Jun 9, 2022
Capitalizing on student rental opportunity
In this Episode You’ll Learn:
-Jesse’s Real Estate investing bio
-How COVID has changed Real Estate investing strategies.
-Handling risk and uncertainty.
-Investing in population centers like Toronto.
-Learning, refining, and expanding on strategies that work.
Transcription:
Speaker 0 (0s): Hello
listeners. It's your host, Jesse for galley. First of all, want to
say thank you to everybody that continues to listen. We broke a
hundred a little while ago, and I really, really am encouraged by
the support and any questions that listeners have. You can always
reach out to me and we can create a, just ask Jesse episode for
those episodes. Anyways, I thought we'd do something a little bit
different today. I was recently a guest on a very good podcast,
breakthrough real estate, investing podcasts. If you don't know
them, check them out.
They started podcasting back when Joe Rogan was doing his podcast
out of his old house in that dark basement. So they've been around
for a long time, check them out. It's great for people that are
getting into real estate investing, or if you're a seasoned vet and
you just want to up your game. So without further ado, my episode
with breakthrough.
Speaker 2 (1m 4s): Welcome back, everybody. Thanks for joining us
again. We are really happy to have you with us today for another
exciting episode, full of, you know, chock full of knowledge and
real estate stuff. So excited to get to that. And as always with me
here again is Sandy McKay. How are you Sandy?
Speaker 3 (1m 24s): Fantastic Rob, because I had to be here again
and you know, we're, we're getting into some interesting real
estate stuff in the market and the world. So I think we'll have a
good show discussing all sorts of stuff around that.
Speaker 2 (1m 36s): Yeah, we are. Things are changing, man. They
are changing a little bit. So we do have some exciting updates.
It's not just like the market's going up, the market's going up.
And it was a little bit of a volatility there. So we can discuss
that in a little bit, but everybody listening should go over to our
website, breakthrough REI, podcasts.ca. They can get all of
our past episodes from there. They can interact with our guests
through the show notes and, and, and get access to any, any, you
know, materials that our guests have, have left for us on
there.
So breakthrough REI, podcast.ca you can also get our free
gift.
Speaker 3 (2m 18s): Yeah. The ultimate strategy for building wealth
through real estates. And of course, like, you all know you get on
our email list when you do that and you will hear, but everything
else we got going on and all the updates, all the, all the maybe
events we've got coming up, webinars, whatever we, whatever we're
putting out there, you will hear about it and never miss on an
episode.
Speaker 2 (2m 37s): And please go over to iTunes and leave us a
rating review. You guys know that helps it. Doesn't take too long,
go over there and tell us what you think. Leave us a five-star
review that always helps. And more people will be able to hear the
show more people. When they go on search real estate, investing
podcasts, they'll ours will pop up and there'll be able to hear all
of our past guests and all the info that we shared over the years,
over the past eight years or Sandy going on eight years now. So
we're seeing program we're still here, we're still going strong and
we're still excited.
Every single time we get behind these microphones. So, so yeah,
listening.
Speaker 3 (3m 19s): Okay. Keep listening, keep growing. I think
we're a, you know, it's fun. We're doing, we've, we've gotten into
lots of transitions over eight years in different different ways
and you know, we're ramping up if nothing else right now, we're,
we're not slowing down. So we're going to ramp up and keep pumping
up more shows.
Speaker 2 (3m 35s): That's right. And just like always today is no
different. We have an exciting guest and Jesse is back. He was our
guest on episode 1, 26 in September of 2, 20 20. So we're excited
to hear the progress that he has been doing since then. He's been
doing a lot of exciting things. So we're going to be hearing about
that, and we're really excited to have you with us.
Speaker 0 (4m 3s): Thanks guys. Pleasure to be here. Good to see
you guys again,
Speaker 2 (4m 5s): You know, so didn't want to mess up your last
name. So I just didn't say it.
Speaker 0 (4m 10s): No problem.
