Table of Contents - How You Can Become An Apartment Building Investor With Pierre-Paul Turgeon
George El Masri [00:00:01] Welcome, welcome to another episode of the Well Off podcast. Thank you for joining today. I interviewed the man himself, Pierre-Paul, to join the multiunit investor. As some of you guys might know, he offers different multiunit investing courses and such. So on this specific episode, we talked about his childhood growing up in Quebec, working as a CMHC underwriter, his experiences with that and how that led to him buying his own apartment buildings. And he's based out of Edmonton, Alberta. So we discussed that market a little bit. We talk about evaluating these multiunit assets, not just evaluating them, but the two different ways to finance them. So you can go with either a conventional mortgage or you can go through a CMHC insured. So we talk about the pros and cons of both some of the expenses that you can expect with the or some of the acquisition expenses, let's say, in terms of buying these properties. So these are just some of the things we cover. There's so much good so many good things in here, I should say. And I think you will appreciate the content. So let us know what you think. Leave a review on iTunes if you can make sure to share this with your friends and family and always happy to connect with you. Go to well-off Nazia and book a call if you want to chat. And also if you're looking for a free report, which we cover the real estate investment strategies, some that might be good for you. There's all sorts of different reports on there that you can go to. Well, if that's the way forward slash report to download it, I hope you'll enjoy. And just one last thing before we get started. I'm working on some four to six unit projects in St. Catherine's and Weland. Lots of opportunities there. If you want to connect on that. If you are unsure about how to invest in small multis like that, reach out to me. I'd be happy to share with you how I can help you again. Well off that and book a call with me and we'll chat soon. Enjoy the episode. Welcome to the Wealth podcast, where the goal is to motivate, inspire and share success principles. I am here with Pierre-Paul to. Today I'm going to say his name, the French way. So Pierre-Paul is a multiunit real estate investor and he focuses on apartment buildings. I'm sure a lot of you have heard of him, a former CMHC multifamily underwriter and currently has a portfolio of about one hundred thirty dollars valued at over 20 million dollars. So the cool thing about Pierre-Paul is that as a CMHC apartment building underwriter, he's been in a position where he's had to analyze hundreds of deals and multiple provinces in Canada. He's probably analyzed more apartment buildings than most landlords in the country. So he's a wealth of knowledge and I look forward to picking his brain. Paul, thank you for joining us today.
Pierre-Paul Turgeon [00:02:39] Thank you, George, for having me.
George El Masri [00:02:41] My pleasure. So I like to start off by asking you a bit about your childhood, where you grew up, and one or two things you remember from then.
Pierre-Paul Turgeon [00:02:50] Oh, my gosh, I remember chaos number nine of a family of 12 kids or your typical older, typical French Canadian family, I did not grow up with a portfolio of 20 million dollars worth of buildings, didn't grow up with a silver silver spoon in my mouth. But I remember a very loving family, lots of food, great food. My mother was an amazing cook, lots of outdoor activities. That's what I remember. But chaotic because, you know, it's a lot of people around the table, 12. I have six sisters and five brothers. Believe it or not, everybody is still alive today.
George El Masri [00:03:29] So awesome. That's great. Where did you grow up? Which part of the city in Quebec somewhere?
Pierre-Paul Turgeon [00:03:34] Yeah, I did. In northwestern Quebec, very close to the border with Ontario, a place called Ruwart, Dorinda Ruiner. And some people might have heard of the friend of mine used to be one of the largest gold mines we had in Canada some 40, 50 years ago and copper. So it's a mining town way, way up there in the bush. But OK, a little community
George El Masri [00:03:55] must have been freezing cold out there.
Pierre-Paul Turgeon [00:03:58] It it is. It is. It still is. But, you know, I'm in Alberta now,
George El Masri [00:04:03] so it's even worse. I don't know. Is your family still out there in that part of town? Yeah.
Pierre-Paul Turgeon [00:04:09] Yeah. Half of them are still back there at home and so are scattered. I have a couple and siblings in Ontario, some in Montreal, but half of them are still in that small town of about fifty five thousand people in that town in the city.
George El Masri [00:04:26] OK, that's that's pretty big actually. That's like the size of Weland here in Ontario.
Pierre-Paul Turgeon [00:04:32] Yeah, I know. Well, and as you probably know, I know Whittier very well, actually. Better than Quebec. Yeah, well, it is pretty, but yeah, it's, it's a decent size. The only drawback, which is not really a drawback for these people. Georgia, if you want to go to a large city, it is a seven hour drive through a provincial park. So it's a long way to a large city, a very long way to a large city. Yeah. Yeah. But people do it. People will go and watch a concert, you know, go to Montreal, drive to Montreal to watch a concert. And it's about the same distance going to Toronto about seven hours. But it's going straight to go to Toronto, straight south or southwest a little bit Montreal as you're driving south east for seven hours.
George El Masri [00:05:14] Interesting. Yeah, I know this is the first time we kind of formally speak, but I did. So I went to a French school in Ontario all my life, pretty much as when I was French elementary school and French high school. And we would always have to read books on like stories about Quebec or novels by French authors from Quebec. So I just remember Kemel Gasko was one of the ones that we had to read. Yeah, we had yeah, we had to learn about all the culture. And it was just it was interesting to see how people lived at that time. And Quebec. Yeah. Yeah.
Pierre-Paul Turgeon [00:05:48] OK, so additions in Quebec.
George El Masri [00:05:51] Yeah. Yeah. The food's awesome too. I love that part. Yeah. Yeah. Let's let's jump into some of your current work. I mean you you started off as a CMHC underwriter.
