Table of Contents - Buying Buildings All Across Canada With Michael Ponte
George El Masri [00:00:00] Welcome to the Well Off podcast, I'm your host, George El Masri, and as always, it's a pleasure to have you here. I'm glad you guys are tuning in and listening. I interviewed Michael Ponti today. Michael is a real estate investor out of new British Columbia, sorry, not New Brunswick. He's investing in New Brunswick, but he lives in British Columbia. So the interesting thing about Michael is that he's investing in Edmonton, Halifax, New Brunswick, Calgary, Fort St. John and all these different markets in Canada. So we talked about how he's able to do that, how he's able to set up his teams to have his property manager is contractors, his lawyers, everything and all these different markets across Canada. We also touched on a couple of different things, including the benefits of investing in these markets. For example, we were saying that there is no rent increase limitations in some of these markets like we're seeing in Toronto or Vancouver. So for those that don't know, you can only increase the rents in the Toronto area or sorry, in Ontario by a certain percent each year. Whereas if you go to somewhere like New Brunswick, you can purchase a property and immediately increase the rents to market value to whatever the market rent is in the area. So that's a huge advantage to somebody who is purchasing multiple units because obviously the value of your building is determined by the net operating income. And if you can increase the income, you can substantially increase the value of your building and immediately or maybe not immediately, but quickly refinance, which is exactly what is doing. So we talked about that strategy and so much more in this interview. So I hope you'll enjoy it. And if you are interested in real estate investing and you want to download some free reports, you go to well-off Nazia forward slash report. And if you are interested in connecting with me to discuss multiunit investing in the Ontario region so specifically well in St. Catherine's or Hamilton, I specialize in those areas and I'd love to chat with you about purchasing anything over three units in in those markets. So again, go to well-off Nazia. My contact info is there. Enjoy the episode. And one last thing I'm going to ask you to do is to review this podcast and make sure to share it with family and friends so we can get the message out there. So there you go. Welcome to the Law podcast, where the goal is to motivate, inspire and share success principles. I'm here with Michael Ponti, who is the president of Prosperity Real Estate Investments and the founder of the social media group Savvy Investor. He's an active residential and multifamily investor with over 20 years of experience and 30 million dollars of real estate. Michael, welcome to the show. I appreciate you being here.
Michael Ponte [00:02:36] Awesome. Thanks for the opportunity. It's always a pleasure to talk with other like minded investors. And yeah, just love to talk, talk, talk shop. It's always fun. So great.
George El Masri [00:02:45] Yeah. So I like to start off by asking you about your childhood. Do you want to tell me a little bit about where you grew up and one or two things you remember?
Michael Ponte [00:02:53] Oh, boy, that's always a good question. And they stice challenging one right off the go. So actually I actually grew up in Vancouver. So my background for those that don't necessarily know me, I'm actually Portuguese. I am first generation Canadian, where my parents immigrated here, born in Vancouver for the most part, raised in a town called Langley, which is about forty five minutes just outside of the downtown Vancouver. Cor, kind of pretty much grown up here all my life. Some great memories or some memories of my childhood. For me it's it's I have a very, very strong family base and we're being very European and descent. I've got three brothers, no sisters, had a lot of fun with them. And it's kind of interesting that we are all in our kind of financial background or financial investing in real estate and in stocks and all sorts of stuff. So lots of great memories as a kid growing up with my brothers, very, very close with them. And so I've been very, very fortunate to have a really good, strong family unit with some fantastic parents that have really helped kind of provide a lot of guidance throughout my life. So it's been, you know, for me, I am really honored and privileged to have such a great family unit. And that's probably the biggest memories that I have from my childhood.
George El Masri [00:04:06] So very cool. Very cool. Are your brothers also involved in real estate investing or do they kind of invest in different types of things?
Michael Ponte [00:04:13] Yeah, so it's kind of a mixed bag of everything. So I've got two brothers that are heavily and heavily involved in commercial financing, which is right up my wheelhouse as well as yourself. I've got a brother that is a mutual fund advisor or a stock stockbroker. And a lot of ways one of my brothers who also does commercial financing, also has a very successful MC. And so he does a lot of development projects out here in B.C. It's been very, very successful out in this area doing many different facets when it comes to developing. So whenever we get together, lots of shop being talked about in many different things when it comes to real estate, but it's always kind of fun and we always kind of pick each other's brains constantly. And so my other two brothers, they are involved in maybe different investment types as well. But real estate is is near and dear to our heart, so.
George El Masri [00:05:00] For sure. So tell me a little bit about your real estate investing. How did you get started? What do you focus on? Although we kind of touched on that a little bit.
