When we say multifamily investing in Canada, we mean totally different demographics. The way you do business in the US or elsewhere may not be as effective when applied to the Canadian real estate market and vice versa. If you are looking to break through the Canadian multifamily space or have already started and want to gain momentum, don’t miss this episode! Mark Baltazar and Mike Rockall, the Founders of Peak Multifamily Investments, discuss the different strategies for scaling your business and share insights and a lot of Math on how you can add value to your properties, increase profitability and generate wealth. Tune in to learn more!
Get in touch with Mark Baltazar & Mike Rockall:
Email: connect@peakmultifamily.ca
LinkedIn: https://www.linkedin.com/in/mark-baltazar/?originalSubdomain=ca, https://www.linkedin.com/in/mike-rockall-6134a61a7/?originalSubdomain=ca
Website: www.peakmultifamily.ca
If you are interested in learning more about passively investing in multifamily and Build-to-Rent properties, click here to schedule a call with the CPI Capital Team or contact us at info@cpicapital.ca. If you like to Co-Syndicate and close on larger deal as a General Partner click here. You can read more about CPI Capital at https://www.cpicapital.ca. #avabenesocky #augustbiniaz #cpicapital
—
Watch the episode here
Listen to the podcast here
Important links
- Peak Multifamily Investments
- LinkedIn – August Biniaz
- YouTube – Real Estate Private Equity Academy
- The Canadian Multifamily Investing Podcast
- Rich Dad Poor Dad
- Built To Last
- As A Man Thinketh
- Mark@PeakMultifamily.ca
- Mike@PeakMultifamily.ca
- LinkedIn – Mark Baltazar
- Facebook – Mark Baltazar
- Instagram – Mark Baltazar
About Mark Baltazar
With 18 years of experience in business strategy and corporate consulting on the global stage, Mark brings a wealth of business management and operational expertise to real estate investing. Winner of the Real Estate Investment Network’s Top Player Award in 2017, Mark continues to build strong momentum in growing his real estate portfolio.
His strong analytical background enables him to bring a strategic rigour to portfolio expansion and the assessment of investment opportunities.
With 5 years of real estate investing experience across various strategies, Mark oversees Peak’s capital raising, client acquisition, partner relations, educational content development while ensuring the company delivers on its promise of helping others build generational wealth through apartment building investing.
About Mike Rockall
Mike is not only a Realtor but a full-time investor who has been in the real estate business for over 10 years.
His hard work, charisma, and true passion for the business has helped shape Michael’s reputation as a qualified Realtor and investor.
Michael specializes in investment real estate mainly multi-family income properties. He personally holds a portfolio of multi-family apartment buildings in Hamilton and surrounding areas. His knowledge of the city’s geography can assist with all real estate endeavours.
His business is built on: dedication, communication, determination and trust while embodying the ability to cater and adapt to all his clients real estate needs.
How To Generate Wealth Through Multifamily Investing In Canada – Mark Baltazar And Mike Rockall
We have another incredible show for you. Please like and subscribe as it helps us build our channel and allows us to keep bringing you great content and expert guest speakers. Everybody knows our mission is to empower investors, to earn passive income through real estate investing. We have two guests on our show, Mark Baltazar and Mike Rockall. Mark is the Cofounder of Peak Multifamily Investments. With many years of real estate investing experience across various strategies, Mark oversees Peak’s capital raising, client acquisition, partner relations, educational content, and development while ensuring the company delivers on its promise of helping others build generational wealth through apartment building investing.
Mike is not only a realtor but a full-time investor who has been in the real estate business for many years. Mike specializes in investment real estate, mainly multifamily income properties. He personally holds a portfolio of multifamily apartment buildings in Hamilton and surrounding areas. His knowledge of the city’s geography can assist with all real estate endeavors.
Mike is also the Cofounder of Peak Multifamily.
We believe this interview with both Mark and Mike will bring great value to both passive and active investors looking to learn more about the Canadian multifamily private equity space. Welcome both of you, Mark and Mike.
Thanks for having us on.
We are excited to have fellow Canadians on our show. This is going to be a great conversation. Why don’t we start off with Mark? If you can please tell us about your background and your start in real estate, and then Mike, we will love to know from you.
I started in 2015, and it wasn’t in apartment buildings. It was not cashflowing but a quick cash strategy. I did a lot of flipping. Early on, I did a number of flips, held some along the way, duplexes. We had a triplex. Mike and I had a fourplex early on as well and then shifted into apartment buildings early or late 2018. My previous background before getting into real estate was marketing research like brand consultancy and space marketing consultancy. I’m working with large global brands. A lot of them are based out of Vancouver, Canada, which was great because I was out there at least once a month. It was awesome. I hadn’t been out there in a while.
That was analytics and dealing with strategy. Obviously, that helps from a real estate standpoint, analytics, understanding numbers, financials, and spreadsheets. Also, from a marketing standpoint, how to position our offering to the right people. Everyone’s experiences and prior experiences all amalgamate at some point and continue to benefit as we build upon them.
Now we are completely focused on apartment buildings with Peak Multifamily. Our objective is to help people build generational wealth through apartment buildings, whether it’s teaching people how to do it because it’s becoming a more popular space and then also acquiring ourselves with accredited investors.
It’s a bit of a different story for me from a very young age as a teenager. I always thought to myself, “If my parents had bought one other house and rented it out, 25 years later, the mortgage would be paid, and they would have a massive retirement. If I decided to buy something in my late teens or early 20s and rent it out, by the time I’m in my 40s, I have an additional house fully paid off.” A mentor of mine introduced me to REIN, Real Estate Investment Network, way back in 2006 or 2007. I attended their Quickstart Program and started learning about real estate. I didn’t know if I wanted to flip houses or buy and hold apartment buildings. I didn’t know much about what I wanted to do.
