Real estate has seen incredible gains over the last few years across most markets. That coupled with increased competition and low-interest rates has created a feeding frenzy on every property and left many real estate investors frustrated with missed opportunities or limited to no cash flow being possible on many properties.
Add on top the potential for missed payments from tenants and the traditional one or two-unit properties no longer appear to be viable or are too risky for the average investor to take on.
Enter multi-family units as an alternative opportunity with a number of benefits;
- Missed tenant payments or vacancy risks spread over more incoming producing units.
- Simplicity of setting up and running - one loan, one insurance policy, one contract to purchase.
- Potential for a property manager running the building.
- Economies of scale for repairs, resources and supplies.
- Larger units offer the benefits of commercial real estate investing.
- Potentially less competition in the market.
For real estate investors who are interested in multi-family unit investing opportunities, knowing where and what the best deals are is important. That is why having an experienced and knowledgeable real estate professional on your team is key to your success.
Join us for this REITE Focus event where Dylan Suitor of Elevation Realty shares case studies and their latest insights on the opportunities in multi-family investing.
Laurel: One of the experts in multifamily investing generalists, Dylan's going to take us through the in and outs, all the questions we should know. He has personal experience. I'm sure some of the mistakes he's made and some of the wins he's made because we've all made mistakes. We always make mistakes. I don't know anybody who is successful, who has not made mistakes, because I'm going to say, if you haven't made a mistake, you're not very successful. That's the way it works. He really does understand and he is an expert in multifamily investing. Here we go, Dylan, it's over to you.
Dylan: Thank you guys for having me on and I still go back to the claim to fame where I've attended every single REITE club, except the first one. At least the in person ones before COVID kind of happened. They've been a lot more, which is awesome. Lots of value there. What I really want to focus on today is some of the growth that I've gone through over the last four or five years. Some of the key learning opportunities that I've had through that.
I'm sure there's going to be a ton of questions that will come out of this. Please write them down. I am taking some notes on the side as well, and I've asked Laurel to accumulate all the questions. I've made the PowerPoint a little bit shorter so I can tell some stories and hopefully drive some questions and the answers to more of your questions at the end of the day.
My intention is to stick around and to answer as many questions as I can. I can talk about my predictions again, as they mentioned with the disclaimer. My predictions are my predictions and my feelings and my thoughts, but I can't tell you what's gonna happen in the future because no one knows. I will share some of the stories and some of the growth opportunities and go from there.
Let's jump right in. As Laurel mentioned, I am the CEO and founder of Elevation Realty Network. I am a real estate agent. I'm also a real estate investor and I'm also a real estate brokerage owner. I'm a proud owner of a Keller Williams office in the West end of Toronto with just over 110 agents but a thousand doors right now.
The goal is to double that this year. Our team does a lot of investment focused real estate, especially in the multifamily and apartment building mixed use, mixed multi-family residential space. Some of you may have seen me on stage a few years ago, where I actually told a big Mac story and the entire concept of that 25, 30 minute power presentation was to focus on a niche.
It was for you to get an understanding of what your niche in the market is going to be. That niche could be through a specific area. That niche could be through a specific asset type. Whatever it is you want to make sure you're really good and hyper-focusing. Why I share that is because my story really has been all about different niches. I got into real estate as an investor. I got my real estate license. I was gonna represent myself. I did a few single family sales, took me maybe a year to realize that there was a huge opportunity in legal secondary suite conversions in Southern Ontario.
I had clients that were buying these properties for 350, 400, 450, and they put in $80,000 to $100,000 and they have a product that was worth 650. As the market has continued to climb in Hamilton, St. Catharines, Southern Ontario, all of Ontario, all of Canada. As our prices have continued to climb, what we've found is the spread and the refinance opportunity has gotten thinner and thinner. My responsibility as a fiduciary duty to my clients was to actually understand how my clients could create massive wealth through real estate and essentially replace their active income with passive income.
Something that you'll see throughout this whole process and different learning opportunities and growth that I've done that have allowed me to know certain things that you'd only really know if you're involved in it. On a day-to-day basis, every agent on my team is actually an investor too. Most of the admin are investors too as well. Our entire organization and ecosystem are really hyper-focused on growing, always learning and investing and knowing what we're talking about.
The first thing that I did before we actually jumped into it, what I do want to do is I have this little remarkable beside me, and I would highly recommend you guys take a second, grab a piece of paper, grab your phone, put a note, whatever that may be, what are you looking to take away from this presentation? Everyone may take something different, but I want to have an action item that you can take afterwards. Maybe that's to schedule a call with your mortgage broker. Maybe that's the scheduled call with us. Maybe that's to do a site visit with another investor, maybe that's to reach out and understand a little bit more about how multifamily works or take a course.
Whatever it may be. Make sure you have an action step you can follow through on because without an action step. You're wasting a nice evening that you could be outside doing something else. If you're going to learn and learn, but not do anything for that learning, then you're never going to actually reach the financial goals that you're looking for. If you guys want to take a second while I've been speaking and drop it in the chat, what are you looking to take away from this presentation?
At the end, we'll come back through it. Before we go to questions, what are the action steps that you're going to apply? That's going to allow you to take action and move forward on this. I do this with every course that I teach. I also use every course that I take to ensure that I get into momentum. It doesn't take more than one thing out of this presentation for you to take action on and go to the next step with. Take a second, write it down and I'll jump into one of my first stories.
You might also realize that it says one on one. These are a couple of different items that we want you to address when looking at your multifamily goals, helping with your takeaway, your action item, what are you looking at for longevity? Are you someone who maybe you're younger and you have 50 years that you can invest in, or maybe you're a little bit older and you're feeling that investment opportunities are a little bit more compressed.
What are the different assets that you're willing to go through? Are you willing to make a move or are you willing to quit your job and go full time? These are just some items you want to think about. What different investment streams might you be looking at? What different opportunities may you want to purchase?
A lot of you may have a single family, a duplex, a fourplex that you've had for four or five years. You're saying if I refinance that I can't even get 80% loan to value because there's no cash flow. That might be the perfect opportunity to sell a couple of those smaller assets. As we do to monopoly, take a couple of those greenhouses and turn it into that red hotel. There's probably untapped equity that you can't get out of that asset either because your income doesn't allow for additional mortgage or because your loan to value is capped based on the cashflow.