Michael Ponte [00:05:07] Sure, yeah. So I started probably not much different than a lot of other people getting started, to be honest. Know, I just wanted to buy a piece of real estate because I wanted to diversify my portfolio. Nothing, nothing different. When I started about 20 years ago, there really wasn't a lot of information that's out there like there is today. And I started doing some reading, read some books and talked to a few different people. And and so I bought my very first piece of real estate was actually in Edmonton, and it was just a simple townhouse, nothing overly complicated. And to be honest, I didn't know what the heck I was doing, like zero. And so I bought into this. And the one thing I did know is I was losing 40 dollars every single month from a cash flow perspective. And I'm like, yeah, that's not a real big deal. You know, the tenants are paying itself. Paying the mortgage off is just one, one or two lunches a month that I just don't do. Right. So for me, it was all about that opportunity to start investing in something different than my mutual funds and stocks, which I wasn't necessarily getting the best returns for. And I always saw real estate as a huge, huge opportunity to generate wealth because my father actually retired because of his success in his development for his money where we used to live, he actually developed it. And so I wanted to kind of live off of that as well. So shortly after that, we bought our first property property. Appreciate it. Very, very quickly, in that negative 40 dollars a month, cash flow turned into a positive cash flow position because the rents started to go up quite drastically. And so all of a sudden the aha moment came is like, this is actually pretty cool. I'm actually putting money in my jeans every single month. Hmm. I wonder if I do a few more of those what would actually happen. And that was kind of where the snowball effect actually began and bought a few other properties of my own. And then people are like, you own how many properties on your own? And then there was interest and people started to want to partner up with myself. And that's where kind of the company kind of began. It just it was never the intent to actually go down that road, set up a company on a real estate investment company. Any of these things, it just kind of grew by osmosis. But I think the big thing for me was just the the desire and passion I had for it. And I really, really liked the game. And it was really, really fun. And so that was really the key driver for me. A lot of fun.
George El Masri [00:07:31] Yeah. Yeah, that's awesome. So are you right now, do you have a syndication? Is that kind of what you're where you're at right now?
Michael Ponte [00:07:38] Yes, pretty much. Pretty much so, yes. Yes. So we work with other partners and so we syndicate and then we bring in capital to do other projects. And again, our focus right now is actually multifamily.
George El Masri [00:07:47] So yeah. So I want to touch on that a little bit. Thirty million dollars right now for real estate. So I wanted you to kind of tell us a little bit about your portfolio multiunit. But I know you're investing in different parts of Canada.
Michael Ponte [00:08:00] Mhm. So yeah. So we've got a mixed bag of real estate, so I still own a lot of my holdings in my residential portfolio. Lots of condos, lots of townhouses, lots of single family homes, got a lot of suite of duplexes and then kind of back around twenty I think it was 2010. We started to kind of you know, we wanted to grow our business. And so multifamily was something of an interest to us. And we saw it and we started to kind of slowly get our feet wet in that in that in that world. And so we bought our first property, which is the nine unit apartment building, and then started to scale from that point. You know, the next one, I think, was like 11 or 12 unit, then a 15 unit, then a 17 unit and just started to kind of grow from there. And so multis has always been a kind of our our focus since 2010. It's not to say that we shy away from residential. We're happy to look at a good residential deals. But it's just got to we have a strict criteria of what we're looking for. And so for us, we're not opposed to it. But the one thing that we really love about multifamily is just, number one, the economies of scale that you can achieve there in regards to, you know, one boiler and you got one roof and it makes it much easier. But the real advantage is the forced depreciation that you can generate when it comes to multifamily. You're not just determinant or dependent on what the market is going to dictate. There's lots of ways to generate value and increase valuation in multifamily. That is one of our biggest appeals. We love it. Like it's just a great way where you can buy something that is not performing very well, turn it on its head in regards to doing some renovations, increasing the rent and, you know, shortly in about a year or so, then you can flip it off and put a lot of your equity out of this thing and have just a great strong cash flowing property that you can rinse and repeat. It works very, very well.
George El Masri [00:09:43] So are you selling them after a year or you refinancing
Michael Ponte [00:09:48] and usually refinancing? But there's not. And it also is depending on the market, too. If we see things are changing in the market, we may consider selling it and we did that. So some of our properties that we had in Edmonton. It was more of a long term buy and hold strategy, and as we came to the conclusion of after we've stabilized the property, got the rents up, the economy started to change. And we're like, you know what? I think this is one of those properties that we want to want to sell and just be secure our equity piece out of this. So, you know, for a lot of people, when they hire me, it's really about paying really close attention to the fundamentals of that particular market. So we're just constantly monitoring and watching to see what's happened. But a lot of cases, the plan is to refinance the property within a year, year or year and a half, somewhere in that vicinity.
George El Masri [00:10:36] OK, so that's pretty challenging to do in some markets because. Well, I mean, if you're if you're taking over a building that's vacant or has a big percentage of units that are vacant, it's a lot easier to to make the changes. How are you able to to complete the work so quickly?
Michael Ponte [00:10:52] So in that situation, we are piecemealing, that's literally sweet by sweet and where you guys may be challenged with that in Toronto and we're challenged with that in BC, as well as just the rent regulations that are applied there, where and a lot of the markets that we're involved in, we don't have those same challenges, to be honest. So if I go to some of my projects in Edmonton, for example, we just did a few of those just recently and a recent acquisition we've done really we as soon as one Swede's done and we see the opportunity to raise the rents, we do so. And so sometimes the tenants are not necessarily happy with us. But the reality is, I don't I'm not limited to three percent or a rent free like what we're seeing. Technically, I can raise the rent infinite amount. I can actually double that amount versus some of the other markets. So in a situation where we're looking to stabilize and no offense to the tenants, but at the end of the day, it's a business, we want to give them the first opportunity that say, hey, listen, the rents have to go up. It's not to what the market is. And so if you want to stay, this is what the rents are going to be. And if you don't want to stay, then here's a couple of options. We've got a new renovated suite. You can give you first crack at this, but it is going to be at the new revised rent. But you're going to get a renovated unit and then we take this property over. And so we try to accommodate our tenants to the best of our abilities, obviously. But in regards to us needing to do what we need to do to get this turned around, which is the projects, which was the plan project plan, then we've got to do what we got to do. And it is that we need to increase those rents to increase that valuation. And so if we have to do some renovations to do that and raise the rents, we'll give every tenant the opportunity to take advantage of the existing suites or the new suites that have been renovated. But we are going to be doing that transition and time is up as time is of the essence, obviously. So especially with these interest rates that we're seeing today. Right. So.
