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Erwin Szeto [00:00:06] Hello, my fellow wealth hackers.. This is Erwin Szeto, bringing you another episode of The Truth About Real Estate Investing Show. And how is everyone doing? Back at home, we finally replaced the batteries in our weights. Weight scale. Weight scale. Weight scale. I am £15 heavier than it was last time I checked when the batteries did work. I’m just under £200 now and this is the heaviest I’ve ever been, which is okay. I am in week four of an eight week muscle building challenge and I’ve kept up with the workouts. It’s kind of hurt something in my neck and my back. So I looked at thankfully a little bit ahead in the workouts, so I only need to do one more workout this week. It’s only Thursday night as I’m recording this, so I still have a few more days left to recover and dip. At least work it in. I been doing so good on the recovery or the stretching or the sleep stuff, but again, I kept up with the workouts. I haven’t even kept up with the 2500 calorie per day I’m supposed to eat. So this has been a this is a really, really interesting journey for me. But I believe that life is all about experiences and I’m enjoying this process. Know, I’ve never done anything like this before. For those who don’t know, we sold our house in our new house they move into in March has a pool. So the goal is to be pure body ready by the summer. You know, I think it’s always good to have goals and objectives to, you know, make sense of the madness. On a fun note, we just had our best month of start kayaking yet, so we are reinvesting the profits into getting a peloton bike. You know, quick story about, you know, I’m the first to admit when I’m wrong. I’d gladly admit when I’m wrong, when new information is available. For example, early on when the virus was hitting and it looked to be the Great Recession, the Great Depression that we’re running into, my thought was peloton bikes. You know, usually in a recession, people cut off all, you know, excess expenditures. A peloton bike comes with at least a $50 monthly subscription. The bike itself is like $3,000. I thought that companies going to be in trouble. No different than like all the gyms that are out there, restaurants, you know, all the all the extra spending usually gets cut in a recession. But I was so wrong. I was just I just read an email from the founder of the company saying that the demand is so bad, even after like six times or 12 times their output, their manufacturing output, they’re still struggling to keep up with demand. For example, I ordered my bike on the weekend and the weekend of early February, and I’m supposed to receive the bike until mid-April. So that’s like eight weeks. It’s not too bad then within weeks, ten weeks. But while anyways. So the nice thing about the bike is I’m a bit of a nervous nelly. I don’t like riding on the road. I’m afraid of cars hitting me and stuff. But for those who don’t know a peloton bike, it’s an indoor bike. It’s supposed to be a pretty nice bike. Has a built in tablet screen, I believe it’s 20 inches as a touchscreen and they stream live classes, live classes and on demand classes as well. My output will be tracked and shared displayed for other people. Laugh at me. And if you’re a fellow wealth hacker out there with the peloton, please hit me up. It would be cool to ride together. I don’t know if we can like chat and stuff our riding bike and suffering, but it would be cool talk real estate stocks and stuff. It’d be cool. So speaking of stock hacking, I forget to share stock hacker. Oh, I haven’t shared this before on the podcast. So the Stock Hacker Academy is proud to announce that 20% of our trading profits will be donated to the registered charity of the Hamilton based brigade. So, for example, profits that are made by Stock Hacker Academy, they go into a corporate trading account for me to trade personally, and then 20% of my profits would go towards charity. So how this, for example. So January was a great month for the for the corporate account. So the donation from the corporate account alone will be 60 400 USD for the month of January as we grow our Stock Hacker Academy, as we help more and more hardworking, everyday Canadians to create six figure side hustles, we will donate and support the most disadvantaged children in Hamilton. That’s why we’re here. It’s just last week they automatically gave the charity that I co-founded and preside over. Last week we outfitted 176 boys and girls, each receiving a winter coat, a hoodie, winter boots, hats and mitts. We sourced all the products from a wholesaler, so we saved around $0.60 on the dollar, which is how I like to operate. I like my dollar to go further, and that includes charity as well. So for all of you out there, I trust your investments are going well. In my day job as a real estate professional, I get to connect with real estate investors from all over Canada and a couple of folks. The US too. It’s fascinating. For I’m a real estate geek, so I really enjoy talking about real estate and learning about real estate. It’s fascinating how different all the markets across Kent are behaving. I was looking at an interactive map on our dossier as googling anywhere uses website before is pretty cool. W0wa dossier. I’ve posted a link in the show notes on real estate price changes by province. So Nova Scotia, Ontario, Quebec and B.C. lead the country by far in a way to lead the country for a price depreciation. I did not know Nova Scotia was doing so well. Saskatchewan and Alberta had the slowest price growth post in the single digits. Alberta and Saskatchewan being very, very low. You know, I get a little maybe I’m a little desensitized to even just minor. You know, they’re still positive. So it’s not terrible. But, you know, it’s not like the 7 to 20% that we’re used to in Ontario. So that gives me idea. I need to reach out to friends. Nova Scotia and Quebec to find out what’s going on in those markets. I can’t recall the last time we actually had a gas from that way. Just to take a step back. Some like to overcomplicate real estate investing. Put simply, real estate is like any business out there. It all starts with supply and demand. The supply of land in desirable areas is limited. That is why my own investing is always focused on houses, on land, and not condos in the sky. Demand comes from jobs in immigration, where there is job growth and where and where do immigrants want to live? Greater Vancouver area makes a ton of sense since the weather and lifestyle are awesome. There are certain folks of different folks of different cultures. Much like Ontario is as well, which is another top destination for immigration and job seekers. When demand outstrip supply, that’s when you find price appreciation. And like those provinces that I named earlier, for all of you killing it out there with real estate appreciation, congratulations. You paid attention to economic fundamentals and took action. For some investors, the requirements lead to lead with cash flow. So I’m hearing how everyday investors are going to Windsor, North Bay, Edmonton, Moncton, New Brunswick or apartment building investors. Which leads us to this week’s guest. And this gentleman actually invests all across Canada. So I’m calling him a nationwide apartment building investor. His name is Michael Ponti. I first met Michael at a real estate conference many years ago. I think close to ten years ago. It’s pretty wild where he was collecting his award as apartment building investor of the Year. I think Michael was only a couple of years into it too, and he’s doing is on fire. And so he’s been collecting even more building since Michael invested all across Canada and more recently in the maritime provinces. On the show, he actually shares his unique strategy. I didn’t know this before. And the specific demographic that he targets and based on the demographics he targets, so to speak, identifies where he’s going to be buying in terms of location. I honestly, I want a strategy if I can recall any past guest talking about in the multifamily space. Mike also shares somehow he’s able to invest in real estate and also the country because he lives in B.C. but he invests as far away as Moncton, New Brunswick. So without further ado, I give you Michael Ponti. Hi, Michael. What’s keeping you busy these days?
Michael Ponte [00:08:16] How’s it going? By long time no see. Thanks for having me, man.
Erwin Szeto [00:08:19] I know it’s been a while. I can’t believe this is the first time you’re on the show.
Michael Ponte [00:08:22] Got to get the invite, I guess, right now.
Erwin Szeto [00:08:25] And I don’t know what the delay was. I first met you in person, I think was 2015, 2015, 2016. You were collecting an award. I’m trying to remember which organization is either at the investor form or a REIN. You’re collecting award for multifamily investor.
Michael Ponte [00:08:42] That was the investor form getting in real estate wealth magazine.
Erwin Szeto [00:08:46] Okay. So that was a national award that you won. Okay. Because it didn’t connect for me for a moment because I thought that was a provincial award. But you’re not from Ontario?
Michael Ponte [00:09:00] No.
Erwin Szeto [00:09:01] For the listeners, hey, we got something for us out of Ontario. You know. There’s places outside to invest outside Ontario.
Michael Ponte [00:09:08] Who knew of the. Event or not?
Erwin Szeto [00:09:10] Believe it or not. Maybe that’s why it took you so long to get on the show. So. But like, what is keeping you busy these days? And that was almost five years ago now. I have been following along from a distance. You’ve been doing a lot more. Even when you’re the award winning multifamily investor of the year for Canada in 2016 ish, you’ve done a lot more. Could you give us an idea of what you’re at now in terms of like what does the I don’t know, how many properties did you buy last year? What’s your target property these days? Yep. A little bit about your strategy.
Michael Ponte [00:09:49] Awesome. Yeah. Great. Great questions. And thanks for having me on, Erwin. It’s just it’s great to see you yet again. And like I said, communicate with other people that I have known in the industry for a long time. For those, yes, I’m from Vancouver, British Columbia here. And yeah, for myself, I’ve been investing for roughly. Around 20 years. And so I’ve been doing this a very, very long time and for myself got started just like a lot of people, just buying a few pieces of real estate and started to kind of expand from there.