Maybe the interest rates are affecting things, and you may want to pivot from residential financing, otherwise known as the direct comparison to more of a commercial financing method that is really based on numbers and emotion. We're really going to break this presentation down into three steps. We call them one on one again, cause they're all just equally as important. However, it's really the numbers, the education you're going to need to make, take action on these items and then the power team you're going to want.
I know that Claire just taught a course this past weekend, around multi-family acquisitions from an actual numbers perspective. What I've really done with this presentation is to focus on my experience and what different problems that I've encountered. How I've overcome some of those problems and what problems you may be able to learn from me so that you don't encounter those same issues. I normally would ask, who knows the difference between these two, but since this is just a webinar, I want you guys to take a second. Could you define the difference between a direct comparison evaluation and an income approach evaluation on valuing a property?
The reason I'm asking that question is because if you've traditionally purchased single families, duplex, triplex, and fourplex, some residential lenders will do five and six units from a residential perspective. But most of the time, five, six and up is going to be more of a commercial financing perspective. It's also really important to understand the difference between residential and commercial real estate as an acquisition is different from residential and commercial mortgages.
If you're looking at a commercial use building or an industrial use building, that's probably more of a retail or a storefront, whereas commercial lending, you can still do commercial lending on only residential properties over five units. Going back to the direct comparison versus the income approach, the direct comparison is you've all heard it, hey, my house is worth a million dollars. Here's the three comparables or comps. Someone may say that to justify that million dollar value.
My neighbor is sold for one point. One has a bit of a bigger lot and the renovations are a little higher. They've decreased the value of my neighbor's house to a million or from a million, one to one. And given me a million dollar valuation, the bank will take that and lend based on that appraised value and what that ultimate other comparable is. It's really easy to do in an environment where say you have condos and there's a hundred condos in a building.
The exact same unit is on all 10 floors up and down where it's 652 square feet and a one bedroom overlooking the water. We know that if we go up and down, the only difference is the height and possibly the condition of the unit. You can make some quick tweaks on your valuation to know what that asset is.
When we get into commercial financing, this little triangle on the left-hand side is the most important factor. These are the three nozzles or leavers that you'll be able to play with to determine the other. What we're going to find is the cap rate is usually determined based on our capitalization rate is determined by comparable capitalization rates and similar conditions. That's going to tech normally be like a chart or comparables that an appraiser may find, which are mostly off market.
Your NOI, Net Operating Income, is controlled really by the rents you charge and the expenses you decrease. The spread is going to be your NOI or your net operating income. The value is what's going to come from dividing your net operating income by the determined cap rate. Now, you can control some of these different items. You can control the net income. As I mentioned, by charging higher rents, or you can control the net income by adding. If you're going to charge $50, now pull your calculators and do this with me.
You're going to charge $50 per unit on a 10 unit apartment building. That's $500 per month, 12 months is $6,000 divided by let's say a 4.5% percent cap rate. Take $6,000 and divide it by 0.45. That's $133,000 in additional value that you can then take to a lender by just adding parking at a cost of $50 per unit on a 10 unit building. That's a really easy way to not turn over tenants, but to increase the value of $133,000. Most of the time, you're not going to take that money out, but you may refinance it for another prod project or another asset, or you may take that money out to then go and renovate units that have turned off.
One of which we'll get to a little bit later in the presentation. The difference between a direct comparison approach and income approach is really the difference between residential financing and commercial financing. It's a really important piece to think of. And remember, because if we go back a slide, the number one point up at the top is that the decision to buy should be based on the numbers and not emotions. And quite often, especially in a market we've had recently, which is more of a sellers market.
A lot of times emotion can buy or can force you to do things. Maybe you have a baby on the way, and you need a new home because you need to get bigger and you have a limited time period. There's some emotion that makes the decision on whether you should buy that asset or not. Maybe you'll overpay a little bit. Whereas when we're looking at the income approach, we really need to focus on the numbers because the numbers are going to give us that return.
Going back to the beginning of this whole piece, where I talked to you a little bit about what I have actually done and where I've learned in 2018, I was purchasing five or six assets prior to that through different methods. However, until I was 18, I bought my first property at a corporation. It was actually at a REITE club event that I went to one of those sessions, like Claire did this past weekend, and I learned about different financing strategies on how I could do that.
I spent a bunch of time with my business partner. We worked through a whiteboard example of what it would look like and what it ultimately was we were buying assets for $200,000. We were putting anywhere between 80,000 and 120,000 in we'll just call it a hundred for even numbers, $200,000 or $300,000 costs and the value of that asset was now worth $400,000 and the rental income cause we would make it a duplex into two units or legal accessory suite based on the city that it was in.
We'd bring in say $3,500 a month in income. If you think about a $400,000 asset, that's bringing in $3,500 a month in income, that's a really good asset. That's almost a 1% rule. If you're investing in the US or in the states, a lot of times people are targeting not 1% rule where 1% of the value of the property is your monthly revenue. Those were really good, high performing assets that we had. However, we realized that property values were going up and the top end value wasn't going up as much as the opportunity to add value.
I think a lot of that comes down to the fact that real estate investing is quite fun. And a lot of us on this call and a lot of us that have that couldn't be on a REITE club event or whatever else would happen, have found a lot of success through real estate investing so much so that we may have retired or as Claire would say, tell your boss where to stick it. I didn't have the same accent she has. I apologize for that one, but maybe one of you guys laughed.
This was a strategy that really worked well for us back in 2018, this same asset in St. Catharines that was $200,000, would probably be about $500,000 to purchase now. The renovation costs given the limited number of contractors that are available, given some of the delays we may have through the city on doing a legal suite conversion, maybe the inspector decided to nitpick some things that they didn't do on the first inspection and they didn't.
The second we've had different properties that have had seven inspectors from start to finish the project. Every single inspector has a different item. You never get the final sign off. If you're financing these projects on higher interest debt, and now you're 3, 4, 5, 6 months later on 10%, 12% interest, it eats into your profit. Thankfully the average values have been going up, but it doesn't make sense anymore for this asset to work buying at $500,000.