George El Masri [00:12:43] Oh, yeah, for sure. And just to clarify, so if you have a tenant that has way under market rents, do you have to renovate their units to bring their rents up to market, or can you just increase it to whatever market value is now?
Michael Ponte [00:12:56] We can just raise the rents and increase the market.
George El Masri [00:13:00] As soon as you take over the building, you can get right into it.
Michael Ponte [00:13:04] I know it's a hard one to fathom. Is that but and that's the thing is, you know, when you're stuck in B.C. and Toronto and this is not a shot in those markets, just just government policy is is hampering a lot of these markets. And I get that. And, you know, this is where government interference is happening. And so for me, I'm not a big fan of it. I don't like people controlling my destiny. And my goal in regards to my investment is it drives me nuts. And so in that saying, you know, I try to put a lot of attention to markets that don't put us into that specific situation and understand covid is a is an anomaly in itself because this is different times right now and it becomes more challenging in those markets. But for me, I've been investing in Alberta for like roughly 20 years. I'm very familiar. They're very, very landlord friendly and a lot of ways. And so it makes it really easy to look at projects like that and be able to raise the rent. So to your point, tomorrow, if I take over the property with the same breath, what's their lease agreement as well? I've got to be cognizant of that. So a little lower tier to your listeners as well. You've got to follow through the lease lease agreements policy. And at the same time, you want to give that notification roughly within 60 to 90 days prior to that lease coming to expiration. But in some cases, we may just not do an extension of a lease. We will just do a month to month lease and still give the notice accordingly. Right. So, again, we just got to manage with what's available as soon as we take the acquisition. But that is part of our plan. When we look at the analysis of the deals, like, OK, so here's the property, here's the rent roll, here's the individuals, here's the lease agreements. What suite are we going to start off with first and then start to kind of build a plan as we're going through the process of acquisition? And the one thing we want to be really careful with, too, is that we don't shake the tree too much in regards to having the whole building completely vacant. We still want that nice, steady income to be coming in and try to piece that one one suite or two suites at a time to make it a little bit more economic for us. Economical for us. Right. We don't want to be losing the rents, but hopefully we can just piecemeal it out. Sometimes it works, sometimes it doesn't. And we've got a half a building. Half empty, obviously makes it a lot easier for the contractors to work in many different suites at the same time than just one at a time. Sure.
George El Masri [00:15:15] Yeah, for sure. And who who's determining what market rents are? Because you could just throw at an astronomical number just to get the tenants out. Are you following, like, some sort of report or guideline or something like that?
Michael Ponte [00:15:28] Yeah, so it depends on the situation, so if we've got trouble, if we got tenants that are just not the tenant profile that we're looking for in the building for us, if the market rent is eight hundred dollars, I don't mind throwing a number of like twelve hundred dollars or eleven hundred dollars or a thousand dollars. And and part of it it is it's insane. But at the same time the objective is we don't want that necessarily that. Right. That tenant profile there. If the tenants are good and they've been long standing, then we'll have that discussion with them. So part of it is kind of almost a screening process of the tenants that we're actually inheriting. And so it's determining who do we want to maintain and who do we not feel like it's the right fit? You know, you've got individuals that may be there for a really, really long time. And you've just had a tired landlord that has a building that is completely paid off and isn't really worried about the rent. They're generating cash constantly. So to them, why again, why why shake the tree if I don't need to, even though they've done themselves a disservice? But at the same time, it's having that respectful conversation with your tenant and say, listen, that's great that you've not had a rent increase in the last 10 years. But let me just show you what the actual rents are and just understand what you're paying now is not reasonable. And if you go out and you leave, you're going to be dealing with the same situation here. Just tell them, listen, we're happy to keep you. But unfortunately, the rents are going to have to go up to what market rents are going to be. But here's your two options. You can move into this new unit and make them feel like, hey, I'm moving into a nicer unit, paying a premium rent. So they feel like they're getting some value for that increased rent versus staying in the same unit that they have. That's most likely requiring some renovations and feeling like they're not getting anything of substance for that increased rent. So I hope that makes sense. If it is working with our tenants and tenants sometimes get a bad rap. And for us as investors, we really need to really remember they are our customers. And sometimes the bad rap for our tenants is that very small percentage, two to three percent, five percent, somewhere in that vicinity of those loans. They're not paying rent on time or troublesome. But for the most part and I can only talk to my portfolio, I've got a lot of really great quality tenants that pay on time. You're very respectful for the most part. Don't get me wrong, I have issues as well just with anybody. I had a call with our property manager and we are dealing with a couple of tenants that haven't paid rent so far for the beginning of the month. That's part of the business. Right. And so it's just working with them, trying to find solutions that work so.
