Cash Flow Investing, Section 8

James Lloyd

Sarah: James Lloyd, customer service is his passion at US properties. James oversees and helps the Cain investors and ourselves every step of the way. Bringing in his years of detailed management and investing expertise and together they are a powerful team. I think the best part of it is that they're Canadians that we can actually see rather than, maybe not right now with it, with everything that's going on, but at some point when we're allowed out of our houses again these guys I've met in person and they are great.

James, we're going to bring you in. We're going to talk about cash flow investing, section eight, federal housing. All that good stuff. And it sounds from many conversations that we've had section eight is not disability or not Ontario works. You've got a little bit more control as an investor out there. But first, let's get your first question from a few members. What's the definition of a cash flow investing? What are the advantages versus, maybe equity-based investing? And why is that more important or not?

James: Well, cash flow investing really is at the core of what we're doing and why we're down in Detroit, Michigan, right? It's you know, as it pertains to real estate, it's the ability of the asset or the home to produce or yield a profit after expenses. I speak to Canadians on a daily basis as they approach us and potentially look into going to the United States.

And one of the common themes I'm continually hearing is the ability or the struggle to find cash flow in Canada. Whether they're having to go down to New Brunswick or Northern Ontario or a cash flow operator and the Detroit market, or in particular, the US market including areas like Detroit, Michigan, the market environment is such that it creates the ability for the homes to really produce heavy cash flow.

You're looking at assets that are a fraction of the cost at the rest of the best tops of what they are in Canada. Rent disproportionately high in relation to the acquisition costs, expenses are low. Property management is like 10% of rent. Property taxes are very low in Michigan. You're looking at like a hundred dollars a month and insurance is cheap. 1100 rent, you're cash flowing, et cetera, and 50 to 800 US a month of a hundred thousand investment. It's this quite substantial return. That is something that we're really proud of. It's really special.

And we only sell assets that are cash flow positive. And that really is the core reason why we're doing what we're doing down in Michigan. I'm not quite sure if there's a follow up question to that, but I can tell you that it also really factors in as our clients scale. Once we refinance, which for most of our clients will do after an additional cash purchase. It's really powerful because you can continue to scale and have that cashflow cover the mortgage. And the market is actually so strong in Detroit that once the home is leveraged out and you've got most of your money back out on the refi, it's still cash flow positive, like three or $400.

Look, this is a really powerful tool. We all know possible residual income can change a life. It could change your family's life and create freedom. We're here, as we are an operator to help our Canadian clients obtain that. And it's quite attainable and close by.

Sarah: Awesome. In Ontario right now, we're about 12 months behind with the LTB. If paying a tenant decides to not leave, what happens where you guys are investing in Detroit and Michigan if a tenant decides to not pay or can not pay?

James: Look, what are the amazing or beneficial factors in Michigan law is that it's much more landlord favored. Unlike Ontario or Canadian where a person has horror stories in regards to this, if you don't pay during normal times your rent in Michigan, you're getting evicted. We're predominantly, and we'll get into this a section eight operator, which kind of alleviates the stress, but there is certainly a percentage of our portfolio that is cash and there has been some incidences of nonpayment.

They get served at notice a 30 day notice where they sometimes have you arrange the property management or correct the situation. And then, we have a legal team in house, you know Voytek, my wife, Pamela is heavily involved. She's a co-owner of the company. She's quite the tough cookie. And it takes care of that for our clients. She has their back all the way. And so if you're not paying, you're going to be out of the home, it's not going to be something that's going to be drawn out. And like I say, in Michigan unlike Canada, it's different. It's very much more landlord favored yeah.

Sarah: Are you able to briefly talk about what section eight is?

James: Section eight is a huge part of our company and our program. Essentially a section eight is a fantastic subsidized rental program that is currently funding for approximately 14 million Americans. It allows them to receive a voucher for the rental payment. It differentiates itself from other types of social assistance and there are many types even within the United States. I'm sure a lot of you think of government assisted housing as being in confined government housing projects or areas, or some homes where they have to live in.

Whereas this program is quite different. I would say in my experience, the typical criteria is a single. With three or four children, she's working full time, maybe at the hospital x-ray technician, but she's struggling to make ends meet and she can qualify for this voucher. And we can put this family of need into your renovated, colonial home in a B class neighborhood in Detroit.

It's not confined to certain neighborhoods. The vouchers can go right up to over $2,000 US a month. And there's a huge amount of benefits to this because certainly the biggest risk in real estate investing is not getting a return is vacancy or non-payment of rent. This alleviates a lot of that, and these clients stay very long-term. These tenants stay very long-term typically, five to seven years without moving. There's a criteria they have to adhere to keep the voucher.

They keep the homes in good repair. They shovel the snow, and the homes are inspected. They don't jeopardize the voucher. Look, during these uncertain times of COVID during the on and off moratoriums on eviction and the struggles that other providers have had that are predominantly cash tenants. This program is being such a hedge for us against troubling times. It's enabled us to keep all of our staff hired. It enabled us to, most importantly, continually pay out on a monthly basis to our investors, their returns, during some of the darkest days of COVID this time last year.
We had some of the highest payouts in our company history and it's huge for us, and we currently are only really section eight. And if you were an investor and you came to me and you said I was looking to go the cash route. We'd have to have a pretty firm discussion for you to convince me that it has outweighs the benefits of the section eight program.

