Table of Contents - Finding CASHFLOWING Deals in HOT Markets with Steve Arneson
Dave Debeau [00:00:09] Well, hey, everyone, welcome to another episode of the Property Profits Real Estate podcast. My name's Dave Debeau. And today it is my pleasure to be talking with Steve Arneson from beautiful Victoria, British Columbia. Steve is a major real estate player in that market. And I'm excited about our conversation today, Steve, because last time we touched base of offline, we were talking a little bit about how you're making properties, cash flow or finding cash flowing properties in a market that most other real estate investors just think is completely overpriced. So I think a lot of people are going to be able to relate to that and resonate with that, especially folks in bigger centers. People in Vancouver and Toronto here should perk right up about that. So welcome to the call.
Steve Arneson [00:00:57] Hey, man, I'm so stoked to be here. Thank you for having me.
Dave Debeau [00:00:59] Fantastic. So, Steve, tell me a little bit about your background. How did you how did you get that spark and get motivated and interested in real estate investing in the first place?
Steve Arneson [00:01:08] Sure. Born and raised in Victoria, B.C., families all in real estate from different areas. And there was actually one of my best buddies who dragged me to like a guru course. And I was like, not this is a scam for sure. And on the day on the second day, the light bulb went off and I was like, hey, this system of joint venture partnering might actually work. Let's go give it a shot. And so, Randi, my business partner and the investors made an offer on our first deal, found our first joint venture. And it's just been to the sky and back since.
Dave Debeau [00:01:38] Nice, nice, nice, nice. So what kind of deals do you guys focus on? Primarily because I think I think you do a variety of things, but what's kind of your bread and butter?
Steve Arneson [00:01:47] Our bread and butter is anything that makes money. More specifically, I'll put it into the category of income properties. So we've got some small we've got single families with Swede's, we've got some small multis. And then we will also kind of graduated into development as well.
Dave Debeau [00:02:04] Very, very interesting. OK, so basically most of its long term buy and hold, you're not doing flip type stuff while you're doing developments, but that's not a flip. But you're going to buy it and hold onto it for the long term.
Steve Arneson [00:02:15] Absolutely. Real estate is what generates wealth and we are thinking long term for our families and our legacy to come. And we can kind of make a quick buck out here or a quick buck or two here and there for four Flip's or whatnot. But we're not thinking of like paychecks today. We're thinking about paychecks for the rest of our lives, our kids lives, etc..
Dave Debeau [00:02:33] Yeah, that's a lot more motivating in my mind, that's for sure. So, Steve, you know, you're a young guy. It's you've been doing this for a while. Your family has been involved in it for a while. But and it sounds like you got off on the right foot right from the get go. But if you were talking to your slightly younger self when you first got started, is there anything you would do differently?
Steve Arneson [00:02:53] Yeah, my first deal was a condo live in flip best part of town. And the one kind of mistake I makes I knew was a home run anyways. But the one thing I would change to look for is in the strato details on that particular condo. I couldn't use it as a rental. And so I just sold that condo for six years of owning it. And if I could kind of go backwards in time, I'd find someone very, very similar effects and flip living for a while. But I could someone I could hold on to long term.
Dave Debeau [00:03:22] So, yeah, I don't actually live in that one to make that work. Because you weren't.
Steve Arneson [00:03:26] It was it was my primary residence. And so the best part of town is in 2012 when I bought it. So bottom of the market almost. And it it just needed some love and some some elbow grease. And I put that in over the five or six years I was there and doubling what I paid for it. So that's the beauty of investing here in D.C. sometimes.
Dave Debeau [00:03:45] Sometimes for sure, depending on where. I'd like to ask you and Randy have started teaching and training people about real estate investing. You've got a very active Meetup group and a real estate club in Victoria. So just give yourself a little plug for that one.
Steve Arneson [00:04:02] Yeah, we don't really have a name for it. Just the investors. Real estate invest in education things. So it's every Tuesday, every quarter, every third Tuesday of each month. So golf club, we started off three years ago in the back of a white spot and we just said, hey, you know, we're going to be the people who act like the glue for people who want to learn about real to invest in. And so we just brought in professionals to talk about their industries regarding real estate investing. And then we slowly kind of like up that from five people to ten, ten to twenty, 20 to 40, 40 to 60 or 70 on a regular basis. Now, we produced a Victory Real Estate Investment Expo last year. And it's just been it's been one of the greatest decisions we've ever made in terms of building the community. And it's very educationally based. It's not that kind of networking event where you come in like cards. It's the kind of networking event that you come, you learn for a couple hours. You network with like minded people who are all there to support one another and grow as a team compared to being that self with networking person.
Dave Debeau [00:04:56] Awesome. Well, we've put to link in for that in the show notes how to meet up group that you've got so people can get involved that way.