Erwin Szeto [00:10:15] So Michael explained about a few. Like, what do you buy? Condos, townhouses, 30 unit buildings?
Michael Ponte [00:10:21] Yeah, no, I actually started with the simplistic property, which is the basic townhouse, three bedroom, one and a half bath, finished basement. Because when I was first starting many, many years ago and Erwin and I were kind of talking just before we got on here is, you know, there’s a lot of information right now. There’s tons of information that’s out there. But back in the day, there wasn’t a lot. So I actually didn’t really know what the heck I was doing when I first got started. So I started small, so and my thought process was start small. So if I’m making mistakes, those mistakes would be small as well. And as I started to grow and scale and learn really by example is when a lot of my knowledge started to kind of come in and started to diversify and started to kind of go into more single family homes with suites. Downstairs we did duplexes or plex’s, and then I started to kind of move into the more of the multifamily side, which is the area we focus in right now. So our focus is really kind of in apartment buildings. Our focus and our target is kind of in that sweet spot of roughly around 1213 unit apartment buildings to up to maybe around 25 to 30 units. We just that is kind of our sweet zone. And the reason why we do that is we’re not buying something a little bit smaller where people that are in multifamily that are just getting started are acquiring and maybe spending too much money on those types of transactions because it’s a little bit more affordable. And then at the same time, we’re not necessarily competing with some of the rates and some of the bigger institutions that are out there when it comes to multifamily. So that’s our sweet zone. And for myself, we’re just steady eddy investors where there’s not a lot of pizzazz and excitement and we have a real strict model and how we approach our acquisitions, kind of average rule of thumb, you know, our focus is minimum between 1 to 3 or four properties per year. But the key point that we look at is I’m happy to not buy anything. To be honest, if the numbers don’t make sense, you know, it’s not about volume for me. It’s about I want to buy a project today. And our strategy is we want to see equity from the very beginning. So we are looking for some of those motivated sellers. We’re looking for a little bit of distress. And this way we’re in a position where there’s a little bit of a buffer to protect ourselves. And here’s the perfect example. In a situation when we’re dealing with the pandemic, if the market starts to drop for whatever particular reason, we’ve got a little bit of cushion to protect ourselves. And one of the other more important pieces that we look at when we acquire is cashflow. And we do need to see cash flow out of the property. Multifamily, you have to treat like a business. You’re buying a business like a coffee shop or any type of commercial business. And you know, for those that are just looking or considering this, you know, here’s a question back to any of our guests that are listening to this today. It’s like, would you buy a business that loses money every single month? And of course, the answer is going to be no. And the same thing would actually apply when it comes to multifamily as well. So for us, we’re looking at, you know, in a situation based on current reality, the property is performing well today, but at the same time we’re looking for that upside as well. Where are those opportunities to raise the rents, the net operating income and increase the valuation of that business? So we have a very strict criteria of the of the properties we’re looking for and we’ll sit on the sidelines until we find the right one for us. So for me, it’s not about, hey, you know what, I need to buy 100 units or 200 units this particular year. That’s great for me. I’m not really interested in this. I want to put my time and attention on what’s actually going to make me money every single month. So for me, we just finished up a property. We bought a 12 unit apartment building in Edmonton just recently. I’ve got a property going under contract, hopefully within the next half an hour or 45 minutes. Another 12 unit apartment building actually in New Brunswick that we’re just locking up as well. And both of them are absolutely fantastic properties that have performed. So yeah, like I said, we’ll do those types of projects all day long and with the same model that we’ve kind of stayed consistent with for the last several years of investing in real estate.
Erwin Szeto [00:14:15] So awesome. As I want to ask before you mentioned Edmonton, New Brunswick, you live in Vancouver, you’re finding jail when you’re finding cash flow and building equity in Vancouver.
Michael Ponte [00:14:25] Oh, no, no. And here’s the funny thing is, so I can appreciate what your guests are listening to in Ontario. So guys in Vancouver, we’re dealing with the same situation you guys are, just so you know. And when it comes to cash flow, it’s really, really challenging. And even for myself, I don’t own a lot of property in this lower mainland where I live because it just for our strategy, it doesn’t work. Obviously the equity gain has been significant and sometimes you kick yourself, you’re like, I wish I jumped into it and been able to ride that appreciation. But it’s one of those things that you just have no control of. You don’t necessarily know if that’s going to happen. And, you know, for us, we’ve got properties in Alberta. And so we’ve written a positive way and also the opposite side. But that’s really when you know, when your strategies are working. My biggest concern is in markets that have been constant appreciation as they’re not used to a true downturn in the economy. And so I’m always very cognizant and very cautious when I see prices continuing to go up. And it’s been going up for years and years and years. My concern is when will that eventually happen and if it’s going to happen. But it’s one of those things we always plan for when any acquisition that we look for. But as long as you’ve got sustained cash flow and profitability every single month, you cannot ride any of those things. Right.
Erwin Szeto [00:15:39] So. Oh, I was reading an article. Biden is expected to announce 1.2 trillion of stimulus in the next coming days. Right. We know the same thing. I ask the questions, when is this going to stop? And you read, oh, another $1.2 trillion are coming.
Michael Ponte [00:15:56] Here we go.
Erwin Szeto [00:15:57] And then I was reading an article yesterday in The Globe Mail about a student, Pelosi saying, but saving us is interest rates are low so that we can actually afford our debt service. Yep. So what you’re saying just read between the lines. Interest rates can go up.
Michael Ponte [00:16:12] Oh, that’s the point, right? Yeah. Absolutely. Like, you know, as you as an investor as well, you’re looking at that. It’s like this is a huge opportunity in regards to, you know, regaining some of your cash flow. But there’s obviously, you know, you look at all the stimulus and everything that’s going on, that’s one thing. And you have kids just like I do. I’m very concerned for them. Like at some point in time, the paper needs to get paid and so where is that going to come from? And that’s always been my biggest issue that I, I don’t know either.
Erwin Szeto [00:16:39] I’m just concerned. You are? Yeah. That’s the one we’re talking about today. I thought. Hey, hey. Trudeau said the words themselves. Great reset, right? He name the conspiracy theory by name. So don’t blame us for going down this rabbit hole for sure. Exactly where is most of your focus then, in terms of geography? You mentioned Edmonton, you mentioned New Brunswick. I’ve been hearing a lot about New Brunswick lately.
Michael Ponte [00:17:04] Mm hmm. Yeah.
Erwin Szeto [00:17:06] You mentioned Halifax before recording. You have a.
Michael Ponte [00:17:09] Focus. On that? Well, for me, we were.
Erwin Szeto [00:17:13] More the property type and the numbers you need to hit before you even look at it. Which way does it go first? Or intersection between geography and not certain numbers.
