Table of Contents - Making Houses Cash Flow in Stupid Expensive Markets with Ming Lim
Dave Debeau [00:00:09] Hey, everyone, this is Dave Debeau with another episode of the Property Profits Real Estate podcast today, zooming in all the way from the GTA from Toronto. We've got Ming Lim from the listed property group. How are you doing today, Ming?
Ming Lim [00:00:26] I'm doing fantastic. Trying to wash my hands thoroughly. Stay clean, stay isolated.
Dave Debeau [00:00:33] That's right. As we're recording this, you guys, it's the beginning stages of the Corona craziness. So yeah, that's what's on everybody's mind and probably still is at the time you're watching this. So anyhow, let's focus on the good stuff. So first of all, why don't you tell us a little bit about who you are and what you do?
Ming Lim [00:00:53] Sure. So I'm primarily a real estate investor. I started my life in student rental properties. I went to the University of Waterloo. I lived in a student rental and well, that's not too bad of an idea. I got into it myself, was exposed to that for that. If you read that book, it's an excellent beginner book. And it got me started on the path, then started doing multifamily in Toronto and now primarily investing in multifamily in Toronto.
Dave Debeau [00:01:19] Very, very cool. So, yeah, that purple book has changed. I mean, out of all of the people I've interviewed on this podcast, I'd say conservatively. Seventy five percent got their start or got a real kick in the butt from reading Rich Dad, poor dad. So you're in good company there. So when you say you start off with student rentals. So were you still in university when you did your first student rental?
Ming Lim [00:01:44] So I was living with roommates. They were watching Oprah. They were like, not me. They were watching Oprah and Robert Osaki was on and rich and poor, that came up. And I said, oh, that sounds really interesting. I picked up the book and I'm not a big reader, but I read through it in like twenty four hours. It's a pretty easy and pretty easy read and it was mind blowing for me, like I was just twenty one at the time. I had no clue and it was a complete mind shift. And two weeks later I had my first property. I had a little bit of money saved because I was working at the time. I just finished university. So a couple of couple of months out and picked up. It was a semi-detached home. One hundred and fifteen thousand dollars, five percent down. I mean, if anybody in Toronto, those numbers are ridiculous. I think a garage cost more than that now. So, yeah, that was that was the first thing. It was all wrong, though. It was it was illegal. It was. There's a maximum number of people you can have. I had exceeded that. I didn't know anything back then, but that that is what got me started.
Dave Debeau [00:02:48] Very, very cool. So maybe we were talking a little bit offline before I press record here about what you and your group of companies are doing. And it's it's very interesting because you talk about multiple families and a lot of people when they think multifamily, the thinking a huge apartment building. Well, OK, I can see how Ming's doing this in Toronto because, you know, in his investor partners probably have super deep pockets and they're probably buying fifty one hundred hundred and fifty unit buildings and that's how they're able to make things cash flow. Is that the case?
Ming Lim [00:03:20] That is not the case, neither on the super deep pockets or on the fifty one hundred units. But I'm happy to dove into what we're how we do it exactly.
Dave Debeau [00:03:31] Yeah. Yeah. So, so because I love this topic because again everybody assumes that markets like in Canada, markets like Toronto, markets like Vancouver, there's no way in heck you can make a single family home cash flow. However, it seems like you guys have found a way. So why don't you tell us a little bit about what you do?
Ming Lim [00:03:55] Yeah. So what started it all? Because I was in student rentals for a while and then my business partners, we were we're all rain alumni's and back back in the day. Rain was a fantastic place and it was very much about going after castling properties. So I was in Waterloo that aligned my partner Matt. He went to Hamilton and he went to Edmonton to invest his great cash flow there. And then my other business partner had me started investing in Sudbury. So here we are, all Toronto boys and we're investing all across Canada. But, you know, one of the challenges was we were so cash flow focused. We lost perspective of the real return of like the real returns of real estate. And we became a little more sophisticated. We started looking at just, you know, not just cash on cash return, but cash the mortgage pay down and cash and appreciation. And when we start to look at it holistically. The one or two properties we had in Toronto were far exceeding the returns that we had outside, and that's when we all had to like individually had this light bulb moment, where are we investing outside of our own backyard? Why don't we try to figure out a way to make it work here in Toronto? So, as you alluded to, you can't just buy a house and rent it out or condo or rent and you're going to be losing a significant month to month. You'll be cashflow negative.