Steve Arneson [00:05:03] Yeah. Meet up and then Eventbrite or contact us directly or so.
Dave Debeau [00:05:08] No. Running the club for a while, you've been teaching and training people with your partner, Randy, right, as his partner. What are some of the biggest mistakes that you see newbie real estate investors making over and over and over again? You might see kind of the same thing popping up on a regular basis.
Steve Arneson [00:05:25] Yeah, one of the biggest mistakes that we always see is people just not accounting for all of the expenses. And so trying to find cash flow in any hot market is difficult. But when you're not accounting for all of the expenses, you know that cash flow property can turn sideways real quick.
Dave Debeau [00:05:41] So what would you see as the biggest expenses people overlook?
Steve Arneson [00:05:45] The most common and most important one is always just vacancy. That's one of the things you need to incorporate right off the top. You figure out what your monthly gross is going to be. And then the very first thing you do is you take off your vacancy,
Dave Debeau [00:05:59] like even in a hot market. I know that Victoria right now is a very, very low vacancy rate. But what do you guys put in there just for a safe number?
Steve Arneson [00:06:08] Sure. Yeah.
Dave Debeau [00:06:09] And a single family home with a with a suite, for example.
Steve Arneson [00:06:12] Single family home with the suite. We always use conservative numbers in a number that we run with is five percent vacancy. And basically what that equals is like a one month vacant piece of one of the units.
Dave Debeau [00:06:24] Yeah, that's pretty safe. Another one is one that I see people not taking into account as well as everybody thinks they're going to self manage their properties, which is probably a good idea at the beginning. But eventually you might want to have a property management company helping you out. And that's another expense that you have to take into account. Not so much in Victoria, but up here, snow removal, things like that. You know, that's all that kind of stuff that people don't think about that much. OK, so it sounds definitely like like you've got a lot of experience, a lot of different things that you're good at. But well, you know, Robert Kiyosaki talks about each one of us having an unfair advantage. So for me, it's ravishing good looks and modesty.
Steve Arneson [00:07:13] I've detected the good looks one, but not the modest one all
Dave Debeau [00:07:18] by yourself, my friend. What would you suggest? What would you think is when it comes to real estate investing, is your unfair advantage or your superpower?
Steve Arneson [00:07:28] My superpower, I guess, is I'll throw in the category of risk management.
Dave Debeau [00:07:35] OK, that's a good one.
Steve Arneson [00:07:36] Yeah.
Dave Debeau [00:07:38] So risk management in the in the sense that you're really risk adverse. So you're looking at how to minimize risk on on your properties. Is that what you're talking about?
Steve Arneson [00:07:47] Yeah, exactly. One of the mantras that we had in our business from day one is that we'll pass on nine good deals to find one great deal, because we know when that correction does come, that great deal is still a good deal, where as a good deal, you might not be making any money in a downward turn.
Dave Debeau [00:08:03] So give me an example of something like that, because, I mean, that's that sounds good. And we've all got to heard that advice. Look at look at one hundred deals and then get serious about ten and then maybe you might actually buy one. You guys actually do that. What does that look like, for example?
Steve Arneson [00:08:21] It looks like a lot of gray hair you can see coming through. You know, the yeah. It's a tough it's a tough battle because the way we structure all of our deals are with joint venture partners. So a good deal if we're splitting things. Fifty fifty and a good deal is, let's say three hundred dollars cash flow month in hot market, it's usually pretty good. So when we're splitting fifty fifty that's one hundred fifty bucks each going to our company and going to the partners company doesn't really like get me up out of bed. And so we have to find something that's double or triple that to make it really appetizing to, to manage ourselves and for our investor to provide all the funds and go through that process themselves.
Dave Debeau [00:09:00] All right. So that brings us to the crux of the whole matter, which is you're in a very hot market. Victoria is a very hot market right now as we're talking years. And everybody that I hear about says there's no way you can find those kind of good deals in a hot market. So Victoria, Vancouver, Toronto or what have you now, what are some of your suggestions about how to how to find those kind of deals? Where do you usually know? Where do they usually turn up or what are the kind of situations that you can find that kind of a cash flowing property in your area?
Steve Arneson [00:09:34] Very first thing that my family told me when I started going into real estate investing as a as a career was you can't find cash flow in Victoria. And I don't know if you're the same with me, but I think you are. When someone tells me I can't do something, I work day in and day out to make sure I prove them wrong. And I wrote down a couple of things as we were talking before this on on how people can execute that. And the number one thing that everybody can do is just track all the offers that they're making and then follow up with those offers a month, three month, six months down the road. Some of the best deals that we have in our portfolio right now came from following up six months down the road after our first offer. And most of what we look for is like mildly distressed properties and a lot of cases in today's market, the hot markets, no matter how distressed your property is, people, the sellers are trying to get the top dollar regardless of what the condition is. And so for us, we would go into what made sense to us and then they wouldn't accept it because it was on thousand dollars less and they'd have two other three other offers go through and it fall through the financing or inspection or something like that. And then we'd come back up and three months later and say, hey, you don't have very much interest. Our property, our offer is actually a little bit lower, our interest now and then we take a position of strength where like all we have in there is subject to other financing or inspection or just like we're very, very small or limited subjects.
