away for capital expenditures we typically think you know our market is $250 a unit as a capital expenditure and then for our Enam we use $750 for repair and maintenance. And when you scale up these properties to 50 units 100 units then it starts becoming more of a science. But when you only have three or four. To your point you know when you think your cash flow and then you get hit with that big you know furnace or the big roof and then it just wipes you know in terms of that year’s cash flow.

[00:25:28] Yeah well actually funny on that note a year ago you know the house was fixed up right. So then it was done. It was cash flow and again we get 250 a month in cash flow and so over the last year and now we’ve kept the couple I think $3000 The first went out last week or two weeks ago. I mean they’re shot gone no Furnace anymore. There was $3500 for a new furnace. There goes last year cash.

[00:25:48] I mean because that’s why I like people think they’re buying property that cashflow and at the end of the day they’re really not because they’re not. It’s like a cap ex capital expenditures will eat you alive if you don’t budget on that kind of stuff so well.

[00:26:00] So let’s repeat that one last time for everybody because you know you can’t understate this. I mean seriously like when if you’re a new real estate investor and you’re looking at a property and you’re not accounting for what we talked about earlier property management if we’re not accounting for what we just talked about capital expenditures to repairs and maintenance and the one that we haven’t actually talked about vacancy rate. You know if you’re not accounting for that stuff and you’re like oh well you know mortgage Myna taxes insurance you know.

[00:26:31] Well this is great. Yeah.

[00:26:34] Not how it works guys and let’s the fast way to lose your shirt.

[00:26:38] And that’s that’s kind of the thing where you know if you’re looking for a property and you talk to a broker and who are you getting the financials from you getting that from the broker or the seller or the earth the vendor. Right. And everybody has a different take on what they give you. So we’ll see a lot of deals that come in that are apartment deals and there’s all these actuals there is there is nothing here in terms of in terms of maintenance so we didn’t put anything down. Well that’s that’s not the way it works now.

[00:27:04] Yeah for sure. Sure. Hey. So before we move on to asking you some questions about oh actually Brant I know you’ve got a question I apologize.

[00:27:14] You should apologize Josh.. You know I want to just say this. So Jesse Reynolds is a good way to start.

[00:27:23] You know what. It’s a tough it’s a tough question. It’s you definitely like I said you and your earn your stripes. It is. I’ll tell you this I’ll tell you some of the advantages of cedar rentals is that with student rentals they’re seen as high risk investments but typically they’re in university towns and they’re guaranteed by their parents. Right. The other pieces and this is this is more specific to myself or anybody listeners that are in a market that has rent control because the tenants are there for only a year or two. You know maybe three max in our market. It’s only when a tenant leaves that you could bring the rent back up. So you’re stuck at the basically what they call the RTA it’s the Basically you only have a certain percent you can raise it every year I think this year it’s 2 percent. All right. So until that is happening everywhere in Canada by the way or is that so. Yeah. Well I’m in Ontario downtown or sorry in Toronto so that’s the Ontario landlord tenant board. But across Canada every tenant board has different rules. But it is a challenge. And that’s another reason that you see in in these markets you see a lot more buy and hold pretty sure. New York you know I’m not and I was there yeah that you’re going to have that kind of situation. So that’s one of the benefits is that you’ll always be pretty much at market value with student rentals.

[00:28:41] If you’re in one of those environments if you’re not maybe it’s not the best but as a first as a first purchase you know what I think being a 20 year old guy I would have rather deal with five student rent renters than maybe dealing with a 38 year old single family house where he’s like Who’s this kid you know who’s my landlord I don’t know there’s a there’s a bit of a situation there but I think I think that the important thing is if you have an opportunity to get in to real estate if if the opportunity is in a rental as opposed to something as opposed to not getting in the market I would I would say you know take it on call.

[00:29:18] Awesome awesome. All right. It’s time time. It’s time.

[00:29:25] The random 5. So now before we move on and talk about this 11 you know property you just closed down.

[00:29:31] Let’s go to today’s referendum to help me with that friend a friend of five is I sound I don’t know. We don’t have one. I don’t know. We need something in there.

[00:29:40] I consider it a five is a new section of the show where we break from the real estate and get to know our guests on a more of a personal level with five random person to a personal level.

[00:29:50] Are we getting deeper with this is that this is this whole thing Get on the couch lay back and here we go. First question for the random five Jessee answer.

[00:30:01] What movie could you see again and again and again.

[00:30:04] It’s not even hard. I could see Terminator 2 for the rest of the time.

[00:30:08] Nice good choice. There like. Not like I am bidi or whatever rotten tomatoes like the number one movie of all time. There was that one in Toy Story too I guess. Yeah those two are like.

[00:30:17] I mean I have to say just be the talian background I got the Godfather I could probably loob maybe not the third one but I could probably loop those for you.

[00:30:26] Nice. Nice. All right.

[00:30:28] Mike don’t actually know what is the most important skill to have in school in school.

[00:30:36] Oh geez I would say for school time management. I think being able to hit one of the big things with the school at least for my experience is you’re kind of overwhelmed when you’re coming from high school to university. I think time management. You know a portion of that I think that goes for any any of us you know in the real estate world.

[00:30:58] All right. How long before your flight do you arrive at the airport.

[00:31:01] Two hours.

[00:31:02] Always and if I can depending on what’s happened the night before.

[00:31:09] Do you do you watch the Super Bowl for the game or the commercials.