Michael Ponte [00:17:22] It’s kind of a combination of both, to be honest with you. And so for us, we’re trying to pay attention to what’s happening in the economy and some different things and some parts of it. We were very fortunate and just took a chance. Right. So while the economy wasn’t doing so well in Alberta, Edmonton back in 2016, it’s not to say and this is the benefit about multifamily is you’re not so dependent on the market. You know, if market’s appreciating or not, you’re really focused on the business, the growth of the business and the success of it. So even you’re acquiring properties, you’re paying really close attention to net operating income and looking at ways to increase valuations. So that can be done in a up market, a down market, as long as there is sustainability and the vacancy rates are reasonable, then you can kind of maintain the business side. And then if people are getting becoming tired landlords or whatever the situation is, these are become opportunities where you can acquire properties for a good price. So when we were looking at Alberta and we’ve been investing there for quite a while, we just started kind of exploring some of the different markets out there, completely different. You know, it’s funny, it was back, I think it was in 2015. I got a message, I checked in yourself. I was actually out in Hamilton and we were looking at deals and the numbers were just like for cash flow was just barely kind of gone through there. And I had a couple of properties actually put one under contract and actually walked away from it from a 15 unit one. And so here, you know, the market just absolutely exploded, you know, shortly after that. And we never did jump into that particular market. And so the reason why we didn’t do it at that point in time is, again, we treat it as a business. We want to make sure that the income stream was always there. And that’s always been our claim to fame, is that we want to make sure that the business is able to support itself at any point in time. So as we started looking at different markets, we did come to the realization on Halifax where like we were started looking at some of the properties. We saw kind of the university communities that are out there and very big university towns. So we started kind of exploring this and we saw how solid it was in regards to how low vacancies were. But the other part was just affordability and the second part was the cap rates were just extremely high back then and we were talking like 2013 somewhere in that vicinity. And so we thought, you know what? We started to crunched the numbers and started to look at it and we looked at it. The prices really didn’t change at that time. They were just like it was pretty flat. But where it was able to produce was the income side. It was quite significant more than what we were able to see in any other market. So we thought we test the waters out and just kind of get into a property out there just to see. And it was a 15 unit apartment building. All two bedrooms is a great property. And so we thought, let’s test it out. And the cash flow that was coming in was absolutely significant, still is today. And it was more than offsetting what we would have maybe occurred on the equity side. So what we saw was cash flow that was offsetting any appreciation. So we didn’t. Budget for any appreciation. So when I spoke with partners, I told them I go, listen, the price that we’re buying it for and I’m trying to remember the number. I think it was just under $600,000 for 15 unit apartment building. So, yeah, so when you hear that, it’s, it’s like, holy crap. But that those don’t exist anymore. But, but the reality is you’re able to acquire something like that and the cash flow is just absolutely massive. So our presentation to our partners was we’re buying it for this, we’re selling it for almost exactly the same price. But where we saw the opportunities, you’re getting the mortgage paydown and here’s what we’re seeing on the cash flow. Those are both things that we had a lot of clarity to and we felt confident with. So for our investors that were interested in that type of income stream, that made sense for them. So we tested it out very, very fortunate that the economy really did take off out there. But we really put our attention and focus on who our client was, which would be our tenants, and those were students and, you know, they had major university towns. So we knew it was going to be very solid there because, you know, you’re always going to have students are very, very, well, reputable. And so that’s been our kind of strategy moving forward is really determining and understanding who our client base before we start looking at some of the different markets. And so as we started exploring a little bit of the East Coast, we saw some other different opportunities. And New Brunswick is actually a new market for us too. And it’s like we’ve done in Halifax is just tipping our toes in the water to test it. But they’ve actually had some decent appreciation. They have very good cash flow in those particular markets. And you know, even for some of the projects that we’d be looking at, we’re on the fence on this particular one that we’re going to be acquiring. That one may be more of a kind of a multifamily strategy where, you know, we’re going to be doing some short term financing for a year. And then at that point in time, maybe make some decisions. If we want to flip it, make a couple 150, $200,000 out of that thing. Or do we keep it and keep it as a nice long term income strategy on that one too? So for me, I am always looking at different markets and once we’ve established ourselves there, we built, we have our team in place and we just continue to look at opportunities. So right now we’re kind of looking at, you know, three or four different markets. Calgary, Edmonton is kind of our base. We’ve got property in Fort Saint John in B.C., which is also doing well. And then we’ve got Halifax and also out in New Brunswick out there as well in Moncton. And so those are kind of the areas that we’re putting some attention to. And for me, I’m always just looking at new, different markets, understanding it more. I’m also trying to be cautious in regards to not overextending ourselves in regards to locations too. So even as we have acquired some different properties, we’ve have a lot of our single family properties for quite some time since like 2001, 2002, a lot of them are actually starting to kind of get paid off at this point. So we’re getting close to that. So for us, our strategy and finding our niches, being in multifamily, we’re maybe starting to consider looking at exiting some of the residential stuff and cashing in on some of those particular transactions there and moving that capital to our different asset class that we’re considering as well.
Erwin Szeto [00:22:58] So I’m impressed you still hold your singles when you have all multifamily, especially the size that you’re doing. Most people don’t hold their singles after they have they have a multifamily bug.
Michael Ponte [00:23:10] Yeah. Oh, there’s no question. Like it’s funny because you know, some of the transactions that we did early in our days and you’ll appreciate this. So again, 2001, 2002, you know, we’re buying these townhomes, believe it or not, I still my very first deal, the very first one that I own was a townhouse, big, ugly, brown piece of junk. And it’s just it’s a piece of junk, but it’s just ugly brown house. And we bought this for, like, $82,000 right back then. This thing has always be nothing. Like, it’s completely clear. And all it’s doing is putting, like, almost 2000 bucks a month in my pocket. So it’s just like, do I want to kill the goose or not? And so that’s, you know, part of it is why am I in this game to begin with? And initially for me, it was about spending more time with my family. And that’s why I got into real estate to begin with and have a decent income stream not to be the next Mr. Super Rich real estate guy by any means. It was about establishing myself where I was able to generate an income stream to be spending more time with my family, be at home doing the things that I really want to do. And so that’s kind of been the big focus for me. So it’s still fine if I’m seeing those opportunities that are still producing that great cash flow. It’s hard to kind of give that up to your point. But even now, as we’ve looked at this and we’ve got these assets that have been pretty much paid off for the most part, you start to consider is like, is this the time to start parking your money somewhere else to kind of maybe, maybe do something a little bit differently with this? But again, when the goose is actually laying the egg constantly every single month, sometimes you’re just like, oh, maybe not.
Erwin Szeto [00:24:39] So is the goose in Vancouver? Is the townhouse or is it?
Michael Ponte [00:24:43] No. So that’s actually in Edmonton as well. So my very first property that wasn’t actually I’d mention my very first one.
Erwin Szeto [00:24:49] Where did you live there at the time or surely for investment.
Michael Ponte [00:24:52] First. First investment property. Yeah. My first property was actually in Vancouver.
Erwin Szeto [00:24:56] Got it. Okay. Okay. You have property in Vancouver.
Michael Ponte [00:24:59] Other than my personal residence. No.
Erwin Szeto [00:25:02] Took. Jess, you mentioned this was about family. So I have a friend of mine who invests in like five different cities. I make fun of them all the time. So you could drive them all in hours. Right. To drive you.
Michael Ponte [00:25:18] Property? No. Not anywhere close. No, not at all.
Erwin Szeto [00:25:21] How did you build that out then? That you’re still able to spend time with family, but you have your literally you’re on the left coast. You have property and the right coast. Totally. Yeah. How did you how did you build that? Like, even part of my ignorance was. No, the flight from Vancouver to Edmonton. How long is that?
Michael Ponte [00:25:38] Oh, it’s not. It’s about an hour and a half. Not even so.
Erwin Szeto [00:25:43] Okay. Okay. Pardon my ignorance, but still, you could get on a plane.
Michael Ponte [00:25:46] Oh, yeah, for sure. Yeah, that’s for sure.
Erwin Szeto [00:25:48] So how did you build out this system that you could cover this much geography?
Michael Ponte [00:25:53] Mm hmm. That’s a great question. And for a lot of people, this is a big, big thing that holds people back. So for us, especially Vancouver and I’m assuming Ontario, the same thing, too.
Erwin Szeto [00:26:02] I’m sure that.
Michael Ponte [00:26:03] For a lot of people, they want to see their property, they want to be able to drive to it. They want to be able to see what’s going on. And they just can’t fathom going somewhere else. Mm hmm. And just like anything is when you are building a business in a different market, you do have to spend some time out there initially to kind of set up your team, build your team that your team, and then you’ve got to have a good, credible, trustworthy team in every single market that we have and we do, we have a very good, solid team. If property managers are realtors or contractors, lawyers, we have everybody kind of set up in that particular area. And so for me, I try to get out to these properties, usually pre-COVID, usually every kind of four months. So I’ll kind of do the circuit really just to kind of go out and just do my visual inspections. But the best part and the one thing that COVID has kind of done for me and I think for a lot of people here, is when you’re in a situation, when you’re in a lockdown, your business does not hopefully stop. And so the reality is you need to adapt. And if there’s one thing that has come to fruition more than anything is just the power of our technology and our cell phones and how we are able to manage our business so effectively right here. It’s amazing. So whenever I’m, you know, I’m still doing our inspections with our properties, but now I’m instead of being there physically, I’ve literally kind of being walk through virtually and going through each and every single suite and just reviewing it, having our property manager on our earbuds as we’re talking and saying, go to this corner like what are this? And so just talking a lot about every single unit that we’ve done. So we’ve really utilized technology in our business significantly. Like it’s just it’s changed our systems upside down in regards to the way we wanted to approach it. And so it has become such an eye opening experience in regards to what we’re able to do that really, you know, the belief is the world is your oyster. There’s so much more than just right in your backyard. And just because it’s not producing there, it doesn’t necessarily mean you can’t produce it in some other different markets. And the way technology is available to us today, like never, ever before, it’s much easier. The biggest piece that you have to overcome is, is finding those relationships, those individuals that are going to be on the street that you can trust and have credibility. And my comment to anybody is, you know, it’s referrals just like anything else. You need to be working your referrals, talk to people, network like crazy, find those individuals. And the second part to this, and I learned this a long, long time ago is you really can’t have enough people on your investment team at all. And so for us, any market that we’re in, we’ve got like two property managers, we got several realtors that work with us. And so always having a backup just in case something does go awry. I’m sure you’ve seen this to our and like, you know, people that are no short to our realtors are property managers. You know, our property managers. God bless you guys. Like, honestly, that is one of the hardest jobs, toughest roles out there. And I give you guys full credit, but there are times when these guys get burnt out or they’re just like, you know what, I’m done. I can’t do this anymore. And they’re literally walking away from their business while that’s a problem for you, if you’re using them. So it’s always important to have that backup support just in case you need it.