In 2010, I bought my first investment property, which was a triplex. I kept acquiring them along the way, partnering with friends, trying to qualify for mortgages, and figuring out my journey. Along those first few properties, I was in the process of getting into construction because flipping and renovating homes were something that I thought would work for me. I did end up becoming a licensed plumber.
I built a portfolio up to about 45 units and still working full-time as a licensed plumber. In 2014, I leveled up on how do I scale to the next level and bought my first apartment building in 2014. I’m still working full-time. At that point, my friends started to notice what I was doing, then I referred our friends, my fiancé’s friends, to my agents and decided in 2016 or 2017 to get my realtor license.
I’m passing off clients mainly for the investment side of things. Many years ago, I got my realtor license. I’m also building a lot of investor networks and joining them. I went full-fledged into sales from the apartment building side. Since then, I have been helping out bigger clients. I wored with the top multifamily brokers across Canada, if not North America, and then decided, “This is something I should be buying too, and not just selling.”
In late 2018, we took it to the next level and started buying apartment buildings as fast and quickly as we can. Since then, I have been doing some pretty big deals with some bigger clients in the space and purchasing for clients at some of the bigger REITs all across North America, gaining access and building relationships with some of the bigger brokers across the space in North America.
Being a commercial broker is a great foundation to have when you are trying to get into the real estate and private equity space. One more point about an item you mentioned about your parents if they would’ve just bought one more single-family, the financial situation would have been so much greater if they would’ve just rented out.
At that point, when I talked to a lot of Baby Boomers who at that time bought their primary residence, they did have more money to either buy in a much better place or a secondary place and then decided not to because real estate wasn’t as it is seen nowadays. It was seen as a liability, not really as an asset, and probably one of the greatest investments to be made. It’s a great point you made there.
Thank you both for sharing a little bit about yourself and your background. Maybe you both started in a smaller single-family. Maybe we can tell people what piqued your interest in multifamily. Why did you start going after multifamily, and what are the benefits of multifamily?
With a background in business, that’s how I was trained in school. I also ran a business for a bunch of years. With the commercial aspect, the fact that there’s a multiplier. Any business is valued using a multiplier, depending on what industry you are in. The economics become pretty easy to understand. Your income goes to X, and your business value is times 3, 4 or 20, depending on what industry you are in. The concept of commercial having more control in terms of growing value and being able to control a little bit more in terms of what the end valuation is going to be was where the light bulb went off for me. Even being in flips, your valuation is highly dependent upon what’s going on around you.
Don’t get me wrong, multifamily is as well to some degree but there’s more control because you can do more from an income standpoint and drive income upwards, which enhances value. The control aspect of it is one piece and also the scalability. I mean, instead of having 2 units under a roof, now it’s 20, 30 or 40. There are efficiencies there. From an operating standpoint, economies have a scale with that. With our goal to continue to grow and expand, it seemed a little more efficient to scale a portfolio, buying a property that has 20 or 30 units under 1 roof versus 2 units under a roof. Those are the big things, at least for me. When I looked at it originally, that’s how we operate our business.
Mike, please go ahead.
About what Mark said, it was pretty much it. I will just add one point to that. For me, it was mortgage qualification. Some of the single-families I ended up selling in 2020 because they were holding so much equity but I wasn’t able to refi them. In the single-family space, it’s very difficult to qualify or you are finding the next partner to qualify, whereas in multifamily, as you guys know, it’s a different qualification process. For that scalability, I said, “If I want to get to thousands of units, it’s going to be very difficult in the single-family versus multifamily.”
Isn’t that something a lot of people don’t know that it’s easier to get financing for multifamily than it is to scale to a single-family portfolio? I’m happy you said that. Mark, you were mentioning creating income in these multifamilies, which drives the value of the asset, which is exciting. I want to talk about the value add, this business model that makes multifamily attractive to so many veteran investors.
We always say this term. It’s a wealth-building machine. We educate on how wealth is built through the value add. Let’s go into detail and discuss how is it possible for the renovation of a multifamily property, which then allows for higher rents to increase the NOI but this results in this exponential value, appreciation, and creation. Let’s talk about that for the readers because it is exciting stuff.
The strategy is the value add strategy in it. We will break it down a little bit. Value add, by definition, is there’s room on the table to grow the valuation or grow the value of the property. We are buying properties that are undermanaged or underperforming as to what they potentially could do from an optimal standpoint. Let’s do quick math. Commercial assets, all commercial real estate, and obviously this multifamily as well as are typically valued using the capitalization method. For every dollar in income, there is a multiplier effect in terms of its valuation. Let’s say we take a unit and increase its rent by $500 and keep the renovation costs to $40,000 or $50,000.
At the end of the day, you are increasing net operating income, assuming all else stays the same by $500. That essentially is going directly to the net operating income line. Depending on what market you are in, each market operates with different cap rates, as you know. To keep it simple, let’s say we are operating in a market that values buildings or is trading buildings at a 5% cap rate, every dollar you are increasing to net operating, you are 20X-ing the value of that building. A $500 increase in net operating income of $100,000 in terms of incremental value, just by increasing the rent by $500.
That’s one unit. You multiply that by 20, 30 or 40 units. I know you guys are doing things that are in the hundreds of units. You can start to see the benefit of having multiple units under one roof and the benefit of the commercial or capitalization method of valuation, and that’s how commercial properties are valued. That becomes a pretty formulaic way to grow business and grow value. There are nuances. It’s not as easy as that always. There are processes, procedures, and dealing with Tenant Laws and such but the math is pretty straightforward. Depending on the market, you have a 20X, 25X or even a 15X for every dollar increase in net operating income.