Sarah: Yeah. It sounds much better than the stuff that we have because if someone's on disability payments, which I'm fine with that tenants on it, but they can easily just call them and say redirect payments to themselves. And then, you're out of money. But you also mentioned something and then I want to go. You get into your slides show, but you mentioned something about tenants, longer term five to seven. The way that I look at it being from Ontario, and it's not obviously the same in the US but in Ontario. I want my tenants to like out every two, three years because of rent control. And the lack of ability for us to raise rents. Is Detroit, Michigan rent controlled? Or can you raise rents?

James: No, there's no rent control. It goes off market rent, right? We have a very experienced team of Detroiters who are managing our properties and essentially the rent is a set of comps of other similar sized, square footage, bedrooms style homes in that neighborhood. That's how we do it. We'll get a tenant with a voucher we'll know ahead of time when we make the performance for our clients, that the home is going to X out at, 1200 a month and on a yearly annual basis. If there is an increase in that market rent, we can apply to section eight and they were really good actually in upping the rent. It's very much valuable to have any long-term. I see that the slides have come up.

Sarah: Maybe what I'll do is I'll go through it. And then just walk us through some of the really cool before and after. I've seen some of these pictures, they're pretty interesting.

James: This is something we're really proud of, guys. This is what we do on a daily basis down in Dunham, Michigan. We acquire properties. Here's an example of a property on Hague street. I think it's 251, it's in Detroit's North end, which is a really hot neighborhood close to Midtown. The properties, especially colonials of this size, probably 1600 square feet, three bedrooms. You could see it's in disrepair. This is exactly what we're looking for. That's why Voytek is wishing he could find more. It's a home like this and a hot neighborhood. You could see this. It's obviously being in a state of vacancy. What we do is we assess them. We look at them and we're looking to see what's going to cost to take that product and bring it into where we deliver to our clients right. And it's going to be substantial.

Here's some of the pictures you can see, it's got new siding, new roof, new windows. It's got vinyl, windows, Newport. It looks completely different. Here's a Primo kitchen. We've got great contracting crews. They go in there. They're probably stripped right out. They brought it back. The putting the high-grade rental finish into these properties. It's going to be durable. This property is obviously in a little bit of a show the situation here. But this is not far off from what we would use for section eight. They can put these sides of bathrooms ends with the tiling at a reasonable renovation budget where we could still deliver this home. I would imagine this one would retail for our clients or our server in the 150,000-160,000 US for a home of this quality. But you can also expect it to have an evaluation of around 210,000.

Sarah: I love these before and after pictures. They're great.

James: Awesome. And this is something that we're really proud of. Here's another example of a home on Broadstreet. This is in the Russell Woods neighborhood near the historic Boston Edison. You can see it's dated, but it has some charm to it, right? It's not that dilapidated in this picture, but the home, here you go. It needs some TLC. For sure, but this is what we're looking for.

Here's a beautiful square foot historic looking home that we're going to do as you can see here at extensive high-quality renovation, that is going to keep some of that historical charm of the homes that you want to roll into the after. Here's the outside. You can see, great looking neighborhood. It's Russel woods. It's got a boulevard down the middle of the street. This is a sort of charm you can find in Detroit and look like white chick screws down here. But keep the banisters and the beams up to beautiful flooring.

The fireplace is there. You can see the bedrooms, they put down new carpeting. They put a granite countertop in this home. It is extensive, this is one of our premium properties, this home here. We'll probably, it was sold to a client in the neighborhood of around 180,000. But you're looking at 2300 square feet. It's going to have a market rent, I believe over 2,000 USD a month and an appraisal value. I'm sure much higher than that.
 

The last thing I wanted to share with you. It is a property that I really like. It's in an area called Jefferson Chalmers, which is on the East side by the Detroit river, close to the major assembly plants. This would be a really classic example of where we could deliver to you for run the hundred thousand threshold. Or you could see this home again is, three bedrooms is probably around 14, 1500 square feet. It had everything new.

We went there. You can imagine what they've done and they can do this in around four to five weeks. They've stripped it down. Put in new kitchens, new roof, new exterior, new siding, new HVAC, new plumbing, new electrical, new bathrooms, new flooring. This home actually had a sales price of 99,000 USD and came in. I believe a recent financing appraisal in the a hundred or 135,000. That's a pretty powerful equity capture right there. And look, what does that do for you? That means that when you go to refinance this property guys you get to refinance it at a higher valuation.

If we're working with a 65% LTV and you're spending 9,000, but he comes in at 135 you're getting 65% of 135,000 back, and that's going to raise that LTV from 65 up to 85 which is going to help you stop investing in the BRRRR method. Which is what we do the first few steps for you. Like we help you buy it and we renovate it and we rent it. And then this is up to you to refinance it through our contacts, our brokers, and repeat.

Sarah: Amazing. Great job guys. Like I love seeing the befores. I love seeing the after, the uglier the better. 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.