Our end values 900, 850, but now our rental, instead of being 80 to 120, might've been upwards of 200. It didn't fit my portfolio. It didn't fit my next level. You guys saw at the beginning, I have a thousand doors now, and I want to get the 10,000. The only way I'm gonna get the 10,000 doors is either by buying multiple cities and covering the illegal accessory suites, which is tough to do market. Saturation a piece of the thing in there, or I had to change my plan. What I decided to do personally is I started getting really good in what I thought the next gap or the next niche was.
We're going back to the beginning of this, that big Mac story that I talked about before finding your niche. McDonald's is a worldwide company because they have a niche around the big Mac and Mac sauce, which we all just know is thousand island dressing. But McDonald's calls it Mac sauce and because they thought of it and people want it all around the world that tastes the exact same. That's something they nailed.
What I did over the next four years is I really heavily focused on what's the next step for investors and what can I do to get ahead of that so that I can learn the mistakes and the problems that I learned on these duplex conversions or legal accessory suite conversions. I can then apply those to other clients that want to purchase. An opportunity came across and I decided we'd sell some of those assets, pull out some capital, and we moved into a 30 unit apartment 32 unit apartment.
In November, at the end of 2018, a business partner of mine, approached me and said that a property manager brought this asset to him and said that the property manager wanted to keep the management. And so they were trying to figure out if they could get someone who would use that property manager and still make the transaction happen. Building looks pretty. It doesn't look too bad. What this doesn't show you is that 17 of the 32 units were vacant. It's a good thing.
If we're looking to add value, it didn't tell you it was over 150,000 cockroaches in one unit. There were people that had abandoned units that had been left. This building was actually in the newspaper. It was a tough building that we knew there was going to be problems with, but we purchased this asset for 3.4 million. We went through a ton of different lenders like someone has to lend on this. Someone has to give us some level of financing on this. What's that going to be, how much do you want to put in?
This was the same time where I probably talked to about 60, 70 different lenders to try and figure out a solution. I kept hitting roadblocks. I wasn't able to figure out a way to use the same financing that I had from my prior asset which was close to a hundred percent and apply that to this asset. I needed to inject capital. I used that opportunity to go to what I would highly recommend the beginning investor to do would go to friends and family. I went to friends and family in a position where I had already had a successful track.
I had someone who had a bunch of capital that I figured, hey, do you want to come in and be a partner on this? We were in negotiations, and the day of closing, we finalized what that financing solution was going to be. This building was split three ways. We were each a third partner and my cousin came in and instead of getting any finance, he actually paid the whole thing in cash. He did it at 10% interest. He paid this entire 3.4 million at 10% interest. He said he would do draws for the construction.
Let me tell you, we have a lot better financing options that we work with now than that one. However, we gave a third of the asset value and a pretty solid return to make this asset come together. I'll touch on a couple of these other items, but I'll give you a bit of the end of the story on this one. The asset value now is somewhere between $11 million and $14 million. Our total cost is still under 8 million.
Now, as it states here, we had a flood and we figured with 32 units. We're just changing the kitchens and paint and whatnot. We don't need to worry about permits. When the flood happened and the boiler went and all of the whole, all of the pipes in the wall that were going through the boiler started to pop. All the seams started to burst. A couple of units had massive flooding when we had the whole thing inspected. We were then told that the boiler was in his life, but it wasn't just the boiler. It was all the pipes running through the walls.
Though we could fix this one unit and replace the pipes this week in this one unit that wouldn't solve the fact that afterwards we'd likely have multiple other floods. I have some photos that I can possibly show. If someone wants to ask that question or remind you afterwards, but it flooded in March and St. Catharines, is it hot or is it cold? It's pretty cool. What we actually had was freezing on the far right where this telephone pole is to the windows, just above that second canopy, that entire from the top down to the bottom on the outside was frozen.
There was ice forming on the entire outside of the building insurance. No big deal. That's what we thought. The problem is that the flood triggered a lot of major upgrades to the building that then required a permit, that then required inspections and then required a lot of additional items such as replacing 146 windows that weren't in the budget.
We found different ways to make it work. We found a wholesaler that would do all of the windows 30 year warranty for a thousand dollars a window. Whereas the eight year the wait windows alone through the insurance claim. If we had it paid out that way, we would have charged $60,000 to replace them with the same steel windows. We had to learn on our feet. The reason I tell you this story is that we went from duplex conversions and legal accessory suites to 32 unit assets.
We knew there would be problems. We knew there would be hiccups, but we also knew that if we kept our head high, we had the right mindset. We had the right power team that we could get through it. I'm going to share a number of people on the power team you're going to want. I'm going to identify a story behind them, why you want each of these people and you may look at it and say I can do this, or I can do that. Quite often, people say I can be my own property manager.
The problem is in a 32 unit apartment building. If you do your own property management, you better live around the corner cause there's probably gonna be a lot of calls and you're going to have to deal with a lot of people. Keep these different things in mind. Also, when you register a corporation, you're going to buy assets in a corporation. I've actually changed my address on all corporations now to my lawyer's office and my lawyer .We'll get the phone calls and my lawyer will get the mail because realistically.
I don't want my primary residence being available to the public. I don't want my home that I live in or the office that I work in to be available for the public and have tenant issues because some of these tenants are crazy. Some of them are great. Some of them do cause problems and you don't want to have those problems. What I will finish with, on this slide, is this kind, it says limited market analysis was done for this building, the items that we cover.
The analysis that we do now, the financing that we do now, it all has a purpose. If you're wondering why on an apartment building, would I need to get an environmental report for financing? Because with my cousin paying cash on this property, we didn't do an appraisal. We didn't have an energy efficiency audit. We didn't have a drawdown audit. We didn't have inspections based on the completion to see if we could get draws and financing.
All those things are put in place to ensure that the lender has a secure asset. Even though you can bypass it, if a lender wants to ensure that they have those pieces in place for a solid asset, maybe you should have that same stuff in. These are things that were costs that we were concerned about that we didn't think we had upside down on looking back on. We apply to every single asset that our team works with. Every single one of the agents on my team hear these stories day in and day out. I bring them to sites day in and day out.
They're with me when the police call me and talk about something that happened. It's like day in and day out. These are the things that happen through real estate investing. At the same time, I get to live a really awesome life. These are the costs that I apply to be able to do what I do, and also to really gentrify certain neighborhoods.
I wish I had an after photo. We've actually painted this building, done new roofs, done new windows, done all new plumbing, all new electrical, fully refinished, all the units. We would have done this in a year and a half. Thank God we didn't because the value of it, we only had pegged at 6.8 million. Now, we're double that and we had 14 months where after that flood occurred, the city shut us down for a stop work order.
