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Dave Dubeau [00:00:09] Everyone, David Dubeau here with another episode of the Property Prophets Real Estate podcast today, zooming in from just over the hills of Calgary, Alberta. Mr. Pierre-Paul Turgeon Pierre-Paul, how are you, my friend?
Pierre-Paul Turgeon [00:00:23] Have a great day. Thank you for having me. And the hills are much bigger than hills. But yeah, let’s leave them at hills from out there hills. And you’re part of British Columbia.
Dave Dubeau [00:00:32] All the Rocky Mountains or mountains, pretty much anywhere except for their hills compared to the Himalayan, I guess. But all right, there you go. So if you’re not familiar with Peter Paul, he is Canada’s number one Go-To guy when it comes to all things when learning about multifamily investing. He’s got the website on it Multifamily Investing Canada dot com, if I’m not mistaken, bear ball bang on. Yeah, yeah. And cool thing is. Not only does people do multifamily investing, but he really understands the numbers inside and out because that was the field they used to work in very, very exclusively. So they’re both financially just very quickly. Fill in the gaps and then let’s jump in. Let’s talk about the multifamily investing landscape in Canada right now. As of September 2021?
Pierre-Paul Turgeon [00:01:24] Yeah. First thing, Dave, you are educators, teachers, right? Anybody can do multifamily. You’ve done it. I’ve done many times that I’ve seen many, many people, regular folks, get into the game of multifamily business, right? It’s just the limiting beliefs are what prevent people from doing that. So I want people to understand this is for anybody. You do have to have courage and perseverance. I’m not going to say it’s easy, but that’s the first thing, you know, you don’t have to be like myself, a former CMHC apartment building underwriter. So that’s the first thing. But in terms of the landscaping current today, the 7th of September 2020, one day, you know, we just were still in the pandemic fourth wave and all of that. Once again, I can tell your listeners in the last year, I saw a repeat of what I saw back in 2008 2009. That is, apartment buildings outperform most other asset classes that you can invest in. So that’s to begin with, continue to do well with my own portfolio or my students, and I talked to bankers and mortgage brokers on a regular basis because it’s my job. But apartment buildings fared very well during the pandemic. First of all, the majority of my multifamily investors did not have to call on Sami Cheez-It to deal with. Was CMHC insured on the mortgage payment deferral program? Very few multifamily owners, you know, recorded or resorted to the mortgage payment deferral. Secondly, our tenants kept paying rents at a rate of 96 percent across Canada. So, you know, I mean, we weren’t able to increase our rents, but overall there wasn’t an issue. And of course, guess what? The cost of money remains ridiculously cheap. I refinanced one in June. It is CMHC insured. I don’t always go CMHC route, but I tend to because it’s bet it’s better, lower interest rate and I took a five year loan term at two point zero one percent. Wow. It’s free money now. And if you consider that the cap rates, particularly in my market in Edmonton, my portfolio in Edmonton, but cap rate would be about five and a quarter. So two percent interest rates, I’d get a nice spread of three and I had a quarter percent in between. That’s what you want. So the sky’s and falling. And Dave, I’ve got to tell you, that’s the same thing that was happening back in 2008 2009. The Great Recession was an underwriter. Still, you know, in multifamily department that CMHC and this is when I had my big aha moment when I said, Oh my gosh, people are making so much money. What biggest recession since the 30s and people are still making money with apartment building? That’s what I said. When I grow up, I want to be a multifamily owner.
Dave Dubeau [00:03:58] I was writing these things. I started hoarding some of these things, right?
Pierre-Paul Turgeon [00:04:03] Well, I knew the writing was on the wall. That was in 2008, so I left in 2010 CNBC. So that’s to paint it and a general brush that would be the state of the multifamily market in Canada. We go west, we know the West Coast, Vancouver, Lower Mainland. Those prices are ridiculously high for apartment buildings and anything above three or $400000 a door, which is crazy higher core downtown Vancouver, Toronto. It’s pretty crazy with caprice sometimes high. Two percent. Three percent, you know it’s crazy. Montreal a little bit better, but they remained a sound asset. You don’t invest over time like over a short term return on investment, so it remains a great asset class to invest in. No doubt.
Dave Dubeau [00:04:48] Well, OK. So why do we back up a little bit and why do you think apartments are a superior asset class to invest in versus single-family homes, for example? Because, you know, throughout the pandemic, we have seen appreciation in single-family homes. I would suggest outpacing apartment buildings, but that’s only one of the profit centers. And why is it that you feel that multifamily is a better choice long term?
