Table of Contents - Breaking the Code on Multi – Family Investing with Pierre – Paul Turgeon
Dave Debeau [00:00:08] Hey, everyone, welcome to another episode of the Property Profits Real Estate podcast. My name is Dave Debeau. And today I've got a special guest on the call with me today. And it is Canada's leading multifamily investor trainer, a guy who has definitely been around the block a few times when it comes to multifamily properties. And just a very, very sharp gentleman. Mr. Pierre-Paul Turgeon, how are you doing today?
Pierre-Paul Turgeon [00:00:36] All right, Dave, thank you for having me on your show.
Dave Debeau [00:00:39] That's my pleasure. And I was hoping, hoping, hoping, hoping that I wouldn't mess up your last name. But I. I think I did. You did well with the last name like Debeau, I should say it a hell of a lot better, but I can't say. Right. So there you go. So for those folks
Pierre-Paul Turgeon [00:00:54] that got a track record for
Dave Debeau [00:00:57] those folks who don't know you yet, can you tell us a little bit about yourself and your background and how you got involved in real estate, this whole crazy world of real estate in the first place?
Pierre-Paul Turgeon [00:01:07] Yeah, you know what? It's getting it. The first time I heard about real estate in a particular apartment building, Steve was actually a teenager. My best friend's dad owned a bunch of apartment buildings in our small hometown in northwestern Quebec, Noranda, Quebec, going around a Quebec. And his family was doing pretty well. This is like 40 some years ago. Forty five. Yeah. I put some footage to three years ago and his dad was able to take a family of five on a beautiful trip to Disneyland. Imagine that 40 years ago, not every family did that. So that's what the apartment building is. The first clue I ever got there. My wife, before we got married, was involved in small rental properties, holding and purchasing, holding some small rental properties. Of course, the moment I got engaged to her, I guess it was a labor to work on these rental properties. It was me. So that's sort of my first involvement. Then, of course, in later years, I started working with CMHC. I did a few things initially. I did the very cool career. So I tend to work as a housing corporation. I didn't put that in my bio because it would be too long. But I initially started with CMHC International. I worked on international finance projects in Gabble Africa, Romania, China, India, South America as well. So we're about CMHC was using its expertise in its default to help other countries set up something similar to what we have in Canada, which is, as you know, one of the best housing finance systems in the world. And then I was just happy to just be a project manager, which was what I was. So I took a job in Calgary as an underwriter, initially single home underwriter. Like so small investors with small rental properties did that for not very long, about six or seven months, then take me away and put me in default management and real estate department. So my job was to manage risk in default, manage with the CMHC. So that's kind of pretty cool because the default position was to fall off a part of the buildings. And then here's the good news. This was management of defaults of apartment buildings which really defaulted. And then that's when the other light went on. I said, oh, OK, these are good assets to have apartment buildings. They really, really default because I was the guy was bored out of my mind. And I kid you not. This is no joke. So I decided to move to the front end and I became a multi-family underwriter. Estimates during which time I saw how much money people were making with apartment buildings. And then I became a multi-family underwriter. And then I got tired of being a bureaucrat and I left CMHC and I started buying apartment the buildings. And as you said or indicated, my bio, now I want one hundred sixty dollars worth over twenty two million dollars. That's sort of how it's a long history, but that's how it came about. The real estate.
Dave Debeau [00:03:52] Wow. And I imagine coming at it from that angle. Unlike the rest of us, you definitely had to delve in on how to analyze a deal right from the get go because,
Pierre-Paul Turgeon [00:04:04] yeah, I would agree. And that's sort of that is my core expertise serves me well as an investor and as a coach and trader, obviously. So, yeah,
Dave Debeau [00:04:13] OK, well, you're the perfect guy to talk about this, so and obviously it's your preference. But why do you think investing in multifamily properties is better than, let's say, single family homes or Flip's or doing rent, own or not? There's anything wrong with any of those things, but obviously you're the guy when it comes to multifamily investing. Why do you think it's the way to go?