Pierre-Paul Turgeon [00:06:04] No, not as an underwriter. You mean real estate. I started CMH. You may not know this, but I want to talk about this a moment because it is a and you said that I think your goal is to inspire people. I started working for CMHC International, OK? I don't even know. I don't think that division of chemistry exists anymore. But since she was approached to get this, this is pretty cool. Obviously, when I teach and speak, people focus on my the real estate portion of my career at CNBC. But I started working for CMHC. I had just engaged, gotten engaged to my wife and ninety six CIMMYT. She was approached by, get this, the World Bank and the International Finance Corporation, which is a subsidiary of the World Bank, to to help the Middle East, West Bank and Gaza established mortgage default insurance at that time was beyond that. CNBC was also providing consulting advice how to set up housing systems that we have in Canada. As you know, our construction systems are very sound and all of that. So I started working for CNBC in the international division. And like I said, at some point the World Bank approached us to start helping West Bank and Gaza, which is in Palestine, so around Israel and surrounded by Syria, Jordan and all of that, to help them set up mortgage default insurance. And at that time, I was a project manager. I was liaising with the Canadian Development Agency, the Canadian International Development Agency, I think has a new name now, but it's our our Canadian aid agency. And we were basically. She was providing consulting advice to the Middle East and other countries after that, I ended up working on projects in Romania, Africa, China, pretty cool stuff, actually, but all I was as a project manager for these things, I did not have that core expertize in mortgage default insurance, which just to be clear, sometimes what CMT does see is a mortgage default insurance. So, you know, and I wanted to acquire that knowledge as well, the core expertize of CMHC in mortgage default insurance. So I asked for an assignment out in Alberta. I love the outdoors. I love the mountains. It's a big theme in my life all the time. Probably, probably after this interview, my friend, I'm going to put my hiking boots with my wife and my son and a few friends that we're going to hit the mountains today. It's a beautiful fall day, but that's sort of my career CMHC. So in order to do that, I asked for an assignment in Calgary and I was that's I started doing single property underwriting principles, principal residence underwriting. And after that, which is very cool, this is also something that gets overlooked in my in my sort of biography. Will I manage CMHC Prarie Office for Default Management and Real Estate, OK, when people default on their mortgages as well as apartment buildings? And I was actually bored because apartment buildings rarely default and even homeowners in general in Canada, they don't default on their mortgages very often. So I was so bored in that department, I asked to become a multi-family underwriter, which I did for four years. And truth be told, I saw people make a lot of money. George, I said, I want to I want to do that when I grow up. So I jumped ship in 2010 to focus full time on real estate investing and continue to teach this across Canada as well. So.
George El Masri [00:09:40] Right, right. That's my
Pierre-Paul Turgeon [00:09:42] nutshell.
George El Masri [00:09:42] Yeah. So I wanted to ask you about CMHC, because as a realtor, I mean, when I started out, I was dealing with a lot of like regular homeowners that residential purchases. And from my understanding, CMHC, like you said, it's so just for people who don't know, it's the Canada Mortgage and Housing Corporation and they are a mortgage insurer, one of three, for my understanding, in Canada for residential purchase.
Pierre-Paul Turgeon [00:10:08] And who's the other one? Forget the third one.
George El Masri [00:10:11] I forget the third one, too, but I don't know anyone who uses it. But anyways. Yeah, so basically, if somebody is purchasing a home for with less than 20 percent down, then it has to be an insured loan. It's mandatory to get mortgage insurance and CMHC provides that to the consumer. So but in addition to that, CMHC also does commercial loans for my understanding. So if you buy like a 20 unit apartment building, you can get a mortgage through CMHC, is that right?
Pierre-Paul Turgeon [00:10:39] Correct. And that's what I did. So you're so far you on the money. But I just want to specify, you said CMC does commercial mortgages, commercial, residential. So it is apartment buildings. They don't they do commercial, commercial, a small portion of it. If it's tied to a commercial residential portion, for example, we often see that in cities. You've got some at the bottom of an apartment building. You'll have a restaurant, you'll have a dry cleaner or some businesses. And above you, you have apartments. So they will insure the whole building differently. Mind you, the underwriting guidelines are different. They'll underwrite the full thing. So but that's the only. But it's a small portion. That's the only exception. Well, they'll underwrite purely commercial. Generally speaking, it's commercial. Residential meaning apartment buildings, George.
George El Masri [00:11:29] OK, I understand. OK, so. Yeah. So you got your experience with CMHC in multiple different ways. You mentioned that you were you were helping establish the insurance in Gaza and in the Middle East, and then you went on to become an underwriter for four years. So after I guess after seeing people's numbers and seeing how much their maybe properties have increased in value and whatnot, you decided, why am I not doing this? Why am I just underwriting? Why not go for it full time? So about.