Speaker 3 (4m 11s): I think for galley, I think we can hit is that
right? I'll do a quick little backstory on who you are and, and
that's, or listeners can, can recall if they missed out on episode
1 26, but just forgot was a commercial real estate broker and
investor start investing in student rentals. We're over 10 years
ago, I guess, on that now. And I've been investing since then
single family homes, condos, et cetera, and, and definitely into
multi-family apartments. And we'll talk a little bit about that in
today. He's also got his user channel is contributed on bigger
pockets.
He's got his podcast growing. He's probably working capital and
certainly has some insight to share over the commercial landscape
as well as he's, like I said, a commercial commercial broker in the
lovely city of Toronto. And of course we've seen some, some major,
you know, interesting stuff happening in that world over the last
couple of years with, with COVID. So we'll talk to him about all
these things in more in the show. So, yeah. Welcome again. And I'm
happy to over here,
Speaker 0 (5m 13s): A pleasure to be here. It's a, it's pretty
amazing eight years guys. Congrats on that. That is a, I feel like
I don't even, I don't even think I was listening to podcasts eight
years ago. Let alone knew what they were.
Speaker 2 (5m 27s): You were too young back then. Is that it?
Speaker 0 (5m 29s): Yeah. In the mid twenties, it was too young to
get into podcasts.
Speaker 3 (5m 34s): Yeah. Well, why don't we sit with, why don't we
start with a little bit of backstory. I know if someone's listening
to your sh or your previous episode, you've probably heard this,
but what's how did he get into real estates in the first place?
What brought you here?
Speaker 0 (5m 47s): Yeah, sure. Yeah. For any repeat listeners, I
won't bore them and go into super granular detailed, but I got
started in, in Waterloo. I went to school and I went to university
in Waterloo, Ontario, for those that don't know it's about an hour
and a half west of Toronto, and I started renting out student
housing out there. So that's how I got my first that's the area
that I started originally. And from there continued to do that.
Finish my degree. I worked in Toronto and eventually shifted from
the student rentals that I kind of built up from there to different
areas in Southern Ontario, switched from buying those into buying
condos in Toronto.
And you know, if anybody knows the Toronto market, even now,
especially back then, it was a bit of a hockey stick graph
continues to be prices were going up quite a bit. And at the time I
was doing some assignments of condos. So for, you know, any
American listeners typically you'll hear the term wholesaling, but
basically selling the contracts of, of condos, which at the time
you had to be really careful about because, you know, the CRA was
just the Canadian revenue agency was getting very particular on how
this income is treated.
So from there, I switched kind of my geography to Toronto and
started buying assets there. And then I work with Avis and young
commercial real estate. I met my partner, John there, and we
started buying multifamily apartments. And the first one that we
bought was in Hamilton, which again is west of Toronto, but an
hour. And from there, I think we talked a little bit before the
show bought our first deal that we had, we raised capital for. And
that was in pretty much downtown Toronto.
I have, if you're from Toronto, you'd probably call it Midtown. But
for those that don't know the city, it's pretty much right in the
city.
Speaker 2 (7m 39s): So let's dive into that deal. Then, like, one
of the things that we like to do here is talk about some of the big
challenges, right. Involved in something like that. So, so, you
know, that's a massive undertaking, first of all, raising the
capital and then finding the right building. That's gonna, you
know, have the return that your investors want. So there's all
kinds of challenges in there.
Speaker 0 (8m 1s): Yeah. I guess you could start with the first one
and finding the property there's, you know, seeming seemingly
continues to be quite a bit of capital out there. Deals are harder
to come by good deals. So from that perspective, it was pretty much
the same program that we use in brokerage and finding clients, you
know, you're, you're looking for off-market deals and this
particular deal was an off-market deal. You know, I used the
resources that we have available, you know, for those in Canada,
whether that's a land registry or you're lucky enough to have
access to corporate searches and, you know, software like CoStar in
the states, it would be, you know, secretary of state to find
owners.