[00:31:13] You got to watch it for the game. It’s either. I’m not. Honestly it’s funny I play. I’ve played hockey and football growing up my whole life and all my friends are huge sports guys and sounded like Donald Trump they’re huge huge.

[00:31:26] It’s huge.

[00:31:27] So but I mean it always by when he was funny last time the guys were here. The Super Bowl it goes to halftime. We take out the X-Box and the girls started freaking out. We didn’t we didn’t we weren’t in they said no that’s not that’s not cool. So we had to watch through the half time stuff.

[00:31:44] That is my last question.

[00:31:47] What’s the worst pickup line you’ve ever heard.

[00:31:49] The worst pickup line. Jesus that’s a tough one. I don’t know. I mean I’ve drawn a blank on that. What’s the worst pickup line you’ve ever given. You come here often.

[00:32:00] No. All I’m going for the Glazers find out and just by that you know it’s the worst. Awesome awesome.

[00:32:08] Thank you for joining us for the random five. Hopefully it gives our listeners you know a little more insight into your head there.

[00:32:17] That’s that’s dangerous. That’s for sure. All right.

[00:32:21] So let’s get to this property you just closed on. You said it was an 11 unit property. You know talk to us about why you why do you make the leap into larger apartments. And what was kind of the mindset. What was going through your head were you scared. I mean to talk a little bit about.

[00:32:38] Yes sure. I think after selling a few more of these properties I was you know ready to put money into an investment. I was I was a little over the state a rental game. I’d done it for a number of years and I wanted to have unscalable assets. And but you know part of it honest to your show you guys had that Jake Jeano on what wheelbarrow profits which I mean that those guys. Awesome awesome show. Great great information. And sometimes you guys are why the podcast where you press the one times or two times in it and the words go really quickly and I’m listening to Gino and he’s just so so on sometimes I’ll be like is no regular time. So much information just coming in Frank. So yeah absolutely. So I think like a lot of like a lot of people’s journey with real estate is you start off by podcast books and that’s what turned me to apartment and then a friend of mine at my brokerage. Now I specialize as a broker and office and my buddy John who I partnered with on this deal. He’s a VIP in our apartments group. So he sees these big 20 30 million 40 million deals you know deals that we’d love to have you know years down the line and he sees the ones that you know don’t they are too small for us to deal with. And we were talking and he said Have you ever considered investing in apartment buildings and that’s kind of what got this conversation going. OK well how much will we need.

[00:34:00] You know you need this much and I need them. What’s the process. What I found is that people are afraid. They’re a little apprehensive with apartments because they feel that there are these big deals that they could never do. And I remember early on somebody telling me the bigger the deal the easier it is to do. And that’s not a general rule but with apartments. The one nice thing is that I probably could have got accepted for this apartment easier than for a single family house that I would live in because the rules for apartments are commercial rules if if they’re over you know four units. Is that the building is the is the critical piece not just the individual. The individual definitely matters. But I mean at a certain point when you’re buying 30 40 million dollar you know a hundred million dollar apartments how much is that going to care that you make 200000 a year 500. You know you’d have to me that’s just not the way they value them. So anyway is that a shift in thinking and a good you know Jeano on the wheelbarrow you know limiting beliefs. That’s

[00:34:55] a constant theme with them is that you kind of break out of that idea and you start realizing that wow you know I could buy this. It’s just a matter of how to structure the deal. And I think Brandon and and one of your books just mentioned that a lot of times it’s people think it’s the money that deals don’t get done. It’s almost never the money. If people’s backs are up against the wall whether that’s syndication or you know single family house people usually you can usually figure out that piece the money piece if it’s a good deal.

[00:35:22] Makes sense makes sense. So.

[00:35:24] So you’re you know you decided that you’re going to get into a larger multifamily. You have this friend who’s at the company who says he’s going to look for stuff for you.

[00:35:35] How many properties did you have to look at before you found this thing back of napkin like you guys know how it is right. Like even the 50 percent rule which is people think that 50 percent rule or I hear a lot of people like that’s you know that’s a lot. You know to take off the top it’s like yeah just wait. You know 50 60 percent is a good rule of thumb when you’re when you’re actually looking at these properties. You know I’d be guessing but it’s definitely over 30 properties. That’s great. That without quickly you quickly do an analysis and that’s not going to work. That’s not the end. Not to mention our market here. Josh I’m sure in Denver it’s the same way. It’s it’s just a tight market it’s crazy.

[00:36:13] You can’t you can’t find anything I can you explain 50 percent rule for those who don’t know what that is.

[00:36:17] Yes sure. So from from our perspective when we’re looking at net operating income you’re basically dividing it dividing your gross income in half to get to arrive at your A.i. And what we do is if anybody is familiar with cap rates you know which is is the yield on properties is that if you divide. So if you take say for instance you have $100000 in gross income you’re divided in half. I have to 50000 you divide that 50000 by whatever year your prevailing cap rate in your market is to arrive at a value a building value.

[00:36:47] Let’s do an example an example that’s that people in case are confused with that. So I mean you use that number 100 which you say like oh say $100000 a year is your gross income.

[00:36:57] Yeah well it’s for simplicity let’s say 200000 gross income. Divide that in half. You’re at a hundred thousand OK. Right. And you divide that. And what does that half the half as is what your expenses are going to be. Correct. Exactly 2 percent. Yeah.