Multifamily is vastly different from a single-family where you renovate a property and look at the comparables in the area to determine the value of the property. Multifamily is determined by the income it’s producing, divided by the cap rate, and it equals that. If you bump the NOI up, you look pretty good for that value creation.
On our Houston Texas deal, we are approximating $2 million in renovations that are going to be spent by us. That’s going to create $10 million in value. When we break that down for our investors, you can see the spark in their eyes. This concept of creating the force of appreciation exists. We are not only relying on natural market appreciation because we are stewed and invest in markets that show certain growth metrics. I’m talking about you guys and us but you are also going in there and creating force appreciation by adding value.
That’s within the first two years of owning the property. However you can get the renovations done just in the first two years, a $10 million of increase is powerful stuff.
Mike, would you like to add anything to that?
Multifamily Investing In Canada: There are small things that people don’t really see that do impact their net operating income. And it’s something you have to keep an eye on because having those maintenance issues resolved fast attracts better tenants, which in turn will pay more money.
In terms of the area where you are investing, there are certain areas called for certain things. We are on the outskirts of Hamilton in a new market. We’ve done a walk through the building. A lot of people are asking for storage, “Where am I storing my winter tires?” There’s a demand. When you are talking about net operating income and looking at that 20X on every dollar, you start looking at the highest and best use for that property. “Can I build a shed and charge them $50 a month for storage offside the property?” Finding the highest and best use for the property. We speak to a lot of investors about doing a new roof or repaving the driveway.
There’s no direct increase and no net operating income when you are spending that money. You have to dig a little deeper. Are you getting a better tenant profile? If you have a nice parking lot with newly painted lines if your hallway stays cleaned, are you getting that $50 more in rent? The other thing that we’ve noticed is having a professional property management company. Newer people are getting into the space. They are self-managing.
When they are filling out applications, it’s, “I’m going to email you this,” whatever generic application. Professional tenants in terms of people with good jobs and stuff like that but they are not able to purchase a place. They will pay a premium to know, “If something is wrong with my unit. If I have a leak,” I have professional property management that’s on it within a second. There are small things that people don’t see that do impact their net operating income. It’s something you have to keep an eye on because having those parking lots paved with snowplows within a couple of hours of when it snow does attract that better tenant, which will, in turn, pay more money.
Not only pay more money but also reduce the cost of potential litigation if they break a lease or the demographic becomes a better tenant demographic and better profile. Great points.
Let’s chat about real estate private equity. Raising capital is a very crucial component of our business. Maybe talk to us about your experience with one of your early multifamily investment opportunities and how difficult it was to raise capital because it’s not an easy thing to do.
For some people, it is if they can call their family, “I need $5 million.” Go ahead, guys. Tell us.
We all don’t have that golden phone call that we can make.
The first deal that Mike and I collaborated on or partnered with on Peak Multifamily, we had some friends. There was a friend in there that is an investor and has done business and other projects with us before. He’s very familiar with what we are doing. There was one other, and it’s harder because you don’t have the track record quite yet. You might have a real estate track record, which helps a little bit but it’s a different strategy. As you start to build a portfolio, then people around you start to notice and want to get involved.
A track record is important. Investors are putting their hard-earned money into these types of projects. They want to know that you are managing properly and that the projects are going to perform. You can really only rely upon a track record. That’s the best indicator someone may have of what your future performance may be.
The more deals you get into, capital starts to be less of an issue, and deals become more of an issue and inventory. As people start out getting into that first deal and partnering with somebody that is doing deals to start to build the knowledge base and even track record if you are going off on your own, then it’s important to at least get some experience with someone that has been doing it.
Mike, you have been in this space for a long time. I’m sure you’ve dealt with investors early on. Talk to us about one of your early deals and how was that process. Tell us a quick story, if you may.
It was very difficult. Obviously, I started out with my own capital, maxed out, and then I had a good friend doing the same thing. He maxed out and it’s like, “How do we get into the next one?” We partner together, so it’s less capital. Friends and family that you speak to don’t want to invest with you. There’s always that stigma of real estate, “They are not educated. What happens if tenants don’t pay the next thing?” Long and behold, one friend comes along, and you purchase another.
My partner’s parents, who didn’t invest with us for some time, five years later, saw us very successful doing well, sold the property, and made some good money. Now the bell starts going off in their heads, “We should’ve done this five years ago.” They are phoning, “Is there a property? We have been thinking about it more,” and started to spiral after that. People were calling me to say, “I see what you are doing now. We like it. How do we get started?”
To a lot of them, I was telling, “You can probably do it on your own. If you want to be hands-on,” that’s to the point when I was telling you my story at the beginning, I was passing people off to agents I was using if you are comfortable managing but a lot of them work career-oriented. It’s like, “No, I don’t have the time. I don’t want to manage it. Let’s partner up.” From there, things started to take off friends, family, and people were calling me, and one thing after another. That’s how it started. For 3 to 5 years, they were a challenge.
You didn’t have that track record behind you. People didn’t understand it. Me getting into it, I’m so excited. I want more properties. I’m probably talking a mile a minute. They don’t understand 75% of what I’m saying. They think it’s risky, and it’s not for me. That’s what tends to happen. After when the experience kicks in, it’s like, “Too bad. If you are not in, somebody else is going to take part in this. It’s first come, first serve the type of thing.”
I love that he said when you close, people are like, “I should’ve got in,” but people don’t understand it at first. When you go through that full cycle, they see the proven results, they are like, “Look at this. This is amazing.”
I’m talking about calling friends and family, imagine our first deal, which was a $92 million asset USD. That was well over $100 million Canadian. I’m giving a call to my friends and family, “We are closing on a $92 million. Would you like to come in at $25,000?” They are like, “What are you talking about? You used to build single-family and multifamily. You are buying a $92 million asset in Orlando, Florida.” There’s definitely a bit of a shock there.
