US Market Update

Voytek Mardula and James Lloyd

Alfonso: Let's wrap it up with the US, it's such a large market. I know you guys are specifically working in some markets that you touched on before. Maybe you guys can split up those markets or talk to you, get them together, but what does the REITE club nation need to know about the markets and areas that you guys are investing in?

Voytek: Great. I'll just start a little bit, maybe James you can continue. I'll tell you, we've seen that this year has actually been a very good year. There's been a pause that took place, obviously and late March for a good chunk of April and May where the lenders had stopped lending. There's a bit of a tightening going on because there's been a question mark as to what's happening and where the prices are going to go. But what we've seen is that demand, which would be normal spring purchasing. Actually just got shifted into the summer.

Very similar to the GTA market where there's been this crazy demand starting mid June, July, August, and record sales and the prices have been increasing. We've seen the identical thing in the US market as specifically in pockets though their US market is very much about micro pockets and about having these ultra hot. You take a city like Detroit and this applies for a lot of cities right across the US you're going to have the well-off, the B plus, A minus neighborhoods. And right across the street, you might have the C plus neighborhoods. And what you have is, those ultra hot pockets are appreciated. No double digit appreciation since we've been there.

I've been there since 2015. We've seen a high team, 20% increases per year to the homes that we have purchased. And that trend is really continuing. There's still a shortage of really well renovated, good homes and primary as there's a big demand of people still, there's been a lot of people that moved to Detroit that were looking for homes. Just in the market, in the early spring they still had money to purchase.

They had still had intention. They had still, maybe we're in the middle of a deal of closing their own home, which may have been postponed or delayed by a few months, but they still jumped into the marketplace in the summer and in the fall. So, we're really seeing the values going up a lot. We've seen them, we did appraisals on some of our own portfolio.

Pre COVID and so, we were paused because some of the lenders were not lending for those two to three months. As mentioned when we went back in July and August, those appraisals were significantly higher than pre COVID. It's very much an upswing. There was a shortage of inventory in the US. I think, one of the advantages that we have is that we've been there for so long and we've literally purchased and sold hundreds and hundreds of properties that we really have access to the wholesale market.

We have suppliers that can bring us deals on a regular basis. And what we've been really doing, I would say in the last six months is really helping people by the way, REITs and funds buy, which is buying with equity and using BRRRR. We had a customer that had purchased a home from us just last week. We sold it to him for $110,000 US.

That's where the 140,000, and this was a completely, fully renovated home. That's you know, that we're going to the tenant and we're going to manage them. So, we're giving them access. So, being able to purchase it for 110 and then we went six months later, we will take them through the refund process, through our lender.

They can actually be unloaded as you can refi at 140 and capture that extra 30,000 in equity and then rinse and repeat. And that's really a very powerful way of building a portfolio and we've been fortunate enough. That's where our contacts can deliver such properties, not every single one of them but on a fairly regular basis, we can find deals for customers who are looking to build significant portfolios.

We're definitely very optimistic about the market. I think that, to echo what the gentleman from BC was saying, there's a movement in the US as well. There's cocooning going on. There's a movement from working outside of the city and working from home, which I think would just further drive the residential real estate market further because at the end of the day, now it's your office and now it's your home as well.

There's more value to it. And people are actually investing very large amounts of money into home renovation, into home improvement. And we're seeing that a lot. That should drive values further. And if, ultimately, I don't foresee that the trend of working from home is going to change. Even though we have a couple of vaccines on the horizon and things are going to change and improve. I just don't see that trend changing because, why would companies, it's the same thing for us. We have a number of employees working from home right now and they love it. We know we've asked them if they want to go back to the office and they said, absolutely not.

Alfonso: And just a quick follow up, maybe James, you can speak to this in the market. I know a lot of us that are here in these we hear Rachelle talking about average purchase prices going from mid sixes or mid fives and pumping up over six. What are the average purchase prices in those areas, in the pockets in the cities that you guys are working in?

James: It's much more affordable and accessible to people to come down to the states with us. Look, we're starting our acquisition cost for our single family homes in the high $50,000 range US, going up just over a hundred thousand US starting with a bungalow sometimes tenanted section eight, which would be government housing right up to a hundred thousand threshold for some of these renovated properties of Voytek was just mentioning where we can get this equity capture and pass it onto the seller which, what dramatically affect in a positive way.

The loan to value ratio when it comes time for refinancing. But yeah, so, we're looking, about a hundred thousand $100,000 a year. You're getting a really good property with us down in the states.

Alfonso: And there is a great question that just came in from Shawn. Thank you very much. And if you guys could even just, as we wrap up this panel here a little bit is what's the biggest challenge. If you can sum it up. I know there's a lot of challenges, little ones, big ones, but the biggest challenges Canadians when starting to invest in the US and you guys again are the perfect examples, right? Of some of the challenges that you had to face, what we should do to prepare for that.

James: I would just say, you really want to latch onto some people like ourselves who have that experience, A. They're going to know where to buy and where you're going. It's very easy to buy inexpensively in a city like Detroit, Michigan. The key is to apply in these neighborhoods, in these pockets that we'd be describing this evening. And secondly, it is to take your time and do your research and make sure you get your structural setup correct.

If you don't do it correctly, you're going to have some issues when the taxman comes calling, and if you do it correctly it works, there's some pass through taxation treaties and it's really just take your time and get set up with a good provider. It's going to help you along the way, but once you get that out of the way it's not a very complicated process. I deal with it on a daily basis. We have really good systems in place. We just got to get a few key things out of the way. And then it's all open for business for Canadians in the states.

Alfonso: Voytek, any last word to you as we wrap up and maybe less than a minute. It's just a challenge. I know, we're definitely going to, I think you guys are going to be inundated with emails and phone calls with all those that pent up demand of investing in the US, but what's a challenge that maybe we can get prepared for. Is it the corporation? Is it finance? What was the challenge that you guys had when you guys were first starting?

Voytek: I think that financing was a problem initially. I had spent about two years dealing with, I must have spoken to about a hundred people, mortgage brokers who had promised us they would deliver financing for our clients.
And then did it, there were so many issues. Maybe the value of the property was too low or they didn't like Detroit. Whatever the issue was. So, I had really spent a lot of time finding the right resources and now we have excellent lending capabilities and we work a lot with private lenders that are able to give us customers good rates.

Like it's not a, it's not like the two, 3% that you get here, but maybe 5% or 6%, which is still fantastic. Given the cash flow that you receive in the US, financing for sure was a major obstacle, which I think we overcame, One to two years. And then secondly, the joys of dealing with contractors, it's the same there as it is here.

You have people that are either, somebody but they're not serious. You have people that do it part time. You have some people that frankly were preferring to collect money from the government as opposed to working. So, we experienced some hiccups, in March, April, May, when things had slowed down a little. But now things are back to normal. We'd actually really gone out and expanded our network of contractors. We were forced to look for additional resources. So, now we can deliver, I think, a better quality product and faster.

Alfonso: That's fantastic. It's great that you guys are here.