And then from there, it's just a matter of calling owners and
seeing if they are open to selling. I found that there's a lot of
owners out there that will maybe not necessarily take a lower
price, but some will take a lower price if it means that they're
just dealing without marketing the property without going through
the hassle of, of bringing it to market. Sometimes it's the
anonymity of, of not, you know, every single person knows you're
selling your property. So it was really just a, just an old
fashioned cold call. You know, I said, Jessica galley, I'm an
investor in the, in the Toronto area passed by this property
today.
And just wanted to see if you consider selling. And we kind of went
back and forth, and that was how we initially took down the deal.
So, you know, number one, it's always great. If you can find off
market, you know, once they're out on MLS or wherever people are
marketing the values, pretty much roaded from the, you know, the
premium you pay on it. And then from there, we knew that we wanted
to raise capital for it. It was just under $4 million. So it wasn't
something that you necessarily it's right on the cusp.
I would say at least from a Canadian perspective on if you would
need outside capital. But what we wanted to do is get practice at
actually raising capital because really the, all the process that
you go through, the, you know, creating in our case, the, the
corporate structures, the limited partnership agreements, going to
others to talk about the investment, creating, you know,
information, memorandum that looks good. And you know, that you can
actually sell it to investors. All that is the same, whether you're
buying 5 million or 30 million and we see them in brokerage.
So for us, we wanted to cut our teeth on this one, raising outside
capital. And that's what we, that's kind of the process that we
went through for this one.
Speaker 3 (10m 29s): Th you have the data of the deal first, or the
raising capital part first, or how did that work out with
Speaker 0 (10m 34s): Yeah, the, the chicken or the egg, you know,
what, what I, you know, there's a bunch of resources online. You
see it a lot more in the states now syndicated deals, and you're
starting to see it more in Canada. People, syndicating deals for
us. What we did was the process I wanted to follow was not have
actual signed commitments from investors, but soft commitments that
I kind of looked at people that I did my MBA with people that I
did. I went to university friends from high school that I still
connected with. Basically, if you go to your iPhone or whatever,
whatever phone you have, I just know, cause I have the iPhone, you
go to your phone book, you scroll all the way down to the bottom
that shows how many people are saving your phone.
It's pretty crazy how many people are you actually save, and you
can export that to Excel. And literally, I just emailed people that
I just described. I said, Hey, you know, if you don't know what I'm
doing to real estate a lot, you know, a lot of them did, were
starting to look for properties to acquire manage. And we're
looking for investors. This is the type of properties. So we had
kind of a, a model property. These are the type of returns we're
going after. And if you're interested, do you want me to let you
know, if we do come across a property like this, and if not, no
pressure, you know, basically unsubscribed type of thing.
If you, you know, you don't want to be involved. So through that,
we got a lot of interest of people that gave us kind of a soft
commitment, but then when we actually went to get the deal under
contract, we definitely gave ourselves a couple outs in terms of
financing. So to answer your question directly deal under contract
first, then investors. But it wasn't like we, you know, we didn't
even think about investors until we, you know, we put the offer and
it was definitely part of the process.
Speaker 3 (12m 24s): Cool. How much were you raising or, you know,
the exact amounts, I guess, but how many investors were you
bringing into was intend to bring on like, you know, dozens or was
it like one or two?
Speaker 0 (12m 34s): Yeah, the intent was to, so part of it was to
not just make it like a partnership of four people, because then it
kind of defeats the purpose of what we're trying to, you know,
start to practice. I don't know the exact amount, but it was
probably, I think with the GP, like with, with ourselves, which are
my two partners, probably around nine or 10 and it wasn't supposed
to be that high either, but we had a couple investors that we
really wanted to get in the deal. And it was right when we were at
the end, you know, it was tough to getting to the halfway mark that
was easy, then like getting that extra bit, like really stretched
for it.