Pierre-Paul Turgeon [00:05:16] By far it is, and I’m glad, and that’s something that I’ll talk about in one of my masterclass that just described me. Consider to sign up for when I talk about cap rates. But the big difference, as you know, when you move to the bigger sandbox of five or more apartment units or rental units on a building, it’s called the value of the asset is derived out of the income of the asset, right? And so you have a wealth multiplier effect that kicks in, which doesn’t kick in when you buy smaller rental properties and let’s define them one to four units. So small rental properties look four units and my stuff is five or more units. And so that wealth multiplier is like a ratio depending on the cap rate in your marketplace where you invest but is somewhere between 16. One two, six, one two twenty five in a very compressed, captured market like Vancouver or, let’s say, GTA Toronto. All right. So what I’m saying is your job as an investor is to positively impact income. And if you do so, we can talk about how we do that. But every dollar that you increase your NY, your net operating income translates into an increase in property value of somewhere like 16 to twenty five dollars to use my multiplier earlier. That will not happen when you increase the income on a small rental property. You increase the rental income in a small rental property one to four unit, you’ll increase your net cash flow. You don’t have the wealth multiplier, but you know there’s pros and cons, but you have more flexibility.
Dave Dubeau [00:06:42] That’s definitely a big one now. Also, one of the things that you alluded to was 08 09. That was the Great Recession, the Great Reset. And what you are noticing was that multifamily investors back then were making a lot of money in spite of what was going on with the economy. So why don’t you? Why don’t you kind of share your take on multifamily investing in good economies as well as in bad economy?
Pierre-Paul Turgeon [00:07:09] So that’s the pros and cons of going to multifamily investing in a bad economy. People tend to shack up together, so they go into apartment buildings. Often times they lose their homes or something like that. So oftentimes your vacancy risk is diluted among more unit. The example I always use if I have a four unit building, I have one vacant unit and there I’m still operating at 96 percent capacity, still paying my mortgage down and still generating an income. So whereas if you got a smaller property, then that doesn’t happen. Let’s see. You have a single home you’re renting out if it’s vacant, 100 percent vacancy, right? So that’s one thing that really protects you from middle and difficult times. It’s just a more stable asset in that regard. And also the banks realize that so financing continues to flow for apartment buildings versus when things can get tough and smaller rental market. That may not be the case, and especially and at some point, Dave, as you probably know, when you invest in smaller rental properties, at some point you’re going to reach your max, you’re going to max out your TDs, are your total debt service ratio or the back? That’s it. We’ve let you all the money we can. That doesn’t happen with my stuff or multifamily properties of five or more units. As long as you qualify for each loan, which is usually a matter of having sufficient personal net worth, can borrow as many properties as you want. And again, if you don’t have to personal debt worth, just let me throw that in there. They find a joint venture partner that does, right. So there’s always a problem. There’s always a solution to any problem.
Dave Dubeau [00:08:34] So one of those multifamily is when, when times are good, it’s good. You got a big influx of people coming into the area. They need a place to live. They need a roof over their heads. When times are bad, you’re minimizing your risk because it’s spread out over multiple units. Exactly. Plus, guess what? People still need a place to live, and they tend to need a more affordable place to live. They might be unfortunately losing their home or their house or what have you, but they still need somewhere to live. So where are they going to rent exactly?
Pierre-Paul Turgeon [00:09:06] And Dave, I want to add to that, right? I’m like major in the real estate world, the day in, day out, and you just read the media what home prices have increased by what the average home price in Canada is 600 instead of $1000. I mean, that’s an average across Canada. It’ll be lower depending on where the market, but they’ve gone through the roof since January, something like twenty seven percent, something like that, right? Home prices. So we have a housing crisis in Canada and don’t believe the politicians want to tell you, by the way, I don’t want to throw any party in there day, but they can’t do nothing. The federal parties can hardly do anything, and that’s the challenge that we have. So what I’m saying to you, Dave, is increasingly this country, beautiful country of ours is moving towards a society of renters like it is in Europe. It’s always been in many, many places. If you want to create wealth, you want to create money. You might as well be a landlord, right? A good one that is not a slumlord, but there are increasing opportunities in Canada that I see for quite many, many, many years to come. So that’s not my take on it.
Dave Dubeau [00:10:04] Well, that makes sense. So one thing that kind of threw a wrench in things for some folks were some new rules with CMHC and taking capital out of a deal. Talk to us a little bit about that and how that’s affected things.
