Table of Contents - 12-20 Unit Apartments with Mark Baltazar
Dave Debeau [00:00:08] Everyone is Dave Debeau with another episode of the Property Profits Real Estate podcast today, all the way from beautiful Brampton, Ontario. We've got Mark Balthazar coming in. And Mark is a an experienced multifamily investor. And the reason I'm really excited about talking with Mark is because of the size of properties that he focuses on. So they're not the real small multifamily. So he's not looking at duplexes, triplex his fireplaces, and it's not the huge big ones that just seem too out of reach for most folks. He's focusing on properties from 12 to 20 units. I'm really excited about that because my impression is, you know, that's big enough to start getting a really good bang for your buck and small enough that you're not having to compete for properties with rates and the real big guys. So I think it's kind of a really nice, sweet spot. So, Mark, welcome to the call.
Mark Baltazar [00:01:08] Yeah, thank you. Very excited to be on the call and really appreciate you hosting me. And you had some really great guests. I follow your show. Listen to your show. So I really honored honored to be a part of it. Thank you.
Dave Debeau [00:01:20] So hopefully I didn't steal too much your thunder there. But that's kind of gets into my first question for you is why do you like to focus or what are the big benefits of focusing on this size of properties like the 12 to 20 unit type properties?
Mark Baltazar [00:01:35] Yeah, when I started, I started investing five and a half years ago. I didn't start in multifamily. I started with in fact, my first foray was going to be wholesaling. That wholesale deal turned into a flip and then I started holding some properties along the way. So if you duplexes in fourplex was was as large as I went and my background is business owner ran a consulting business for for a number of years. And so, you know, business valuation and financials have always made sense to me. And I think the light bulb went off for me, for apartment buildings, really, because the way it gets it gets evaluated, the way they get appraised and the way lenders value them in the way value is created, which is primarily through income versus a comparable approach such as single family. And so I felt that as an investor, as an operator, you have a little more control in terms of what you can do from a valuation standpoint. The simple the simple math is just increased net operating income and the value of your building goes up. Not so simple to execute all the time, but that's essentially kind of what we're doing is increasing net operating income to generate higher returns.
Dave Debeau [00:02:46] That's also, Mark. So, again, for folks that aren't super familiar with the difference between single family homes and multifamily properties. So what Mark is saying is typically for a single family home, the value of that property is based on whatever similar type properties have sold for recently in that area. There's really that's about as logical as that gets. And unfortunately, in the residential market, single family, home market, a lot of the value is is based on emotion. Right? It's it's what's going on in the economy. What's what's happening, what's the local real estate market like? So that's why you see property prices going up drastically one year and then going down quite a bit. Another year in different markets. Yeah. Versus multifamily properties. It's a much more logical valuation. The banks look at these kind of properties as almost like a little business unit. So the way that they're really valued is, quite frankly, on how profitable the properties are, how much cash they're spitting out. So the cool thing is and correct me if I'm wrong, Mark, what you're doing is you're finding these multifamily properties kind of small to medium sized families, 12 to 20 doors that are underperforming. Perhaps the rents aren't where they should be. Perhaps they're being mismanaged. Perhaps there's some deferred maintenance, perhaps all three of the above, and you're able to go in there and buy them for a pretty decent low price because the values based on how profitable they are and they probably aren't very profitable. And then you guys go in and turn around and make them more profitable and increase the value. Is that the gist of it?
Mark Baltazar [00:04:33] Yeah, it's it's the value add approach. And yeah, I like liken it to, you know, a business acquiring another one. They're acquiring it for a few different reasons, but acquiring it, let's say, an underperforming business, putting in a new management team, developing new operational systems, just making it better or well oiled machine. And once it starts spitting out kind of more cash, then reaping the rewards from that, whether it's through a refinance or selling it. It's cash flowing a little bit better. The interesting thing, and it's not the case across all markets in Canada, but at least in southern Ontario for sure, you know, while they're underperforming, they're not always undervalued from a pricing standpoint. So does it feel
Dave Debeau [00:05:20] much demand for these?
Mark Baltazar [00:05:22] There's a lot of demand, right. So you are, I guess, technically, quote unquote, overpaying for it at the time of acquisition and you're essentially buying the upside. So you're paying a little bit more because there's upside available if you can extract it. And so it is an interesting kind of strategy, whereas in single family home, undervalued, typically you can maybe get it at a price that's below what it may get on an open market from a private standpoint. And apartment buildings undervalued. The only thing, a premium for things that are under managed because of the upside.
Dave Debeau [00:05:59] Yeah, I guess that depends on the markets you're looking at, because I've seen I've spoken to investors across the country and by God, I was just talking to one actually one of my clients was able to pick one up. Now it's in a smaller town in Alberta. So the economy's shaky. Right. But I thought it was ridiculous. It was like 20 grand a door or something. Oh, wow. Yeah, but it's crazy and with the stuff. So but yeah. I mean, you're if you're focusing on southern Ontario, that whole Windsor to to Quebec corridor there, I believe last time I heard that's where 80 percent of the population is and that's where 80 percent of the multifamily properties in Canada are located. So so you've got a lot of competition for those kind of properties, I would imagine.