[00:37:10] Now and also your NLI then what like what’s leftover not counting the mortgage you know.

[00:37:15] Right exactly. Yeah. When we call what we call in commercial above the line rate you know anything below that was when you start putting into capital expenditures anyway. So you’re at a $100000 net operating income. Now you divide that by whatever whatever the prevailing cap rate is in your market. So if your market is seeing I don’t know what you guys are seeing in your markets we’re you know 5 we’d be lucky. You would be happy to get 5s.

[00:37:38] I’m looking I’m looking at like 8 ish. Josh is probably like I don’t I don’t know if it’s 5 or 6 I think it’s they’re on 6s.

[00:37:46] So you divide 100 by 5 percent and you’re at a 2 2.5 million dollar valuation on those right maybe.

[00:37:53] Yeah. Sorry Twenty two million so I’m trying to do the math. I had Yeah because you know you know why it’s so hard for you guys because you’re like What the hell is a 5 percent cap rate. It’s very confusing. What’s up three points.

[00:38:07] So I’m always delighted by point five point 0 5 0 is going to get 2 million dollars. And that’s generally the value. And that’s why you know a lot of apartments right because now you decrease your expenses or increase your income a little bit and it multiplies that significantly right. So yeah.

[00:38:22] And now just not to get too technical but what when you’re looking at pro form is because a lot of these the guys that do apartments their private equity guys are in the States we don’t have the yields to sustain this here. So there’s a lot of syndication in the States which is basically pooling people’s money. Having a general partner I mean you as you guys know but for anybody that doesn’t having a general partner who is the asset manager finds the deal and then having the limited partner who are people that want to invest but only want to lose what they put in. And so that syndication model is you actually have running a return for these guys and what you would typically do is you would look at your outgoing cap rate is and you’re going cap rate is always higher than your ingoing cap rate because the buildings they get older they do they depreciate. But as you guys know real estate does seem to go up. So usually that cap rate does get suppressed again depending on your market. Like I don’t know that we can go any lower but people have been saying that for the last five years or so.

[00:39:21] So let me ask you how how does somebody go about well two questions look at. First of all how does somebody go about finding their cap rate in their area like they heard us talking about Josh. And you and me are all different. How do you find that out in your area.

[00:39:30] Yeah. So I think you have to It gets easier with apartments but you have to compare like with like you know if you’re looking at a seven unit apartment you can’t compare it to a 50 unit apartment. Right you have to have something in the ballpark. So really what you start looking at is when you get the financials on these deals you start looking OK what is the gross income. What’s the potential gross income. But really they’re going to take the financials as is and then you figure out what the cap rate for that property is. And then so that’s the income approach. And then you couple that with comparable sales approach right and then comparing this type of net operating income with other buildings in the area. But I mean I guess the short answer depending on who really matters who you’re getting the loan from. So I think in the States you guys call it agency debt when you get like a HUD loan or FHA loan. Is that correct.

[00:40:20] You heard that term but I don’t I don’t use it but my mantra.

[00:40:23] So when you get debt from the government basically insured I think Fannie Mae and Freddie Mac type so in Kent in Canada we have similar debt CMHC is our mortgage insurer open and they will agency debt is known as an agency Bond is a security usually bond issued by US government sponsored agency or federal budget agency.

[00:40:40] Usually these are backed up but not guaranteed by the U.S. government while play Jesse.

[00:40:44] Yeah. So just a side note on that. That was one of the things in the it is a little bit of a tangent but in Canada we’re not allowed to walk away from our mortgages in the states you can and I remember Jon Stewart on the Jon Stewart show make him a joke. We’re like that can’t be true can it. Canadians not going to chase you down for anything. Maybe if you dropped that piece of paper there.

[00:41:02] Just wanted to catch up with you.

[00:41:06] So. So what happens is that when you have government insured mortgages you’re going to have somebody saying OK the market we’re going to value you at this cap rate. So they have a kind of a pre determined idea of what that area is going for. But I mean from our point of view as investors you’ve got to do your homework. You have to just go deal by deal by deal and you get a sense like I’m sure you guys know what just through here mistakes have having done this for a long time you know what your areas are going for on a cap rate basis right.

[00:41:35] Yeah. And if I don’t know I’m going to go talk to like a local broker or somebody you know like a mortgage broker or real estate broker somebody is going to know the answer in my area. You know if I if I don’t know what normal is. But I know that 8 percent is normal in my area because I’ve analyzed you know a hundred deals in the past year that are apartments or multi-family. And I’m like yeah I’m seen 7 8 9 8 12 5.

[00:41:57] And the average is right around that is that at 12 is just that blows my mind. You don’t want it. You don’t want to go out there. You don’t want very high or if that’s over. I think also a lot of money yeah you can do that. Yes.

[00:42:09] So Jesse tell us tell us about the numbers on this this particular property now that we’ve kind of given in and what was it about this property that actually made you want to take the leap.