Erwin Szeto [00:29:08] So that’s absolutely true. So you mentioned New Brunswick was your newest market. So how did you approach a new market where you had no boots on ground? Because I’m assuming you had no boots on the ground at some point.
Michael Ponte [00:29:19] So, you know, the reality is just like this we’re doing right even now is it’s a screening process. I interview them just like anybody else. And so I get a chance to meet them and see them. And the best part about this kind of virtual world is I treat any of my team members as like employees. And that’s the way I look at it. And when I’m going through the interview process, it’s kind of the same way, too. It’s, you know, if you’re bringing somebody on, you want to make sure that you have a very similar mindset, work ethic, compatibility, all of those things. And so when you’re going through the interview process that you have confidence in the person that you’re working with. And so for me, it’s screening them just like I would be doing having a discussion like this with you and making sure that it’s the right, right potential fit for us. Don’t get me wrong. It’s not to say that you’re going to hit a home run with that particular person, because no matter what, if it’s an employee or somebody that you’re planning on working with, you don’t necessarily know what you have until they actually start to begin to work with you. But this is why for us, we do a lot of screening, even just in a virtual world like this, and we kind of really test it out. Even our agreements that we have with our property managers to begin with. It’s a three month trial basis just to kind of see how we go and see where it goes. If everything proceeds accordingly, then we’ll continue an extension for a one year term. So for us, it’s a screening process, no different than I would be even if I was there. It’s just done very much, virtually. And the big piece that I work with is, you know, I’ve been in the industry for a long time and so I know quite a few people around and just shooting out there and say, hey, I’m looking for a property manager in in Moncton, New Brunswick. And so because of the relationships I have, like yourself, Erwin, if you said, Hey, Mike, I’ve got a great guy that’s here, perfect. I’ll take that information. And then at that point in time, I will do an interview with that person to see if it’s a right fit or not. So like I said, sometimes right now, the way the technology works, I think we have to kind of change the way our mindset is. You have the ability to do it. It’s it can be done it virtually. And now you get a chance to see the person through the Zoom meeting like this or face time, whatever the situation would be, and really have a great discussion, great conversation. And the big one for me and I’m sure you as well. Body language tells you a huge story. And so for me, when I see that, it tells me kind of a lot of what I need to see. And so when I do eventually get out to those particular markets, then obviously we’ll be having those discussions and meetings further. But usually before I actually take possession of the property or you know, as we go through our due diligence process, I would have my tentative team already in place, but I would be there first and be 100% sure just to be able to be confident. So I always go out to see the property before we do the acquisition, no matter what. And at that point in time, I be setting up my appointments with all of my team members before kind of signing on the dotted line with anybody.
Erwin Szeto [00:32:05] So. So then how you source property. So I know I think it’s a great question for all investors because, you know, some people doorknock, some people do fliers and people do Google AdWords, Facebook ads. A lot of people use realtors. What’s your preferred what’s your strategy for sourcing property? Because especially like what you’re looking for is not easy, right?
Michael Ponte [00:32:26] Not at all. Nope. So for us, realtors are a big piece for us. And so we want to leverage the individuals relationships that they have built with these owners. And this is maybe a little bit different when it comes to the multifamily side is, you know, there’s a lot of realtors that are out there and, you know, there’s Erwin, but there may not be as many. True. And in quotations, commercial realtors that are specifically focused on multifamily. And if they’re really doing their job, they are literally knocking on doors. They have built relationships with a lot of these particular owners. And that’s the beautiful thing about multifamily, is when you are in the position of acquiring a property or there’s a property for sale, that same owner most likely owns multiple multifamily deals. It happens all the time. So when you’ve got a realtor that has constantly reaching out to this owner, building those relationships, they may not be ready to sell at that point in time, but at some point they will. Their job is to make sure that they’re getting the phone call first before anybody else. And so it’s all of these kind of inside private deals, non-listed deals that were all the really good opportunities come. And when you’ve got guys that are on the ground actually going out and making those contacts and building those relationships, my job is to make sure that the relationships we have with our realtors, that they’re thinking of me first more than anybody else. And that’s where I have to spend my time making sure that our relationship is solid. And I back it up with if it’s a real good opportunity and it fits our model that we’re able to do it pretty fast, get it done, and they know that they can be confident that those deals are going to get approached. So like even this, the property that we’re just about to acquire, this one’s actually a private listed product, private listed apartment building that’s actually getting wholesale to me. So somebody actually came in and said like, we can’t close on this thing, but at the same time, I want to be able to wholesale it to somebody. I know you’re in this business. Would you be interested in taking a look at it? I’m like, absolutely. So I do get wholesalers kind of sending me deals as well. I hate to say this, but 90 to 95% of the time they’re not great. But you just never know when those opportunities do come. And again, relationships, relationships, relationships is really, really key to getting a lot of networking out. More importantly, just making sure everybody understands the type of properties you’re looking for. So then when those conversations are being had, you just never know. They might be at a barbecue and they’re just like, Yeah, I’m thinking of selling my apartment building. Great. What type of property here? That sounds exactly like the one that Mike was looking for. I might be able to connect you to, and you guys may be able to make some type of an arrangement there. So for us, we put a lot of attention with our realtors, really, really work with them. The one. Saying that maybe a lot of realtors don’t like to hear is I do work with a lot of realtors. And my commitment to them is this bring me the deal and I will sign the commitment to you once the deal is there. So you send me a deal first, I’ll say, Great, we’re going to proceed with this. You have got my exclusivity for that particular deal. So I’ve got several realtors that are working out there for me. And one realtor may have a great relationship with one owner, another realtor, another owner. And so by pooling those types of relationships, that’s how we kind of try to get some of our inventory.
Erwin Szeto [00:35:33] In just to share in our community. We have what’s called the Hamilton District Apartment Association. So it’s where all the landlords are. The landlords were the regular networking meeting and a lot of them are, you know, they have a silver hair.
Michael Ponte [00:35:48] Right.
Erwin Szeto [00:35:48] Know there’s certain age demographic because Yahoo! Right, you know, I’m talking those are all the people you’re buying from. And but they’re there for dinner. They’re networking. You know, they go to the they go to the day for short. They go to the annual golf tournament in the realtors or the apartment building specialists. They’re always there to absolutely always wining and dining them, taking them golfing. They have those close relationships. Yep. And that’s why I’m just saying this because for listeners is I’ve been on the other end of it as a realtor. I hear when I hear you’re a real estate agent, I’m interested in buying a 12 unit. Okay. Okay. You’re bound for like, no. Okay. What kind of tenants would you like? Doctors and lawyers, please make it a ten cap as well. Okay, so and this is this what I’m trying to get across is so you’re laughing as you get it, right? If it’s full of doctors and lawyers and is ten cap, it’s got to be mine.
Michael Ponte [00:36:43] I was going to say just to send me that. Deal or. Be happy to take it off or any time.
Erwin Szeto [00:36:48] And you pay me lots of money for it, right?
Michael Ponte [00:36:49] Happy to do it. Very happy to do it, yeah.
Erwin Szeto [00:36:52] So how do beginners approach? Especially if it’s a beginner, how can they build that relationship with the realtor? Because first off, I don’t think many what that relationship is the builders have with the sellers, with the potential sellers. Now, how do they get attention from the realtor who has those relationships or get attention from the wholesaler who has those deals? Yeah, because if you’re a beginner, you don’t know them. You’re falling to the bottom of the list.