Pierre-Paul Turgeon [00:04:39] It's clearly a question I've answered a thousand times. Well, first of all, I like life. I like to have free time. So like all of us, real estate is about creating a lifestyle for ourselves. So apartment buildings are a lot less labor intensive because when you crunch the numbers, you got two operating expense items, one for a professional property manager and one for the on site manager. So they're the parties that handle the hassles of being a landlord. All right. So more more time to myself. You've got better economies of scale. The cost of operating an apartment building on a per unit basis is a lot lower. The more units you have within the building, so you end up with more money, but especially so my two favorite, the just like I said, that of having the hassles of being a landlord subcontracted out to a site manager.
Dave Debeau [00:05:29] And you outsource the tenants in the toilets.
Pierre-Paul Turgeon [00:05:32] You got it. I never get that call. They never fill vacancies. You know, it's all and here's the thing that I should say. The property has to cash sufficiently to pay all expenses, including these two expense items. All right. So that's very cool. But the second advantage about it is that it's to multiply wealth effect when people who invest a lot of your folks, I understand, invest in small rental properties and the threshold is anything below four units for rental units is called small rental properties. Anything above is what I do, commercial, residential, commercial. But when you do devaluation of small rental properties, it's the sales comparison approach tried to run at a value. Right. So there is a recent sales of similar assets and you adjust all that. In my world, it's the NY to drive your valuation net operating income. Here's the kicker. Every time you increase revenue by about a dollar, the property depreciate by about 16 dollars. So it takes a lot less time to create wealth because of the multiplier wealth effect, if you will, of the multiplier effect or the big lift effect is one of my former property manager would call it. So that's sort of why I find it's better lower risk from a vacancy point of view. Dave, if you got a single home you're renting, you've got a vacancy. It's 100 percent vacant. Whereas let's say my twenty four unit building, if I have one vacancy, it's still operating at thirty six percent capacity, four percent vacant. So you've got a less risky asset by the way. Banks the same. So banks will tell you that after principal residences it's the second type of asset apartment buildings that is that banks love to land. So there you go, my friend. That's the low down
Dave Debeau [00:07:13] and you definitely got an inside scoop on that.
Pierre-Paul Turgeon [00:07:17] Can can we go on a tangent? This is something the big aha moment came to me precisely was when I was an underwriter at CMHC. OK, I guess when remember the fall of 2008. I'm sure you do. Yeah. It was pretty crazy, wasn't it. Yes. I was buying my first building on my own. I had been decided to invest it before so I was running the show. The properties was an apartment building, but then I think I sent it off and purchase was accepted in August and then the four months I was working on my financing. Right. And at some point my lender wasn't sure if he'd have funds to fund, my dear. Remember, this was the credit crunch right now. 2009 was the Great Recession, right. Since the thirties. And here's the kicker. I was a multifamily underwriter, Tsimshian those years, and I have never seen David during times of that year of two thousand nine people make so much money with apartment buildings because you remember what happened to interest rates back then. You remember that? Yeah. Yeah. What happened on testing your memory now? Right here on the spot.
Dave Debeau [00:08:19] Oh, geez, don't interest rates
Pierre-Paul Turgeon [00:08:21] what happened to interest rates?
Dave Debeau [00:08:22] Well, here's the thing. As I'm remembering my mom back in the eighties and things went crazy. Yeah. In the 80s. So it didn't happen like that. But it definitely was a bit of a shift
Pierre-Paul Turgeon [00:08:32] when interest rates dropped by point and a half. Wow. One and a half percent people were refinancing. They think about this worst recession since the Great Depression in nineteen thirty. Yet I have never seen so many large, especially the large landlords, but even the small guys like me, I'm still considered small potatoes in the world of multifamily people were making so much money with their apartment buildings, they were basically using them like. They were refinancing and pulling millions and millions and millions of dollars out of those assets.
Dave Debeau [00:09:03] Yeah, because the money got so cheap, like borrow the money there and then that your your payments go down, your net operating income goes up, poof.
Pierre-Paul Turgeon [00:09:14] There you go. And I've never seen so much people like so many people make so much money. I said, I want to do that when I grow up. There you go. I've done it. I'm doing it.