[00:42:20] So one one and like I said one of the advantages because I am a broker I’m privy to building a team that really I should have no business building. So what I mean by that is a mortgage broker that deals with properties that are 5 10 20 times more than mine. I get access to because we deal with our you know buying and selling. So he’ll spend some time with me. So I think building that building that team was really important but for the numbers where we purchased was at I guess the best way for for listeners to see it is that it’s a city called Hamilton which is about an hour from Toronto so it’s kind of like a Brooklyn to Manhattan. So Toronto being Manhattan you kind of that’s a comparison. So we saw this as an up and coming the path of progress is going out that way. And what we found was that you know everybody tries to find these unicorn off market deals. Is it a true market deal. This one was not on the MLS. It was it wasn’t on any list things. But we have software that we use for work that is basically these guys boots. It’s an American company boots on the ground guys. They call up potential owners to find these deals. And I remember calling the agent and he was like what how did you how did you get this number. He’s like how do you know this is for sale. And I was like Well is it for sale.

[00:43:33] And he was like a lot depends he could bring us an offer and to give you guys an idea of what prices are going for in Toronto we we couldn’t we didn’t want to be in that market was too expensive. The lowest stuff is 150000 a unit up to 300000 a unit. It’s just it wouldn’t have been feasible. We were able to get this one at 100 around 110 thousand a unit. It was one point two and change for the 11 units and it is at currently. So our strategy was to buy things that were that were there were still a value add component. So the rents are not market there are below market. So the going in CAP rate is 4.2 percent. BI When you take these rents and I have established a really good relationship with our property manager down there which is crucial if you’re not in your area to have a good property manager because nobody will you could have the best they will not run their property like it’s their own. Only you will do that. But if you manage the manager you can have some good outcomes. So yeah we looked at that. It was one point on point two. And if we get the market rents up to where market is I think we I mean we’re up close to the double digits which is for our area as you know that just doesn’t happen.

[00:44:52] What are the rents right now where do you think they can go.

[00:44:54] So rents and in that particular building one bedroom would be eight hundred two bedroom would be eleven hundred three bedroom would be 13:00 and downtown Toronto one bedroom 17 8900 two bedroom 2500 to 3000. And God I don’t even know what three bedrooms one for not so you could potentially double your rants on this thing. Well that’s that’s the downtown Toronto. The upside on the on the Hamilton the one that I purchased I think we could get about 20 to 25 percent uptick on them. OK. Well.

[00:45:25] That’s awesome. And what’s that going to cost you. I’m assuming there’s a plan. You’re going to go and upgrade it to the units. So what what does that look like.

[00:45:32] Yeah. So first off we we are meeting next week with the fire code inspector to basically I we think we could put another unit in the basement. It’s a massive inefficient and efficient base in the basement. We went in there we saw the washing the washer and dryer. And we were looking at all the empty space we’re like wow there’s a lot of space here and I mean that’s a really easy calculation right. If if you paid a hundred ten thousand dollars per unit and you can do that thing for 50 60 grand you know you pro forma that out for five years right. And say in five years it’s going to generate this much. How much is that money worth today. And they I mean that’s that’s a no brainer. So and to your point yeah.

[00:46:12] So like I said we’re losing all those Cotter’s it in a in of level. Yeah. But so the point of the actual units themselves.

[00:46:23] Like I said because we have rent control here. If somebody moves out you know God forbid passes away anything you get in there and you do everything possible as you know enough that you don’t have to make the Taj Mahal but you do everything you can to bring it out because I mean we are looking guys by the first renter that we saw that was like really under market we’re looking I we’re like 1990. I was like that’s when she moved in. She’s been around and my partner morbidly is just like wow.

[00:46:50] Should be too long. Oh man. I like my job.

[00:46:55] I feel like it’s possible but yeah. So it really is for us it’s a buy and hold. I mean I this is the type of thing because of the how our market is I can’t see myself getting rid of this and you know 20 years day the plan would be to get the rents up and then try to refinance and in five years look at it.

[00:47:14] So talk to us about how you guys came together. You’ve got a partner you guys have gone in together on this on this project. What does it look like. How’d you find this person. And then on the financing How do you go about actually financing the property.

[00:47:28] Yes. So like I said Shaw. He’s one of the main guys in our apartment group at the place I work and kind of connected because we he really knew I was doing this investing. And one thing I find interesting is I am sure your listeners find this too is that you eat regardless of what company you go to. You’re always the outlier if you’re a real estate investor right. I think in the States your W-2 is right we call we call them t for us we have a you know job you go to nine to five and it’s it’s not dissimilar in the real estate world and brokerage that you did what you would think all these guys. Oh they’re all these real estate guys. None of them invest. It’s amazing. Yeah it is. And none of them a few of them do but it’s incredible. Now there is an argument to say that you’re you might be over leveraged if you’re day to day jobs real estate and you invest in real estate. But usually they’re not that pragmatic they just aren’t exposed to it. So anyways John and I sound like we’re dating or something John and I. So I imagine hey that’s ok. Not that there’s anything wrong with that. So we we met and we basically said that it was a good evening to you.

[00:48:37] It was at a restaurant I mean when we look below our our office.

[00:48:42] Yeah.

[00:48:43] Yeah. So know we we basically talked about what we wanted to do and what’s funny is there’s a great ying and yang is the fact that John had never bought an investment property. He makes good good income at the brokerage more than I do and he has no. So he has no debt and he rents and he’s just got a car. I think his only liability and now you go turned to me is I’ve got all this debt but I’ve actually done real estate before so the banks looked at us they look OK here’s a credit score of a billion. And here’s a guy with a couple of assets that we can go after if things mess up and we kind of like balanced out into this like pretty good. And people to actually lend to that couched with the fact that I think when lenders look at the fact that we’re investing in apartment and I specialize in office and John specializes in apartment buildings it landed a bit of credibility which I think was nice with some of the lenders. But like I said it’s really about showing the lenders what the property can do and what you know if you bring people a good deal I really do believe that you know they will they’ll take it for what it’s worth.

