Voytek Mardula
Sarah: They are a turn key solution for purchasing cash flow positive real estate in the Detroit area. And they do take care of everything from the purchase of the financing, the renovations, the tenants, the property management and they are a great option. If you want to diversify, grow your portfolio. I know our very own Francois has done a tremendous deal with them that is actually better. I'm super excited for that. Voytek Mardula, I'm going to introduce Voytek. I'm going to introduce James.
Voytek founded the company and he's found success as a lifelong entrepreneur in a variety of industries. He's got extensive experience in investing, managing rental properties, both in the US and Canada. He is Canadian and he owns and operates his property management company right now managing over 300 doors.
Tonight, we're gonna talk about how Canadians can build an infinitely large real estate portfolio in the US using cash flow investing and asset based lending. Voytek and James specialize in these acquisitions, how are we going to do this today? I'm going to ask some questions. I'm going to start by asking Voytek some questions. I'm going to ask James some questions, a little bit of back and forth, and then they've got some really cool before and after pictures of some of the deals that they've done. Welcome guys.
Voytek: Thanks for having us Sarah.
James: Thank you Sarah.
Sarah: I feel like I just talked to you because we had you on my podcast on Monday and there was tons of awesome information. I'm excited because there's always things that I learned from you guys. Let's ask you a few questions. First Voytek, some of these questions actually came from some of you, the club community, just asking about us investing as Canadians. And we thought it would be great to ask Voytek and James these questions. And some of their most frequently asked questions as well.
Let's start with the first one. When investing in US markets, a lot of people wonder, are they going to be double taxed? And how the taxation works from a Canadian investing in the US. Are you able to provide some insight?
Voytek: Yes, absolutely. This is a very common question that we get from our investors. Of course we're dealing primarily with Canadian clients that are looking to purchase assets in the US specifically. And what often happens is people get the wrong advice from US experts and they're advised to purchase assets using certain entities.
A good example would be an LLC or Limited Liability Company. I'm sure many of you have heard this term and it's a great little vehicle, if you are a US citizen and the CRA, the US government tax body will treat it in such a way that's very beneficial to you. We'll give you protection, but if you're Canadian it's actually the wrong way to hold it.
There are many Canadians out there that are currently holding their assets within an LLC. And what happens is when they go to withdraw money or pull the money out of a property, they end up being double taxed because they get paid. They get to actually pay the dividend in the US and then they get paid on the dividend again in Canada.
When we actually started investing in the US five years ago, we were given very similar advice. And we'd started setting up our structure for our own personal properties in that same manner and it took some advice. My wife is an attorney and so we had contacted other attorneys in Canada who would give us the correct advice.
All of our clients now are given thousands of dollars worth of legal documentation that we were provided by a Canadian cross-border specialist, how to hold it correctly. You actually get a tax credit for stuff that you pay in the US. You get a tax credit in Canada based on the tax treatment. The short answer is absolutely you can be double taxed, but if you have the right advice from the right Canadian cross-border tax specialist, you will not be double taxed.
Sarah: Thanks. Very insightful. Peter Cuttini, who is one of our REITE partners from BDO is actually on the call. And he said you guys got the LLC issue. That's awesome. Next question, number two, as a Canadian, should I purchase the properties in my name or in a company/corporation?
Voytek: That's another great question. A lot of people that are getting started in real estate may never have purchased an asset. Some of them have the tendency of wanting to keep the asset in the name. And sometimes, look when you first start out and it's your first asset and you don't own anything else in your name. That is a viable option. It's relatively inexpensive. And one thing where the problem lies is that should there something occur at a property, should there be a lawsuit or perhaps somebody tripped at your property and a lawsuit you would be held personally for any damages that may have occurred because you heard that asset. You held that asset personally.
What we recommend to all of our clients is to form a US-based company. Such as a limited partnership which all of our attorneys and our advisors recommend this type of structure because what that offers is liability protection for you. And you're able to buy multiple properties and even if it's something that occurred at one of the properties it would only, the liability would only extend itself as far as the value of that property. And wouldn't spill over into your personal assets. And so it's a great vehicle for asset protection, but in addition to that US lenders will not work with you.