Michael Ponte [00:37:18] There’s no question. And I think the key piece I learned a long, long time ago is persistence. And that’s the key is really stay consistent, stay persistent. There’s part of it in regards to schmoozing them a little bit, like taking them out for lunch. But I think the most important part is that, you know, there is integrity there. There is true initiative that you are wanting to do this and you have the ability to do this because you can appreciate true to your work and true to your word, because there’s nothing worse for a realtor is wasting people’s time. Like if you know, if Erwin said, hey, I’ve got this property. It’s a 12 year, 50 year apartment building all filled with doctors, 10% cap rate. This is exactly what you’re looking for. And then you’re starting to go through the process. You put an offer, it’s been accepted, and then you come back and say, Oh, I can’t do that. Your credibility just goes out the window. And so your job is to build credibility and confidence and make your realtor also have confidence in you that you’re committed and you’re really serious about this. And it takes time, just like anything. You have to build those relationships and it’s not going to be easy. But if you’ve got somebody that’s there to help, if you’ve got somebody that is a player in the game and really has that initiative, then, you know, definitely you want to make sure you continue to expand and grow your relationships. And another strategy that I’ve used a lot actually I still love it, is I really actually like very hungry realtors, to be honest with you guys that are just getting started. But they are you just know; you just see that sense in there. I got that twinkle in their eye where they’re just aggressive and, you know, they’re going to go places. And for me, I have a lot of inspiration from those individuals that are really wanting to drive. And for me, it’s a great opportunity to kind of share and teach these guys what some of the things that I’m looking for. I know they’re going to work really, really hard for me now. At the end of the day, they may not be able to provide me with a deal, but I’m going to give them every opportunity to go out and start to source and try their best and bring those deals. And if it makes sense, I’m happy to do it. And so for those of you that are just getting started are brand spanking new. The relationships is key. But the one other message that I highlight is really expand your wings as far as you can, make sure you’re talking to lots of different individuals, your realtors, another great source that you can talk to, our property managers, believe it or not, they are fantastic sources because they may be already managing the property and they’re getting the inside scoop and saying, I’m thinking of selling the property. And that would be usually one of the first discussions that that owner is wanting to sell and they’re telling their property manager that. And how great would that be if you have a very good relationship with that property manager and they say, you know what, I might have somebody that might be interested in taking this off your hands, because if the property manager really likes the building and doesn’t want to let it go, he still wants to keep that under his portfolio. So the reality is, if you can recommend somebody to take it over from the other owner and still keep it, they’ll be happy to do that. And for me, like if I have an opportune. With the managed property manager. I always pay him some type of a finder’s fee or something of that nature to offset that, because some of those some of those really great inside deals are just they’re hard to find. But, you know, that’s where you really have to start to network like crazy and be part of these associations. And as Erwin reference these types of associations for landlords, they’re all over the country, they’re everywhere. And so, you know what used to be every city has it and connect, get out there and start talking to these people, build those relationships. And like I said earlier that one owner, that one multifamily owner, more often than not owns multiple properties and they may not want to get rid of their whole portfolio, but they may just want a set of them get rid of one. And if you’re very fortunate to actually deal with somebody in that scenario and you buy a property from him the next time they may want to buy another property, guess where they’re going to come to you first? Because if you’re in the position where you’re in acquisition mode and there may be exiting, there could be some great synergies. And this is what’s so key is building those relationships. It may take two, three, five, seven years, but at some point in time, you and even myself are we will most likely sell a lot of our portfolio or give it to our kids or whatever the scenario is. But at some point in time, there will be some form of exit strategy that we will have in our properties. So why can’t that be me wanting to buy those types of properties? Mm hmm.
Erwin Szeto [00:41:20] Mm hmm. And that’s a great point. And I just want to add to that first, for a beginner investor, this has to be win. As in, you can’t try to beat up the vendor for stuff, because if you try to if you do, they’re not going to bring in the next deal.
Michael Ponte [00:41:33] Yep, absolutely. Yeah, absolutely.
Erwin Szeto [00:41:36] I just want to make sure folks know that because I think too many people, maybe how they are raised is just like they think that the win they have to win the negotiation. You know, you might win that one. You’re going to lose the war.
Michael Ponte [00:41:46] Oh, yeah, you’re. Going to lose the war. I agree with that.
Erwin Szeto [00:41:49] The next one’s going to somebody else. And then that could have been a lot of money to you.
Michael Ponte [00:41:53] Yeah, well, I think I think the big piece is credibility. And credibility, as you know, and especially in this game, is, you know, you don’t want to ruin your reputation out there, especially if you’re looking to bomb multiple deals. It’s a small industry, very small. Very small. And as soon as you ruin it, it’s just like, oh, not that Mike Piney guy again. Oh, that guy’s a pain in the you know why I don’t want to deal with them, right? And then then that becomes a little bit of an issue versus, oh, that my party guy. You know what? We did a really good deal with him last time and he was really fair and everything seemed to work out and everything worked out accordingly. That’s the type of reputation you want to have.
Erwin Szeto [00:42:26] So yeah, that’s how you get referrals for deals.
Michael Ponte [00:42:29] Amazing how the horse racing, how that works, right?
Erwin Szeto [00:42:33] You don’t think property managers or realtors are going to background check you?
Michael Ponte [00:42:36] Absolutely.
Erwin Szeto [00:42:38] You know, you’re your realtor in New Brunswick, Maine, asked, Hey, can I speak to your other realtor like Terry or someone in Halifax telling them, I want to hear what it’s like to work with you because they’re busy, too. They want to closely. They don’t want to hire kickers. Nobody wants tech actors.
Michael Ponte [00:42:53] They want firecrackers.
Erwin Szeto [00:42:55] So you really got my interest about when you said that you focused heavily on locations near schools. We even talked about student rentals a lot for a long time on the show. Why would you prefer someone who’s like 18 years old, 19 years old over someone with a full time job? I applied to blow some people’s minds, actually.
Michael Ponte [00:43:14] Yeah. Well, I actually look at two of those like, you know, if we’re a fringe kind of downtown communities that’s more business districts or something like that, then obviously we’re looking at in that. But when I was looking at some of the properties that we’ve acquired in universities, one of the nice things that we have found is these individuals that are younger get one bedroom or bachelors or two bedrooms. They’re may not be paying the rent for those particular properties. So those are usually the bank of mom and dad. So you get that stability that’s there. When it comes from the rental income side, the only issue that you tend to deal with when it comes to students is obviously you’re probably well aware as you just want to make sure that the property is being maintained well. And so this is where you got a good resident manager in place to making sure that they’re maintaining it appropriately. They’re following it through the guidelines and stuff. But you’re getting that consistency of rent constantly, right? And so for us, we work with the students as well. And like I said, if the bank of mom and dad are actually paying it, we really don’t have too many issues with it. And that’s the key is we don’t want to have a lot of turnover. We want to make sure that staying consistent because at the end of the day, it is all about the you know, it’s all about the performance of the property itself that’s maintaining the valuation of our property. So we’re looking for things to be as stable as they possibly can to make sure we’re not only just maintaining the valuation, but we’re looking for opportunities to increase that valuation of that property as well. And that’s really a big key focus for us is how do we increase the value for our properties? And we’re always looking and monitoring and looking for rental increases, ways to reduce our expenses and just trying to make sure that things are stabilized. And the other part that we look at in our apartment buildings, too, is really trying to create a kind of a community. So people are feeling pride within their property as well. And I think that’s one thats tend to be missed a lot, you know, small little things that you can do to have a little bit of fun, like even just at Christmas doing a Christmas, Christmas door decoration contest and you win a couple hundred bucks or something like. But again, just a little bit of pride barbecues in the summertime. You know, at the end of the day, we’re housing people and these are our customers. And so we want to try to create as positive in an environment as we possibly can for these individuals. And hopefully they will want to stay. But even more importantly, people, as you know, we surround ourselves with people of like mine. And hopefully they can bring some really good quality people into the building as well. And that’s what we try to do by creating that type of community within the building and itself. This way we reduce our vacancies. Hopefully the recommending people when an opportunity becomes available that a units vacant. But you know the main goal is having good quality individuals living in our places that are happy to be living there and wanting to stay.
Erwin Szeto [00:45:43] So those are great examples and ideas on for anyone to use to create for the creation of community. That’s awesome because if the neighbors get along better than to get along better.
Michael Ponte [00:45:54] Absolutely.
Erwin Szeto [00:45:56] Yeah. We’re going to have to fight the sheriff for eviction every year. We live in Ontario.
Michael Ponte [00:46:04] It’s in the headlines all the time.
Erwin Szeto [00:46:08] You mentioned you’re looking for opportunity to increase value. Can you give some examples?