We had 10% interest accumulating. Every month, we actually had 16 units that were finished. They didn't kick us out and we had accumulated debt over and over again, and the city would not work with us. Luckily, in November last year, the inspector was let go of, and he was fired. A new inspector came on and our permit was issued in January.
This building, if you can see those two canopies, it's like a semi-detached house, but it's an apartment building. There's a divider wall, fire separator right in the middle between those two doors. On the inside of those doors are one bedroom units on the outside are two bedroom units. The entire left half of this building has gone from gutted to going to be completed in the next four weeks.
We have nine guys fully going full time. But what we calculated as our interest on this asset is costing us about $27,000 a week. We need to be moving on it to ensure that we capitalize on the most value because of all the hiccups that we've had. Luckily, we've made it a really nice asset. Fast forward to 2022. This is an asset that I purchased myself and bought it for 1.7, 8 million. I was in a meeting with another fellow investor.
That's only really wanted off market opportunities. I said, okay, that's great. He said, hey, this is a really cool property that you might like, have you seen it? It was priced at 1.35, I believe, or 1.291 of those two. He ticked me off to it. I looked at it. I'm like, wait a second. This is a purpose-built 11 unit apartment building. Probably an opportunity. But at 12 it looks really clean. I called the agent, got a hold of him. I then followed up with the agent over and over again. The agent actually told me he felt that there was another comparable property that had just sold for 1.8, but that there was no way it should have sold it, that value and that the client would be happy with 1.35 to 1.4 said he was holding offers for 10 days.
I actually went unconditional sight unseen with an offer at 1.4 with a 24 hour irrevocable on it. He said that if you give me the right number, the client will accept it. I was one of two offers that night. By the time the next day came around, I was one of 17 offers. From that one of 17 offers, I called that agent seven times that day. I spoke to him seven times. I called even more and I kept asking him very strategic questions to get close to where I needed. I ended up increasing my price to 1.78 million unconditional without seeing the property just based on the documents and the proforma that he did.
I did that because I have confidence that if I had to knock the entire building down and build new, it was a large enough lot that I could do something I would not recommend most of my clients to do, but I knew what I was buying. I jumped into it. I knew it was valuable. This asset will go anywhere between eight months and 24 months to turn around. I say, eight months ambitiously because one of my team members actually thinks that it can get done in eight months. I think 24 months is probably a more realistic timeline.
We're actually going to replace the laundry room with an additional unit. That additional unit is going to remove laundry from the building. And then all the units that we put into are all the units we renovate in the building. We're actually going to add laundry now. The lending that I'm putting in place on this property is 3.2 interest only payments, 75% of purchase price and a hundred percent of renovation on draws.
I had to get an appraisal and I had to get an environmental assessment and I had to get a QS report and I had to get an environmental friendly report and I had to get contractor quotes. All of those items were done to protect me and to protect the lender. Those are all things I would highly recommend. And towards the end of the presentation, we talked about the power team.
I'll talk about the different people we can use to get to those different things. Now, 3.2% is because we're with an impact lender on this building. What an impact lender is, they want to see an impact on the area. They want to see us bring down the environment. They want us to bring up affordability units. They don't want us to pay cash for keys. They want us to do what's best for the community. What I've actually done is I have another 88 unit apartment building that is completely key in this city in London.
What I did was I had our property management company go door to door, to every one of the units and say, hey, guys, want to give you a six months notice just coming up next month. We're going to be removing the laundry room. We'll be adding a 12th unit. There's going to be lots of noise. I know you're paying $756 per month. If you're interested, I can actually move you paying your moving expenses from this unit. That's a little bit under the weather.
It hasn't been renovated for 40 years. It's a little tiring and we'll move you to a brand new building that was built in 2017. But because that building actually has a specific loan agreement in place with the city of London, I can't charge you more than 70% of CMHC mark. You qualify because you're over the age of 50 and 30% of your income will actually be put towards rent max.
The max I can charge you is $700 a month. Are you interested in a $56 reduction in your rent every month and a brand new unit that you can live in that I can't move you or kick you out of for at least 17 years and I'll pay your moving expenses. How does that sound by going door to door? We got 11 units down to six tenants plus we have the 12th unit to build. In the first four or five months of this project, we've actually gotten more than half the unit, the building vacant with the fact that more want to move to that other asset.
Others want to stay in this building and are willing to pay more, to be in the fully renovated units. Once they're complete within suite laundry and a dishwasher at market. The total cost of this project, including all interest that we had focused on for 24 months is just over $2.3 million. The end value of this property, we look at three different ways. We use that income approach, but we look at three different main driving factors.
What our average price per doors on fully renovated units. What is our income approach at a fair cap rate? What is the price per square foot? We blend those together. As long as there's no complete outliers. We found a value of somewhere between $3.4 million and $3.6 million. There's a property we'll have over a million dollars in equity gain and upside. We have 3.2% interest in a rising interest rate economy. That's interest only for five years. As soon as we finish, this will be $2.3 million in on a building. That's going to actually be cash flow.
If it was financed at 90%, 95% loan to value on three and a half million, which means the cash flows are going to be substantial. The expected return on investment on this after 24 months, we had at 47%, when we had that compressed down a little lower. It's actually upwards over an over 70% return based on the timeline. We can possibly get it under. It's a really good return and a really good asset that really no matter what happens or interest rates for the next five years, we got that 3.2% locked in.
If we want to refinance it, we can. But if interest rates stay high, we've already locked in at 3.2%. A couple of items, what made the difference between a 32 unit apartment building that we didn't do anything right at a 11 unit apartment building, the four years of learning experience and everything else we've done in between and the right power team and the right education have actually helped us at this point in time. I now have a full-time team who stays on top of the market.
Building our consistent network, taking a lot of REITE club clients and helping them replace their active income with passive income analyzing properties. The minute they come up, we also actively look for off-market opportunities. We have agents that are door knocking, apartment buildings, with different strategies on how to get the owner's phone number, personal cell phone. We just actually had 182 units off market that we're in talks to get off, to get under contract at a $220,000 per door, average price, all in Hamilton, that's from a door to door knock.