If you're just a Canadian citizen, owning a property in their name it's very rare Canadian lenders will, but US wants will not. This gives us an opportunity to borrow large sums and build a very large portfolio, which I'll get into a little bit later on. But those are two primary reasons why I would recommend holding the asset in the company name.
Sarah: Some great advice there. And going into that similar question. What about an American or Canadian lawyer or an accountant? Should somebody go and find somebody Canadian, find somebody American? What do you suggest, would I need a US lawyer and accountant or Canadian lawyer and accountant?
Voytek: Yeah, we always recommend that you get yourself the attorneys specifically not only in the country, but also in the state that you're doing business in. So if you're planning on buying assets in Michigan, get a Michigan attorney because you're going to be filing taxes there and they know Michigan laws and everything in the US is state law, and then there's federal law as well.
You really want to familiarize yourself with the state law. And what are the advantages? What are the tax advantages, disadvantages, et cetera, and the first person that will know that will be a US lawyer that's based in the US. There are plenty of Canadians who have specialties in US law and also in US accounting. The problem is that they charge three times as much as we've had our clients be advised to form entities in Michigan because we primarily operate in Detroit. Now, in order to form an entity in Michigan, run your $500 with some operating agreements and everything, whereas if you do the same function or the same task in Canada, we've had Canadian law firms quarters as much as $5,000.
It's the same document. It's the same process. You just charge more because they can, frankly. And they don't really have the same expertise when it comes to US taxation I find. Because a US tax lawyer will do thousands of these returns per year, whereas that lawyer may only handle 10 for their niche clientele. I always find that, build the team in the market that you operate in and have boots on the ground there and to really understand the market and you'll get the best advice. That's good advice.
Sarah: Would you recommend them just to add to that question? Would you recommend, if you do have a team member here, whether it is your lawyer or your accountant or whatnot, just to have a double, like just a quick check, just to ensure that there's nothing perhaps that is being missed. Because you've got your team in and it sounds like you've got a well running team if I have a lawyer and accountant that I really want to ensure that they double check and triple check everything from potentially the other US lawyers. Should that be in Texas or what not? What do you recommend for that?
Voytek: A hundred percent. Often what all of our clients do is have their tax return prepared in Michigan. And they bring that tax return over to the Canadian lawyer because it needs to be incorporated into your Canadian tax. We turn anyways in order for you to report that income and also get the necessary credits that you rightfully deserve. Yes, the best strategy would be to have that Canadian accountant that has a US brand that understands US taxes to a certain degree. And they're not going to necessarily charge you to prepare the entire return and do all the work, but just verify and double-check that's the best strategy Sarah, a hundred percent.
Sarah: Cool. Last question for you, Voytek, do you guys handle property management?
Voytek: Yes, we do. I recommend to anybody who's purchasing a property in the US, do have a property management company. And if they can be in Canada, I think you're better off with boots on the ground. We had used a lot of third-party property management companies when you first started there. And I had found that the level of service wasn't easy for them because we're over here and they're over there. Some of them were dishonest to some degree, it feels like they can pull fast ones because you're at a distance and you're not there to monitor their work.
I find the best strategies to have somebody here locally that actually hires US citizens that work for us directly, which is what we have. We have verification and we have people that are directly on salary that are checking up on the contractors, checking on properties, making sure it's happening, which is why we're able to operate remotely.
It would be very difficult as we grow and continue to grow just to blindly trust somebody to handle your investments and if there's any problems, you have a Canadian representative that you can speak with that's here that can help you. And because we have such extensive teams on the ground that we can get anything done in the US, done in a very efficient manner.
That's why we went in-house and developed our own property management company. And it's been a tremendous advantage, I think. And it's definitely taken us in the right direction in terms of management in helping her clients.
Sarah: It sounds like you've got it figured out turnkey, and everything feeds on the street team members set up, which is awesome. Thank you, Voytek for answering those questions. We are going to talk about financing and how to get financing from a Canadian trying to purchase in the US and how that all works. And is it based on her personal income? Is it based on assets? What can you tell us about investing in the US and how it works with you guys?