And then in the end we had a bunch of guys that were just, or a
couple of guys that were just like, yeah, no, I, I, I want to get
in. And it, we, we had to fit them in. So we basically had to go
back to some investors and say, listen, we want to get this other
person in the deal. Would you be cool with, you know, having a
$75,000 investments that have a hundred? So that's kind of the
process we went from there. So it wasn't just one or two. We wanted
to raise like a normal limited partnership.
Speaker 3 (13m 39s): Cool. And, you know, I think a lot of people
are surprised. Like you said, it's pretty in a way it kind of made
it pretty simple. You just went through your phone book and asked
people, which is people, a lot of the times, they're kind of scared
to do that. How did you, how did you like w what type of people
ended up coming in on this? Are these like, you know, super rich
uncles or something, are they like everyday kinda just homeowners
that have home that could be
Speaker 0 (14m 6s): So, you know, for, for those that, you know,
like from the outset, I, I I'm in commercial real estate. So there
were a few of the guys in the industry, surprisingly, not as many
as you would think. I think we talked about this last time. I'm
always surprised, you know, how few people in our industry invest
in our industry. So the type of individuals, what we did in Canada,
you have a couple exemptions that you can use to get w get outside
of having to file. Like you would, if you, your IPO and a stock.
And those they're called prospectus exemptions.
One of them is friends and family. The other one is accredited
investor status. So we were going to go specifically with
accredited investors, but we noticed that there was a few of the
guys that we, we had invest that were kind of on the border. And
to, for that status, you have to meet a certain income threshold
and a certain amount of time. So for us, that, for us, it was not
really like super rich guys. Well, I mean, we had a couple of
hockey players, but it wasn't because like, we were searching for
high net worth individuals that was like word of mouth because our
industry, there's just a lot of ex hockey players and, and so good
connections there, but generally speaking, it's accountants in
Toronto, you know, real estate brokers, you know, a couple other
finance guys, like not, you know, not some rich old dude that has
millions of dollars.
So it was pretty, pretty evenly split. We went in with 75, I think
75,000 was the minimum investment.
Speaker 2 (15m 39s): Awesome. Which if you think about it, I mean,
if you're going to buy something on your own, I, I challenge you to
be able to fund it with, with 75,000. So this is an exciting deal
for a lot of people, you know, in that position. Yeah.
Speaker 0 (15m 53s): I think for a lot of the guys, like they
wanted to get into real estate in some capacity, we're all, you
know, my close buddies, we're all in our kind of, you know, late
twenties, early thirties. And it's kind of that part in the career
where they're starting to make, you know, make pretty good money
and, you know, they don't want to go do what we do, you know, and
actually own the property, speak with property managers. They just
want to be connected with it in some way, this is a, you know, a
route for them.
Speaker 2 (16m 22s): Okay. So now let's talk about the building
itself, right? You've, you've found the deal. You must have some
kind of a plan for, you know, increasing value. Let's talk about
that.
Speaker 0 (16m 32s): Yeah. You know, that's like the, the Canadian
landlord landscape, I know, should be a book or something, but
it's, it's pretty challenging for, for landlords. It's definitely a
tenant centric market, but that being said, you know, there are
ways that we can add value to buildings and do it properly and, and
make sure that, you know, our investors are taken care of, but
you're also treating tenants with dignity and, and doing everything
above board. So for us, the area that we bought is a place called
the intersections bathrooms and Eglinton Toronto.
So for anybody that knows it's pretty much in the heart of forest
hill and for still, I think, you know, probably the, some of the
most expensive homes in Canada in this neighborhood. So part of the
appeal of this property was the fact that the market, the rents
were way under market and what we thought, or we came into our plan
was we could take these two condo quality. And by that, I just mean
putting a washers and dryers in the units, dishwashers, you know,
the, the creature comforts that we, a lot of people take for
granted, but in a lot of rentals, they don't have them and
basically turn over the suites and put them into where we would
class like a high-end rental.