Pierre-Paul Turgeon [00:10:18] Yeah. So first of all, CMHC publishers, CMHC is a crown corporation. You know, they publish their guidelines or their policies when there are policy changes, whereas conventional lenders, which is the other way you can finance you deals with just noninsured financing. All right. So if you go to a private lender or a commercial lender, they can do whatever they want on the spot. You don’t know this in advance until you submit your financing application, whereas at least CMHC they publish. Because they’re a crown corporation, they publish their changes. So the biggest change that came, we’ve had to enter quite earth shattering. I’ll say the first one came; I think it was in July last year of the onset of the pandemic about. What the uses of equity take out money for when you refinance, you recapture a bit of your equity used to be and that’s what I saw back in 2008 2009. People could do whatever they wanted with that money. As a matter of fact, back then they were taking equity out, buying another apartment building. Values were really much lower at that time. And so that’s what people could do, whatever they wanted with the money that they refinanced and took out of the asset. Now it’s restricted. This is specifically for CMHC insured loans. It’s restricted to using that equity. Taking on money for purchasing another property. Building one capital repairs. Securing permanent financing. If you had a construction loan in place. And certain other uses determined on a case by case basis. The one thing that they don’t want you to do now, which CMHC take out funds, is to pay equity back to investors. OK. Two equity holders, which is one of the ways we would pay back our investors, you and I, in the past. This being said, what about enforcing OK? And I probably I got to be careful because, you know, I talk to people all the time.
Dave Dubeau [00:12:07] Is this year old boss you’re talking about here? Yeah.
Pierre-Paul Turgeon [00:12:09] Well, old boss and, you know, mortgage brokers. But really, how are they going to enforce that? So that’s because Chris is not set up to enforce that. The lenders are not set up to enforce that necessarily what it looks like. OK, and nothing is cast in stone. Every lender can do whatever they want, but it looks like at the end of your at your loan maturity, let’s say standard long five year long term, which the lender will look at. How did you spend that money, right? Five years from now? I don’t know. I don’t know if they’ll do that or not. I don’t, you know, I don’t know. But that’s what I’m told. That’s how it’s going to be enforced. So that’s the first big policy change. You cannot use equity, take up money on a change.
Dave Dubeau [00:12:50] So what is their justification for that? Why? Why do they say that was necessary?
Pierre-Paul Turgeon [00:12:56] I could read you what they said and all but it’s advisory, but from the street, it’s pure bullshit. We talked like this in your podcast. Yeah, we can now. Bullshit, OK? It’s a perception they were hammered. First of all, interest rates kept dropping. As you remember last year as well, they were swamped with too many refinancing applications. Didn’t have the staff to do it. But what they see here is because they feel that when you use equity, take out so you increase the loan amount. Take that equity out, pay back your investors. And I’m reading from there a policy change there. Consider that an improper use of government resources, folks. Before I was an underwriter, a multifamily underwriter, I was in charge of the default management and real estate department at CNBC for the Regional Office of Calgary in the Parisian apartment buildings early default. To this day, I just said that during the last pandemic or previously 2008-2009, it’s a fricking cash goal for CMHC. So what? And we pay a premium to get this insurance. So what government resources are you talking about? It’s my freaking resources. So anyway, but that’s the reason why this is implemented that I think is just they’re bureaucrats. I was one of them. Forgive me, I didn’t know any better as I wasn’t a businessperson. It’s literally apartment buildings are cashed out for CMHC. The real default and I mean this like I used to manage the post and I was bored out of my mind. That’s why I transferred over to the multifamily underwriting department. This is no joke. I was literally bought out a few social housing projects to manage the default otherwise. And we’re into default. There are still no defaults.
Dave Dubeau [00:14:29] So, OK, so that’s a first. And what was the second thing?
Pierre-Paul Turgeon [00:14:31] Second thing that came just in January or January started. Think January came into effect January 15th. CMHC never required us to get an appraisal on our deals. Whether you purchase our refi now, any apartment building a five between five and twenty four units that do require an appraisal. This, too, is somewhat earth shattering. The reason being, if you’ve ever watched any of my videos of my training CMHC when you presented a deal to them, they always dinged you on valuation. They always came up with a lower landing value in order to approve a lesser lower loan amount. In other words, which was a means to reduce their risk. Right? So by not asking an appraisal, they had no frickin idea what the market value was. And so they could arbitrarily use, like I said, a lower lending value to determine what bond would. All right, which was a pain in the butt for many, many investors that are out there or buy, sell, not buy, such as always knew the game out of play it. So but anyways, I’m a different I’m in a different kettle of fish altogether. But now so that means what the impact of that. I think over time, this is still fairly new. It’s not even a year old policy that over time, hopefully CMHC will be closer to market value. So as investor, you’re trying to figure out how much financing can I get insured with CMHC, you’re going to be able to better estimate, you know, how much financing you’re going to get there for, how much down payment you need and therefore for. I was like, you’re not going to raise capital privately, how much capital are we’re going to raise to have our down payment cover all our closing costs? So that was a big policy change this past
Dave Dubeau [00:16:08] year, but that was actually positive. That’s actually a positive policy change for this one.