George El Masri [00:17:54] Sure. Yeah. And just to kind of go back to the areas you're you're investing in Edmonton, Halifax, New Brunswick, are there any other areas as well?
Michael Ponte [00:18:04] Calgary, Fort St. John.
George El Masri [00:18:06] OK, so how did you end up investing in so many different places and how do you make that work?
Michael Ponte [00:18:13] Yeah, so I think for myself it's been many, many years. So we saw opportunities. We started off in Edmonton, so we really expanded our base there. And then I remember what year we started kind of going into Calgary as well in Calgary. We've got more of a lot of the residential properties, not so much in the multifamily. Edmonton has been kind of our main hub for our multis. And then we also had some properties in Fort St. John. So what we've been what we've been paying attention to is just where the markets were growing, like where were they expanding? And so probably no different than maybe you share with a lot of your listeners. It really is based on economic fundamentals. And for me, I've been investing for twenty years, so I've ridden the the good, the bad, the ugly of Alberta and even up in Fort St. John as well. But for us, it's about making sure that we're acquiring the properties correctly and buying it. Right. And so I'm a big believer that you make your money on the buy. And so for us, we're looking for good, strong economic fundamentals in those particular markets. The second part is we are looking for equity from day one in our properties. We need to see a little bit of a cushion to protect ourselves just in case markets do tend to go down. And we've we've seen that situation happened before. And last but not least, and this is kind of the one lesson we've learned over the years is the reality is your property needs to cash flow. It's a business. It's a working entity. And so I can respect what happens in Vancouver and Toronto with appreciation. But it's something that we absolutely have no control of, what type of market appreciation is actually going to happen. And so for us, cash flows always came from my opinion. We invest based on cash flow. And so if a market starts to see a downturn, for whatever reason, we know that that property is able to to sustain itself during any type of challenging time. And so those are some of the key criteria. So when we're looking at particular markets, those are really, really important to us in regards to making sure that any project that we're investing in based on current numbers, not necessarily forecasted numbers, that they have good, strong cash flow like even this property. We've got a property under contract in New Brunswick that we're going through. And it's a good, strong, cash flowing property. We see that cap rate that we're acquiring it at around six, six and a half cap. We know it's going to get pushed up to close to almost an eight cap. Once, once that all squared away and what's happening in New Brunswick, I'm not telling everybody to go and invest out there or anything, it's just the market is absolutely crazy out there, absolutely nuts. And so we're seeing people from Vancouver, we're seeing people from Toronto, we're seeing people from all over the place investing there. But we're also seeing a lot of migration out there as well. People are looking at the situation of covid and they're like, you know what? I can work from anywhere. I can now work from home. So why do I need to live in downtown Toronto or downtown Vancouver when I can live in and possibly Moncton and do the work or I can move to? So we're seeing a lot of migration in some of those markets. And so this is where it's creating this crazy demand that's happening. So for us, you know, I look at those different markets. We I'm always exploring different places to kind of be parking some money. Like even in the situation that we're looking in Moncton, we're just dipping our toes in the water, testing the market out and seeing how this all plays out. And if we feel that things are looking solid and strong, we'll continue to acquire properties in that particular market. That makes sense. Even with Halifax, when we bought out there in our analysis, we actually didn't believe that there was any appreciation that we budgeted zero appreciation in our analysis. But the cap rates that we were getting out there was absolutely insane before that market got really, really heated. We were just fortunate that the market took off. But I think a lot of people saw that no different than Monkton, that there's some great strong cash flowing properties out there. And people saw that and wanted to take advantage of it. So we've just been very fortunate. We got into the market early, but we are basing our decision on that one specifically on cash flow. And what ever the market was going to appreciate was just gravy on top. To be honest with you, we never really budgeted a high appreciation. We just knew that this was a good solid building or these solid buildings, good cash flow mortgages being paid down. And, you know, when you're buying properties like back in the good old days, we had a 50 unit apartment building for five hundred and forty five thousand dollars. That's pretty good, right? Yeah. Yeah.
George El Masri [00:22:32] So so just to recap, you touched on your strict criteria when you're searching for properties or whatnot, you didn't exactly list them, but you kind of went through them as you were speaking. I'm assuming that some of the points that you were bringing up was forced depreciation or the possibility for force. The profitability. Yeah, equity from day one and then the cash flow component. Would you say those are the three kind of main criteria, the three Mat's criteria that you look for?
Michael Ponte [00:22:58] Yep, that's correct. So so for us, we're looking for a little bit meat on the bones on the acquisition side. Secondly is, you know, when it comes to multifamily, it's always and you need to understand what the strategy is. So when you're going into it, part part of your initial analysis is what's the exit strategy? You need to understand that. Is it a refinance or is it just a long term buy and hold? But if that's the case, what's your vision for this property and where do you where do you see yourself increasing that valuation? So there's got to be some opportunities that need to be explored. You look at your operating expenses is there are big holes in there that need to be cleared and understood and maybe fixed. And then the biggest one, obviously, is just the rent and it's very, very calm. And then where you got existing existing owners that are just maybe tired landlords are they're just lazy landlords and they're just like properties paid off, generates good income. I don't need to do anything more. Those are opportunities that can happen. And so we pay real close attention to to that. But the big one for us is we treat each project. I don't care how small it is as a business, you know, and I use the analogy quite frequently as it's imagine imagine yourself or anybody that's listening, buying a business. Let's say it's a coffee shop. Would you buy a coffee shop that loses money every month, every month? Well, probably not. No, nobody has any interest in doing that. And so when I look at any real estate acquisition, I look at it from that same perspective. And I know people will debate with me and say, well, you know, the markets are going to be continuing to appreciate 15 to 20 percent per year. And I see that in Vancouver. And I have those discussions with my fellow colleagues in Toronto as well. But the problem is you just even though the markets have gone up drastically, it's something that we truly don't have a lot of control of. And, you know, for for someone like myself or anybody that's actually investing in Toronto or sorry, in in Edmonton or Calgary, they know when things are things are challenged and the market takes a dip, pain can happen. And so you can anticipate that that appreciation will always be there. And another comment I always make is one of the hottest markets in the country, literally think was maybe six, seven years ago was actually Calgary. People tend to forget about that. It was the number one market in the country, super growth. And and then also said it's unfortunately one of the most challenged markets right now.