Staying on the capital raising topic, we do not fund managers. We don’t create a fund and continuously buy assets and raise capital. We were project specific. We recreate a single-purpose vehicle for a project-specific multifamily project. The difficulty that it creates is since we can raise capital at a time, we have certain limitations when it comes to getting capital from our investors.
It’s a pretty tight timeline. Mark, as you had Peak’s capital raising ventures, please discuss with us your strategies when it comes to it is an important concept, cultivating relationships with investors, and then how you nurture those relationships while you wait for a deal to be available for your investor community.
Part of our company platform is to educate as well. We are putting out a lot of content to help people understand the space a little bit. Like anything is, you get into something new, it’s a little bit of a black box in terms of how things work. We put out a lot of content in terms of how the commercial multifamily space works, the models, and stuff. We talked about math. I recalculate in my ahead the math that I gave originally was incorrect. It’s way more than that. It’s $240,000 lift approximately.
You underpromised than overdeliver.
We are coaching people as well. We have a course out there. In that, there are people that want to get into this space. They’re professionals. They might not have the time. Learning about it and getting involved in the step-by-step process, they realize, “I like the asset. I don’t know if I could spend and dedicate.” It’s a business. It’s something probably you shouldn’t be doing as a hobby. You do need professional management or someone that’s acquiring and managing these assets.
That’s how we continue to stay relevant to people out there and ensure that when people think about, “I want to understand apartment buildings. I want to buy an apartment building or perhaps, I want to partner with somebody and invest in apartment buildings.” We come to mind. That’s our cultivation and always on or top of mind brand strategy.
It is a challenge when you’re raising deal by deal because there’s a short amount of time. We are not collecting funds beforehand. We are also not going out specifically marketing for that either. There’s an opportunity that we have, and people that we know or accredited investors have an opportunity to jump in on that. There’s a risk on our side to get these deals done.
Some people that are investing in duplexes and triplexes that want to level up start to realize that deal sourcing is also a challenge. Throughout our course, we’ve had multiple people ask, “How long do we sit on the sidelines? We can’t seem to find a property or the one we find is going quite a bit higher than we should think we should be paying. Should we just be staying in single-family?” They want to level up but they can’t find that property. Over time, it’s like, “We want to get into this space. We understand it now.” That’s how capital comes in as well. It’s because of the lack of opportunities to source deals.
Let’s switch the conversation a bit here and discuss the elephant in the room. We at CPI Capital have been talking trash about the Canadian multifamily market for years now. The low rental yields, negative cashflows, the rigid Mortgage Laws, and the high cost of materials and labor, most importantly, the investment culture that always speaks about where Canadian passive investors are much more conservative. They are more hyper-cautious than their US counterparts. Peak Multifamily has seemed to have leaped over these hurdles and is flourishing. Tell us about how you achieved success in this sector that has such slim pickings in the Canadian multifamily, private equity sector?
I have a question for you. What do you find so negative? You say your trash talk in the Canadian market. Is it the ability to source deals?
I just listed. For example, some of those issues are low rental yields. The rent-to-value ratios in Vancouver and Toronto are much lower than there are in the US. In most cases, if you do a conventional mortgage, put down 30%, and borrow 70% from the bank, you are in extreme negative cashflow. That’s one concern. Whereas in the US, particularly in the Sunbelt states, the rent-to-value ratios are high. Put down 30%, and you would be willing to cashflow. Offering that when it comes to the syndication model, your investors are receiving cashflow, whereas in Canada, it wouldn’t be the case and cashflow becomes non-existent.
The other issue is Mortgage Laws. In the US, they are much more business-friendly. I believe getting mortgages is much easier. You also got tax benefits on the US side when it comes to depreciation, cost segregation, and bonus depreciation, just the process. The last point was the culture. The Canadians are very hyper-cautious and conservative. Ava has to be on multiple calls or in-person meetings before somebody invests with us, whereas on our US investors, we say, “How are you doing? What’s your minimum? Is it $25,000? I will invest $50,000.”
“Where can I transfer the fund?”I’m like, “I just talk to you for ten minutes.”
Those are the concerns that we’ve seen. Also, the US has over 300 million people. There’s an interstate migration happening. Jobs and population grow that exist in Texas and other states. You are not relying on people coming from China or other places in your income. In Vancouver being a real estate guy, something would happen in China and affect our market here.
In the US, you don’t have those concerns or not nearly as much. The list goes on and on. Also, on the property management level, US property management firms can manage your property manager and leasing. They also do the renovation. Not a single property management firm ever in Canada that I’ve heard of that does management and renovations. There are many different things.
We have lots of Canadians who want to invest in their own backyard. That’s where you guys come in.
I will touch base on the financing first of all. There are many different tools. If you are doing a lot of the deals that we are doing with conventional financing, you are right. It doesn’t work. What’s typically happening is, let’s say, we are in a market that a conventional lender will look at it and lend at a 5% cap rate. What’s happening is all the purchasing going on is around 3.5% to 4%. I wouldn’t even say more of a turnkey product with not much value add. Let’s say 4 1/4% but the lenders lending out of 5% cap, so you have to put 50% down when you are doing conventional. There are a lot of lenders out there, which we use that will do. They understand the market. They are taking on a little bit more risk.
Interest rates we are paying are in the 5% range but they will do an 80% loan to the appraised value. Typically, the appraisals are coming in at that 3.5% cap. Not in all cases but because you have that lender that’s a little bit more flexible, more of a private lender in terms, they are allowing a second on it. In one of the last deals we did, we went 90% loan to purchase. We are in with very little money. It’s negative cashflow. We are structuring our second as a balloon but the actual rent spreads.