Dave Debeau [00:09:23] I got I've got a question for you. So all you're talking about your properties, your portfolio is at the stage now where you can outsource your your management. You've got a big enough portfolio that you can outsource the day to day hassles of everything. Yeah. At what point or what size of a property do we need to to buy to have those kind of economies of scale,
Pierre-Paul Turgeon [00:09:47] not to make a sexual connotation, but bigger is better the better the economies of scale, which is why the large institutional investors prefer those high rises, corporate high rises, which are lower maintenance and all of that. Your operating expenses, the more you check within the building, the lower your operating expenses are and the more money you end up making, Dave, so the bigger the better. This being said, I always tell my students when I teach the stuff, you know, beggars can't be choosers. There's always an opportunity cost. Even a small 10 sweetie will make you money. Just sit on it long enough and you're in a reasonable market. Know you'll pay your principal down and the property will appreciate that. You'll get a bit of a cash flow and you'll always make money. But the more units within the building, the more money you make. There's no doubt about it.
Dave Debeau [00:10:30] And so I guess the mindset that we have to work on with people is how they can get their head around. Like, let's say I'm a, you know. Average real estate investor in Canada, I've got two or three properties, maybe they're single family homes, maybe they've got basements. I want to step up to the next level, but that's that's in my wheelhouse. That's been my comfort zone. The idea of going from that to. Twenty four, forty eight fifty, some units building is a huge leap, so how do you how do you take your people? I know we can't get into it too much in depth, but big, broad strokes. How do you take people from where they are into that without having to go through all those baby steps or start with a fourplex and with Six Flags on an eight plex and that sort of thing?
Pierre-Paul Turgeon [00:11:18] Let me backtrack a little bit. So these are my students. You're describing my students right now, a lot of them, including last weekend, because I had my last live workshop in Hamilton, Ontario. Right. And by the way, I almost got a perfect grade again from my students, not for me, but almost perfect. Ten out of ten the other two students. And give me a 10. Give me a nine so I think I can live with that. And Tans, I'm going to be on that. This is my student speaking. A lot of them did come to me sometimes. Precisely. They're either trying to avoid those baby steps. More likely, though, they're maxed out the banks because, as you know, they use the total debt service ratio and which takes into account one's income. So those are the people that whose credit has maxed out. Then they want to switch to multifamily. The reason being, your income is not lost on a factor qualifying factor. All right. So that's the one thing. But you talk the first few words you said in your question. You said the word what mindset, what you and I gave you. Been in the business long enough. Everything is about mindset, OK? I come from a small mining town and Quebec was from a poor family. No, not a good French Canadian Catholic family, not 12 kids. I have six sisters and five brothers. So I didn't grow up with that kind of abundance mindset and lots of limiting beliefs about money. So it all begins by busting those limiting beliefs. Raising your financial mental thermostat is what I tell my students. OK, so it begins with that. Then, though, I've got to tell you, Dave, it's a different kettle of fish. You need to do your homework. So when I teach the stuff, the planning and research module, it's a lot of homework. You can't skip it because there's much less margin for error, if any. And if you make mistakes are very, very costly because you're buying a multimillion dollar asset. So it's all about preparation and having a proven system. And so that's kind of, you know, I could go on. But that's sort of in a nutshell, is actually this is what I teach. I teach that I teach you what the banks want to know. Right. Which are what are the risk factors for them? Property risk factor, market valuation in US as borrowers, investors were risk factor and then how to mitigate them. And when I raise money data, I don't teach this because I know you're very good at this. And I actually think you're being on your podcast now this coming Monday, to be honest with you, because I'm sure I can learn, although I'm very successful at it, to be honest with you, I have a core group of investors. But here's the cool thing. The system that I teach, which is essentially, like I said, to tell the banks, hey, this is a good deal because I've assessed all the four key risk factors and mitigated them. If you think about it, when you raise money, what did your investors want to know? Same thing. They want to believe that you've assessed the risks, mitigated that. Right. So when I get Chadiha, that's how I pictured using the same system I used to get financing. So there you go.
Dave Debeau [00:14:03] Yeah, well, I mean, I definitely don't know everything there is to know about raising capital by no stretch of the imagination. I've got my twist on things, but I guess that would be a big question. People have that go, well, jeez, Paul. I mean, I'm working in properties that are worth four hundred grand now. We're we're stepping up. We're looking at five or six million. You know, even if they've worked with investor partners to date, that's a huge leap because, again, they're going to have to raise millions of dollars instead of a couple of hundred thousand dollars. What if we can't get into too much depth? But how do you see people making that jump?