George El Masri [00:25:10] Yeah, yeah, definitely. I want to dove into how you're able to purchase in all these different areas across Canada. Sure. So how do you manage these properties? Like do you have a team that you hire for each city or each area or is it the same? Team that's doing everything.
Michael Ponte [00:25:29] Yeah, great question. And the reality is we have a separate team for every market that we're involved with. So, you know, the reality is we got a property management team, we've got our realtor team, we've got our lawyers out there. So we take any market that we're establishing. We we have a new set team that's built out there. And again, that's that's part of the process. And it goes right back to it is even though we're invested in multiple markets and I don't necessarily recommend that for everybody because, again, there's more work that's involved that's that's there. The market makes sense then stay in the same market. But I've got I've been doing this for 20 years, so I've seen ups and downs in multiple markets. And so we just look for opportunities in the different markets. But we've been very fortunate that we've got really good systems that are in place with our investment team and working with them very, very closely. And so with that being said, you know, when we work for our profit, when we look for property managers, they're very instrumental in our team. You know, for us, during COVA times, we went from our weekly meeting to now it's twice a week as we're doing our regular regular meetings. And so scheduling those out and just talking about our existing tenant base and what's going on in the new projects. So we stay very close without our contractors as well. If we're doing any renovations, again, we're kind of on the horn with these guys on a weekly basis, if not in some cases, maybe a daily basis. So we are working very, very closely with those individuals. And I've got individuals here locally to help support me that we've brought on to kind of oversee a lot of those things, too. Right. So it's kind of for me, I try to look at the big picture, but at the same time, I've definitely got really we're overlooking a lot of different things that are going on, but it's really about systems. And that that is and more most importantly, and this is extremely important, is trusting your team. And it's and for those of you that are just getting started or listening to this, sometimes you have to kiss a few frogs until you find your prince. And that's just the reality of it. And so with that being said, you have to kind of really do your do your interview process with your realtors and your property managers to make sure that the right fit with the right fit for you. And what's your investment strategy? If they're not, then you need to find somebody else. You know, and I'm sure you can appreciate that, too, is when you're looking for a client or somebody asking you a lot of questions. Technically, they probably they're probably always No one really serious. But more importantly is that they they're doing their due diligence on the individual as well. And it's a good read. And you're looking for a good, good collaborative relationship with that individual. And so to me, extremely important that we have good relationships. We screen the crap out of our tenants to make our our our our team to make sure that they're going to be there to support us, support us for the vision that we have for the projects that we've got there. So.
George El Masri [00:28:12] Oh, absolutely. If we're if we're going to dove into the details here, when you are taking over these buildings, what are some value add opportunities that you look for? And also, what do you do to try to kind of reduce expenses?
Michael Ponte [00:28:28] Yeah, for sure. All very, very good. So I think the biggest one is number one is this the rental income side? That's usually the biggest one. It's again, we tend to see a lot of landlords that have owned these buildings. We're working on our second project in less than six months where we have this property, a second generation owned. Literally no money in the deal. No, no mortgage on it whatsoever. No line of credit, no nothing. And there just long term tenants I've got I have the rent roll in front of me here, but we dealing with rents of roughly six hundred six hundred twenty five dollars a month or the rent should be somewhere in the area of nine twenty five, nine fifty a month. And that's kind of what we're seeing. And so again, it's not that the landlord needed to do that. Long term tenants, some of the tenants have been there for 17 years. And so we're going to have some pretty uncomfortable discussions. So that's number one. That's always the big one. Secondly, we also see and I use this example is just the utility costs. So some ways to try to reduce those costs or eliminate those costs completely, have those costs go back to where the tenants. So as we're kind of going through the process of transition with rent increases, part of our process is, is there an opportunity to transfer the utility costs over to our tenants? If so, great, let's proceed with that. If there's not and a lot of these older buildings, it's a little bit challenged with heat and water. So one of the things we do is your rent is eight hundred dollars plus an additional fifty dollars a month for utilities, which is your heat and your water. And so we add that extra cost, even though we can't it's not separately metered. We add that extra cost as a separate charge for the utilities. And then this way we're offsetting a lot of those expenses and increasing the net operating income versus just inheriting it, because there was always this thought process back in the days that it's just like, oh, you know, we can't separately meter this, so I'll just eat the cost of this and I'll raise the rent. Now, technically, that never tends to keep up. And so that's really, really important that you're always paying close attention to your numbers, always other things that we look at. And I know it's more challenging this year in the last couple of years than we have before is obviously insurance. In fact, insurance has actually been a little bit of a challenge, to be honest. What you're paying for your insurance or what's in the pro forma could be 30 to 40 percent higher when you acquire that. And so it's very, very important that you get that information in advance. And a lot of my students even it's just like when you go out to get your financing, go get your coat on your insurance, because that may just kill your deal completely because you just don't necessarily know what that number is going to look like. So that would be one. Obviously the other expenses that come in. Look at your property management fees. Look at your resident manager. Do you need a resident manager? Just hire a property manager. Do you need a property manager as a resident manager? Sufficient, especially with smaller buildings, trash collection, utilities. Is there some other things that we can be doing to reduce some of the expenses for water consumption? Do we need to go with kind of more of a low flow toilet type of thing where we can reduce some of that water expenses? So we look at those types of opportunities, laundry income, as well as the laundry income, even though it's nominal at the at the best of times, for every dollar that you increase your net operating and you're increasing it by ten to twelve dollars in valuation. So work for us. That's what we're looking for as well. Let's look for those dollars and pennies and try to find those opportunities to get this increase. But the biggest one that we look at is obviously look at the rents. That's that's key. Secondly, what are some of those big expenses? And those things tend to stick out. And if they stick out, why are they sticking out and what can we do to try to improve that situation? And that's part of kind of the due diligence process when we're acquiring just understanding those numbers and looking for ways to to raise that valuation. That's what we're trying to do.