Michael Ponte [00:46:12] Yeah. So for us, the big piece that we love to see is obviously rents the big one, you know, so if we’re acquiring a property like even this scenario that we’re looking at right now, this is the second generation owned building, fully paid office, apartment building, completely paid off. So there’s been literally a nice big golden goose laying lots of big eggs for the current seller. But, you know, at the end of the day, she’s going to get a nice big check and that may be much more of appeal to them. But the problem that she’s got here is she’s got like the average two bedroom unit there is about $950. She’s got a bunch of two bedrooms renting at $600 or 650 bucks somewhere in that vicinity. So her valuation of her property is not good, right. It’s not great. She could have probably got a lot more because the cap rate is not showing very well. So with that being said, there’s an opportunity to raise all those types of rents, number one. Now, the kind of general rules that don’t hold me accountable to this, but the general rule, depending on the market, is for every dollar you’re able to increase in regards to net operating income, you’re increasing your value by about tenfold. So you’re ten X type of strategy and sometimes even more than at 15 or 24. So we’re looking for those dollars to constantly be able to raise that. So that’s one way is obviously raising some of the rent. Secondly, the big one that I always look at is the utility costs. So in this building as an example, all of these units are electric baseboard heating. There’s no boiler required here. But at the same time, the owner is actually paying for this, but they’re all separately metered. So just right off the bat, as soon as we can get these properties turned over or we transition it to if the property turns over, the first thing we’re going to do is obviously raise the rent. And secondly, all the utilities are actually going to go towards the tenant. The tenants are going to be paying for that stuff, not the owner. And so we’ll be starting to implement those things. So again, between raising the rent and having the utilities moved over, it’s going to increase the net operating income quite significantly right off the goal. And so, you know, when we were talking at the very beginning is what am I going to do here with the strategy, you know, looking at it as a burn net, that is, you know, we talked about this before is like do we get rid of the tenants first or what do we do by technically in New Brunswick, we don’t have the same scenario as we’re dealing in Vancouver and Toronto is rent increase thresholds like it’s not like a 3% cap. It’s all in in those particular market. It’s infinite. You can raise it to whatever level you want.
Erwin Szeto [00:48:27] Oh, New Brunswick doesn’t have rent control like Vancouver.
Michael Ponte [00:48:30] Like, oh, they don’t know. So that’s one of the beautiful things about it is we have the ability to raise those particular rents in those particular markets at a higher level. So it’s not that we want to kick them out, but we would do it kind of systematically as well as they, okay, we look at this particular unit, we will do it for this particular unit, maybe give them a rent increase at that point in time, maybe do some renovations of that particular unit. They may want to leave. But I think for them, for the most part, is when they start to go out and explore what the normal rent ranges are in that area, they’re going to come to the realization that they’ve had a they’ve had a free ride for a very, very long time. But unfortunately, this has to actually change so that that point in time going to make some decisions on what they want to do. So we would do a slow transition in regards to doing this one at a time. Just, you know, we don’t want the building to be completely vacant. So we want to make sure that we as we are dealing with this, it’s one suite at a time, still maintaining a good income stream that’s coming in, but at the same time looking for those opportunities to increase the valuation of the building at any point in time.
Erwin Szeto [00:49:29] So and what are some of the first some of the renovations that you would do to try to maximize the rents renovations present?
Michael Ponte [00:49:37] Yeah, well, renovations per se. Anything that we can do to make sure that the property is not just that we want to improve it to a level where we can get above average rents. So, you know, the simplest things that we can do, flooring is an easy one, some fresh coat of paint, some really, really simple things. You know, we’re going in with vinyl plank flooring pretty much for everything we do. Those like great colors, moldings, kitchens as well. So if there’s some kitchens are outdated, we will replace the kitchen. Replace the kitchens if need be again, sweet by sweet well budget for those types of things. So we really want to improve the condition of the building in itself to make sure that we’re getting those kind of above area, above market rents appropriately. Some of the other things that we look at depending on the market too as well, sometimes if you have the ability in some markets to charge for parking, you have the ability to increase that by parking. Storage is another real big one for a lot of people as well. A bike storage or say for example, you got a facility where you’ve got a big storage shed of some sort where people want to store their bikes and you can charge for those types of services as well. So anything that we can look at for ways to try to create a further income stream, so be it. Like the one property we bought in Edmonton. One of the things that came out of it, it was a very similar situation with utilities and rents were too low and all that stuff. But what became available was the owner was actually storing his motorhome and he was also storing his. What was the other one? It was a motorhome and it was a boat. That’s what.
Erwin Szeto [00:51:00] I guess boat.
Michael Ponte [00:51:02] As it was a boat.
Erwin Szeto [00:51:03] And we set in the pandemic.
Michael Ponte [00:51:05] Exactly right. So it was taking up this space and it’s a very big lot on this property, which is great. And so when we saw this, I’m like, this is a net yet another income stream that we can utilize, right? And we can rent this space to do this and just make sure that we just have a nice, solid agreement. So what we’ve done here is we thought we’d create the space. He’s got power right there. And so it’s being charge at 75 bucks per month per space. And guess what? We rented it to us, the owner or the seller. Oh, they actually kept their boat and kept their motorhome there. We owned the building and now they were actually renting this space on our behalf. And this thing’s generating an extra hundred and $50 a month of income. And again, remember, we talk that that multiplier by ten that’s now we start to add that as part of the revenue stream going in. So these are just small little things that you can kind of look at to try to build that multiplier up and increase the value. So now here’s just yet another income stream that literally came out of nowhere because we just saw it like, hey, we could probably do something like that too. And again, you can look at many different ways for storage, be it laundry, obviously lounges and laundry and comes another one and making sure that everything’s there. You can do vending if you need to, but any small little things that you can kind of looking at ways to increase it, that’s what you’re wanting to do. And obviously the big piece, utilities expenses and maintenance costs, making sure that you’re reducing some of those expenses to the best of your ability. And the one for a lot of people for apartment buildings is making sure that you do your preventative maintenance. So those costs aren’t significant later on by doing those small costs now versus trying to incur a large cost down the road.
Erwin Szeto [00:52:38] So replacing a toilet flapper in my in my house right now, the flapper that’s like this one of the biggest enemies of any landlord.
Michael Ponte [00:52:46] Absolutely I nightmare.
Erwin Szeto [00:52:49] But I should almost put that on to like the annual maintenance list. I don’t care if it works or not.
Michael Ponte [00:52:55] If it’s even if it’s going to.
Erwin Szeto [00:52:56] Just replace it anyways.
Michael Ponte [00:52:58] Just replace it. Exactly.
Erwin Szeto [00:52:59] Have another question. Are you seeing any vendor take back still?
Michael Ponte [00:53:04] Absolutely. It’s becoming much more common these days to really.
Erwin Szeto [00:53:08] Really.
Michael Ponte [00:53:08] Especially multi-family. Yeah. So we’re seeing a lot of that out there for sure. It’s becoming more practice, as you’re probably well aware of financing in the commercial world is interesting to say it lately, especially if you’re trying to get CMHC financing. The pandemic is definitely not.
Erwin Szeto [00:53:22] I’ll give me clarity on that. Evan Siddall Yeah.
Michael Ponte [00:53:25] It’s really, really tough. So for a lot of people that are kind of getting into this game, in some cases, vendor financing is becoming a much more common thread because, you know, there may be, you know, if we use this example here of an apartment building, we’re fortunate to have the cash. But if we work with a vendor to do some financing short term and then get the financing at a later date, be it a year, year and a half from now here, the vendor can generate a little bit of a profit, not necessarily needs to hold it, but what it does do is it gives the buyer, like myself, time and to do the financing that we want. And CMHC financing is extremely cheap like right now. And the one best part about it is the banks be commercial financing. They love the segment of multifamily right now because there’s a lot of concern in the market of what’s happening under their commercial office space, how the pandemic has played out in regards to people now working from home. So there’s this big, massive question mark of how that commercial space is going to play and financing that. So but the bank still obviously wants to make money. And so they’re starting to kind of say, hey, multifamily has been pretty solid and multifamily. And one of the real appeals to this is multifamily is kind of lowest common denominator. So let’s say price values are people starting to lose their jobs. God forbid. It’s horrible, but people still need a place to live. And so when it comes to apartment buildings, that is your cheapest option that’s available. And it’s not like it’s a horrible option. There’s lots of great apartment buildings or from an affordability perspective, they’ll be much cheaper than your conventional townhomes or a house or something of that nature. So, you know, God forbid somebody, you know, isn’t able to afford their home or their mortgage any longer. And I hope that doesn’t happen. But the reality is. If they need a place to rent, they kind of maybe move to a townhouse or townhouse to a condo or an apartment building. And so there’s always this demand that’s always there. So in that situation, from the banks perspective, they see that as being solid. There’s a lot of banks really open to the idea. It’s just taking a bloody long time to get this done. So for us investors that are wanting to get financing, it’s a little bit of a challenge. So vendor financing is becoming a much more common discussion piece because it may be short term just so you can get your CMHC financing that you want. In our financing rate that we just got was like 1.7% amortized over 35 years and I actually could have got 40 years on that amortization. So it’s cheap money right now. It’s just absolutely cheap money that people can take advantage of. So you’re just taking advantage of some short term financing so you can work with the timelines for CMHC financing, which is seeing about it’s taking about almost four months right now, three and a half to four months to get that actually approved. So you could be in this contract for four or five months. So and a lot of sellers are not going to be patient enough to wait for that particular period of time. So as buyers, we need to be a little bit more creative in how we go and acquire these properties.