Mark Baltazar [00:06:46] Absolutely. Like even the last one under contract now 12 units, that's closing in next month, in July. The prior to that put offers on, you know, putting offers quite frequently. The last three offers, we multiples, multiple offers. And we knew at least one or two other investors know that we're bidding for the same project. So, you know, small community, you know, from an apartment building standpoint, but it just shows how competitive it is in this market.
Dave Debeau [00:07:17] Yeah, definitely. So, OK, so you get into these properties, you're not necessarily getting a great deal going in. So really, for you and your investor partners, you have to go in and turn around pretty quickly. So what are you typically maybe maybe just to give us an idea, can you walk us through an example of a deal that you've done in the last few years? And what was the what was the purchase price? What did you do to it? What were you able to if you were able to increase the value enough to refinance it? How how does that kind of look or what is your model look like?
Mark Baltazar [00:07:50] Yeah, so I can speak to one that was acquired two years ago or so. It's actually just just a little under two years for twenty eighteen.
Dave Debeau [00:07:58] Sometime in twenty eighteen. Yep.
Mark Baltazar [00:08:00] Towards the end of twenty, eighteen, fourteen unit building. We're actually coming up to a refinance. So we did a short term mortgage, so kind of a bridge, some bridge financing for two years to allow us to turn over units. That 14 unit building were turned over for. We're about to get into probably five or six before the end of the reify. And and so just kind of from a financial standpoint, that building was purchased for one point seven million and the average rents at the time were seven eighty or so per unit, which is this is in Hamilton. So fairly low and we're converted into one bedrooms. It's twelve ones to two bedrooms, one bedrooms in that area. We've already kind of reached what the market, Max, I think is which is about fourteen hundred
Dave Debeau [00:08:50] excuse us, that's almost double what they're rented out for
Mark Baltazar [00:08:55] others. There's some units that are where tenants are paying six eighty seven fifty, some are nine hundred on average. Across the fourteen units it was about 780. So we're going to moving that up to fourteen hundred. And so the value left is massive. And so we've done so by the time we refinance, which is in a few months we'll have six done, which provides a significant amount of equity for us to pull back out.
Dave Debeau [00:09:19] So what do you think the valuation will be when you're ready to refinance? You know, realistically speaking, yeah.
Mark Baltazar [00:09:26] So we're probably looking at we're probably looking at one point seven. So probably a two point two. Two point three million.
Dave Debeau [00:09:36] Yeah. So you could be increasing the value by five or six hundred thousand dollars on this property just by I don't know. Did you have to do any major renovations to those six units that you've
Mark Baltazar [00:09:49] put your plans over. Yeah, yes. So we did. So this building is about 50, almost 60 years old. So, you know, it's it's been it's been through a few decades. Most of the I sell the units need a significant renovation. And so our renovation package for that. Particular property, you know, is costing us anywhere, depending on the unit, they're very similar, about thirty three thousand dollars per unit, and then that's giving us an A unit that's that was traditionally being rented for, let's say, seven fifty or eight hundred and getting that lift to fourteen hundred. It's giving us a valuation lift of about one hundred and fifty to one hundred and sixty thousand. So we're spending thirty thousand to kind of make you know, one sixty or net one thirty kind of on the back end. So know some models are fifty thousand dollar renovation, some are more, this one for thirty thousand. We're able to get the fourteen hundred even fourteen fifty. We're actually toying with right now in terms of market rents.
Dave Debeau [00:10:47] But I mean who wouldn't do that if you could put thirty grand, thirty three grand in and create one hundred and thirty thousand in increased value. That's pretty sweet. Yeah.
Mark Baltazar [00:10:57] And I think it was one of the components of multifamily that I really understood. But also I think where the light bulb went off, as you know, you put a dollar in or you increase your net operating income by one dollar, your valuation as a multiple of that, depending on which market you're in, in this in the market. I'm speaking of the valuation from a lender standpoint is about at a five percent cap. So every increase in an ally of one dollar, we're getting a 20 times, you know, multiple on that. And so what? It's 20 times even 15 delegates still. You know, it's a pretty significant lift.
Dave Debeau [00:11:34] So what you're saying is you increase your net operating income by a buck that increases the value of the property by 20 bucks. That's right. That's that's yeah. There are too many other investments where you can get that kind of leverage. That's that's awesome. So, Mark, my floors were out and front. We got about four minutes left here. And so just out of curiosity, what are you guys doing to find these deals? Are you are you relying primarily on commercial agents? Are you using agents and beating the bushes yourselves to try and find some private deals? How do you guys get your deal flow?