George El Masri [00:32:11] So, yeah, definitely. You touched on laundry income. So are you buying purpose-built coin op machines or are you using, like, one of those boxes that you add to a regular set, a regular washer and dryer?
Michael Ponte [00:32:28] So in a lot of our buildings and we've been very fortunate. So I've got two things that are happening in our past assertions in our past because we still do them. So we deal with a company called Kinematic. OK, and so I'm not sure if you're familiar with them or if your listeners are. But, you know, what they do is obviously they supply you with the machines and they take a percentage of the laundry income. And so I know things have kind of changed and what those splits are, but it's definitely worth having a look. So technically, they supply the equipment, they do the service. If there's any maintenance that needs to be done, they they manage all that on your behalf. At the end of every month, they do the collection of the income side of things. They take their percentage of this and then you get your cut out of that. So it really washes your hands away, excuse the pun, washes your hands away from doing any of that work or needing to manage any of that stuff where you've got a third party actually doing that on your behalf. The other piece that we look at is we do just by the usually a lot of the machines itself already have the box in itself and its coin operated. What we are doing now is transitioning a lot of those owned units to more of an electronic based version where they've got their cards and they and so technically they just tap it or they just it's usually just a tap and they can reload this card even through their own computer at any point in time. So that's the better option. And it may go towards this conversation as if, God forbid, somebody breaks in. That's the first place people want to get into is the laundry room so they can let that coin operated income. So any ways that we can try to reduce that situation from evolving and having signs and saying this, these machines do not collect coin, so don't try to break into this. This is all digital. It makes the whole process significantly easier.
George El Masri [00:34:13] So sure. So that electronic method of collecting the the fees for operating the machines, is that something that is built into the machines that you're talking about or is that something that's added on to like a regular machine
Michael Ponte [00:34:28] that's technically added to, I believe, a regular machine? So we again, we work with Kinematic for any of that equipment. So any time we're looking at doing a transition to to that to a digital digital format, we work with them, either acquiring that equipment or we work with them in regards to having them supply that type of equipment as well. It's to their advantage, the company itself, because the one challenge that they tend to see and a lot of these buildings, they've got really good relationships with these guys is people breaking in. They do damage to the coin machine. They have to call a service guy. Oh, they have to get it fixed. And while that thing is getting fixed, they're not collecting any money. So it's a pain in the butt. So they're they're motivated to have all of that move to a digital format as well. So that avoids a lot of those service calls, which are also reduces their expenses as well.
George El Masri [00:35:16] So, yeah, I know. I think I have looked into working with Kinematic in the past, but I believe now they have like a minimum size of building that they're willing to to work on. So if you have like, say, four or five units, I don't think they're they're willing to work with you to it'd have to be larger than that so that other options might be might be better for for someone who has that type of property.
Michael Ponte [00:35:39] Yep, that's correct. So anything I think, you know, even in some cases, even nine units, maybe even ten units. And again, the best thing to do is to have the conversation with them and see what they have to say. And I'm not sure if they'll be. For example, you've got a large portfolio of a bunch of six units. I still again, there's a lot of expense that goes there. And what they're looking for is, you know, if I put these machines in there and it's going to cost me three thousand dollars, how soon am I going to get that money back and start to generate profit? And that's always the million dollar question. And rightfully so. They run a business just like anybody else. The bigger the buildings, the less the issues you're going to have. So in some circumstances, it will work for them and some cases it's not. But the first part is just have that discussion, see what they have to say. And in a situation, like you said, it's if it's a six unit building, they may take a larger percentage of the laundry income because they need to have that eventually paid itself off at some point, too. Right.
George El Masri [00:36:32] So absolutely. Yeah, OK, maybe just one or two. Two more things I want to ask you about your financing. Are you typically going through CMHC for your financing or do you have a different lender that you normally work with? What are your thoughts on that?