[00:49:50] I love that I love it. And just to point out something that you said there like a couple of things. First of all I think that’s like the ideal partnership right where you might be lacking something and your partner is lacking something but they’re not the same thing right like hey we’re both broke and I have no money but lots of invention. Does it usually work as well as I’m broke and have a lot of ambition. You’ve got money you’ve got no time like the old or whatever right. Unlike in a credit score I’m liking cash and lacking the ability to get a mortgage whenever you combine that together and then like he said. Combine that with a deal and you shouldn’t have a problem. Yes. People are saying I can’t I don’t have the money I can’t invest in real estate well find somebody who who does have money but doesn’t have passion like you have.

[00:50:24] And make it work. And I got to say I was stubborn for a long time. I’m sure people of you know listeners have dealt with this before I was stubborn for a long time to get a partner. I wanted to just do it myself. You know every time I found that oh I might need a partner for this I would figure out a way to do it on my own and then I would just do that. But now that we’ve kind of gotten into the swing of things I really. It definitely takes it not. It’s not just the end of the actual day to day operations even in commercial it can be an emotional game. Right. And it’s nice to have just another person that’s kind of battling with you. So you know if stuff doesn’t work out when you’re trying to find a deal you’ve got another person there.

[00:51:02] Yeah. Totally. A hundred percent. That’s very cool and so like. Yeah. I mean obviously partnerships are not like the end all be all. They’re not problem free but I happen to like them a lot like their system things that it just works better. So course look at more questions for you here. First of all what do you think was the scariest thing for you. Jumping into this like the apartment complex doing the 11 unit What was the scariest thing for you.

[00:51:24] The scariest was the first few kids just a short story The first unit that we hit the first building we saw was a 14 unit. We get there.

[00:51:31] John and I are in our cars and like it’s not the best area of town. This is what we would call a C-Class building and maybe even worse. And we were looking at the Stube and it just looked like a guy was like guys were like rolling up on bicycles. I would hand him something and then go back and I’m like oh OK I see where he’s going. I don’t know.

[00:51:50] I think I think I ran on you know the man’s back. Yeah they were playing poker about you know what do you guys do on stoops Brennan. Look put them on. That’s all it is just I don’t know. I’m down with the charger. Exactly. So yeah.

[00:52:02] So we saw that and now we’re like gosh you know geez we’re we’ve got to meet this guy here so we go to meet the owner he starts showing us through. And he’s taken us through but he’s taken us through instead of going into the first unit like logically going up where you go like to the back and you know check this one first. Then we go up this area and we’re like you know you get that spidey sense pretty quick feel like something’s something’s up. Not to mention we just saw a drug deal habit.

[00:52:26] So that’s what I was so use. And it’s funny actually the guy that’s paying the rent on time all the time.

[00:52:35] So what we found out was that we laughed he’s like OK guys so this is the last you know because we always you know one of the rules is go to see every you know if you’re going to be serious about it and he goes OK this last you know I’ve got to tell you like John looks at me and I’m just like oh OK here we go. OK so somebody died four days ago.

[00:52:54] Just want to prepare you for that because there really isn’t that lying.

[00:52:59] There’s no other. The reality is is that if you’re in this game long enough that happens like apartment buildings people pass away there’s nobody there to you know it’s just a reality. But the fact that it was the first apartment first deal right after a drug deal was just like OK this is going to be. So we should be getting involved in these things.

[00:53:17] That’s true. I mean on one hand people do die and they pass away. But yeah I can see that being a little bit scary for jumping in.

[00:53:25] I want to go that. Go ahead. We went to see it.

[00:53:27] Sorry I was just going to say then we went to. You know I don’t know you know how many people would want to do that after but you know it is it’s the game we’re in the game you’re in. What would you say.

[00:53:37] Well I just what mistakes would you say you’ve made in your investing career so far.

[00:53:41] If you can look back.

[00:53:43] Well we only have an hour here so three minutes. Yes.

[00:53:48] You know what I think. First of all being more open to the idea of partnership not because partnerships are the best thing but they might be the best thing for you and if you’re in a situation where they are. It’s really something you should think about. Number two the biggest one bar none is not understanding how much money goes in to these things and thinking your cash lying on paper and not long enough to repair and maintenance repair and maintenance that’s you.

[00:54:16] I can’t stress that enough yet. I love that I’ll call Coco. So what’s next.

[00:54:23] So you know for us we kind of set up a goal after we incorporated and you know set up our actual business for this apartment and it’s ambitious. I will I’d like to be at 100 units in five years. And that’s that’s kind of the goal right now. And I’m actually we’re positioning all our kind of capital right now to make a run for it. But you know it’s tough. And you know you talk about scary things in her mistakes you made it. But right now the scariest thing for us is how how hot her market is right now. And you’re always second guessing yourself. You know how that the best thing when you get a deal is that you know you hear the best thing in the world followed by the worst thing in the world you know when somebody says it. So you bid on a deal and somebody says OK you got the deal. You’re like yes. Wait a minute because you don’t know if you overpaid for them. Right. So that’s that’s the challenge right now. But I think just making sure you have a little bit of capital set aside so that you know if the market goes you know a certain way that you’re ready to go to kind of deploy it.