Dave Debeau [00:05:20] So just just give people an idea what at the time that we're recording this, what is the average price of a single family home and a condo
Ming Lim [00:05:29] in your area? And so I think I just saw the headline that the average home price is about nine or fifty thousand now in Toronto. But I would say that is low because that is looking at all of Toronto. So the areas that you want to invest in, it's actually quite a bit higher. So the properties that we're investing in these days are about one point two to one point three million. That's kind of our house for our house because we had these Henein profiles that we're a little challenging. I did student and I should back up. Students are not malicious in any way. They're just students. And, you know, taking care of the place and paying rent on time is just not on their mind. And it shouldn't be right like they're there to study. So we wanted to rent to ourselves, like you were young professionals who had jobs at the time. And we were like, who's the best tenant profile? And it was us, right. We would starve and eat instant noodles for months at a time rather than be late for for rent. It's just something we would never do. So we started to take that tenant profile and work backwards from there. And it was, OK, where would we live? We were millennials at the time. Right. And so where would we live? And it was, well, we need to be close to our jobs and we would give up like space to be within that kind of twenty five to thirty minute commute to the downtown core where, you know, ourselves and all our friends worked. And so that really started to shrink the areas that we were investing in, which is why I'm saying that or a thousand is fine if you include all the suburbs. But it's more like one point to when we start looking at the core of the city. Right. And, you know, most people who are professionals, they want to live in condos, both. Seventy five percent of them want to live in condos, but there's twenty five percent who are. And it's a growing number who are interested in, I would say, neighborhoods with a little more character. So homes that have been nicely converted, they still have to be nice luxury places, but have backyards, have walkable neighborhoods, have a bit more personality and that's the niche that we're going after. So it's a very specific, targeted demographic. So what we do is we we we buy properties in these neighborhoods, places like Little Portugal, Little Italy, Corso, Italia, along the Danforth homes, about one point two to one point three million. And then we go through a legal conversion process. Typically, this is a legal Travelex conversion. So we're buying a property as rundown as possible because we're trying to get major lift, but because in order for me to legalize it, I need to gut the entire house because we're putting in soundproofing fire, you know, fire retardant materials, interconnector fire alarms, each box for each unit. We have to do all these things anyway to legalize it. So there's no point in me keeping anything inside the house. So we go through this
Dave Debeau [00:08:22] what's kind of the vintage of the kind of house you're typically
Ming Lim [00:08:27] old to? Very old. Like it's like they're probably the 80 plus years to about one hundred and twenty plus year.
Dave Debeau [00:08:36] Yeah. Because again, it also has to do with the size of those houses. Right. I mean, those are those are some pretty large. They have to be pretty large to be able to turn them into a triplex I'm guessing.
Ming Lim [00:08:47] Exactly. So there's a like I think it's a development thing that moving does it cost money or never move dirt because you'll go bust or something like that. And that's the case for us, because if we start to have to underpin or do things to the foundation or extend properties, our price of renovation starts to escalate very quickly. So we're looking for square footage.
Dave Debeau [00:09:10] And I guess a question which probably comes to people's mind is why don't you just bulldoze it and put up a purpose built triplex in its place?
Ming Lim [00:09:20] That's an excellent question. So, you know, with I don't know, the audience is familiar with development is. But basically it's a fee that's levied by the city for new development. And the development charge exists if I go from nothing to triplex, because basically the way the laws are set up is that we're putting up three units. Therefore, it's like a little apartment. Therefore, we must pay demonizes and those can be quite significant. They can kill your business case. It can be upwards of a hundred thousand dollars. So if we don't have to pay them, great. And the way that we avoid it and talk like some Cantalupo we found here is a step to process because the city had always intended development fees to be for like, you know, if you're putting up 200 units in a condo, you are impacting the infrastructure significantly at that point. But we take a step approach. So we first do it as a duplex. You can do most duplex renovations as of right. Which means you don't need to go through a committee of adjustments or things like that. We do it as a duplex and then we move up to the triplex afterwards. So it is a bit of a longer approach that probably adds about three to four months to our construction timeline. But in doing that, we avoid the hundred thousand dollar development charge.
Dave Debeau [00:10:34] Which, yeah, that that's significant for sure. All right, so just to recap, you're finding pretty large single family homes in these ideal neighborhoods close to the city center within a 20, 30 minute commute to downtown. These are areas that are very, very attractive to upwardly mobile young professionals who don't necessarily want to live in a condo. They're looking for more of a home type feel. The more rundown, the better for these kind of properties, because basically you're going to you're not going to demolish it, but you're going to gut it. And let me let me ask you this thing. So are these older homes are like 80 a hundred one hundred twenty years old. They've got pretty good solid bones, don't they? I mean, they they built them to last back.
Ming Lim [00:11:26] So it to be quite honest, it's a bit of a mixed bag. Some of these older homes are built fantastically. Some of them aren't. So I'll give you an example. We are doing a conversion right now for one of our clients. And this home was actually a stable at one point. So it's a long and Bathurst and King is where all the, um, king was, where all the homes were, and then the stables were at the back. So this row of houses were actually stables. And because they were never meant for people to live in there, they were converted stables. They actually were not built to last. So this property had a bit of a lean in the wall that we were able to crack the lean and fix the structure behind it. But it can be a bit of a mixed bag. And that's why when we're buying these places, we have to be very conscious of what we're buying. We knew there would there was a lean like it's quite obvious when you see the property, but it's like how do you how do you remedy it? And can you get your money? Can you get a good price of it? Because there's way a bunch of other people.
Dave Debeau [00:12:31] Right, exactly. All right. Well, that's OK. So you buy the property, you start the process of turning it into a duplex and then but all the long all the while you're planning on turning into a triplex. Right. So, yes. How do we deal with that? Kind of.