In one of the other buildings we bought in Hamilton, we ended up turning 18 of 19 units in the year. The average rent was $780. We are now getting $1,950 for 2s and $1,650 for 1s. We bought it at a low 3% cap. Now it’s going to be appraised at over a 4% cap. There’s a lot of value to be had. I’m not super familiar with the market in the states but I don’t think you are seeing $100,000 plus rent spreads where something is rented for $700. If you get them out and renovate, you are now getting $1,000 plus.
Let’s talk about getting them out. Let’s talk about that subject briefly. In all the states that we invest in, the Republican states and the Red states, there are no rent controls. Talk to us about rent control concerns or other issues that exist here as well.
This comes down to the underwriting at the beginning. When you are talking about a $1,000 rent spread, and you know that your appraisal for a turnkey will come in at 4 1/4% or less, depending on where you are in the transition. $1,000 a month times 12 divided by a 4% cap in the markets that we are in, it’s $300,000. You are factoring in, let’s say, a $50,000 renovation. When you are talking to tenants, they want to move. A lot of the building is run down. They don’t want to be here. They moved in. It was cheap rent. They’ve wanted a way out.
We take that approach to say, “We do want to renovate. We want to help you along the way. We are willing to compensate you.” We will take them literally by the hand and have a leasing agent show them other properties. Sometimes, let’s say, they are paying $700 for that particular unit. A very comparable unit is maybe $1,100 and has not been renovated. They are going, “$400 more, what should I do?”
If you were to offer them $25,000 to leave, they may say, “This is going to cover my rent for some time. This is going to allow me to put a down payment on a house because my income is there. I’m trying to save.” We’ve never had to pay $25,000. $20,000 was the highest we’ve paid. It was a $1,200-a-month lift. She was paying $700 and changed, and we are now getting $1,950. $50 for the rental, $20 to live, and you are still getting that value of $200,000.
Multifamily Investing In Canada: Track record is really important because investors are putting their hard-earned money into these types of projects. And they want to know that you’re managing it properly and that the projects are going to perform.
You are paying $20,000 to someone to leave a unit?
We have. That was the most we’ve ever paid.
Our American friends who read will blow their minds.
If you do the math, $20,000 plus $40,000 rental, so you are investing $60,000 to get a lift of $300,000 to $320,000. That’s how we do our math.
The numbers make sense. I totally understand that but I’m talking about a system that’s made for an entrepreneur to fail. The system is against us. You got to understand that’s the difficulties that we go through here in Canada, not only on the entrepreneurial scalability but also on the taxation and the highest tax bracket. There are so many different issues that exist. I’m not sure how much more you want to chat about this topic but we would love to keep talking to you about it.
Like anything, there are trade-offs. The ROIs have been achieved, and again, there are billion-dollar REITs that continue to buy in this market and the US but their portfolio is still skewed towards this market. It’s risk and reward. The buildings that we are turning over and the strategy have generated $30,000 plus annual returns on these buildings, which is a good return for the building. This is one that Mike is talking about even more because we have been able to turn so much. There are challenges that you have to overcome, and we built the system that’s enabled us to do that.
We are buying properties that don’t cashflow out of the gate. That’s got to be factored in. There are a lot of capital expenditures. When it does, when we do turn it over, there’s market appreciation, which I am not so familiar with all the markets in the US but I don’t think you see the market appreciation that we see here in the US. There’s the equity growth that happens. A lot of the people that we partner with, they are professionals income. They are not looking for cashflow now.
What they are most interested in is putting the capital in a safe asset. That’s less volatile, so you don’t have the volatility but they know that the equity is growing because we are getting into a market where immigration is a big part of it. As you mentioned, populations are growing, and rents are double-digit rent growth, at least in the markets that we are in. We are specifically targeting markets that have good transit, population growth, and experienced double-digit rent rate increases every year.
I wanted to touch base on the $20,000 that you do get a natural turnover. Typically, in any building over a five-year period, you are probably getting 25% to 50% natural turnover, then you are having these tenants who want to leave. You cover their moving costs, they are going to leave. It’s the one-off that you’re paying that much here and there. The tenants are very appreciative, “Thanks a lot. This is going to help us go a long way,” but it’s not every tenant we are paying $20,000.
As Mark said, the numbers make sense. Even if you had to pay it as long as that’s not your performa, if it makes sense, it makes sense. For us, certain other capital expenditures make sense. This is the same concept. I was looking more as a young entrepreneur, and I felt like the Canadian system was made to make young entrepreneurs fail and to demotivate from people to become entrepreneurs on many different levels.
In the US, I have had, so professionals who’ve made a move from Canada to the US and they are like, “You guys are crazy spending any time there. Moved to the US.” We are planning to move to the US. We keep our Canadian roots and heritage but if you want to do business and you are wanting to scale your company and your business, the US is the place to be, and you can see that with so many other companies around the world.
For our conservative Canadians who want to invest in their own backyard, we would love to do a deal with you because you know your stuff.
There are REITs in Canada that own $20 billion-plus of assets, and $5 billion is in the US. You wonder, “How come they are keeping 75% of their portfolio in Canada?” You start digging deeper. There’s got to be reasons. It’s not like they don’t know about the states. They are holding $5 billion in multifamily in the United States. Why in Canada? There’s got to be something.
On the reverse of that, as I’m very active on LinkedIn, I see a lot of other larger private equity firms who are switching to investing in the US where in the past they never did. There’s also a transition happening on that side as well. The conversation doesn’t need to be about which one is better or not. We’ve easily won that debate but it’s more about having a business model in the region you are on and being successful in that business model.