Michael Ponte [00:36:47] Yeah, so in a lot of our cases, if we're looking at kind of more of a birth strategy, we'll just get some short term financing to begin with. So right now we're looking at an interest only mortgage at this point in time with one of our banks, with people's trust. And it's just temporarily for like a year to two years, knowing that at some point in time, if this is more of a long term strategy as a buy and hold, we improve the valuation of that building. And then shortly after we'll go CMHC. So one of the buildings we were actually planning on doing this and we purchased it in October. So we actually had a really long process here. We bought it and we had it under contract in February and all of a sudden covid hit and the plan. Was we were only going to hold it for a year and a half to two years and then we were going to refinance it, but we didn't know what was going to happen. And so we were budgeting an interest rate of three point two percent and then interest rates dropped like a ton of bricks. And so when we were reviewing it further, we're like, this is a property that we were planning on doing a long term hold on anyway. And so but we didn't know how covid was going to impact everything. So we wanted just to secure that interest rate and take advantage of that an interest rate. And so the comment is, OK, we're not going to refinance it right now. And we obviously had to talk to our partners and say, okay, guys, we've always talked about this is a long term hold. The strategy may be three, four or five years from now. Is everybody comfortable with that situation? And everybody was. And so we were very fortunate from a budget of three and a quarter to go down to one point seven percent and lock in some fantastic interest rates amortized over 30 years. And I actually kind of got 40 years, which is shocking, but it was amazing. And so the cash flow out of this thing, it's a peg is just absolutely fantastic project. So in a lot of cases, our strategy is short term financing. To begin with, we'll work on companies like People's Trust and maybe first National People's Trust has been kind of our we've been using them a lot more frequently lately than than we have ever before. But we do want to work with a mortgage broker to help facilitate this. And we've got some good mortgage brokers in the industry that really are kind of our go between and are doing doing their part to kind of making sure that everything's being presented appropriately to to the bank level. As you know, there's a lot of information that's being required and requested. We always like that middleman just to kind of go over everything just in case. But yeah, CMHC right now, cheap rates, cheap programs. The banks are loving multifamily right now. So for those of you guys are looking to get in, great time to do it because we haven't seen interest rates like this ever. It's amazing. So, yeah, absolutely.
George El Masri [00:39:19] Yeah. OK, perfect. Michael, we covered a lot here. I wanted to dove into the next section, unless you have some final thoughts here before we move on.
Michael Ponte [00:39:27] No, absolutely. Let's go for it. All right. Perfect.
George El Masri [00:39:30] So the next section is the random five. I'm going to ask you five random questions and you tell me the first thing that comes to mind. OK, number one, what's legal now, but probably won't be in twenty five years.
Michael Ponte [00:39:43] What's legal now and won't be legal in twenty five years. Wow, that's a tough one. What's legal now? We're talking about real estate still, right?
George El Masri [00:39:54] Could be anything
Michael Ponte [00:39:56] illegal now and and won't be legal in twenty five years. Hmm. It's a good one you sent me on this one. Can we go to the next one? Yeah, go ahead. I've got you've got me on that one. So, anyway, when
George El Masri [00:40:14] did you first get on the Internet?
Michael Ponte [00:40:18] Oh, that's a good question, too, I'm probably going to say when I was 19 years old, so I'm forty six right now, so 19. What year was that? So I don't even know some calculations, but let's just say it was really, really slow back then. So it's just under 30 years. Twenty eight years. Twenty years ago. So I was the first time just in high school and it was just painfully slow.
George El Masri [00:40:44] So yeah. So probably in the mid 90s at some point somewhere on that. Yep. Correct. What's the weirdest text or email you've gotten.
Michael Ponte [00:40:53] The weirdest text or email that I've gotten. Well, that would have been from a tenant for sure. And this one, this is the first thing that popped in my head. Right. So this is the first thing, is that there so she lost her job as a stripper and was challenged in regards to getting rent. And that was actually text to me. So I was like, that was really strange.
George El Masri [00:41:19] Wow, that's pretty, really weird.
Michael Ponte [00:41:21] Now, where was this?
George El Masri [00:41:23] So we can just say this.
Michael Ponte [00:41:25] This was actually in Edmonton. And I'm like, what? Like, how how did this even get to this this point? And it was earlier earlier on in my career, just so everybody's aware. And at that point in time, you know, the property manager that we were dealing with back then isn't the property manager we're dealing with now. So I have to actually ask them some questions in regards to how you're screening the tenants, because this is I don't know what type what was what was disclosed, but this wasn't the right right tenant profile that we're looking for.
George El Masri [00:41:52] So that's hilarious. OK, number four, what's the worst thing you've eaten out of politeness?
Michael Ponte [00:42:00] Oh, definitely. Pigs feet. Oh, yeah, not now. And see, the thing is, was it's actually kind of a normal staple as a Portuguese culture is pigs feet, to be honest with you. And my aunt actually made that and I had to eat that. And it was it was boiled pig's feet. So it wasn't really the most appetizing thing. So pretty gross. Yeah, it's pretty gross.
George El Masri [00:42:24] Yeah, I've never tried that, but I don't know, I don't even know how you what. You just bite right into it or.
Michael Ponte [00:42:30] I'm trying, I'm trying to I still have that burned out of my memory I think at some point in time because I didn't really want that in my memory. But yeah, it was pretty bad. It was like more of a like a stew type of format. OK, great.