[00:55:22] I’ll tell you about a hot market. So somebody this morning came to me and said Hey I was looking at a duplex in town here and it came on the market on Sunday. We are currently on Tuesday. They said there were 17 or 17 or 27 offers on property.

[00:55:40] Since things come on the market.

[00:55:42] Well it’s funny right now I’m in my I’m in my condo and kind of east end of Toronto and I’ve listed this place in our commercial real estate markets one thing our residential real estate market is bananas. I’ve had I listed it yesterday. I’ve had three offers and about I think 15 or 16 tours I got to get out of here in like half an hour just so I can not be ok don’t worry about the show.

[00:56:04] The show’s over. That was great.

[00:56:06] Yeah. You had to be explicit with the guy helping me out I’m like listen nobody can come in at this time knocks on the door.

[00:56:12] That would be fun. It’s from there right now. Yeah tell us what you think about Jay-Z’s house here while live on the air. All right cool so let’s shift gears here and head over to the world famous. It’s time for the fire on. The.

[00:56:36] World famous dangerous fire around these questions come direct out of the bigger pockets forums.

[00:56:42] But before we get to the questions let’s hear a quick word from today’s fire around sponsor this episode of the bigger pocket’s podcast was brought to you by realty share’s dotcom a web site that’s helped to finance over 2000 properties on their crowdfunding platform. A former Real Estate Developer himself founder now describes the nightmare of capital reason simply.

[00:57:02] My name is nab at ball and I’m founder and CEO realty shares as a former flipper myself. I know exactly what it takes to be competitive with lending. Traditionally as you know it takes months for a developer to find financing but with realty shares it takes just a few days. We have many borrowers who have done over 10 deals with us because of our competitive rates. Flexible terms and quick closing.

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[00:57:40] All right big thanks to our sponsors always let’s get to the questions. Number one when screening tenants in addition to running a credit report checking Landler references and checking bad tenant databases. I also try to check the social media accounts. Let’s see I checked the social media profile to see if they had any pets etc.. Would it be OK and legal to require you States are legal.

[00:58:02] No you know a cop or a lawyer but would it be OK to require applicants to connect their social media accounts with me so I can get access to their social media profiles even if they’re set to private. That’s fascinating.

[00:58:13] Yes that’s an interesting one. I think that it’s a little invasive. What I would say is not if not being a lawyer. I think they’re probably you know there’s there might be legal ramifications for that. I don’t know specifically what single family housing or multi residential for that matter. I don’t know how it is in your markets but there are Verrier are sensitive to housing and how you deal with deal with tenants and I can’t help but feel that that might be a privacy privacy issue. But that being said for anything public you know I always look at people on social media you know it’s not even just in real estate. You know we’re in and we’re in an age now where if you’re going to meet at a meeting you know you’ll pull up some of these Linked-In see what they’re all about. I think it’s a tool and your tool belt. So as long as it’s legal now requiring them to do it even if it was legal I don’t know if you want to start off a relationship like that with a tenant. So yeah that’s a that’s an interesting one.

[00:59:07] Yeah. That I’ve never even thought of that before requiring social media like to be my Facebook friend in order to apply for this.

[00:59:15] You know it’s it’s it’s really I wouldn’t even want to be your Facebook friend if you paid me. I do pay because I didn’t pay last month. That’s why you sent to me and I wrote to you. OK.

[00:59:25] Next question coming into real estate I’m missing something I learned from the start is how much people dislike property management companies. Common complaint here is that they feel like the property is treated just as a number or they probably didn’t properly screen the tenants or monitor the property now that they have to repair trash rental units squeezing all the profits they hope to gain. I yes at the end of the day the question that they’ve got a whole flurry of questions here but I’ll just paraphrase what are you what do you think are the keys to finding good property management company.

[00:59:54] So for me I think you need boots on the ground in the local market that you’re in. I think that’s that’s huge. The one that we ended up going with in Hamilton was was a gentleman that doesn’t live in Hamilton was born and raised in the area understands the tenants and the type of tendencies in that area. Now when you know property managers I’m one that complains about them but I’m also you know when stuff goes wrong they’re the first person to get blamed. Right. Because they are there you know the frontline. But I think John my partner said something really interesting when we were interviewing property managers and he says you’re the face of our company and you’re going to be a representation of our company owning this building and we need to make sure that you’re a good representation. So I think when choosing a property manager first of all you should always always check more than one person. Don’t just go with the local you know Google first thing on google and really really talk to them. And then I think you have to set expectations early one of the mistakes I ran into with the first property manager I chose about seven eight years ago was I didn’t set the expectations of how payments made. You know I wanted it deposited right into my account. He wanted to run it through his company. I wanted him to use my credit card so I could link it to my accounting software easier. He said that wasn’t feasible because of how their system set up. So I think expectations are really important right at the start.

[01:01:13] And then I think the last piece I would just say is communication if you are not in constant communication with your property manager without you know bogging him down or her down. I think that’s crucial. I think you really need to have. You need to be as much on the front line as they are but not get that call at 4:00 in the morning.

[01:01:31] Yeah it makes sense. That’s the goal. Number three would you invest in a location where the population is declining. This person was talking about Chicago that there is in Chicago that are declining. Would you invest in a market where the population is going down.