That is the key, and you guys have achieved that. It doesn’t matter how you achieve that. If you achieve having to pay someone $20,000 to move out, it doesn’t matter how you’ve achieved it. It’s all about returns to investors, profits to investors, and managing a great company with the same business model that we utilize in the US, and you have been successful at it. Kudos to you, guys.
I would like to discuss the educational platform that you have now. We love this as we at CPI also have our extensive focus on education, with our YouTube show, meetup groups across Canada, and then many of the content we create. We send it out to our community. We pride ourselves as a real estate private equity firm that takes educating its investor base very seriously. Maybe you can talk to us about your educational platform, how you go about staying up to date, and everything like that.
It started off with the podcast, The Canadian Multifamily Investing Podcast. The goal and the purpose of that were to educate people and to de-mystify multifamily investing, specifically in Canada. I was in the US, at a conference, in Texas with a lot of top syndicators. The big thing that I realized pretty quickly is that there was no one talking about multifamily in an educational way with a podcast and some of the stuff that we are doing. We’ve found that there was an opportunity there.
It was about educating and bringing people up to speed on different types of strategies to invest in commercial multifamily in Canada. With that, then came the questions about, “Do you guys coach? What else do you guys have?” It started during COVID. It was a live online training program, three days or over a weekend, for example. That’s evolved now. You can buy that online, with fifteen hours of training on how to buy your first apartment building. We go through all the steps that we go through, and we provide all the documentation that we use ourselves on a daily basis.
That’s evolved as well now to coaching. We coach one-on-one students that are getting into or buying their first deal, even those that are buying their 2nd and 3rd deal, to help them review, underwrite, and understand different markets and economics of multifamily. In a nutshell, that’s part of our business, and it’s helped with the content creation. We think it’s helping a lot of people.
Our educational stuff helps us educate ourselves as well as we have expert guests like you guys. We learned a lot from our guests. When we have to write a newsletter or a paper, there’s a lot of research that goes into it that educates us and keeps us up to date.
Before we move on to the next segment of our show, please tell us, what is your number one advice to a passive investor looking to start investing in real estate private equity?
Understanding the deal is one thing. You are going to look at the economics. Looking at whether it’s the sponsor or the lead partner or the group behind the management, understand their track record, and what have they done. Make sure you interview them and perhaps get referrals or testimonials. Like any business, it’s the people behind it because you could have a great asset that’s run poorly, and you can have a poor asset that’s run amazingly and turned around. Understanding the people behind it is a real important component. That’s where my time has been if I was investing in someone for the first time, “What are they doing? What are their principles? What are their values, and what have they done in the past?”
How about you, Mike?
That, by far, is number one. They have to know the people behind it, they have to feel comfortable. Another piece of advice is understanding what they are getting into, If it’s a contract they are signing or an OM, what does it say? What are their exit strategies? A lot of people get into these things that look all bright and shiny, “I want in,” but without understanding what contract they are signing, how long the term is, and what the investment is.
Get to know the people, know their history, and then understand what you are getting into. This is your hard-earned money. You are investing it. Some people don’t like to own up. If that money gets lost, it’s like, “Those guys lost my money.” No. You are educated. You’ve saved this money. You have to do due diligence on it as well.
Terms as well. Sometimes our terms are forecasted. On our Texas deal is a three-year hold but they are depending on where the market is in three years. We might hold it a bit longer. That understanding is some level of illiquidity in the investment in real estate private equity.
As Warren Buffett says, “Never invest in a business that you cannot understand.” Ten championship rounds to financial freedom.
In the next segment of our show, we are going to rapid-fire this but take your time answering the questions, whatever comes to mind first.
We will start with you, Mark, and Mike, you can answer right after. Number one question, who is the most influential person in your life?
In terms of support and allowing me, even doing what I’m doing because in business, you are taking a lot of risks and even transitioning from a consulting practice that I was a partner in and moving into something that’s a little more unknown and risky is my wife. No matter what kind of unpushing, without her support and also the three kids too that are supporting as well.
Multifamily Investing In Canada: Understand what you’re getting into. You are investing your hard-earned money. You’re educated, you saved this money so you have to do due diligence on it as well.
I know people that don’t have that support at home, and it’s tough. You can’t perform optimally without a supporting partner. No matter what else you have around you, if at home there isn’t that rock, then it’s tough. Without that, I don’t think I would be able to be doing what I’m doing and push where Mark and I are pushing.
How am I supposed to follow that without saying, “My wife?” Outside of the family that supports you, I’ve built some good relationships with people who are way above me but in the same space. Being a broker in this space, I’ve built some good relationships with a handful of top brokers that have been in this industry for many years where I can pick up the phone and say, “What’s your opinion on this? What do you think?”
I know I’m going to get a genuine response to the point where I’ve had someone tell me something, then call me back and say, “I’m going to tell you what I would tell my son. This is the advice I would give my son.” It’s building those long relationships with people ahead of where I want to be. Some top brokers in this space have allowed me to change the things that I do.
Mike, what is the number one book you would recommend?
For people starting off, it’s definitely Rich Dad Poor Dad. That was the first book that I read. It was an eye-opener and wave view of assets and liabilities. It opened me up to a whole new world. That’s the king of all the Rich Dad Poor Dad by Robert Kiyosaki.
Mark, how about you? What’s the number one book you would recommend?
I picked up Rich Dad Poor Dad again. I bought a version for my teenage son and other versions from other kids. It’s super critical. Maybe even beyond real estate, a business book that I read, and years ago, I read it again. It is Built To Last. It’s how to scale and build a business where you can potentially step away from it at some point. We are all active in the business. We enjoy it but everyone wants to become passive in some way. There’s a specific mindset that you need for that and building things from the ground up the right way. That’s a pretty good one I would recommend.
Tony Robbins recommended As a Man Thinketh. It’s a very short read. It’s pretty powerful.