Other items we're talking about is we have a list of over 50 people that we call through on a monthly basis. Top commercial agents, top investment specialists, agents, top appraisers. We're getting active off market opportunities all the time. There are two hotel conversions in my inbox right now that are over a hundred units. Each that is directly from our appraiser. I also have other commercial agents that are actually working with us there. I don't represent us on every deal, but if I have a client that wants to buy something, we can do that as well.
We're looking at a 220 unit apartment with three acres to build on. It completely turns the key off the market. We have an offering of 175 units in London as well. The reason we're able to do this is because of the fact that we have a team finding these off market opportunities and analyzing the on-market cause there is still opportunity on market. A lot of times investors get carried away saying if it's on the market, it's a great deal. Someone else has bought it. That's not true. Remember this $1 million in upside that was on the market. We just have to be fast. We have to know what we're talking about. We have to build a rapport with the agents.
I spoke to the listing agent seven times that day to understand what the seller wanted and what the building was really like. He sent me fire reports. And you will fire reports that were up to date and completed. He sent me the old appraisal. He sent me the old environment. He sent me internal pictures. He sent me the camera recordings because all the hallways have cameras in them, a bit of a tired building, but meticulously maintained. That's why I was comfortable going sight unseen, unconditionally.
We had a bully offer for 24 hours. As I mentioned, I know when I can have a good opportunity. Last week I was offered a 31 unit opportunity in Windsor. I went unconditional at twice the list price. I got beat out by five times the list price unconditionally. I didn't see, we spoke to various lenders to find the best debt structures. We went with the impact lender as I mentioned, but there were other lenders that could on this deal because it was tenanted. We couldn't have done the CMHC purchase plus they want to see it vacant.
With the first project I showed you, we could have done that 75% of acquisition up to a hundred percent of renovations through CMHC as a bridge, until we actually do the exit financing. Our team in-house knows what we're talking about. When it comes to different desk structures, we look at it every day and we're able to help our clients get into the right asset and find the right lending capacities.
We engage asset management, not just property management, not just project management, but asset management for repositioning. Asset management is going to work with the city to find out what grants or loans may be available. Maybe we can get a five-year loan at a half a million dollars for your renovation budget from the city because you're gentrifying a neighborhood, or maybe they want to take tired commercial units and convert them to residential units.
We work with the architects to do that. We work with the city for those permits. We find you contractors that have experienced doing that. We have a team that has everything under one roof because I do it myself and I do it for our clients. Always putting our clients first. We handle the tenant relationships by getting the tenants in and we make sure that our property managers are handling it as expectations from the very beginning.
A power team is really made up of a number of different people. However, these are the key people that I'm always looking for. I want to ensure that I have a knowledgeable agent and yes, I do have other agents at times represent me. Sometimes I don't let everything I hear. Sometimes I look at extra stuff. Sometimes I learn something new. There's always an opportunity. There's a lot of knowledge out there. You can't have it all. You always have to be learning.
As Laurel said earlier, failure only really happens when you give up, but the biggest learning opportunity or when you're in pain, when you succeed at something, a lot less lessons are learned. That's why I have a lot of lessons because I felt a lot. A realtor that knows the market and when it comes to commercial and investment multi-family, the market is really determined by those driving numbers beforehand, which we can find online.
We can find through recent comparables and we can find through appraisals. Those are the numbers that we can gather no matter where the location is, we analyze properties all over Ontario. We have legal, we look at the legal, we have to ensure that the zoning matches. One thing I had a conversation with a client today was that the architect that wanted to do the permit application was saying that you only have six parking spots, but it's a 12 unit apartment building. And St. Catharines wants 1.4 parking spots per unit.
When we purchased the asset, we ensured, we put legal 12 unit multi-residential under the title search line. By doing that, the lawyer then knows that they need to get a building and zoning search prior to the title search date to know that it's 12 legal units. That 1.4 parking spaces is a newer policy because it's a hundred year old home that was built and then turned into 12 residential units back in the day, it's legal nonconforming.
As long as we maintain those 12 units, we know we're good. This is something we ensure that our legal team has, because I know for a fact, title insurance would not ensure that if it didn't have the building and zoning certificate, and if we had a problem with title, insurance does cover that cost could be a really big cost for one of your clients.
If they don't or for yourself, if you don't actually have the right legal team in place. I also have heard people talk to me. I have a lawyer, it's a family lawyer. They do this, that, and the other, I would really recommend focusing on real estate. Financing your brokers and lenders, you can tailor the ideal lending solution.
You heard my horror story about jumping into something. Most lenders will require a whole slew of items. They'll give you an LOI, a letter of intent, and then they'll say, you need to get me all of these things. You need to get me an appraisal that matches the numbers you talked about. As it isn't as complete, you need to get me a QS report and you need to make sure that all of these items have been approved.
A QS report is ultimately a third party inspector. That's going to come through and make sure that your contractors are hitting their obligations and their quotes are in line with what you need to be. You need to have all these items, environmental appraisal, all these different things are required so that you can do financing. We help you with that through our power team and through people that I personally use for all my own assets as well.
Asset management is really a piece that I didn't use until more recently. Asset management is the difference. That's the conduit between the agent doing it, helping you with the purchase and the property management that helps you with that turnkey asset.
It's all those items in between. A lot of real estate investors will do their own asset management, not even realize it they'll be the ones that'll go through and they'll look at the different rooms and they'll see how they can chop up the units or they'll see an 1100 square foot, two bedroom, and say, I can make that to 2 551 bedrooms.
These are the ideas that asset management does. We want to get your value, your assets, and the highest and best use. One of my favorite terms is highest and best use. How can we make this? Someone's going to get the highest rent and the lowest cost. We, the asset management team, are really there to help save you money and get the most out of those assets.
Think of it similar to an accountant. When you go and you pay a good accountant, a lot of money at the end of the year to file your taxes, but they have your taxes then become a lot lower. You pay your accountant a lot less than you pay the government. If you filed them incorrectly, that's really what asset management does for you.
Finally, the property management piece, getting your lease up, doing tenant management, the day-to-day operations. One important piece I look for in my property managers is a guarantee if they place someone and they leave in two or three months, are they going to guarantee that, and then fill that space for me again, at no charge, a number of property management companies will do that.