Erwin Szeto [00:56:13] So yeah, it sounds like well, I believe the problem started around pandemic time where CBC, which does not give you the same loan to value the appraisals, would not come anywhere close to.
Michael Ponte [00:56:23] Your absolutely right. You’re absolutely.
Erwin Szeto [00:56:25] Right. There’s being ultra conservative. So word is playing on the sellers that you’re going to have to be more flexible on the financing.
Michael Ponte [00:56:33] Well, I think that’s even coming from your you know from the individuals that are the agents that are actually selling on the seller’s behalf. And they’re having those discussions and saying, hey, just f I, you know, I would hope they’re having this discussion. It’s like that’s why I financing is a nightmare right now. Vendor financing may be something that’s going to have to happen. And so it’s up to the owner if they’re going to be willing to accept that or not. But as you start to see these deals starting to kind of come in and they’re seeing a consistent pattern of vendor take back, vendor take back, vendor take back. And I think from the perspective of the selling agent, it’s really about education more than anything to understand, hey, this is if you want to sell your building, this just may be part of the process. So hopefully you can accept that and start to determine what your terms are going to be in your mind when it comes to vendor. Find out.
Erwin Szeto [00:57:19] Fascinating stuff. And I had a point around that, but I forget what it was. Oh, I was going to say this is a great topic or test question when people are interviewing agents is, for example, most residential agents have no idea what happened to no idea family. So if you’re going to interviewing people for apartment building or apartment buildings, ask them if they know whatever it is they should be a to write off.
Michael Ponte [00:57:43] You would hope and I guess it goes right back to the simplicity is your team and you’ve learned this zero and it’s just like you know your team is instrumental like they need to understand the business that you’re in and if they don’t, then you’ve got the wrong you’ve got the wrong person right. You’ve got to find somebody that understands what you’re doing. And so they’re still selling you granite countertops and stainless steel appliances, and you’re an investor that’s all pretty and fancy, a nice and all. But the reality is you’re an investor, right? So you’re not necessarily sweating that too much.
Erwin Szeto [00:58:08] So I’m sure you can appreciate that. And you’re trying to teach an agent or a vendor take back mortgages. Now they have to go educate the seller.
Michael Ponte [00:58:19] It’s actually funny you said that because I had to.
Michael Ponte [00:58:22] I actually had to.
Michael Ponte [00:58:25] And so and then the other part is I actually showed them how to present it. And I wrote it down like a letter format of how it needs to be presented. And then I actually made the realtor present it to me for practice to make sure it was done right and we got a shot at them. I just I just needed to make sure that the message was relayed appropriately. And, you know, I always kind of make that joke, you know, it’s kind of like, you know, imagine telling a secret to somebody’s ear and then it gets passed on to the other one and so on and so on and so on. By the time it gets to the very end, that message has been completely screwed up. And so try to be as clear as you possibly can, and you just want to make sure that that that communication is done as best as you possibly can working with your agent. And that’s why having an experienced, knowledgeable agent is so, so key.
Erwin Szeto [00:59:08] For anyone who’s analytical. It makes complete sense to the seller. Yep. The first one of those games like why wouldn’t you?
Michael Ponte [00:59:15] Why don’t you?
Erwin Szeto [00:59:16] Oh, no. Worst case, I get my building back and I get to keep all this equity.
Michael Ponte [00:59:20] Oh, no, no, no, no, no.
Erwin Szeto [00:59:26] But again, if the intermediary can’t communicate, then you’re lost.
Michael Ponte [00:59:30] Exactly.
Michael Ponte [00:59:31] Exactly.
Erwin Szeto [00:59:32] Two more questions and I’ll.
Michael Ponte [00:59:33] Let you go.
Michael Ponte [00:59:34] You go for it, buddy.
Erwin Szeto [00:59:35] You mentioned partners. I give a short story. I had someone; a young gentleman approached me to invest in a project he wanted to do. You want a duplex or property? And I was thinking you approached the wrong person.
Michael Ponte [00:59:50] Right?
Erwin Szeto [00:59:51] I mean, really get money on my money, right? And I’m a bit of a control freak. So two big warning signs for who not to have as your partner.
Michael Ponte [01:00:00] Don’t talk to Erwin.
Erwin Szeto [01:00:03] We need to control way too much detail. That’s personally why I don’t private land, because I want way too much detail. If it was a burr, for example, or a flip, I probably won’t be on site every week. That’s just my personality. I just know who I am. Now, describe in general terms who is your partner? Because I think this is a major miss. Right now, a lot of people have the shotgun approach without any thought about who their partner is actually going to be.
Michael Ponte [01:00:26] Oh, yeah, for sure. Yeah. And so the way we approach it is hopefully consistent with other people’s. But I know is not because the reality is for real estate investors going into money, partner, raise and raising capital and finding partners, their main focus is, I just need the money. Give me the money. I need to do the deal. I don’t care who you are, which is absolutely wrong. It’s the wrong way to approach this. And so for me, I never, ever present a deal to newbies. Like, for me, I treat my partners as if it’s somebody I’m going to marry for the next five years. So, for example, with you and Sherry, you would never have just said, hey, I’m not hopefully that’s not the case. But the reality is you didn’t meet her and say, let’s get married tomorrow. And so you got to treat that in the same type of perspective. It’s you’ve got to understand who the person is. Is the mindset exactly the same? Are you guys goals exactly the same? Is your strategy right strategy for them? Because at the end of the day, you’re going to be working with this person for like four or five years. And when I talk to partners, I always say, I don’t want your relationship for three or five years. I want your relationship for 20 years and understand that I want to be able to do the best I possibly can commit to the goals that we’ve laid out here and that you’re so happy that we continue to flip this over and over and over again with other projects. And so for me, I as they’re interviewing me and trying to understand the biggest piece is trust. I want to make sure that they’re trusting in me, that they can trust me because they’re going to give me 75, $100,000, whatever the magic number is going to be, and that they can trust me wholeheartedly with their capital. And whatever I’m referencing to them is going to commit to what their goals and objectives are for what their investment goals. And vice versa the other way around. So for me, this is a person I want to be able to say, Can I work with this person? Is that person’s personality in alignment with myself? Can I trust this person as well? Because again, it’s like a marriage. You want to make sure that there’s a lot of compatibility that’s there. And also there’s specific thresholds in regards to capital. If somebody has got like $15,000 and that’s all the money that they have in the world and their expectations is like, you know what? I got 15 grand. Here you go. My expectation from you is I want you to turn this to $1,000,000 in two years. And so here’s my check here. Just take it. But can you do it? And the answer is like, that’s not going to happen, because I can’t commit to that. I can’t there’s no way I can even I can’t do that. I go, listen, you know what? I wish I could do that. That’s not in my wheelhouse whatsoever. It may be your money probably would be better somewhere else where you can actually do a better return. And when you find that return, let me know because I might be interested in investing in that as well.
Erwin Szeto [01:03:07] You know my answer to that.
Michael Ponte [01:03:09] Yeah, exactly. But truthfully, it’s like you got to make sure that, you know, whatever you are saying, you’re able to achieve whatever that person’s objective is. Because if you’re saying that you’re able to do it, that’s their expectation. So, you know, for me it’s about promising and over deliver our valuation like anything that we do in regards to returns. And you see this all the time, you know, I’m making 50% return on my investment every single year, yada, yada, yada, and I’m guaranteeing it. And as long.
Erwin Szeto [01:03:37] As these.