If you had the opportunity to travel back in time, what advice would you give your younger self?
Start earlier. My wife and I talked about investing in real estate for probably five years and we didn’t do anything. “We will do that next year.” Time goes by fairly quickly. Definitely start a lot sooner. Mike started very early. There are a lot of examples of people we know that started at 19 or 20 years old. That’s amazing. You buy a property or invest that early is life-changing. We are doing that with our kids.
You can have a great asset that's run poorly or a poor asset that's run in an amazing way and turned around. Understanding the people behind it is a really important component. Click To TweetWe open up a stock account for them and get them to understand why do we have these buildings. We even going to the buildings with them. The sooner, the better, and demystifying this idea that you have to be rich to get into real estate or have a lot of money to get in that, held us back for a long time. Understanding how creative financing works, whether you are in Canada or the US, the same thing applies. Understand how that works, and you can get into properties without being wealthy.
Mike, you got started early. I’m curious what advice would you give your younger self?
I would tell myself to be a little bit more aggressive. The whole buy real estate and then wait, don’t wait to buy real estate. I did start early. There was an opportunity to buy more but you are always thinking, you are overpaying, “What’s the market going to do?” I did purchase some. I wish I had to purchase more. I was probably in a position to refi some of the properties and doubled the portfolio. That would have definitely paid off.
Mike, what is the best investment you’ve ever made?
The first building I bought in 2014. It’s tripled in six and a half years. I don’t even know what the ROI is on it anymore because it seems in when we are investing, as every six months, values are way up. For example, I paid $60,000 a door, and we are looking to sell things North for $260,000 in a short time. There were some rentals in there. The cap rates were high. When I purchased, cap rates were about 7% and got finance at 6.5%, I’m thinking, “I overpaid here. What’s going on?” With the net operating income doubled, I can probably sell it at a 3.5% cap still in the market.
How about you, Mark? What’s the best investment you’ve ever made?
In mid-2014, I took this weekend seminar about real estate investing. That was the time I was like, “Let’s get moving,” then there was a decision between a US program and a Canadian program, and starting to invest in REIN and education. If you are thinking about real estate or going to invest money, it is educating yourself on whatever that is, whether it’s stock trading, options trading, even cryptocurrencies or whatever it is, investing in yourself first to get educated. There’s a lot of free stuff out there. I found that the free information on YouTube is good. It takes a long time to get the nuts and bolts of how the strategy works. Pay for coaching, courses, membership, and meetups or masterminds. That’s going to have the biggest long-term impact.
What is the worst investment you’ve ever made and what lessons did you learn from it?
There are some flip properties I lost money on. Those were lessons. If you ask someone who hasn’t lost money, lost or been defeated in some way, then they are probably not telling you the truth. Those real lessons coming out of that. Those losses were not carefully managing things and people and assuming that things were being taken care of. They are not even losses. I mean, they are real learning opportunities.
They hurt financially. Without that, you can’t grow as a business person. We all have them at some level, and maybe it’s not a financial loss but it’s time loss or partnership loss. In all those things, it’s like, “I went through that for a reason. I probably shouldn’t do XXX next time.” Some early real estate losses were important to the success we are having now.
How about you, Mike? What’s the worst investment you’ve ever made and what lessons did you learn from it?
It was a flip that turned into a built-in which one of the partners on the deal wasn’t managing properly, ended up taking double the amount, if not triple the amount of time, and ended up losing money on the deal.
Mike, how much would you need in the bank to retire now? What’s your number?
I don’t think I would ever retire now. If someone gave me $1 billion, I would be off investing it. If I won, let’s say, $100 million now, I would probably consider switching up the business model and maybe investing some with other people, other companies, diversify startup companies, and probably be a lot more passive. I wouldn’t be as active as I am now. If I had $100 million in the bank now, I would shift gears. Until then, I would probably still be doing what I’m doing.
What surprises a lot of people is when I say, “If I had $100 million, I would probably get way busier than I am now.”
How about you, Mark?
I would get bored in terms of the traditional sense of retirement but in $5 million cash, there are enough things you can do passively that you could spend your time working or not working. You can generate some good passive cashflow even at 10% with $3 million to $5 million. Ten percent is very low. That generates $400,000 to $500,00 a year in low-risk passive investing. That would be my number.
Everybody, you want to take cashflow coming in. Whatever creates that cashflow, you are good to go. Mark, if you could have dinner with someone dead or alive, who would it be?
Warren Buffett is very well-published, so you can get a sense of his thoughts but Elon Musk, the way he thinks about things are very practical. He’s an investor. He works hard and has a formula. His achievements are somewhat formulaic. It’s hard to duplicate but he’s obviously followed a process. Understanding the inner workings of his brain would be pretty fascinating.
How about you, Mike?
Probably, Tony Robbins. He’s got a well-rounded perspective of things. I could pick his brain. He thinks differently everything in business. One of the best business coaches, one of the top guys, and when suicide calls come in and things like that. He is well-rounded from a business perspective, as well as a real-life kind of perspective.
If you weren’t doing what you are doing, what would you be doing now?
I would probably be at a Christmas party for a company that I will help out with that.
We are talking about your career.
This was my dream career. I always knew that I would get into real estate as a teenager one way or another. It’s weird to say but it is fit in perfectly for me. It has been growing at a pace faster than I thought things would grow from a young age. I love what I do. I do have the freedom to do what I want to do, and I’m choosing to do what I want to do.
I had a previous career but the reason I became a licensed plumber and got into construction was because I knew I wanted to renovate homes, flip homes or do something in real estate. I’m in the position where I’m sitting at the $ 30,000-foot view, managing what pieces to come in, who we should be hiring, what assets, and where that will be coming from. If I won $50 million tomorrow, I would probably be doing the same thing I’m doing now.