There's other all kinds of guarantees that they'll do. I want to ensure that I have that in writing. I know ahead of time where it's going to be, what's going to happen and I'm going to get the most accurate end value of that asset. I'm going to jump into questions. What I'll do is I will just say, if you're interested in a one-on-one conversation, reach out to Michelle.
I did see Michelle before I turned off the video and all the different distractions that were on my screen. And I started talking to myself. However, Michelle is here. If you guys dropped something in the chat or your email in the chat, she can write it down or if you want to email her directly, you can feel free to follow me on Instagram.
I will talk about my story a little bit. You can send me a message through Instagram and look forward to jumping into some of these questions. Laurel, you want to come back on and jump into them with me?
Laurel: Wow that was great. That was amazing. Claire Drage, you were right absolutely by saying that Dylan shared the good, the bad and the ugly, because there's a lot of good and yeah, there's some bad and yeah, there's some ugly, but it all comes together in the end. If you work with the right power team, cause man, you gotta know what you're doing and you can't know it all. Like you said, you just can't, it's not possible, but you bring on those people who do know what you need to know. Like I always say to people, I don't want to hire myself. I want to bring on someone who's better than me in these areas that I'm not so good in.
Dylan: And you can't be better. Look in the 10,000 hours. You're not a master until you do 10,000 hours of it. Who on this call has done 10,000 hours of asset management, property management, acquisitions, lending financing, legals? I almost guarantee you that no one on this call has been 10,000 hours if every single one of those items. Find who that can, because it may be a cost upfront, but it's almost guaranteed to save you money in the long run.
Laurel: Absolutely, if it's not a cost, it's an expense and it's an investment.
Dylan: Even if you have an ROI on everything that you spend on investing.
Laurel: Claire, you're absolutely right. He is a professional. Dylan is a professional and yes I know you did your multifamily last or your multi-family workshop last week and Claire and you went over the numbers and cause Claire is on our power team here with The REITE Club.
She's a superb mortgage broker and we'll help you get in. We'll help you dive into those numbers and we'll remove the emotion cause you were bang on dealing when you said people do get, they still get caught up in emotion. I don't care if you're buying a hundred unit building or a single residential home, it's easy to get caught up in emotion.
Dylan: A hundred percent and that's why I really focus, especially you have to focus on the numbers when you're buying your first property or your first investment property, and you want to be hands-on and on-site all the time. That's really your emotion speaking. You need to have the right people. You need to interview the right people.
Know you have the right people and then trust them to do what they're doing. You also need to inspect what you expect. You can't just set it and forget it for a year and think it's going to end up exactly where it's going to be, because it's just like flying from one point to another. If you're not constantly checking in and knowing where you're going, you're gonna end up in the wrong spot.
I do really appreciate that comment. Claire has been a big part in allowing me to get to the thousand doors that I've been at. She's been a huge financial support team for me. She does actually, she is actually helping out with some of the financing on that last 11 unit apartment building for me too.
Laurel: We've got some questions here Dylan. Somebody asked what are your thoughts on buying big investments four to five hours a day? I know you're already buying in Windsor.
Dylan: I think that it really relies on the people, the power team. One of the contractors that I'm using now has 80 full-time staff and another 80 full-time subs, and they service Windsor to Toronto. I actually have an asset, another 22 unit apartment building, and we just got confirmation to convert it to 24, which is great. And we actually have 20 full-time staff on that site. They finished two units in 10 days from gutting to complete turn. These are 700 square foot, one and two bedroom units that obviously we're not completely getting down to the studs, but we're taking out the kitchens, the bathrooms, the flooring, the paint, all that trim, all that got completely changed, updated at all.
We were in and out. I think it was $33,000 per unit. They did two units. It took them 10 days. Wow. They've actually pulled back and stopped because we have five more units coming up vacant. I think they were on May 1st. They were vacant. They wanted to wait for all five of those to be vacant because they want to go through and do all five at once. They bring in their electrician, their plumber, their demo crew, all that stuff happens at once.
Laurel: Wow, that's a lot of work and a lot of coordination. But you don't have to do the coordination
Dylan: That's the other thing I was going to say. I meant to say it at the end. I bought an asset four hours away and I've never been there. But I personally have never been there and I would highly recommend that you partner up and you team up. I would much rather a small sliver of a massive buy than a full pie. And it's just this thing. Yeah.
Laurel: That's a lot of sense. Actually there was another really interesting question part way through your presentation, but I think the real question though, there was, when you're looking at rents and all these things, and this really gets into numbers. I assume that it would depend on every building being different of course. But do you do an all-inclusive ranch or do you piece it out? In other words, do you charge rent for parking separately, or what's your philosophy on that?
Dylan: All-inclusive rents will decrease the value and the reason why an all-inclusive rent is going to decrease the value is for me to pay all the expenses. A tenant is almost always not going to concern themselves with how much water they use, or how much electricity they use, or all kinds of different things. What we're actually doing on the one project we're doing right now. My partner is actually on the call here. It's a 32 unit on that property. We're actually putting internet in the entire building and we're charging $50 per tenant for unlimited internet.
That same internet would cost them $60, $70, $80 a month. It's in our lease agreement that they can check the box for $50. That's $50 extra on top of their rent because we want to advertise the highest rents we can without a bunch of expenses. I would rather get my expense ratio way down because I talked about that income approach. What you're wanting to do is get the highest revenues and the lowest expenses, a really good building.
I've seen some buildings with 20% to 25% expense ratios on retrofit buildings, older buildings that have been turned into nice new buildings, but a lot of the buildings I'm buying like that Hamilton road building that building's actually 40%, 45% which means my NOI is smaller, which means the end value is lower. And because it's so numbers driven and numbers based when you look at commercial financing, you'll get a higher refi value and a higher total value on that asset by reducing expenses and increasing revenues.
When you include everything in there, people tend to add extra expenses that wouldn't be there. Otherwise, how many people in this room have had their parents yell at them when they were in their teens, because they left lights on or their parents yelled at them because they stood 20 minutes in the shower. It's the exact same thing because your parents were the ones paying your utilities, not you. And that's ultimately where we want to reduce the cost of what everyone is thinking about. How could we be more efficient with this?
Laurel: That makes a lot of sense. Now here's another question. The rent van asked and he said I'm running into a lot of multi-family properties that seemed to be priced at market value, but the rents are very undervalued. How do you deal with that? What do you do?