Pierre-Paul Turgeon [00:12:01] Yeah, about that. Because you got it. I mean. That that's why I'm in this business, church is a lot of money to be made. I'm not one of those that's going to lie to people and say this is easy making the switch, because I'm assuming a lot of your audience are if they're really if their investors do invest in smaller rental properties, one to four units to cut off is one to four rental units. Anything above that five up is called what I said earlier, commercial, residential. But when you make that move from one to four units to the bigger stuff, commercial, residential, it's a brave new world. It's a much tighter world, a much more finite world. The margin for error is pretty much nonexistent. I don't mean to scare the crap out of people, especially this morning. It's certainly I finished my cappuccino already, but it's a lot of work. You got to do a lot of work to do what I do. But when you know it, the first deals are always the hardest, but the rules are very much, much, much different. The good news, however, so it's more work to do what I do up front, right. You've got to raise more capital. You you've got to have the sufficient personal net worth to qualify and all that to what we can get into that. But the good news is once you move to my world, there's a multiplier effect, a wealth multiplier effect. You can make more money because small rental properties, the way we value them is the income, the not the income, but the sales comparison approach. If you look at comps, comparable properties that had recently sold in the marketplace and you kind of make price adjustments. And by the way, at CMHC, when I was working the default merchant and real estate department, it's two components, default management of apartment buildings. And as I said, apartment buildings rarely default to this day, my friends, a great asset to have. And the other component of that department is a real estate with she would take some properties back from borrowers who had defaulted. So I was doing a lot of Sienna's comparative market analysis. I had to sign off on these new valuations as my staff was trying to sell them well. So the sales comparison approach when it comes to apartment buildings is not the main valuation approach. The way we arrive at a value, it's really the cap rate or income capitalization approach. And bottom line, George, it's early for everybody, even where you are in Ontario. But for apartment buildings of five or more units to driver of value is the income stream, your net operating income and what I always tell my students. And why is your best friend always right? Your job as an apartment building investor in order is to maximize the NY, thereby maximizing the value of the property. So that's sort of that. That's the way it works. But the beautiful beauties for every dollar get this jordt every dollar in increased. And why that you can create like when you increase your rents are you shade, you reduce your operating expenses. The property will appreciate somewhere like said, with cap rates ridiculously low for every dollar in increased and I net operating income to appreciate by about twenty dollars. So if you give a twenty five dollar rent increase, it doesn't take much, much time to have a much larger valuation. So you make more money with apartment buildings. And I saw that. I saw that with my own eyes. I said, my goodness, I want to do that. I want to buy apartment buildings, I want to invest in apartment buildings also. And I can't go on. I can tell you I just did a blog post. People can go to my my website, Multifamily Investing Canada earlier this week because at the beginning of the pandemic, I was helping out people with whatever measures that were provided by the government to face the pandemic and all of that. And I haven't been active online for the last of over the summer because I'm busy having fun and camping and hiking and you name it. I wanted to recap what's happened to the multi family world. And I can tell you, even in times of crisis, like now or back in 2009 during the Great Recession, apartment buildings continue to be an amazing and sound asset. People need food and shelter. So before they start defaulting on their rent, they'll always pay. And your risk of more diluted when you invest in an apartment building. So a great asset to hold for sure. Yeah. And I saw make so much money, I said I want to do that too.
George El Masri [00:16:26] So, yeah, definitely a great asset to hold. I think some of the arguments that people will make sometimes with regards to investing in apartment buildings, let's say 15 plus units or whatnot, it's that if you only invest in that there, you can't really rely on the cash flow to replace your income. That's some of the argument that I some of the arguments that I hear. Would you agree with that? Or is there a way maybe that you've structured your your cash flow so that you can pay yourself out a little bit and kind of replace your income?
Pierre-Paul Turgeon [00:17:00] George, if you had asked me at the beginning of my career and so there's many layers to me, my answer at the beginning of my career when I started investing, it was at a time when Alberta was on fire because we need to specify my portfolio is in Edmonton, Alberta. Back then, George wouldn't believe the legislation. Landlord tenant legislation in Alberta is very nonrestrictive. There's no cap by how much you can increase your rents. It's whatever the market can bear. And we had a huge influx of immigration, you know, job creation, all the the items that make a good real estate market were all there and red hot, like kind of what you're experiencing in southern Ontario, that really red hot. So at that time, my friend, we could increase our rents over and over. We had amazing cash flows. I knew that I did the calculation at some point so that I would be in the years I'm going to save up to twenty three. Two thousand and eight rents increased by about forty four percent in that time span by frame. Right. So at that time you had tremendous cash flow. Cost of money was reasonable. I mean, it wasn't as low as it is now. Like interest rates were in the range of six, seven percent, if I recall correctly. So now it depends where you invest, but there's three profit centers like any kind of real estate asset, not just apartment buildings. Right. And the order will vary depending what's going on in the marketplace. So you've got capital appreciation is how you make money with real estate. Obviously principal pay down, which now these days with the low cost of money, low interest rates is probably your number one profit center is principal pay down with interest rates. Now you can get a got one that's refinancing now, a loan amount of just under one point nine dollars million. I'm going to get a rate of one point seven percent. It's it's ridiculous. If you look at the amortization schedule in five years time, my principal will have come down by four hundred thousand dollars. And then thirdly, the third profit center is the cash flow. So I appreciate what you're doing. And you're doing your audience a favor by telling them that it's not cash from where you make the most money. But here's the thing, my friend. Maybe I shouldn't be saying this to you, but I'm going to I'm going to do it. I'm refinancing the building that I have now, which is in great condition. No capital expenditures required. Just how much money I'm pulling out of that. Maybe a quarter of a million. OK, so, OK, cash flow during the last five years was not that great. Actually, we even have to do a little bit of capital injection because my friends out east in Ontario, Quebec, you know, east of Alberta, I mean east of Alberta, you need to know we're in our economy here is not doing great. We're suffering tremendously. No, OK, but how would you like you know, let's say you take a five year long term, which is an average long term that most people go with. How would you like every five years to get a large influx of money like that? And you have several buildings that, OK, you didn't have a lot of cash during the last five years, but all of a sudden you end up with a quarter of a million dollars every five years. And let's say you have one or two buildings like that that make your lifestyle much better. So that's how you got to look at it. But it's not like, yeah, cash flow is not it's over time we could get into strategies how you make money. I don't have to pull money. There's a reason why I do this strategically, but I don't have to do an equity take out. I could just renew and continue to pay that mortgage down. So it's over time. But the good news, George, if you ask me why I made the move to to become self-employed, at least it images because I saw those are the kind of strategies that savvy multifamily investors use and they make a lot of money. I saw people make so much money, even like I said, in times of crisis like now, and especially in two thousand and nine during the Great Recession. Why? Because if you recall, this is when the interest rates went down significantly and people, even if they had a penalty to pay, would refinance, pulling millions and millions of dollars out of their apartment building. Sure. And the good news is, if you do a good job maintaining the asset in good condition like this particular building, literally my roof is done. I mean, that's why I'm doing the equity take out. We can get into the rules changes that have occurred even during the pandemic for apartment buildings. But I'm using that money mostly to to to complete improvements to the asset write. But I don't have a lot of improvements to do, like maybe my windows, because the rest I've owned that building for ten years. It's been taken care of over the years. I rejected capital like a cash flow that I had. I we injected it into the asset itself to improve its condition with your cash on cash, return on investment, remain strong, remains great. So that's one of the strategies. I mean, sure, you've got to be careful with me because I'm a teacher in. Spiegler So if you don't stop talking. Right, right.