Voytek: I think one of the biggest differences between Canadian lenders and US lenders is that the US lenders don't consider your personal income when you're buying rental properties. Their criteria differ and I never really understood why Canadian banks like to put so much weight on your personal income. Since, when you go buy a rental property, it's the rental property income that's going to pay the mortgage. That's what they should be really focusing on. And the US lenders have done this forever. And I think one of the biggest advantages of this particular system is that you can scale your portfolio.
When we first started investing in Detroit, we were looking at it and thinking what would 10 or 15 properties look like? And what kind of cash flow can they generate? And we could afford that using some of the funds that we bring in from Canada, but yeah, if you extrapolate that and look at the bigger picture and start thinking, okay, what does a hundred or 200 properties look like? And when I discussed that with some of my Canadian friends and investors, they thought you can't do that.
The thing is that in the US you can. As long as you can come up with the down payments, and if you can use the BRRRR method to reduce the down payments, as much as you possibly can on each acquisition, then it's just a matter of time before you can build a very large portfolio that can help you and your family and retire them and create generational wealth. Because at the end of the day, that's what this is all about. It's great to purchase some properties in Canada and spend the next, 20 or 30 years paying off the mortgages. And at the end of it, you still have the asset, which is great, except, in our case we'll be seven years old.
There's not as much fun to be had when you're 70, apparently. I think that, with US-based lending, the lenders really, they want you to have a little bit of experience. And I think that's a big factor. A lot of them will consider that the lenders that we have located will consider your Canadian credit score.
The US credit Corp operates on FICO, which is TransUnion, Equifax, and Experian. And we don't have experience in Canada. We had to find specific lenders that would only take TransUnion and Equifax. And they would consider them because look, Canadians are great customers, most of us have great credit. We pay our bills on time. We're more conservative than some of the US counterparts. And so we actually make great real estate investors in any country. We're able to locate these specific lenders that are willing to work with us as Canadians and buy as much as we want in Detroit, especially when it comes to those better products.
They do prefer that you are over a hundred thousand dollars in value, which may seem like a ridiculous low number anyways in Canada. But that's a threshold in the US where those are considered better properties. As long as you're willing to buy property over a hundred thousand, we can get your land.
We have great context for that. And like I said, you can build a massive portfolio in a very short period of time, there's really no limit on how much you can borrow. As long as the property performs and as long as you're able to pay that mortgage every month, they will literally be knocking on your doors.
Sarah: It sounds like after the first one, it's like all of these opportunities open up because you've got that asset.
Voytek: That's right. Yeah. I think a lot of our clients, what they have done is bought the first one with cash. They've gotten a Canadian, maybe a line of credit and purchase that first one to get that month worth of experience, get that seasoning period in because they want that experience in the US, they want to see that you have a good property management company behind you that can manage the asset that you know you'll be able to generate rent and tenants and all that good stuff. But once they see that, and then, they consider that experience six months. Now they'll lend you more so you can keep growing and then really it's just as big as you want to make it as big as your dream is, that you can build it.
Sarah: It sounds like you've got the lenders in the US that are doing this already. So, you're set up, you've got your team. That keeps it super easy. For us looking to get into the Detroit market or the Michigan market you're going to be able to connect us with all of those team members as we go through the process.
Voytek: A hundred percent, I've literally spent two years talking to, I must have spoken to about a hundred different brokers and a hundred different lines, to try and find in every step of the way we found someone and it was almost there. And then we would, at the end, it would be like, oh, but you're Canadian and you want to do this in Michigan? No, we can't do it. Or this property has to be over $250,000. I said most of our clients buy under 250, what do you know?
It was a very trying process. And then we were able to find two good brokers. And then about a handful of really good lenders that they have access to that really work with us. They understand us as Canadians understand the types of companies and entities that we want to form that are most beneficial for us as Canadians and, and they're willing to work with us. It's been a fantastic journey since then, and obviously, we look forward to helping anybody that wants to take a look at the market.
Sarah: Amazing. I know you've got some questions in the chat. Maybe I'll let you guys chat that away. Voytek, James, thank you so much.
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