[01:01:44] Yeah I think that question. It’s kind of counterintuitive right. You would think that you should be investing in population increasing. But I think there’s so many variables there. I would say why is the population declining. Is it that the population it was overpopulated before and there’s some macro reason that that it is declining. So I think you’d have to go back. You know it’s funny every time we joke about this at work every time there’s an unknown you’ve got to go back to fundamentals. So every time there’s you know an unknown of how appreciation is going to go in a market go back to the fundamentals cash flow. And I think to answer that question it would be go back to the fundamental fundamentals where is transit where is the path of progress. Where are people moving to. Is are people investing or businesses moving there. You know the Fortune 500 companies are they headquartered there. I think those are all variables that’s a tough question answer without more information. Fair enough.

[01:02:33] All right last question What should a new investor look for in a real estate broker.

[01:02:38] Oh a real estate broker. Not you. Yeah.

[01:02:42] But somebody who really does it really makes it rain. Just going to pretend that did happen will just move on to the answer here.

[01:02:53] I think you know it’s easy for me to say I you know this is what I do for a living but I would suggest to anybody that’s looking for that whether it’s a commercial or residential broker that first of all you look for a track record. I can’t speak for residential and honestly I think guys in my industry they besmirched the rosy guys a little too much. I think they’re a little hard on them they don’t. They think they’re cowboys and it’s not really a business and you know I think there’s success in every different facet of real estate there’s good brokers in every market. And I think when you’re choosing a broker it sounds corny but I think just being transparent and honest. You know what’s funny we always mentioned at work is that and I’m sure you guys have met that bunch of brokers if you looked at the most successful people that work at my company Avis and you on the the thread the commonality that they have is not intelligence. It’s not all the smart guys are making the most. It’s a lot of times it’s the likeability of a person. It’s somebody that you want to transact with somebody that you feel comfortable with. So I think transparency and having a broker that’s going to be honest with you is is really important. It’s great.

[01:04:04] Good and well played. All right. Well you are likable So as you usually do you’re good at your job. All right let’s shift gears one last time and head over to the last segment of our show which we lovingly refer to as our famous this is the four questions that we ask every guest every week and I know you’ve heard our show before.

[01:04:23] You know it’s coming. Number one what is your favorite real estate related book.

[01:04:29] OK. So there’s a I mean there’s a bunch of them. The one that I’ve revisited just you know how you have books ones on your book shelves for when you were really young or when you first got into it. It’s landlordism on autopilot and it’s by Mike Butler. It’s one that you know I’ve come back to you know more and more as a kind of your progress and you find new things because you’re you’re doing something different than you did years ago but it’s just all around for the reason I picked this one is I’m thinking about the people that are maybe at their earlier stages and just want to understand you know what. Real Estate Investing can do and if it’s OK with you I would just say find also books that are specific to your market if you’re a Canadian don’t really re read tax books that are germane to the States and vice versa. And it’s a little harder for us raid in Canada because there’s just not as much out there. But I think I think there’s a gentleman named Dawn Campbell. You know for selfishly for my market if guys are looking to to kind of get into the market.

[01:05:27] All right. What about favorite business book nonrealistic.

[01:05:30] Oh this one here is just sorry I got these in front of me. It’s called Getting to Yes. I don’t know if you guys have heard this one. Is it negotiating. Yes so I was really fortunate at my work. A gentleman I worked with a great guy named Shaun who you know if he’s listening he’s easy. He’s having a battle of his life right now. He fortunately was diagnosed with cancer. So we’re all kind of pulling for him. We were really lucky to go to Harvard and take this three day course there on negotiation and really the takeaway with getting to yes is like anything else negotiating can be learned and it can be taught and people can get better.

[01:06:07] I think a lot of people just assume that negotiators are just as good as they are and that it’s just it’s in part a part of their DNA it’s a genetic thing. It really is and I think negotiating really comes down to practicing and really doing your due diligence before going into them.

[01:06:23] Know. Sorry to hear about your friend Sean and hopefully he does get better. So good luck to Sean. That’s something cool. Just the hobbies. What do you do for fun man.

[01:06:34] So like I said I am a big car guy. So F1 is fired up again. I’ve kind of purchased an old tuner that I’m that I’m going to be working with this summer. And aside from that I’m going out with friends I play guitar less and less as a real estate kind of picks up more and more. But yeah it’s you know just just trying to relax on the weekends I’m I’m about two weeks from finishing up a part time MBA so I haven’t really had time to do to do much else.

[01:07:02] You’re not very busy.

[01:07:03] You know what else they sing song property going during your MBA.

[01:07:09] So that buys the tapes keep the calendar full.

[01:07:12] So obviously number four what do you believe sets apart successful real estate investors from those who give up fail or never get started. Besides watching soaps.

[01:07:26] For me the limiting beliefs 100 percent. I think people put them on themselves. I think we’re not. We’re not. I can’t remember their success talks is really good podcasts and we’re not really wired to search for things that are uncomfortable. And I think the whole point with real estate is that it’s not comfortable doing their first deal at this size and then when you break out of that going to the next deal. So I think one thing that’s really interesting and I’m not sure you guys can tell me if you’ve noticed this that when you’re listening to Real Estate Investing podcasts you find a common trait of all of these individuals and it’s that you know the coaching trait the success you know the success kind of back books the idea of not just making money but prospering and being successful whatever that means to that particular individual. And I think that’s kind of a philosophical commonality that a lot of real estate for whatever reason people that kind of want to better themselves whether it’s for you know your kids or just you know getting to the bigger and better next deal and just improving yourself as an individual.