So we had to pivot on that because this was, we closed the middle
of last year. So we're right in the middle of the pandemic. So for
us, it was okay, that high end market. And if you guys remember
rental rates were going up, going up and then the pandemic happen
and they kind of plateaued. So for us to be able to get the higher
high-end started to the thesis, didn't really work from our vantage
point. So what we did was okay, instead of spending $75,000 on a
suite turnover, we spend $50,000 on a suite turnover, but we turn
them into B class, even not super high end, but B class and where
we can still get our return and we're not spending a crazy amount
of money.
So that's kind of, that was the strategy going in. So since then
we've renovated one suite, we're working with tenants right now on
the other suites. And, you know, just anticipate the question about
dealing with tenants and how to, you know, how to come to an
agreement to actually get the units, because we did buy these fully
tenanted. And part of the art, not science of Canadian real estate
investing is working out an agreement with the tenants, if they're
willing to end tendency. And it's a very, you have to be very
delicate about dealing with that because, you know, for listeners
that don't know, you can't just kick a tenant out because you're at
the end of the lease.
This is not the way it works here. So that, you know, is something
that we're navigating. And we have for the last six months.
Speaker 3 (19m 19s): Yeah. One of the beautiful parts of, of
investing in Ontario at least is, is, is that, that landlord tenant
stuff, lots of opportunity in it, I guess is the, is the, is the
positive part of it, if you can navigate your way through it, but,
but it's, yeah. It's, this is also a deterrent at times. So
yeah.
Speaker 2 (19m 39s): I mean, it can be tough because, because
you've bought the building with the rent significantly under
market, what they should be, and nobody in that position is going
to be like, yeah, I volunteered just leave. Right? Like they, they
know they're going to have to go find something else. It's probably
going to cost them more. So the whole thing is to work out a
win-win situation for everybody. So you can go in there and
renovate those suites.
Speaker 3 (20m 4s): You had a few tools that you mentioned before I
wanted to ask you about your CoStar and some other ways of finding
deals, you kind of breezed right through it. But I think there
would be some listeners that might have gone. What the heck, what's
that? How do I use that? How do I find, how do I use that to source
deals? Cause that's the, that's the, you know, the every day
dilemma with the investing in real estate, it's not necessarily the
capital part, which is, you know, it's, that's one thing, but it's
finding the deals is always the hardest part. How do you use those
tools? You mentioned
Speaker 0 (20m 33s): Yeah, a hundred percent. Like I said, for, for
listeners that have the benefit of tools, that a lot of the, you
know, the guys in our guys and gals in our world in brokerage take
take for granted. So we use CoStar quite a bit, CoStar tracks
pretty much almost all of the commercial real estate properties. So
multi Rez, retail, industrial office. So a lot of times if I'm
looking at an area and I'm trying to find the owner of a building,
I'll go directly to CoStar, look for the numbered company or the
individual.
I guess if you're, if you're looking purely on the residential
side, you'll find individuals, but for us, a lot of times, there's
that extra layer that we have to go through. And it's typically a
corporate name. And then from there, the corporate searches, I
believe you can pay for them online. Again, a nice benefit of being
in a brokerage. You know, we can email somebody in our brokerage
and say, can you run a corporate search? And all that means is that
the corporate, you know, veil of the numbered company, it'll just
show who the actual individuals are. And then taking that to the
next step.
You know, whether it's Canada 4 0 1, 1, are you trying to figure
out based on the address, you know, what the actual phone number
is? You know, sometimes you just can't find them and you just have
an address and we've snail mailed stuff before too. And, you know,
especially on the broker gen, you're just like, I want to connect
with them and we cannot find a number for the person. Sometimes
your only option is male. So that's like, if I, if you're going the
CoStar route again, if you have access or you have a friend that's
a broker, you know, then you typically will have access to stuff
called real net and real track in, in Ontario.