Ming Lim [00:12:48] Sure. So, you know, the property itself, we're looking for a bunch of things. Like I said, we don't we want to do as little to the structure of the home as possible. And we want to focus instead on the things we have to do for Travelex. So ceiling heights are really important to us. A lot of like, let's say, older Victorians, they've got beautiful, you know, 10 foot, 12 foot ceilings. Yeah, that is not easy for us to to enhance it anyway. So if we can buy into that great basement, ceiling heights is another one. Don't quote me on this, but I think it's we need six eleven over seventy five percent of the basement in order for us to have a legalized triplex in there. But basically we have tight requirements that we need in the basement as well.
Dave Debeau [00:13:30] And no NBA players living down there.
Ming Lim [00:13:33] No, on the on the rental, it's like, you know, five foot five maximum. But yeah. So we have like height requirements. We need to to meet assuming we found a property with all those things, we open up a duplex permit. So we have architects and engineers, but we work with to create the plans we submitted to the city. And then when we talk to our inspectors, we are transparent. We're not trying to hide anything from the city because we need them to be a partner in all this. The city is trying to identify as well. Toronto has you know, we have less than one percent vacancy on the secondary market, which is investors like us. It's ridiculous right now if you're a renter. So it's not in their interest to be difficult for densification. They just want to make sure that we're building a safe place and we're building to code and we want the same thing to. But so we tell them, hey, we've got this duplex permit. But our intention is to make it a triplex, evaluate us under those criteria, because you're going to be the inspector that's here, hopefully when we submit for Travelex permit. So if we need additional fire separation for this spotlight or this H fact on this floor, because right now it's just duplex, but we'll be Travelex, let us know. Now we have the expertize ourselves to know where we need that kind of fire separation. But at the end of the day, the inspector inspectors, God, when it comes to renovations, whatever they say goes. So some inspectors want to done a particular way. Some may want it done differently. So we do engage them from the very start. So that way we have that conversation with them.
Dave Debeau [00:15:09] Nice. So maybe time flies when we're having fun. So to kind of wrap up this this idea so we get our head around it, you're buying for one point two. You're taking her down to the studs, it sounds like. So typically, let's say you buy for one point two. What are you putting into it for renovations?
Ming Lim [00:15:29] It's renovations. Look all in. So this is renovation. This is holding. Architectures of soft costs. We're probably looking at about anywhere between 400 to 500 thousand. They're expensive renovations. The nice thing about Toronto is you can have a house on the same street, one selling for a million dollars, one point two million dollars. And the neighborhoods that we're doing this and we need that because we need the high RV, you know, after we've done the renovations to refinance and get our money back. This is nothing more than a complicated birth strategy for us. But we get them rented out and then we refinance and rent. And these kind of places are pretty good, anywhere between seventy five hundred eight thousand for the property, up to about ten thousand four or five for the three, but for the three units. Right. So we're able to get these property. Irv's about two million dollars and then we have about eight thousand-ish in rent. So you're still cash flowing after you're done to the house?
Dave Debeau [00:16:28] Because I can't do the math in my head. What are you cash flowing on that kind of a property after you've pulled your money out?
Ming Lim [00:16:35] Yeah. So cash flow, of course, it drops quite a bit after the after the refinance. So you're not canceling much maybe about three hundred, four hundred bucks afterwards, but you're into a two million dollar property with excellent tenants. This is another reason why we actually went to this model, because it was easier for us to scale one property generating nine thousand ten thousand bucks is like easier for us to scale than it is to have to manage 50 or 100 units, which is not not our specialty. Like we're not property managers. That's the part that actually I hate the most in real estate investing. But it was easier for us to scale.
Dave Debeau [00:17:12] Yeah, fascinating stuff, man. Time flies when you're having fun. We'll have to have you back on the show to kind of dig a little bit deeper into this. But if people want to find out more about you and and the group, what should they do?
Ming Lim [00:17:28] So best thing you can check out a website. So it's on volition. That's the when prop prop, dot com. You can follow me on Instagram. So it's an investor rimming and feel free to reach out to me. You can email me directly at volition dot com.
Dave Debeau [00:17:45] And I think if people are in the GTA, I think you guys run a very, very established and successful Meetup group as well. Is that correct?
Ming Lim [00:17:53] Yeah, we're about two thousand members now and we've been doing it for four years, five years and I. And a long time.
Dave Debeau [00:18:00] So what's the name of your Meetup group?
Ming Lim [00:18:05] I think it's Toronto real estate mastermind. Yeah. Go to our website. Links on there.
Dave Debeau [00:18:14] Thank you very much. I really appreciate it. And that's a really good tips on how to make a single family home. Cash-Flow in Toronto.
Ming Lim [00:18:22] Awesome. Thank you so much for having me on.
Dave Debeau [00:18:24] My pleasure. All right, everybody see on the next episode of a. Well, thanks very much for checking out the property profits podcast and you like what we're doing here. Please head on over to iTunes, subscribe read us and leave us to review it. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom Ticker.