[01:08:30] Yeah that’s great. And I do agree I think that most of the folks that I believe to be successful in their real estate investing space are definitely folks focused on their own self-improvement focused. They read aloud. Or they’re always trying to better themselves so yeah it’s great. It’s great. Awesome Well before we let you go where can people find out more about you. How can they reach out.

[01:08:55] Sure. I mean the easiest way to find me. I’d be more than happy to take. I’m always interested in taking e-mails from people trying to get in ads. Jessie J says e f r h g Ali G mail dot com or you guys can go to my actual brokerage site which is Avis young dot com and Abiah so N. Young is spelled the normal way dot com people are awesome and will thank you for sharing your story with us. Thank

[01:09:21] you for coming on. We definitely appreciate it. Great story lots of luck to you. And again best of luck to your friend. OK great. Thanks guys appreciate it. Thank you. See around chairs our guys.

[01:09:33] That was just for Ghaly a big thanks to Jesse for your time and on the show. That was great. Awesome good guy.

[01:09:39] It was. Yeah he’s a fun guy doing a lot of cool stuff in the a.m. even though he’s Canadian.

[01:09:43] You know what he said and apparently I was the guy who was making fun of him. I thought I was going to second he’s gone now even though he’s Canadian and can’t say about food. You know I’ve noticed that. It was an awesome show.

[01:09:57] I think there’s a lot of wisdom I took from that. I loved our discussion about like cap ex and like how we buy properties that seem on paper to be good then you’re not so sure you guys are calculating for capital expenditures and if you want help with that a couple of quick resources for you first of all we’ve got a lot of stuff on capital expenditures or cap x on bigger pockets go to bigger pockets that come in and a little navigation bar at the top of the page there’s a search bar to type in cap ex. You’ll find a ton of good stuff on that. Also if you use the bigger pockets calculators like the rental property calculator or the bird calculator we have a section in both of those for estimating your capital expenditures so check that as well bigger packets that come slush analysis.

[01:10:37] You know I think the important thing about that conversation beyond just planning really came down two things happen that you can’t plan for you know the story of your property with the fire losing 15 grand or whatever it was you know Jesse’s just the story. That stuff. Even if you account for everything possible even if you’re conservative stuff like that can happen.

[01:11:03] And that’s really why you need some extra money. I mean that’s why you need some cash an account that you know you can’t be getting into a rental real estate you know and using every last penny that you have in order to get him back. Because when things come up you need to be able to take care of them.

[01:11:20] Yeah. And that’s why I like the idea of you know there’s a lot of low down ways to invest in real estate I mean I wrote the book on it right. Like I like the idea of partnerships more than most because there’s somebody else there that can help through those tough times because like let’s say you figure out a way to buy a property with zero money down. But if you have no money then when those bad things do happen you’re just like you know like it can bankrupt you right. If you have a partner you can weather those storms a little bit better. So again Jesse talked about that as well and I thought that was right on.

[01:11:48] Awesome awesome. COLEMAN Well good show good stuff.

[01:11:52] Lots of luck to you on this this new thing that you’re working on whatever that might be. And you know what it’s like and it’s not like an it’s about it’s not looking like it.

[01:12:02] I mean looks like you’re looking at somebody twirling a pen is that what you’re not. Why are you trying to when I twirled pens on. I don’t think I know that but I twirl a pen on almost every podcast episode you’re watching on YouTube. I’m always like twirling pens in my hand. That started from I remember it was a movie like an old James Bond movie or something that a guy would twirl a coin in his hand and ever since that I would I would do that all the time with pens and coins or whatever. And it’s just now my Nobody really cares. Nobody does. But we have so many homes and parks. I’m I’m I’m looking into buying my own mobile home park. So it’s awesome. Yeah we’ll see. Maybe you could live in your backyard. I might put a mobile home park in the garage. I have actually like five acres of land up behind me except for four and a half four and a half of it is on a slightly slight hill which is barely even walkable. I mean it’s it’s a hill and full of trees but you know what you could have tiered mobile homes all the way down it.

[01:12:57] That would be right to be awesome. That’s a sure that you could live there. Yeah. Are you going to rent out to me. I read to you.

[01:13:03] Yeah it’s called a credit check which you know I’m not too sure about it.

[01:13:08] All right guys. Time to go show 2:20 in the books. Thank you so much for listening. You can check out the show notes for today’s show a bigger pockets circumflex show two to zero. Thanks again. Until next time. I’m Josh Dorkin signing off.

[01:13:25] You’re listening to bigger pockets radio simplifying real estate for investors large and small. If you you’re looking to learn about real estate investing without all the hype. You’re in the right place. Be sure to join the millions of others who have benefited from bigger pockets. Thank God you’re home for real estate investing online.

[01:13:46] But let’s jump into this thing. These questions come direct from the bigger pockets forums.

[01:13:52] All right question number one thing awfully slowly there. Right. But I could. Give me a link. Sure. Let’s talk a little slower here while we pull up on you.

[01:14:06] I don’t have the fire on questions in front of me. I’m going actually go to the forums of we’re going to find me. Give me a link so I can look to the forums. It’s called the black dot com slash. OK Mom can I just pick your pockets not help forums. I wish I didn’t have that link. Oh that’s right. You might have. OK. Hold on. I’ve got it now. My slacke is frozen. All right. Well whatever you’re doing at