George El Masri [00:22:03] I never stopped by anyone I let you go to till you feel like you're ready. So just to recap the question, was our apartment buildings a good way to kind of replace your income? You're saying that it takes time. It takes time. Maybe every five years you're going to refinance it, take the money out, and then you're going to have an injection of cash flow there if you want to look at it that way. Is there a way in your in your experience or from your perspective to instead of refinancing, just kind of set aside some money from the cash flow every month? Or do you think that's just not a good strategy for apartment buildings?
Pierre-Paul Turgeon [00:22:39] Love your question, my friend. I really, really love your question. This is at the core, these are things. So when I teach this stuff, let me see if I can grab it quickly here. They don't have the right one here. I should have that when I do an interview here, probably so one has when you want when you make the move, you decide to make the move to invest in apartment building. Like I said, it's it's it's the less forgiving world. There's less lenders to work with you. There's less stakeholders. So you've got to be very careful about one thing that you need to know and you need to decide for yourself. It's not a coach like me or an instructor that can decide that for you. What are your goals? So, like you said, is your goal to get to replace your working income? OK, if that's the case, then you need to structure the asset at the beginning, the investment at the beginning accordingly. What do I mean by that? Well, if you want a greater cash flow, then you've got to put a greater down payment so that you borrow less money and you end up with a greater cash flow. That's your goal. But what's going to happen? This is not the best way to make money. Your cash on cash return on investment is going to be significantly less so that those are the kind of questions at the beginning. And for some reason, like I said, it's certainly George, I don't have my flowchart somewhere. Yeah, because that's I have an amazing flowchart that a device which holds the entire process of how to invest in apartment buildings. And those are some of the questions that you need to answer. OK, so if cash flow is your thing, then, you know, you've got to put more money down in order to borrow less money and have a great cash flow at the end of the year. OK, you have to have a positive cash. We all know that you don't want to touch a property and asset, invest in it if it doesn't generate a positive cash flow. But it is in terms of the three profit centers. So what I said is appreciation, capital, principal pay down. It's the third and least amount of profit is in the cash flow, but covered that every five years. Once you take you do you take equity out. So that's what I would say. So it is possible, but really it's it's over time. So what I would urge people is if you want to get into the multifamily business and want it, you want the asset to replace your your work income, start young. I'm encouraging my kids to get into real estate at a younger age because I wish I had figured this out at a much younger age. But like I said, I'm going to pull a quarter of a million out the next few weeks with that building. And I have several buildings. I use that once or twice a year every so many years. Pretty nice lifestyle.
George El Masri [00:25:19] Yeah, of course. Of course. You get to go hiking on Saturdays and enjoy life.
Pierre-Paul Turgeon [00:25:24] Exactly. So does that answer the question, George? Yes, but people have to be realistic. It's not like you're going to swim in money or, you know, it's more work. The the the expectations are so that you're going to be more professional. I don't want to be belittle anybody that invests in small rental properties, but if you screw up with, let's say, a guy like you, your client screws you up and you don't want to work with them anymore or that you didn't behave very professionally with BMO, the Corner Bank, you know, when you got your financing, you can always find another George, another bank that's going to work with you. Right in my world, you need to to demonstrate a high level of professionalism in the way you behave with banks because they're going to shut you out in no time. It's a finite world. And as many people as anybody can do this. You don't have to be a former CEO to underwrite or do to to invest in apartment buildings. But you've got to roll up your sleeves. You've got to do your homework to a much more significant extent than when you invest in small rental properties. There's no doubt about it.
George El Masri [00:26:23] Definitely. And in terms of your property management, once you and someone like you who's in a position where they have multiple units, are you doing like do you have your own company? Have you created your own property management company or do you just outsource that?
Pierre-Paul Turgeon [00:26:39] Oh, absolutely, George. I would say that. I'm very opinionated, so I hope you don't mind that you have to, but I tell you the way it is and I know what I'm talking about. So, you know, I would never not have a professional property manager in place. Like you said. You got to finish this interview with you. I'm not in a rush to finish it. Don't mind me, but I'm going to have breakfast and my wife will head out to the mountains. I want a life. I invest in real estate to create a life for myself and my family and and create a legacy for my shareholders. Right. Because like I said, what I describe now, what I'm doing with one particular property right now, refinancing it, pulling that money out, there's no end to that cycle as long as, you know, the property is in good condition and you can keep doing this. So it's for the lifestyle. I don't want to this weekend, these guys, these property managers work really hard. You know, maybe there's that they need to show that they can you just have to show the vacancies and all that. I don't want to have to handle all that crap. I want to go out hiking today. Right.