George El Masri [00:42:41] So yeah. Sounds pretty gross. It was OK. Do, do you want to. We'll actually go to number five. What success principal do you live by.
Michael Ponte [00:42:51] Success principle, I think the big one for me is, is this continued continued growth and development, to be really honest with you, as never to ever stop learning and always kind of continue to grow, to be really honest. And so for me, there was this kind of saying, I'm trying to recall it off top of my head, as if you're not growing, you're dying. And and truthfully, I'm a big believer in that, as if you're stalling or if you're just delaying it. You're not really expanding your horizons. You're not continuing your growth. So I always for me, it's all about what my investment goals and objectives are. And so I'm always striving to be better, maybe personally or physically or and my investment world or as a family or as a husband or as a as a father. So it's always trying to grow and develop and that format. But also in my business as well, for me, always trying to continue to grow and learn, as you know, this business is constantly evolving. So for me, I love this game. I love it. It's a lot of fun. I really enjoyed this whole process. And so I don't actually see myself kind of stopping. So for me, it's all about growth and continuing to do that.
George El Masri [00:43:53] So awesome. So you're definitely doing the right thing if that's how you feel about it. If we can go back to that first one first thing that comes to mind, what's legal now, but probably won't be in twenty five years.
Michael Ponte [00:44:04] Yeah, I guess it's a real tough one. What's legal now or even legal now.
George El Masri [00:44:13] Legal now. How about this? I'm going to answer this one for you because it is random, but I'm thinking cigarette's. That it might be there might be cigarettes. Yeah, I always felt like that's something that should be illegal. So it'll be interesting to see if that happens.
Michael Ponte [00:44:31] The one thing that I think will be and again, he talked about twenty five years from now. Yeah. Here's one that I think might be legal, is actually people physically driving. Oh, because, you know, it's something that I tell my kids a lot, is you guys maybe the last generation to actually drive. And I think at some point in time, if everything is electric and, you know, they're all self driving and technically, I think it'd probably be a safer world. So actually, I'm actually putting their hands on the wheel. Got me a little off guard, but that was kind of the first thing. I'm just like, well, how is that going to be? And then I'm like, OK, maybe that's that's the angle that I was approaching with that one. So maybe driving is kind of the one piece because like I said, the way technology is advancing so quickly right now, it's not that we won't have cars. I still believe we'll have cars. I just don't think we'll be driving cars anymore. I just think the cars will be driving themselves.
George El Masri [00:45:20] So I agree with you. Actually, that's a really good point. I've thought about that, too. If robots can do it better than we can, then there is a chance that that will get there.
Michael Ponte [00:45:29] Yeah, I think so. Like I said, if they have cameras and they're constantly monitoring a million times per second around their surrounding areas all the time, it sounds like a safer alternative, to be honest.
George El Masri [00:45:38] So, yeah. OK, Michael. So that was the random five. Can you tell us how people can reach you and what services you provide?
Michael Ponte [00:45:47] Awesome. Yeah, no problem. So first of all, for everybody that's listening, you guys are more than welcome to join in and the best place to kind of reach out and just learn about myself. Come to our savvy investor page. Let's call it savvy investors on our Facebook page. We've got a great community of individuals that are there, lots of great content investors and topics and presentations. You can also visit our website Prosperity Investment Stotsky and is currently being worked on just a heads up and it's being revitalized. So that's being updated. We should have that up and ready to go by the end of the month. But at the end of the day, people can reach me by email and sponte at Prosperity Investment Stazi. Please reach me at any of those points. But I do welcome all of you guys to kind of come and join us on our savvy investor page services that I provide. I do a lot of coaching and training and help students that are wanting to learn how to invest in real estate. Three main areas that we focus on as people that are wanting to just get started, they don't necessarily know where to begin. And it's more fundamental to residential real estate investing people that are looking to maybe expand their base and raising capital. We do a lot in regards to raising capital through joint venture partnerships. And then kind of the key one is based on today's topic today is multifamily investing and how to do it, how to begin pros and cons to it and things to be watching out for. In addition to that, I also have always looking for partners for deals. So we do screen our ten our joint venture partners. So it's an interview process between both parties. So if you guys are intrigued and want to learn more about our company and what projects we're looking at, don't feel feel free to reach out to me, be more than happy to answer any questions or at least have a discussion with any of you.
George El Masri [00:47:26] So awesome. Yeah. Thanks a lot. You shared a lot of good stuff in here. I appreciate your time and I look forward to staying in touch.
Michael Ponte [00:47:34] Please do. Thanks for the opportunity and thanks. Thanks for the opportunity to chat and hope you guys hope your listeners enjoyed it.
George El Masri [00:47:40] All right. Have a great day. Thanks once again for listening to another episode of the Well Off podcast, just want to remind you that if you do appreciate the content, all I ask is that you comment, maybe like it if you can, on the platform that you're listening to it on and finally share it with friends and family. I'd love to get the message out there and it would mean a lot if you can share it. And finally, I just wanted to offer you as a valued listener, a free copy to the roadmap to real estate investing, which is a document that I've put together which helps you identify what strategy would best suit your needs at this current time. You go over certain things that are included in this document step by step, and it'll hopefully provide you with some clarity. So have a look. You can go to w w w well off Dossie forward slash guide. Download your free copy.