Pierre-Paul Turgeon [00:16:13] I think so. Time will tell, but I think over time should be good.
Dave Dubeau [00:16:16] I’m hoping. Very good. There you go. All right, Pierre Paul. So you’ve got some master class trainings coming up over the next couple of months, I believe, were we’re beginning of September right now. Why don’t you tell us a little bit about what these master class trainings are all about? And then we’ll have the link in the show, notes you guys, because it’s kind of a big, long, funny looking thing. So we’ll put the link in the show notes. If you’re interested in finding out about that, if you’re listening to this, you know the Property Profits podcast dot com and get access to those. So but tell us about these, this masterclass.
Pierre-Paul Turgeon [00:16:52] So the first masterclass is on September 22nd, Dave, and it’s about the magic of cap rates revealed. So exactly the kind of wealth multiplier that we’re talking about. But I teach you about how banks think like literally when I teach this kind of content, you’re right. I’m very unique is that people notes I have both as an investor and former insider. So I teach you inside the mind of an underwriter and an appraiser, if you will. How do we arrive at a value precisely because you can be in a position to argue whether it’s you with your, your vendor, you’re buying about how to value is right that or with your lender and that fought and won battles with my lenders over time because I knew how the game works? So and cap rates on one of the three valuation approaches that we use, and it’s the main one. So I take you behind the scenes how this how bankers are looking at this and CMHC and always my stuff I teach experientially, which I give a concrete example of the wealth multiplier effect in the master class. So that’s September 22nd. Second masterclass is on October 6th, and it’s attracted capital for your multifamily property. Now I’m not competing with you, Dave. I cannot beat you. You’re the best at this, my friend.
Dave Dubeau [00:18:02] You’re awesome.
Pierre-Paul Turgeon [00:18:03] But it’s now the law of abundance, right? If you believe in scarcity, you’re going to trust scarcity. But the point is, I have a pretty good angle at this again. And let me summarize it the following week. At the end of the day, when you attract capital like you have been very successful, attracting capital from a core group of investors. And the reason is I know what they want. Give me your prospective investors want the same thing as your banker wants, which is my core area of expertise, i.e. what are the risks in the deal? How can you mitigate that? And what I pictured here, this is how I do it and same difference. I walk through some of the tools, some of questions that your investors need to answer and you need to answer. And how to pitch a deal and give you a cool tool there to do that. So that’s on October six, always 5pm pm outturn time. And then the last one is on October 20th. It’s financing your multifamily deals again, going behind the scenes and the various options that we talked about at high level just now, whether it’s CMHC insured financing or conventional financing, bridge financing. And all that with again, an example. I want this stuff, you know, I don’t want to be just some guy, good looking guy flapping his jaws in front of people. It’s got to be concrete and tangible and usable. So those are the three classes that’s on October 20th study.
Dave Dubeau [00:19:13] Yeah, well, fantastic. So you’re going to have the three of them have the link in the show notes. You can click there that will register you. One click will register you for one registration. I should say we’ll get you into all three so people aren’t able to make them live. You can have recordings and that kind of stuff.
Pierre-Paul Turgeon [00:19:28] Absolutely. They’re going to get the replays. Absolutely. Yeah
Dave Dubeau [00:19:31] All right. Very good. So again, the first one is going to be all about the magic of the cap rate and why that’s so important for understanding how to value properties, how to make better offers on your properties, what kind of financing you’re probably going to be able to get for those properties. Second, one’s all about where you get the money, how to raise capital specifically for multifamily projects and deals like this, and again, before Paul knows this stuff, he’s been doing this for years, raised millions of dollars, lots and lots of investors with him in his deals. And then the third is all about the financing. So how to make the banks happy, whether or not you’re working with CMHC, but how to get the financing for your deals? So these are all three very, very important topics for you to understand whether you’re actively already involved in multifamily investing or you’re thinking about getting involved in multifamily investing. Nobody better to teach you this stuff in Canada than this gentleman, Mr. Pierre Paul Turgeon. So pure ball. Thank you very much and look forward to hearing your wisdom on these classes.
Pierre-Paul Turgeon [00:20:34] Fantastic. Thank you for having me on your podcast. Cheers.
Dave Dubeau [00:20:37] My pleasure. All right, everybody. Take care and see you on the next episode. Bye. Well, hey there. Thanks for tuning into the Property Profits podcast if you’d like this episode. That’s great. Please go ahead and subscribe on iTunes. Give us a good review. That’d be awesome. I appreciate that. And if you’re looking to attract investors and raise capital for your deals, then we invite you. You get a complimentary copy of my newest book right back there. There it is. The money partner formula. You got a PDF version and investor attraction book dot com again. Investor Attraction, book dot com. Take care.