George El Masri [00:27:45] Sorry. Just to clarify, I was asking, like, if you've created your own property management company where you hire your staff has no
Pierre-Paul Turgeon [00:27:52] professional property management. What I'm saying is I don't recommend people manage to help manage their apartment buildings. I think that be a mistake because a professional property manager has all the systems in place to collect rent and to produce quality professional operating statements. And by the way, at year end, you've always have to provide your financial statements to the bank. So I cannot see myself having to do all of that work. So I pay a fee, roughly about four percent of the income to the property manager to do that stuff. So I don't self manage and I don't recommend excuse me, anybody self manages because, you know, when you crunch the numbers in the operating expenses are included, among other things, your property taxes, your insurance and all that. But you've got an expense item and you're operating expenses, one for a professional property manager and a on site manager. So these are the people that handle the hassles of being a landlord. So the property has to generate enough income to cover all the operating expenses, including, like I said, the on site manager and a professional property manager and your property taxes and all that and of course, your mortgage. So why would you want to self manage if the asset cannot generate enough money to cover the cost of a professional property manager? You shouldn't touch it. Probably, yeah.
George El Masri [00:29:13] I guess the reason that I'm asking, because I've seen certain people where they get to a point where they have so many units and they were outsourcing it, but then they decide, let me just hire a property manager, pay them a salary and then have them manage it that way. But I understand your perspective.
Pierre-Paul Turgeon [00:29:29] Well, it's and I've seen the other way. I've seen people where they had enough units. They try to create their own property management company. Believe you me, the last little it's a tough job. It's tough. Got to deal with tenants, you know that. So I would not recommend that. Right.
George El Masri [00:29:44] Right. OK, maybe the one more question I had before we move on to the next section, what would be some of the the major differences in the expenses, the acquisition expenses of a commercial apartment building, commercial, residential versus like a regular residential purchase?
Pierre-Paul Turgeon [00:30:02] Like the upfront cost is what you're asking me?
George El Masri [00:30:04] Yeah. Yeah. So the acquisition fees in terms of the phase one, environmental and whatever.
Pierre-Paul Turgeon [00:30:10] Whatever else. Yeah. Yeah. So yeah there's there's that, there's legal costs. So you pay for your own lawyer legal costs and that of the lender in my world let's say for twenty unit building can be easily. It's already fourteen thousand dollars. Fifteen thousand dollars. Like you pay for your legal fees and your bank's legal fees. You've got an essay which is a phase one essay, which is a non-intrusive sort of investigation, whether that can be a site contamination. So that will run you twenty five thousand twenty five hundred dollars or three thousand dollars easily. You should have a property assessment, property condition assessment report. There's another twenty five hundred dollars easily. You'll have if you go CMHC insured, you'll have a premium to pay. But the important thing for people to understand, so it's a mortgage default insurance, which is like any kind of insurance, you got to pay premium. The good news is it's not extra money you've got to come up with. It's capitalized onto the loan amount. So the lender will simply add the loan amount, a corresponding amount as the premium. You've got to CMHC fee as well, just like you just said.
George El Masri [00:31:21] Sorry, sorry to interrupt, but for that CMHC premium, there is Hst on it. Does that Hst have to be paid on on the closing date?
Pierre-Paul Turgeon [00:31:29] There's no hst
George El Masri [00:31:31] topiaries. No, that's not not on the premium there is on on the residential side. But I guess that on the
Pierre-Paul Turgeon [00:31:36] commercial and its its risk base. Right. It depends on how much financing you're getting. So I'm just looking at some of the guidelines here. I summarize all these things for my students, but if you borrow, you're at eighty five percent loan to value, then the premium will be four point five percent of the loan amount. And if you borrow less, let's say up to 80 percent, loan to value premiere's going to be three point five percent of the loan amount and so on. So the more you borrow, the higher the risk and the more the higher the premium.
George El Masri [00:32:04] So I would assume that eighty five percent loan to value is the highest for first time, actually. Correct. And that's that's not that's not normal. Like you wouldn't normally see somebody go up that high with the loan to value on a commercial, would you?
Pierre-Paul Turgeon [00:32:18] Oh, absolutely. Could it all depends where the market is at. If you're in a dissenting market, Georgia, you know about keeps going up. You don't mind borrowing. I mean, again, it's not your money. It's the bank's money. Right? You're cash on cash returns, you more or less. And you're in a great red hot market. You know, property appreciates and now the cost of money is so low that you pay the principal down very fast. Why not? Every circumstance, every market is different. At what phase of the market are you in currently where you are at the or refinancing asset? So it depends, but not is it prudent? Now, that's a different question. I can tell you for myself, especially in an Alberta in a market like Alberta, that suffering right now, it calls for prudence, for caution. My average is probably about below 70 percent loan to value of my portfolio because I like to have that nice cash flow as well and not be strangled by financing costs. Right. So it's but again, these are things that you need to figure out in your head, what's your risk tolerance for risk and so on. So that's sort of where we're coming from. Those are questions you've got to answer for yourself.
George El Masri [00:33:23] Sure. OK, so just to go back to the differences in the cost. So you said the legal fees. We talked about the banks.
Pierre-Paul Turgeon [00:33:32] Yeah, yes.
George El Masri [00:33:33] The property assessment report.
Pierre Paul Turgeon [00:33:35] Yeah. And the quick application, if you go CMHC, it's going to be one hundred fifty dollars per unit. And then the same thing with conventional financing, the lender will charge you a fee for doing the work. So usually one percent is what if you go to a mortgage broker, they'll charge you one percent to do the deal for you.
George El Masri [00:33:56] Yes. And there is an appraisal fee as well.