How about you, Mark?
I would probably still be in the consulting space but I didn’t enjoy it so much. That’s why I got out in the first place because it was a lot of travel. When your kids ask you if you are coming home for dinner, and most of the time, you say no. I saw that the long-term of that wasn’t going to be good. I could still be there. Who knows if I wasn’t doing this? For those that are looking to leave the 9:00 to 5:00, it doesn’t happen right away. It takes planning. For me, it was literally a five-year plan like, “At this point, it’s time to exit.”
I would probably be still doing that but not as happy as I am now. Now with the flexibility and the growth of the business, we are doing some pretty cool things. The people that we are working with, the collaboration is so much better. There are a lot of people that become complacent. I’ve heard it a few times already, “I got fifteen more years and have my pension.” I’m thinking, “This is crazy. Let’s take control now.” It’s a very small percentage of the population that gets off of that complacency path. It’s not an easy thing to do but the end benefit in the psychological rewards of financial awards is well worth it.
I’m sure you guys are the same but when, when money and capital are just sitting there, for me, it’s got to be somewhere. It’s got to be this or that investment. If I’m learning the stock market, I couldn’t sit back and put a movie on and relax. The struggle that I have is separating to have that time to unwind. I don’t want to think about something because a lot of my close group of friends are all involved in real estate. When we hang out, the conversation talked about, “Where are you buying? How are you buying? Who did you hire?” That’s amalgamated into my friendship lifestyle, which may be good or bad.
I struggled when I did leave a full-time job to unwind and say, “I’m taking the week off. Nothing to do. It’s my choice.” It’s like, “No. When can I go back to work?” At 10:00 or 11:00 at night, I’m searching for properties, responding to emails or doing whatever. I can’t sit there and do nothing. It’s a challenge. There are benefits to doing that and unwinding, and that’s something that I’m working on.
That’s also beautiful that you are doing what you truly love every day and it’s not work for you. That’s your life. Your purpose. Mike, book smarts or street smarts?
I think a bit of both. One of my professors, there’s something he said way back when, and it’s stood out to me, “If you are going to study and get a 90 or 95 in my class, I would prefer you go to the bar, have a couple of pints, meet a bunch of people and get 70 in my class because nobody is going to know what mark you got. As long as you pass my course, if you know the guy hiring, have their connection or he’s got a connection, you are going to be the one getting the job or starting the company.” You need a bit of both. There needs to be a mixture.
Something that opened up a whole new world for me is a lot of people in the higher-end business world are good at connecting people. That’s what a business does, connecting people and enjoying their company. They might not know anything but if I have someone who can gel with me, go out for dinner with me, find me properties, I’m going to pay him a lot more than that super book-smart and says, “This is where you should be finding. This is who you should be talking to.”
It’s finding a way to genuinely connect with people and put other people in connection with other people that you know and meant those relationships because it comes back tenfold. Realistically, that’s where a lot of people say, “The money is made on the golf course. You go out. You have a beer. You chat through eighteen holes.” That’s where the money gets made, it is in the relationship. There doesn’t have to be obviously some books smarts. You have to know what you are doing and how to analyze things. I’m a huge believer of a 50/50 split.
How about you, Mark, book smarts or street smarts?
My perspective has evolved over time. Early in my career, it would have been 90% book smarts and 10% street. The people I was around and MBAs and PhDs were a real part of the business. As you grow a business, you realize that it’s just not about book smarts. Everyone has this emotional intelligence like Mike said, dealing with people and being able to sense things. Especially in our business, you don’t have to have a university degree or an MBA to understand real estate and even real estate math. It’s a little bit of intuition.
You have to understand some economic concepts but you don’t need a university degree to do it. Also, what’s happening with YouTube and you, we, and a lot of people are doing is you can learn a lot of things from the internet and what’s being out there. Our economy allows people to test and learn fairly quickly, so try things and fail. Do things again. That doesn’t come from books smarts. That’s personal drive and “street smart.” My perspective has definitely evolved, and it’s evolved so much that when talking, even to my kids, education is important. It’s more of an insurance policy now than something that’s absolutely required.
Last question. If you had $1 million cash and you had to make one investment now, what would it be?
I would buy an apartment building now. I’m thinking, “Do I buy a Bitcoin? No two vaults out.” I will buy an apartment building, and it’s safe. We’ve done well with it. I know that we are going to get a big return out of something like that.
Invest in yourself first and get educated. Click To TweetMike, what would you do?
I would probably put a large portion of it into cryptocurrency personally. Maybe not a large portion but I would say 50% of it into the stock market and maybe 25% of it into cryptocurrency. The only reason I’m saying that is it has been a couple of years now where I started to realize that majority of my net worth is in real estate. I make money from an agent. My investments are all held in real estate. For diversification purposes, I would probably put $500,0000 into the stock market and crypto.
That’s a message to all other investors who are focused on other asset classes is to diversify into real estate, and real estate private equity is the best vehicle to utilize. It’s an excellent way to complete the show.
Maybe tell people what’s the best way to reach you.
Mark@PeakMultifamily.ca is the email. PeakMultifamily.ca is the website. Mike and I are on social media, Instagram, LinkedIn, and Facebook. We are pretty active in that. Any in those channels, we are pretty responsive. We get messages or even emails. our website has a ton of educational content. That can help at any stage of your investment career.
Mike@PeakMultifamily.ca and on all the social media platforms, people can reach out.
We are glad that we had you guys on. We are glad we had the Canadian and US multifamily somewhat of a debate and conversation. I’m sure people are going to get lots of value from you speaking. We look forward to staying connected. Thank you.
Thank you, guys.
Thank you, guys.
—