I think it's, I think it's specific to Ontario, but I'm sure every
province and state has something similar. And in that case, you
know, you're looking up the actual record of the last sale. So it
will typically show the stakeholders. A lot of times they'll show
the banking, you know, it was paid for in cash. And I think real
trap is actually purchased by Altice, which is another company
similar to CoStar. I think that was fairly recently. You would
probably know no, Sandy,
Speaker 3 (22m 40s): I know. Well, cause we use what we use real
real track a bit too. And it's all, yeah, it must be
Speaker 0 (22m 46s): All to studio or something now. Yeah. I
remember logging in and being like, what the hell is this?
Speaker 3 (22m 52s): But it's a good tool.
Speaker 0 (22m 53s): So that's, that's the road that I would
typically take. Now, if, if you're an individual that, you know,
you don't have access to the majority of, of these things, you
know, there's different, different avenues. You can go, the land
registry is one of them. And if you go in any city, you can Google
the land registry for ownership, and then you kinda kind of have to
follow that same, that same process, the challenge for most people,
especially if they're looking for commercial and they're not
associated with any brokerages or they don't have a realtor that
they're working with is the fact that the numbered companies
there's, you know, there's very few tools aside from actually
paying for corporate searches, which you can do as well.
There's a bunch of like, you know, online places that you can
actually buy corporate searches to figure out who the owners are,
but then of the day you can always, you know, you can still drive
for dollars and, and find properties. You like figure out what the
address and go that road as well. But yeah, that's kind of the
process I use.
Speaker 2 (23m 50s): And city hall often as a kiosk where you can
just sit down and, and, you know, do a registry search.
Speaker 0 (23m 57s): Yup.
Speaker 3 (23m 58s): I know it used to do that. We just started
with that rubber. We used to do the Oshawa
Speaker 2 (24m 1s): All the time.
Speaker 3 (24m 2s): Yeah. I moved to Hamilton and they wanted to
charge us for all that crap. So I kind of got annoyed by it, but
every city has a bit different. So some of them are really easy and
open source of info. Some of them are a little more holding it
hostage and want you to pay or want you to go through hoops to get
it. But you know, whatever you're willing to do, if you, if you
gotta, you gotta go through a couple of hoops. That just means
there's probably more, more. Yeah.
Speaker 0 (24m 29s): So do you guys, do you guys still do, will you
go through land registry or do you guys now use different software?
I know you, you guys, I think, well, Sandy, I know you do a lot on
the residential side.
Speaker 3 (24m 40s): Yeah. We use real track though. A lot for the
multi Rez. We've we've been using that for a couple of years. I
would say once I found out about it, that's been, we've done a few
deals from that. It's it's it's, you know, you gotta do, you gotta
go through the work after like, just finding the info is one thing,
but then yeah. Working through the call list and you know, it is
quite a bit of work, which is, you know, again, why there's, why
there's good opportunity at the other end of it. But real tracks
have been pretty good. I mean, I think for us paying for it was
roughly five grand a year.
I'm not sure if that, that financial elements changed now with,
with, with their setup, but there, there are some real estate
boards even that have free access to that. So depending that's one
of the perks you mentioned, you know, some of the perks of having a
real estate license or being a part of a brokerage, there's also
real estate boards. Even that give you, I know there's a few that
have free access to real tracks. So
Speaker 0 (25m 35s): Yeah, we, we had a few of our, so I work in
kind of investment sales on the office and office, but our actual
multi-racial team in our brokerage, they they've, a lot of the
younger guys have had a lot of success on real track they've, you
know, and it's probably because CoStar is, you know, it's so
crowded now because it's easy. Like you can type into coaster this
property and then you get the information. But if every other
brokers chasing the same thing, that's where real track, you know,
if people aren't using it as much in our worlds, that's the
benefit.
But like you said, it's one thing to get the information you got to
do the other 70 or 80%.
Speaker 3 (26m 13s): Yeah. Make the calls. Sometimes it's all the
non-glamorous stuff.
Speaker 0 (26m 17s): Yeah.