Pierre-Paul Turgeon [00:34:00] Not so. Good question. Let's now draw the distinction between two types of financing that are available to people. So we talked about safety, and you did a good job of recapping what she does, mortgage default insurance. So that's called CMHC Insured Financing Community. The bank gives you the money, the loan and Sammamish insures the loan, the banks loan against borrowers default. So that's insured financing. If it's not insured financing, it's considered conventional financing. All right. So conventional financing is different. There's many variations. You cannot the the longest the high loan to value first of all, it's seventy five percent loan to value, which you would just saw that the highest loan to value. Eighty five percent, the longest amortization period that you can go with a conventional loan is also twenty five years where she can go up to forty years if it's a new building. So those, those are things that make a huge difference on the bottom line. Right. If you go conventional financing again, not so much insured financing, George, you need an appraisal. They need to have the valuation confirmed by a third party appraiser. Whereas if you go save, which featured financing, they don't formally require you to have an appraisal. So I would because quite frankly, they don't give a crap about market value and say you can. I just see that very bluntly. OK, that's something that stumps a lot of novice investors. They think they're going to get market value. CNBC insures the loan not just for the the long term, let's say, five years, ten years, whatever you choose. But as for the full period, the MTC should. All right. Which means what? It kills the renewal risk at low maturity. What do I mean by that? And especially the time right now? I tell you, when the pandemic started, a lot of people to had nonserious insured loans were freaking out because some of the lenders, depending which market you were in and their perception of the risk caused by the pandemic, conventional lenders and low maturity, let's take a five year loan to have no frickin obligation to renew the loan with you if they don't like market conditions at that time. We're CMHC know a low renewal. The loan was insure for the full period of amortization. Twenty five years, up to forty years. Like I said, they have the obligation to renew. And believe you me, I'm speaking from experience. You had the lender that was refusing while they said value we value had come down and low maturity said, well, we we're giving you two choices. Either you pay the principal down by a couple hundred thousand dollars because the value is less than what we had in the book five years ago. When we ensure that we finance the loan or you pay out the full outstanding loan amount. I said take a hike. I used to work for CMHC. Do you think I don't know the rules like. Critical, a fast one on me. That's a significant advantage when you say
George El Masri [00:36:48] what you do, what you do in that situation.
Pierre-Paul Turgeon [00:36:50] I said I literally said not in those terms, but pretty much I said, excuse me. I said, take a hike. In the sense I said, no, you have. I paid my premium. The loan is insured for the full period of amortization. And I my loan is current. I've never missed a payment is in great condition. You just renew and they did OK.
George El Masri [00:37:10] It's a good thing under the rules.
Pierre-Paul Turgeon [00:37:12] We've got a new rules. I teach the rules. People can come in my workshop and learn the rules because yeah, you've got to learn the rules because it's a different world.
George El Masri [00:37:20] It's great. OK, ok, so those are so we covered kind of the difference between a CMHC insured loan versus a conventional commercial residential loan. We're talking specifically. So I think that was pretty much the major difference is that there might be some other minor. Did we miss anything there in terms of expenses?
Pierre-Paul Turgeon [00:37:39] If you don't pay a premium, obviously, when you go conventional, like I said, even when you you get commercial financing. But like I said, people I would say people out there don't know the business very well. I have in mind a lot of older folks. They said, oh, no, I don't want to go CMHC insured financing because I got to pay a premium whatever percentage of the loan amount based on their loan amount. But like I said, it's not extra cash. That premium is simply added to the loan amount and capitalized and amortized with the rest of the loan. Right. Let me put it to you this way. A lot of people and I argue, you know, I hang out with mortgage brokers, I talk to them, a lot of them. But my friends, when they come to my my multifamily investing workshops and all that, they argue, why go CMHC? But make no mistake, going with CMHC is clearly more beneficial. I'm sold not because it's my former employer, but because you pay an interest rate of about one percent lower. OK, so so the safety protects the banks against borrowers defaulting on their loans. So the way that lenders pass on that advantage to US laws is by reducing the interest rate by one percent roughly. Right. You got to shop around for interest rates. But the point is that when you go servicing shirt, it's a pain in the butt to you know, I mean, let me show you what it looks like, because I got it right here. This is this is the kind of work like this is it should be even thicker. This is my furnace application, the one that I'm waiting to hear back. Well, we're fiddling around the loan amount right now, but I know I'm going to get my life because I know how the game is played. Right, being a former insider. But this is this is a lot of work. You've got across a lot of T's. They ask a lot of questions. So it's a pain in the butt. But I'm going to get an interest rate, like I said, for a loan amount of one point nine billion dollars of one point seven, one point eight percent. Yeah. Whereas if I went conventional financing, I don't see anything. Sure. It's going to be one percent higher than that. So two point seven. Two point eight percent. Right. Right. Let me get more money and a greater cash flow, George. And also because you can extend the amortization longer than a conventional loan, which is limited at twenty five year amortization, you get a greater cash flow. Right. And you don't have to spend that money. George, like I said, you can use it. We use that cash to improve the asset or sit on it. And to be honest with you, these days, what I'm experiencing in Alberta, I'm sitting on the money, the money that you're leading in a bank account, because these are tough times. Yes. Yes. Loan guarantees when you go CMHC and greater loan to value possibly up to eighty five percent loan to value about CMHC, rarely will base the loan to value on market value. That's the other caveat to wanting I want to give people usually see is lending value. The value that they'll use to calculate the loan to value is usually lower than market value, which is why they don't want an appraisal because they don't want to be bound by market value. So.
George El Masri [00:40:36] Right. Yeah, I've heard of that too. So even so, let's say your place is worth two million. But see is saying that we're working to value at one point seventy. Yeah. And you're saying it's still beneficial even though you're leaving some money on the table.
Pierre-Paul Turgeon [00:40:51] Yeah. And it's cautious. CMHC works on behalf of all Canadians, but don't take it from Paul. What do you think the large institutional risk investors, multifamily investors do they go CMHC all day long, like the real estate investment trusts all day long, George Equity financing, for the reasons I just mentioned, greater flexibility. But it's a lot of work. I'm not going to dispute that. And turnaround time is terrible right now. I submitted this application in July and I still don't have a loan approved for financing super fast of weeks. Right.
George El Masri [00:41:28] OK, that's interesting. Yeah. So there there's a two, two good options, but they each have their advantage and it's just a matter of picking which one works best for you.