Mark Baltazar [00:12:14] Yeah, so it's primarily through network of of agents. So we have a partner in the business and we've looked at so again, my background was, was flipping and I and I bought by private deals all the time. I marketed myself for motivated sellers and that worked. And so that kind of had that system kind of going to sell. And I still have that going. In this case, we haven't really spent a lot of resources in going direct to seller because our network to the brokers is very strong. And so they're doing that. And so we're tapping into a fairly strong agent broker network in the multifamily apartment space. And so that's where we get so I mean, these are typically kind of quote unquote off market. So they don't hit the MLS, but they do get traded within the network of
Dave Debeau [00:13:02] the same kind of targeted listings for commercial activity. Exactly. Yeah, it's very, very cool. And then, OK, so if you and your partner and you've been doing this for a number of years now, obviously you're working with investor partners to help get the capital for these kind of deals. What have you found? What have you guys found that works best for you for finding investors and raising capital and staying out of trouble with the Securities Commission? Yeah, yeah, that's a good question.
Mark Baltazar [00:13:31] So a lot of our early partners, from a capital standpoint, came from those who had invested with me before, from
Dave Debeau [00:13:39] friends and family
Mark Baltazar [00:13:40] kind of stuff. Yeah, easy transition. And then my background's marketing. So I ran kind of a branding strategy agency for a number of years. And so I can understand the concept of content and push and pull marketing. So we put out a lot of content, you know, a lot of free webinars. And it really is for education is kind of putting it out there that allows us to build a database and email database that we then continue to put education out to. From there, people ask us, do you know, do you have deals or if we're looking for partners on some of these deals, it really is a quick email to someone that's been engaged with us over the last number of years. And so it becomes an easier yes. Now, it's not it's not a cold call. They know who we are. They watch this, you know, and our last project, we've had a few investors that have literally kind of can see through our email system how long they've been with us and how many webinars they've kind of seen. And they've seen a lot. They've seen three years worth of content. Right. And now, in fact, the pandemic and just the volatility of the stock market is really kind of what triggered OK, I'd better put my money into something safer. Exactly. Now, we've kind of educated and trained them to believe, which we believe that this asset class can help do so. So it's a combination of content marketing really is a big. Part of how we're attracting partners.
Dave Debeau [00:15:07] Yeah, that's smart. So basically, you're you've created all this content, you've created a list of people, and then you keep that communication going yet again, that marketing background. Right. So you're creating that relationship over time so that people get to know you, like you and trust you and they see that you guys are a good choice when it comes to investing their money. One more question before we wrap up and let people know how to how to get all the earmarks. How do you guys typically structure a deal, you know, ownership wise, when you're working with investor partners, let's say, for example, at one point seven million dollar property, obviously you needed twenty twenty five percent down property transfer fees. You need money for forgetting studies done and then you need capital as well to do the rentals. In a nutshell, how do you guys structure that kind of a deal? Sure.
Mark Baltazar [00:16:02] So we've evolved over the last few properties. That one in particular was a joint venture agreement. The purchase was done through my own capital and my managing partners capital. And then we we brought in people afterwards
Dave Debeau [00:16:15] and perhaps not like this are like a second mortgage type thing after the fact.
Mark Baltazar [00:16:21] We did second mortgage and then we also had other people that wanted to partner in the project. And so we can get JVs afterwards. Now, in our most recent deals and this most recent one that we're we're closing on, we're setting up a corporation and our capital partners, as with us, our shareholders in that in the corporation. So kind of more of a corporate structure that we've created.
Dave Debeau [00:16:43] Got it. And is everybody having to help qualify for the financing or do you and your partner, how does how does that just typically work that way?
Mark Baltazar [00:16:53] So just myself in my operating partners qualify for the mortgage? A couple of things. It's easier that way versus, you know, trying to collect financial information from a number of people. Also, there's some capital partners that just don't want to showcase their their financials. Right. And it's kind of more of a headache. So so we're qualified. So we're only getting into things where myself and my partner can qualify for. And then so we'll take that burden off of our capital partners. We're doing kind of all the heavy lifting. And for our capital partners, it's really just hands free for them and kind of sit back and collect checks.
Dave Debeau [00:17:29] That's the way it should be. All right, Mark, so I know you guys are starting also due to teach and train people to coach people about investing in multifamily properties. If people want to find out more about you and about that, what should they do?
Mark Baltazar [00:17:42] Sure. Yeah, they can go to our website at peak multifamily DOT and we have our webinars there. We have a coaching program outline there, lots of free information, blog posts and all of our contact information. Is there
Dave Debeau [00:17:55] great stuff. Mark, thank you very much. Has been a lot of fun.
Mark Baltazar [00:17:58] Awesome. Thanks so much. Did.
Dave Debeau [00:18:00] All right, everybody take care. We'll talk to you on the next episode. Bye bye. Thanks very much for checking out the property profits podcast. And you like what we're doing here. Please head on over to iTunes, subscribe read us and leave us the review. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom Ticker.