Dylan: I'm going to kick myself for saying this, but it is something you want to look at. Robert Kiyosaki, rich dad, poor dad has a number of books. I was in a steam shower. I listened to the blink list quite often. The one that stuck out to me recently, it was only a week or two ago, and it was a reminder. He said, go and look at a hundred assets of a hundred assets. You're going to offer on 10 of those assets, 10 of those assets, you might get three of them accepted because you're not going to give the market value, or you're not going to give them asking. And of those three, after you do your full due diligence, you may actually firm up on one.
It's the 1% rule on what you're purchasing. Now, it's a little bit tougher nowadays because we actually do have a lot of off market opportunities and we have a lot of analysis already done. We have really good relationships. When we're working with specific agents, oftentimes this agent in London literally came to me and was just like, I really liked talking to you.
I really like what you're doing and I want to work with you because I know you're going to close and you're gonna be good with. And works with me because he knows that I'm an agent, get what I'm talking about. There are ways to get a purchase under there. What I will also tell you is with rising interest rates right now people we're seeing a lot of assets go on market.
We're seeing a lot of buildings hit the market because we've seen a booming market where cap rates have been consistently compressing. We've seen prices per door climb, probably a hundred dollars per door, about 50% over the last couple of years, which is an insane number. But the reason that's happened is because interest rates have been, you could get CMHC loans.
I know my mum has a 1.69%, 10 years interest rate. She pays under 2% for the next 10 years from CMHC. That's a 40 year amortization, 85% loan to value of loan. There is no way that asset is going under. She has $3,500 a month in cash flow and that on a six unit that isn't even turned as she turns those units over, it would bring that cash flow going higher.
She's locked in that return for 10 years. What we're finding is that a lot of investors are going to refinance their apartment buildings now. They were looking at those CMHC rates maybe six months ago at 2% or even a BMO rate or whatever it may be at 3% or 3.5% that are now being quoted five or six or seven.
I heard the other day that there was a B lender that was actually charging 6% plus a 2% lender fee that was private six months ago. But with this rising interest rate environment, we're finding that a lot more investors are now realizing they might've hit that beat. They're wanting to sell. My personal opinion is that we're probably going to see a bit of stability, maybe a little decrease in overall value. But the fact of the matter is that apartment buildings are still historically and looking forward to being one of the most, if not the most stable asset in the world.
For me, I want to have an asset. That's going to be good forever. I'm looking at Southern Ontario and Ontario as a whole . There's a million and a half of immigrants coming in the next couple of years, but the entire country has only approved a million and a half new builds in the next 10 years.
Unless you're going to be putting five people in every new house, and we're already at a place where we have an influx of assets or of housing, which we know we don't, we're still going to see increases in some of these assets. As long as you're buying these assets for 5, 10, 50 years, whatever that may be, if you look at any period of time, you're going to see it's going to increase over time. And it's a really good spot to have your money.
Laurel: Which actually brings up a question of the age of the building that you buy, because buildings do have a life expectancy. If you look at a hundred year old building, you might be running into some issues. I will just say, I would imagine that one of the criteria that you look at for buildings is their age, like at what point do you say no, it's not worth the risk because it was pre 1970 or whatever.
Dylan: Honesty, that actually affects the cap rate. Remember I said, the cap rates are picked based on a few different factors. One of those factors is the age and not just the age of the property that was built, but the age of the plumbing, the age of the electrical, the age of the HVAC, is it a boiler or is it not? What's the age of the roof? It's all of these major components because as a building has. Let's say a hundred year life expectancy.
If you get a concrete building or a brick building, you're not going to get one that's over a hundred years old because a lot of those were built in different construction. But if you get a concrete building, as long as you continue to update the plumbing and the electrical and the roof that concrete, as long as it's sturdy, it's likely going to remain sturdy. You can take a unit that may be pre 17. You can bring it up to current standards. Maybe it was extra costs associated, but what the government has actually done through CMHC lending is they've made three major criteria is to increase your loan to value.
You can actually now get up to 95% loan to value at a 50 year amortization at the lowest interest rates you're going to find out there. If you get that full one and even have a no recourse policy, which ultimately gives me more confidence to know that if I'm going to check the boxes to get those points, I will tell you it is challenging to do.
It's probably not 95% of your appraised value. It's 95% of their underwritten value, which is likely lower because they're going to add a bunch of extra costs that you might want to include in your numbers. But if you're going to do that means the government has that much confidence that they're giving me that much leverage on that long of an amortization that low of an interest.
It gives me a lot of confidence that apartment buildings are likely going to be a sturdy asset that are going to be wanted for a long time and a friend of mine. Someone you may want to look into, if you want to really dive deep into some of the underwriting of this is Pierre Paul. Pierre Paul actually used to work at CMHC and he was responsible for analyzing the defaults. He said, I would sit there all year at my desk doing absolutely nothing, because there were a handful of properties every year that were default.
There were multi-families. They didn't default because everyone wanted to keep buying them. And they'd always have so much cash flow. They wouldn't go under water. If they did, and they went so far under water, it took so long that someone would just sell them and get their cash out and be okay before they would actually have the problem. He talks all about what that looks like and he went from analyzing through CMHC and underwriting. All these default issues that never really happened to saying let's go and buy them.
He started acquiring those assets, using his underwriting policies. That made sense. Going to top off that question, that started that I went on a bit of a chance. How come people are charging and values with low rents. The reason being is the end values have climbed so much that you're seeing some people that you may see, hey, I was paying 220 a door last year for a finished property, but now I'm paying 220 a door for something that has really low rents at $700 a month. The reason is because the values have gone up so much that I think people are trying to get out because there's so much demand for apartment buildings and for multi-family apartments. It wasn't this way 5, 6, 7 years ago, just like the market wasn't as crazy either.
Laurel: I do agree with you like the immigration numbers, we're short of the inventory now. It's just going to get worse and I don't care what good the government programs say they're going to do. I don't know. It's election year. That's all I have to say.
Dylan: We'll actually comment on that and I don't want to get into the politics, but I will actually comment on that something that I do quite like that they're doing as much as I don't love to have a rent freeze on my asset for 10 years, but they're giving me this really high leverage and really long amortization at a really low rent to lock in on affordability.