Pierre-Paul Turgeon [00:41:37] And these are things you need to figure out. And you know, as you probably know, this is the kind of stuff I teach when I teach, I teach with TI studies. So that people can play with these concepts. Yes, but at the end of the day, as an investor, what are your priorities, where your investing goals, you need to figure that out? What is based on those priorities and goals? What is the best strategy for you right now? And if you have shareholders like I do, you've got to factor their desires as well in their right.
George El Masri [00:42:05] OK, perfect. OK, so let's jump into the next section. Is there anything you want to add before we do that?
Pierre-Paul Turgeon [00:42:11] I don't think so. That kind of gives you a pretty good idea of the differences in financing and all of that. Yeah, it's
George El Masri [00:42:18] perfect. OK, I appreciate that. So let's go into the random five. So I'm going to ask you five random questions and you are just going to tell me the first thing that comes to mind. The first question is who is your go to band or artist when you can't decide on something to listen to?
Pierre-Paul Turgeon [00:42:34] Oh. Oh, you know what? I'm not I'm going to give you a cheesy answer I like I spent time in Brazil when I was a kid a year, and I like that bossa nova jazz stuff.
George El Masri [00:42:46] OK, cool. All right. Perfect. What was the most historic thing you witnessed in person or took part in.
Pierre-Paul Turgeon [00:42:56] Historic for that's a toughie, now I need another cup of cappuccino, Georgia historic. Well, I studied before I studied law. I've got a law degree and political science and you've seen all of that. Well, I will say, OK, I'll stick to real estate area, so I got to think this through while it's early in the morning. So the kind of questions like that, but what, 2008 and 2009, the Great Recession and especially hostility we see back then, the fall of 2008 and even the summer of 2008. Let me go back to that, because, you see, I'm a former minister like you. You know, I grew up in Quebec. I went to school in Ontario when I was back east in Ontario or Quebec. I didn't know the price of the barrel of oil didn't matter to me. Right now it does big time. And in the summer of 2008, a barrel of oil in Canada, western Canadian select was was sold four hundred and forty dollars a barrel. And you know how much it sells for now? It sells now for about 30 bucks, 35, five, maybe 40. Now I think I stopped because it's so depressing. I stopped to read the price of a barrel of oil. But the reason I said that it went down during that summer, the fall of 2008, and I was buying my first apartment building on my own. And this is when credit stopped around the world. I don't know if you remember that. Excellent. And I had a loan approved with one of my lenders and the lender didn't know whether he'd have money to give me for my financing. That was pretty historic property. It was a scary time, my friend. Yes, I can imagine very, very, very scary times. That's history in the making price of oil being that high, which now started crashing and then the dropped interest rate. Yeah, yeah. I since then I follow macroeconomics and the price of gold and what's going on around the world. I've just been reading about China. So anyway, that was very historical event that I witnessed and I think we are in the middle of history right now.
George El Masri [00:45:06] But yeah, I was just going to say, I know we're in the random five here. But just out of curiosity, what are your thoughts on where the market's headed,
Pierre-Paul Turgeon [00:45:15] like the real estate market or or generally?
George El Masri [00:45:19] Yeah, just in general, real estate to the economy.
Pierre-Paul Turgeon [00:45:23] Or I can talk about that stuff like I have I have an increasing passion for macroeconomics. So I studied a duty, got a degree in political science. So even what's going on in Canada, I'm following very closely. I got to stop because it's driving me nuts and I won't go there because I could go on a political rant. You have no idea what any of us are in good shape by any means. I'll say this much and I'll leave it at that. We're not very well managed in this country, a lot of division. But I would say we are witnessing the decline of the American empire truly with all this quantitative easing, you know, that's taking place. And now even in Canada, China is becoming the world leader. And I was just reading something yesterday, and this is stuff where I try to stretch my mind. The US has some seven point some one trillion in bonds, securities outstanding there. And you know how much China owns of that seven point one trillion, one point seven trillion. So a good chunk of it. And you don't want this stuff going on with China right now like a trade war. And all of that tensions are really high between the US and China and China. If they decided to sell their US bonds, it would destroy the world economy, would destroy the American dollar because and they're deliberate. It's a country I knew well. I studied even Mandarin when I was in my days that moved up into the country a few times. It's a country that's fascinated me. I studied the history. So we are witnessing the decline of the American empire and they've got an accumulation of gold. So this kind of stuff is very fascinating. It's not conspiracy theories or anything. It's very real. And of course, we don't know the truth. What's going on behind the Chinese wall. Right. To use that analogy. So we are witnessing history in the making. And, of course, we know where the pandemic came from. And these are historical times. And it's very strange for me because of my you know, I'm well traveled and I speak a bunch of languages and I travel regularly. Well, not since the pandemic, obviously, but until then, I have to say this and I read a lot what's going on. Historically, we are living through historical times. Yes. With your impact and the pandemic will leave us with yeah, we're very different people. We can see the changes occurring right before our eyes. We my kids are going to university right now online and all of that and businesses. So this is also a major historical that we're witnessing.
George El Masri [00:47:53] Yes, definitely. OK, perfect bloviated answer.
Pierre-Paul Turgeon [00:47:56] Sorry, but you're talking to a professional speakers and so somebody that reads
George El Masri [00:48:01] a lot, so no problem. No, I appreciate your answer. Number three, what do you think the next big technological advance will be?