Pierre-Paul Turgeon [00:14:41] All the time. No, seriously, one of the things I try to do at my workshop, which I did this past Sunday, my last workshop in Hamilton, Ontario, I came back successful students to come and share. First of all, here's proof it's feasible. I mean, you and I like you know, we're successful. We do. But we started one foot. We put one foot in front of the other. And so. Right. And so but it's to have it's it's mindset is the biggest hurdle. It's not the mechanics, it's not the money, but the higher the bar which multifamily with multimillion dollar assets, the bar is higher. You got to use a system, very detailed system, and you've got to do your homework if you do your homework. Like I said, I'm French Canadian, as you said, and I love cooking it to me in real estate, investing is like a recipe. And you can have a fairly, fairly predictable outcome as long as you really do your homework and do your assessment and evaluation of the asset of the market and all that, you'll be successful. Some markets do it. For example, you know, I'm in Alberta. It's not a fun time to be a landlord in Alberta. So I have high vacancies, low in migration and the fundamental drivers of financial and demographic, not very great, improving slowly. But let's say I decide to invest in a high risk market, mitigate the risk. How would you do that for less money? Right. Don't don't go or leverage the financing. So there's always a way to do that. And if people approach it that way, it's not very convincing. But of course, your investment horizons, your investment horizon has to be matching to one that of your investors. And so you've got to you've got to make sure that your investors are yourself on the same wavelength. That's what I do.
Dave Debeau [00:16:23] It's a very well said here. Paul, I told you before we jumped on live here that chances are we get off on tangents and we have definitely have. I don't I don't think I think it was the last two of the original questions I have on the sheet there. So good news if that means we get to have another conversation as we're wrapping up. We got about a minute here, my friend. So if people are interested, they'll listen this or they're saying, yeah, you know what, multifamily makes sense. If they want to get a little bit more information about you or what you're doing, you have any resources they can get their hands on?
Pierre-Paul Turgeon [00:17:01] Yeah, I have lots. They first of all, my website is Make Lockie. I'm investing Canada dot com there. They can go and sign up for this ebook. Multifamily Investing Secrets Revealed. OK, so again, it's make multifamily in Canada. I've got a Facebook page as well, multifamily desk in Canada. And here's my goldies. We'll have a lot more resource. Like you're very good at it. I've been watching you over the years on social media and all that. So that's sort of for me between now and the end of twenty nineteen. Like I said Sunday, that interview I did with one of my graduate students was that by his second multifamily property, by the way, he only took the course two years ago in Hamilton. All right. I shot a video interview of that. I got video interview with lenders, mortgage brokers, all sort of stuff. My big goal, I've been very, you know, delinquent and not putting out more stuff online. I will between now and from now, it's going to be more regular, but it's all multifamily investing. Canada, Canada, dotcom. I've got to online course as well that people is available now. Workshop for this year. I've had three. I've had one next to you in Langley mid-April. I had one in Edmonton early or mid-May and then the last one was in Hamilton. I will have some more workshop, but people signing up to get the ebook, they'll be on my list and be proactive when I have another workshop. But at this point in twenty nineteen, don't have any plans. But like I said, more good stuff coming through. And by the way, I'm not, I don't send out a lot of emails. I don't have time. So what I send out an email usually because I'm offered some kind of value so.
Dave Debeau [00:18:34] No and I'm on your list and. Yes. Yes. You're not, you're not.
Pierre-Paul Turgeon [00:18:37] Welcome back. You thank you for confirming that. But I don't do enough date. But anyway, it's coming at the end of the year, so it's coming here.
Dave Debeau [00:18:46] Paul, it's been a lot of fun. Thank you very much for sharing some of your experience. And again, we'll have that early in the show notes. You can click on that. Also, it's been a lot of fun. Thank you very much.
Pierre-Paul Turgeon [00:18:57] Appreciate it. Thank you for having me. Cheers.
Dave Debeau [00:18:59] Cheers. All right, everybody, see you on the next episode. Take care. Well, 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 to review it. 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. Take care.