There's certain cities. Ottawa is a good one. I know you guys used to start and did a bunch of investing in Ottawa because Ottawa has such a government presence. There's a lot of renters. The average renter's income is in the mid to high 60,000 a year. The new policy states that you can actually get a bunch of points as long as you are at 30% of the average renter's income, which in Ottawa works out to $1,400, $1,500 a month.
That's the same across bachelors. One bedroom, two bedrooms, three bedrooms. Someone asked me what's a makeup you'd like to see. I always used to like one and two bedrooms, because those seem to rent for the most amount of money. And then they fly off the shelves. I'm actually quite interested in bachelors now because I can lock into something like Ottawa and I can get $1,400 for a bachelor unit. I can walk into that rate for the next 10 years. It's kind of market value.
It might even be above market value and I can still get that 95% loan to value in 50 year marketization. I can possibly lock in 80% of the units at that price on a bachelor and I'm setting it and forgetting it. There's a positive cashflow to this big unit, this big building and all. And maybe I don't get to go to $2,000 a unit in the next 10 years, but at 14 something, I get to set the building aside and forget it just as a lot of these older building owners have. I know a number of people we meet. I've owned this for 40 years, bought it for $50,000 and now it's worth 2 million. How does that make sense? They just never think to pull the equity out of it, like we'd been taught to do through these different events and courses.
Laurel: In terms of property management, because I see we have a number of questions about that. Do you have property management on site? Because I had a condo in downtown Ottawa. I was living in it and it was a small condo building and they had a separate suite for the property manager. I guess it does depend on the size of the building and I get that. What do you think about that? Is it a smart idea to have somebody onsite or offsite?
Dylan: Again, it comes down to the NOI, the net operating income to show the value of the building. I don't let my emotions say, hey, this six unit apartment building should use one of those units for property management. If I did that, I probably wouldn't get peak value for that asset. And given the fact that it's a really competitive market. I need to get peak value to get the highest leverage on it. If I want to continue to rinse and repeat.
We do an analysis. Our team does an analysis saying if we put an onsite superintendent in this apartment building. What is the decrease in property management that it's going to cost us? Because we're giving up one unit free. Cause essentially that's what most of the time they do, they'll say you don't pay rent, but you manage the building, you do the cleaning and all this other stuff. It's that onsite person. It's gotta be at least double digits.
I'm probably closer to 40-50 units before I start looking for a tenant. However, there's a lot of older building owners that have really backed off. They don't hire property management because they haven't had to for financing purposes and they put in a tenant in there and it's an offset for them. It really depends on the plan that you have and where you want to go with this, because if you do need to increase your rents as high as you possibly can, then it probably does make sense to go and bring on a property manager at 5% or 6% versus giving an entire suite that may be $1,400, $1,500, $1,600 a month.
You also have to keep in mind that 20 years ago, that same unit might've rented for $400, $500 or $600. Let go of $400, $500, or $600 for a tenant where now it may be $1,500, $1,600, $1,700. There's a huge loss in NOI and in value. When you apply a cap rate, 4%, 5%, 6% cap rate, you're essentially dividing by a small percent which is increasing your value exponentially. You may be leaving six figures or even seven figures on the table by just renting that unit to a tenant
Laurel: Fair enough. Here's a really interesting question from Eric. Can you talk about West commercial to residential conversion versus upgrading existing multiplexes or adding units to them? And what are the advantages and disadvantages?
Dylan: The one thing I will clarify and Eric you're feel free to jump in and comment on it as well. When you say upgrading existing multiplexes or adding units to them, are you meaning to take big units and cut them in half and make two units? Or are you meaning like building up to three, four. I can address the question both ways. I'll come back to it. If you give me a question, if you answer that question, I'll first talk about converting commercial to residential.
When you're looking at a mixed use apartment building, you almost always will have a higher cap rate that you're using because resident or residential cap rates are more compressed, lower cap rates usually mean that they're more secure. And because we know we have a housing shortage. Our cap rate on residential, our vacancies are super low. Our rental rates continue to go up.
We know we have this housing shortage, so that cap rate continues to impress. Whereas when we look at some of these commercial units, laundromats, or a coffee shop, whatever that may be, a lot of times take a lot longer to fill. And then you normally have some costs associated with bringing them up. It keeps your cap rate a little bit lower by going all multi reds.
One big benefit of taking commercial units and converting the residential, especially if you can convert all of the commercial to residential, is you'll actually decrease your cap rate just from that alone. You may take a five and a half cap and make it a four and a half cap by just getting rid of the commercial and turning into residential.
Additionally, a lot of the commercial units that I noticed at least have taller ceilings because their main floors, or they may be twice. And that commercial unit may have had $2,000 for that commercial unit. But now I can get two residential units at $1,500 a month. I've now increased my rental from 2000 hours a month to $3,000 a month. I've compressed my cap rate on that mixed use building from five and a half two.
Now, I get a thousand dollars per month per unit, $12,000 a year. I'm going to divide it by four and a half versus five and a half cap. If someone did the math on that quickly with a 1% cap rate, you're likely going to see a six figure return just by making that happen from one commercial to two residential. That's one of the major drivers that I look at for it.
Laurel: I think Eric said he meant converting from larger to smaller units.
Dylan: I had that same conversation, actually a flip conversation about a 12 unit in St. Catharines because the parking lot I told you guys about earlier today. The parking lot the contractor recommended, but why don't we just take these 500 square meters for you to make them into a thousand square foot units and then we're in compliance? The problem with that is that our price per door is gonna have to go way through the roof or our value is going to drop, that's number one.
Number two is if I have a bunch of units, I would rather have two, one bedroom units at $1,500 a month. Then one, two bedroom unit at $1,700 or $1,800. The same amount of space, if you can get comfortable units because of the increase of rent and the cost of living that people have nowadays, people tend to live in smaller spaces because they just simply can't afford as much as they used to. And we have this crunch where people are all concerned about affordability on these units and the easiest way to overcome that is some smaller units that may be cheaper on rent and you get more of them in a unit.
Laurel: That's great. Do you know what I think we could talk to you all evening, Dylan. We're gonna just cut it here. We are going to go into virtual networking, but before we do, I just want to say thank you so very much. This was really valuable information. This will be available as a replay on our site. Watch for it. You gave us so much information there that I'm going to go back and just listen to it cause that was great. There was a lot of valuable information, so thank you very much. You can connect with Dylan.
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