Pierre-Paul Turgeon [00:48:12] Wow, these are tough questions. You want us to answer them spontaneously? Yes. I show because I'm in an oil province. Oil and gas province, I do monitor what's going on with energy transitions and all of that. People need to understand this is something I read and I may even do a kind of a TED talk video about this, because I think people are very well ill informed. I don't think it's electrical cars. I don't think it's so windmills by any means. All of these still require a lot of oil to produce, by the way, and they're not recyclable. So I don't think that, you know, Tesla and all of that. And if you start peeling the onions, you see that a lot of these people that are trying to shift away from gas are still needing oil to produce whatever technology. But wow, George, this is a next technological advance. It's definitely our energy source has to be what it is. It's like I said, I don't think that at this point in time that solar is it yet. But I but we have to find I don't know the answer to that, George. I think it's a technical question, but it has to be something having to do with sources of energy because we can't go into where we are going. We are destroying our planet. As much as I don't think that we can walk away from oil and gas overnight, I mean, we cannot scientifically, it's impossible, but it has to be a different source of energy that we need to use that is cleaner and good for the environment. Yeah, whatever that may be. But it is not solar. I urge people to go and watch Planet of the Humans, a documentary by Michael Moore. I urge you to watch This Planet of the Humans by Michael Moore. And Gibbs is the producer. It'll be an eye opener. You'll see that we're not. Yeah. So, OK, I don't have to specifically here.
George El Masri [00:50:11] No, that's fine
Pierre-Paul Turgeon [00:50:12] or cleaner source of energy for sure to save our world.
George El Masri [00:50:15] Yeah. I'm catching you off guard here. But yeah, you're right. I only had one cappuccino. Yeah. All right. Number four, when was the last time you immediately regretted something you said?
Pierre-Paul Turgeon [00:50:27] She I'm getting a Mauti all the time. Yeah, I'm telling my wife her hair looks funny.
George El Masri [00:50:37] Yeah.
Pierre-Paul Turgeon [00:50:38] Oh, no, you don't do that. She always looks good. Oh, my gosh, George, these are tough. I will say this much regretting seeing some all the time, George, I put my foot in my mouth all the time. Ask my kids, my kids say, Dad, put your filter on.
George El Masri [00:50:54] Yeah. Yeah. It's a regular regular occurrence for you.
Pierre-Paul Turgeon [00:50:58] Yeah, it's say stuff like that. Saying too much what I think without thinking twice. Yeah, but but but but I'd rather be like this than a hypocrite. I think we live in a hypocritical world. I don't like that. What you see is what you get and I speak from the heart. Fair enough.
George El Masri [00:51:16] Still enough. OK, and the last question here is what success principle do you live by?
Pierre-Paul Turgeon [00:51:27] Always be open minded, always be open minded. I, I read voraciously, so I went to law school. So when law school you read like judgments from judgments from judges like sometimes very thick. I read all the time. I read all your books. I go to the bathroom. I read the bathroom. I should tell you this, but I do. And I read fast. Now with iPhone you can read everywhere I'm cooking. I have an audio book going on. Open minded is success. The world is evolving the opportunities out there all the time and I want to be on the lookout. I wish I had had that kind of mindset earlier in life. But believe you me, I instill that in my kids. I'm very proud of my kids. I have three children. My youngest is fifteen, obviously a teenager, a typical teenager. But then I have a twenty twenty year old daughter who's in third year university in sciences going hopefully to med school and a twenty two year old also at sciences. And I'm very proud of them. They're well traveled. They already also speak three languages, which I'm so proud. They thought my kids would also be multilingual like I am, and they're open minded and open to opportunities. So being open minded, we are in a time of crisis. But every time a period of crisis brings with it a lot of opportunity. So being open minded, I think is key to success.
George El Masri [00:52:47] Definitely. That's great. OK, perfect. Well, I appreciate all of your you sharing all of your knowledge, and I just wanted to ask you to finish things off. How do people reach you and what services do you offer.
Pierre-Paul Turgeon [00:52:59] Yeah. So I multifamily invest in Canada, dotcom, multifamily investing, kantako I the kind of services I offer. I'm not I do have an online business, I have an online course that I'm going to be giving. I just decide on the date and the next virtual workshop because obviously we can gather it looks like we're in the beginning of the second wave of covid-19 next workshop is going to be at the end of October, I believe it's October 30th. We just look at the date here, October 30th, 31st and 1st of November. It's a two and a half day workshop, all virtual now, but it's live. I answer your questions. Just look me up at multifamily investing. Can't dot. That's what I do. Unlike other people. As you know, even given this interview, I am an action taker. I am an active investor. So I do this a couple of times a year. That's how I help people create wealth for themselves. It's my mission, George, by the way, to democratize the access to market and to invest in Canada. A lot of people out there don't want me to teach this stuff right, the the tricks and strategies and all that. But I make it my if I can help somebody create wealth for themselves and their family, my hope is that they'll do good in the world with the wealth that they create for themselves. That's that's that's my mission.
George El Masri [00:54:12] Perfect. So that's great. Yeah. So I'll be sure to include your information in the show notes. And that's so yeah. In October, the next one's coming up and yeah I think that's it. Any final messages for the audience.
Pierre-Paul Turgeon [00:54:25] Take care of yourselves folks. Yeah I do. I do. It was in my blog post on Monday that I published. These are difficult times. Make sure you find a time to appreciate what you got so early. I don't have my gratitude rock which I carry with me every day, but make time to have joy and happiness in your life because, yeah, this pandemic is tough on everybody. It's tough on the kids as well. Their social structure is destroyed. You know, the kids go out as much with their friends. So take care of yourselves. You folks out there. Yeah.
George El Masri [00:54:58] Awesome. That's great advice. OK, well, I appreciate your time today, Paul, and I look forward to sharing this with people. I think there's a lot of good stuff in here. So I hope you all enjoyed the hiking that you're going to do today with your family. And I look forward to talking again soon.
Pierre-Paul Turgeon [00:55:13] Thank you. Thank you, George, for having the characters.
George El Masri [00:55:18] 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 to download your free copy.