Michael Ponte [01:03:38] People spend it, yeah, you see all that stuff, right. And so for us, you know, I was talking to one about this in advance is the one thing that I do know is I know what the mortgage paydown is. We have to pay the mortgage every single every month so we know what the equity is. The second piece that I have clarity to is what the cash flow is today. And so those are the numbers that I use for my analysis and those are the ones that I control. The one thing I don’t necessarily know is possible market appreciation. And so when we see market appreciation in Vancouver like 14, 15% per year and so on and so on, it’s hard to kind of say that that’s going to be continued. I always treat, you know, there’s the three profit centers, cash flow, mortgage paydown and appreciation. I always look at it as like an analogy of an ice cream sundae. And so the ice cream is actually the mortgage paydown. That’s the substance. That’s the basis of the investment. When it comes to the cash flow side, that’s the chocolate sauce and sprinkles that, you know, you can bank on that based on current reality today. That’s what you know, that’s what you have clarity to with the one thing no investor knows is actually the appreciation of the property in itself. And I always reference that as the cherry on top. And so hopefully that cherry on top is going to be multiple cherries on top. But I try to base my information on stuff that I have a lot of control with the budget, which is what it is. It’s a budget on appreciation is always very, very conservative because I’d. Under-promise and overdeliver. Then the opposite way and disappoint any of the individuals that I’m involved with. And so for those that are looking to get into partnerships, making sure that you’ve got the right person to begin with, but be true to that person just like you would be in a marriage is like be you know, if they’re expecting something that you can’t deliver, you might as well be upfront and honest and say, I can’t do that, and I do that all the time. I’ll have those discussions and then say, Listen, you want to make a 30% return on your investment year over year? That’s fantastic. It’s awesome. But honestly, it’s not that I can’t do that, but there’s no way I can say that that’s what’s going to happen. I can promise something like that. So I always stay really conservative. Is there the reason why I’m saying conservative is I would rather under-promise and overdeliver than try to meet that expectation that this is what’s going to happen and promise that to you and just be disappointing you. Later on, I want to make sure that I have a long term, good, steady relationship with that individual for, again, not 3 to 5 years, hopefully 20 years. Right.
Erwin Szeto [01:05:59] So in general terms, who is your partner? Are these like ultra-rich people or like middle class folks with pension money? They want to redeploy or something like that.
Michael Ponte [01:06:08] Yep, I’m that kind of a combination of both actually. So I got a lot of pension journeys people are looking for, for a good, steady, you know, distributions of their income side. A lot of doctors, a lot of dentists or high net worth individuals. I do have I wouldn’t say they’re middle class, but higher, higher middle class individuals, good family income. Those are kind of my ideal individuals. And again, I’m not looking for somebody personally. I’m not looking for somebody that, you know, if it’s only 20,000 bucks or $15,000, that’s all the money that they have. It’s probably not the right fit for me, like I said, you know, because in in that situation, they’re either one incident away from needing to call on that cash. And we look at what’s happened in the pandemic. As you know, all of a sudden something happens and they’re like, Mike, you know that $50,000 that I gave you, I need that money back. Well, as you know, real estate is not liquid. It’s not it. It takes time. There’s expenses that go along with this. And if you’re into this deal for a year, there’s a very good chance that you’re probably going to lose some money in that scenario here, because real estate is one of these things. It’s long term wealth. And that’s the reality of what the game is. And there’s other strategies being fixed and flips. And I know a lot of other guests that are doing this when it comes to our strategy were more of a buy and hold strategy. And that’s our approach to this. It’s not to say that we don’t kind of do a more of a br method in multifamily, but it is a longer approach. So for us, you know, our individuals for the most part, they are higher net worth individuals. They are a lot of our doctors and dentists and those types of individuals. And then we’ve got more a lot of business owners and I’ve also got pensioners as well that have got a lot of capital that are looking to just burst out somewhere else. But for them what they’re looking for is, you know, for them they’re looking at that steady income that we pay out for the particular projects and then we try to find those right projects for those right individuals. And so, you know, if we’re looking at like Halifax as an example, that had really great cash flow but maybe not a lot of equity, then those are really great for those types of individuals that are pensioners that really don’t really care so much about the equity. They just want to see that money coming in to sustain that kind of the lifestyle that they want.
Erwin Szeto [01:08:03] Something cash flow secured on a multi-family apartment. Not the worst thing in the world.
Michael Ponte [01:08:09] Not at all.
Erwin Szeto [01:08:09] I think a lot of all the investments out there, there’s not that many that beat it. Okay, Michael, thanks so much for doing this work. And folks, follow your journey. Which are you on Snapchat? You’re not banned, right?
Michael Ponte [01:08:21] I’m not bad. No, not at all.
Michael Ponte [01:08:22] No.
Michael Ponte [01:08:24] You know, I welcome everybody. We we’ve got a group called Savvy Investor. If you’re on Facebook at all, YouTube page is actually going to go live next week. We’ve got a lot of great guest speakers coming out. If you guys go to our Savvy Investor Facebook page, it is a forum for people just talking about real estate. There’s no selling involved. It’s just about learning. So you if you are wanting to learn more about real estate investing from a residential perspective vendor, take that we lot bring a lot of great speakers out. Hopefully I can get Erwin out of here very soon. And we got his lovely wife Sherry out there just recently, but it’s really about a network of sharing, connecting with other people. And again, we just talked about, you know, meeting your investment team. And that’s what the forms are really designed as. Being our way is a channel where everybody kind of connects. I invite everybody to come and join. Absolutely free doesn’t cost anything. And we’d love to have you join us. So thank you.
Erwin Szeto [01:09:10] Michael. And then I ask a lot of questions. Would you like to give any final words without any direction for myself?
Michael Ponte [01:09:18] Well, like I said, I think I think I’ve answered a lot. But the reality is, for those of you just getting started or maybe just wanting to learn a little bit more, just take the time to network and connect with the right people for yourself and or whatever kind of saying there’s a lot of stuff that’s out there as well and just making sure that the individuals that you’re listening to and talking to are people that have actually had a lot of that type of experience. Don’t be afraid. You know, we’ve all been through this before and it can be a little bit of a scary place and sometimes feel a little bit lonely. But just understand, there are a lot of amazing people out there that are more than willing to share information to help support you in your investment journey. And you just need to kind of, regardless of whatever investment strategy you’re working on or wanting to do, just keep pushing that forward, keep wanting to learn about, start to take action for yourself. Because the last thing I want to do is sit on the sidelines. And have any regrets at a later point in time.
Erwin Szeto [01:10:04] So I’ll just add to that for folks, because I find I find folks gravitate to whoever just posts the most on social media.
Michael Ponte [01:10:13] Oh, true. So it’s true.
Erwin Szeto [01:10:15] Versus you know, you and I have been around for a while. So, like, we’ll reach out to like the Terry Pratchett. We’ll reach out to Mike Aponte, to a pure politician, to a time. Just because they don’t post on Instagram or TikTok doesn’t mean they don’t know their stuff.
Michael Ponte [01:10:29] You’re absolutely right. Absolutely right.
Erwin Szeto [01:10:31] Yeah. I’ll hopefully have Brian Pulse on the show. He won’t have a TikTok either, I’m pretty sure.
Michael Ponte [01:10:36] But yeah, but.
Erwin Szeto [01:10:37] There’s all these old school people who do perfectly fine. Just real estate. Isn’t that. It’s not like a Tesla. It’s not like we’ve. We’ve gone to a completely different realm. Old school stuff still works.
Michael Ponte [01:10:49] All Buicks or old Buicks.
Erwin Szeto [01:10:53] Like. Well, thank you again for doing this. Congratulations on your success. Happy, healthy and happy family in 2021.
Michael Ponte [01:11:00] Thanks for having me, guys and really enjoy it. So thank you for having me. Erwin really appreciate it.
Michael Ponte [01:11:04] Awesome. Thanks again.
Erwin Szeto [01:11:13] Before you go, if you’re interested in learning more about an alternative means of cash flowing like hundreds of other real estate investors have already and sign up for my newsletter and you’ll learn of the next free demonstration webinar I’ll be delivering on the subject of stock hacking. It’s a much improved demonstration over the one that I gave to my cousin Chubby at Thanksgiving dinner in 2019. He now averages 1% cash flow per week, and he’s a musician by trade. As a real estate investor myself. I got into real estate for the cash flow, but with the rising costs to operate a rental business, it’s just not the same as it was 5 to 10 years ago when I started. Never forget that cash flow reduces your risk. The more you have, the more limbs you can absorb. And if you have none or limited cash flow, you’re going to be paying out of your pocket like I did on a recent basement flood at my student rental in St Catherine’s, Ontario. If you’re interested in learning more about Stitcher for free from my newsletter at WDW DOT Truth About Real Estate Investing Dossier, enter your name and email address on the right side will include in the newsletter when we announce our next Free Stock Hacker demonstration. Find out for yourself with so many real estate investors are doing to diversify and increase their cash flow. And if you can’t tell, I love teaching and sharing the stuff.