Dave Debeau [00:11:03] Yeah. All right. Very smart. So the fortunes in the follow up, like they said. Yeah, I know. I'm kind of putting you on the spot here, but do you have one deal that kind of pops to mind? Yeah. Can you share that one?
Steve Arneson [00:11:16] Yeah, I got one golden deal. So this one our original offer was made in systemis me back here. Not in the back but. It was in June, it was a five flexin request and it was, you know, up and coming neighborhood to put it very generously, and it was the bad property on the block and everybody knew it. So we came in, we did a quick walk through and we said, hey, this is going to take a few thousand dollars renovations. And we said, here's a here's our offer. I think it was like nine hundred and fifty or nine eighty or or around around that million mark. And they turn it away because they want a little bit more than one hundred or two hundred more than that. And then from there they had two or three people collapse due to financing. And about three or four months later, we circled back to them. And I was actually off the market at that point. But we got our realtor to follow up with the listing agent and they said, hey, you know, I've I've got some clients who are still interested. Can we take another look? And what's the position? Where are you guys? So we had a second look. We made another offer. They didn't like it again. So we play tag back and forth for another three months. And then we went in for a second or third time with our inspector and found that there was some knobbing to Buuren, which they had to disclose going further to any. But who's interested in that
Dave Debeau [00:12:38] future potential buyers?
Steve Arneson [00:12:40] Yeah, exactly. And so that put us in a very strong position, A, because Randy's an electrician, so he knows the ins and outs of that field, and B, because now he has disclosed to everybody. So now we're in a point of like, you know what, we're OK doing all the renovations. Most your buyers out there aren't going to be cool with it. So here's our offer and you've got twenty four hours to accept. And they did. And we got it for way less than what the original list was. I think we put like two hundred and fifty into it. And then that was a unique one as well as we bought a cache and then put a mortgage on after we we renovated the property. But that was a bit of a diamond in the rough.
Dave Debeau [00:13:16] So what kind of instant equity do you think you created on that one?
Steve Arneson [00:13:21] Oh, my imagination says that it's probably worth one for right now just due to the income that it produces. Nice. And we're in for four one one. So some elbow grease and having the right contractors in there and then just maximizing what your renovation looks like. It has has served us well for that property.
Dave Debeau [00:13:42] Awesome, Steve. Well, that's a great example in that that's right smack in Victoria. So, yes, and it's cash flowing nicely.
Steve Arneson [00:13:48] Cash flow is very well.
Dave Debeau [00:13:49] Very nice. Very nice. Awesome. OK, by the way, we got only got a couple of minutes left here on the interview, but if people are interested in finding out more about you and and your partner, Randy would be a good place to point them.
Steve Arneson [00:14:04] Our favorite spot is Facebook. It's a great way to just engage with us. You can go to our website, which is just the investors see, but we encourage everybody to reach out to us and share other Olwyn that you've had recently or that you're going through. And we're happy to have a conversation with them and and your audience and just have a little chit chat on how we can brainstorm to to fix that solution or to find that solution. So it's just Facebook's last three investors and that's us.
Dave Debeau [00:14:34] Perfect. We'll make sure we put that link in the show notes as well as we're doing. Just click click on that. And with one minute left. Were there any other questions that you think I should have asked you that we didn't have time to go over?
Steve Arneson [00:14:47] That's that's a fun question. He's I guess my only thought on that would be like, what are some good secondary markets to the island?
Dave Debeau [00:14:59] So what are they?
Steve Arneson [00:15:00] Quickly, quickly. I would say Sook's Duncan Porter, Bernie, are a few to look at.
Dave Debeau [00:15:08] Nice. So there's lots of opportunity on the island, that's for sure.
Steve Arneson [00:15:12] You can find cash flow and equity real quick.
Dave Debeau [00:15:15] Excellent. Excellent, Steve. Well, thank you very much. It's been a lot of fun chatting with you. I know this is a feisty interview, but that gives us a good reason to circle around at a future date.
Steve Arneson [00:15:24] Absolutely.
Dave Debeau [00:15:25] And congratulations on all your wins, my friend.
Steve Arneson [00:15:28] Thanks, Jeff.
Dave Debeau [00:15:29] Likewise. All right, everybody, take care and we'll talk to you next time. Bye bye. 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 Ticker.