Speaker 2 (26m 18s): My last three or four deals have been MLS
deals that nobody wanted generally stuff that I showed to my
clients over and over and over again. And nobody was, nobody was
taking it. So I'm like, okay, well there's a deal here. I guess
I'll take this one.
Speaker 0 (26m 32s): Was that cause they, like, there was the
concern that if it's on MLS, it's not going to be a good deal
or,
Speaker 2 (26m 37s): Oh no. I mean, Hey, that's what I do. Right?
Like I'm a realtor. So my clients are buying stuff all the time. It
would just be, so I've always been, you know, I've always been not
necessarily property first, but like when I find something really,
really that I think is really juicy anyways, I'll push it. Right.
And so those would typically be the ones where like the, my 10
bedroom student rental in Peterborough that's up and running now,
legally all got all the, like everything's a above board.
And I mean, I showed that I would say at least 20 of my clients saw
that building and it was just, maybe it was too daunting. Maybe,
you know, I had more vision than the people I was showing at the
time. I don't know whatever it was, but you know, over and over and
over again. And then just going, okay, why is nobody want this?
Like, it's a, it's a gold mine. So you know, stuff like that.
Speaker 0 (27m 33s): Yeah. Yeah. I'm, I'm pretty bullish on
student, student Rez. Again, I feel like it's going to come back. I
know everybody. Well, not everybody. I think conventional wisdom or
a lot of individuals just thought, you know, the pandemic, that's
going to be the end of schools. And I was getting old from
Waterloo, univer, sorry, Wilfrid Laurier university in Waterloo.
They were calling me and they were like, Mr. do you own a property
on Marshall avenue? I was like sold that like six years ago. Okay.
Our records indicate you still own it. We I'm like, what's the call
for, and the individual, like we're desperate need for housing for
students.
So like they, they're trying to go the private route and get
students that I guess are oversubscribed and residents to, to
housing. And you know, that's one data point. But even in our
brokerage, we've started to sell more student reds. So it's coming
back.
Speaker 2 (28m 25s): It's interesting because I think during that
time too, at the height of everything, right, they, in the, in the
like actual dorm rooms on campus, they were doing this distancing
thing where let's say the unit had six bedrooms. They would go,
okay, now we're all going to put three students in there. So which
made everyone else more desperate for outside accommodations, which
worked for us. I've heard like both sides of the story from
different investors in different areas and student rentals, but
ours, luckily, you know, we didn't really have a hitch in
Peterborough.
That's where ours are.
Speaker 0 (29m 0s): Yeah.
Speaker 3 (29m 3s): Lots of interesting. I look on, on the market
and everything. Why don't we tell, why don't we, why don't we talk
a bit with that on the commercial side? Why don't we hear what's
been going on with, with that in the last couple of years? I mean,
we, we last shouted, it was kind of starting of COVID and probably
everyone was worried about commercial ever coming back or office
ever coming back. Now we're kind of rolling into the, hopefully the
ending here, like everything we'll see, what's changed. What's
what's what's going on in that world.
Speaker 0 (29m 33s): So the commercial real estate like to take it
from the four major asset classes. What we've seen is, you know,
multi rise has continued to do well, you know, I'm sure it's not a
surprise to anybody that that asset class has been one of the
darlings of the industry. There's still rental appreciation. We're
seeing a lot of investment go into apartments. So really it's
again, you know, less, less, sorry, more and more capital chasing,
less and less product. So you really have to kind of work hard to
find that product, but that is definitely a sector that boosted or
kept a lot of these commercial firms income or profits high
industrial was another one, you know, who would have thought you'd
have a global pandemic coincide with a lot of shoppers going online
to begin with.
So a lot of these last mile delivery locations started getting
built like crazy. We're in a huge, still in a huge supply
constraint. On the industrial side, we were low before the pandemic
from a vacancy perspective. I think Toronto is number two in north
America. I think LA was, I think they were number one or anyways,
we were, we were right up there and now we're sub 2%. Again, last
you hear 1%, one and a half percent. So industrial has been
crazy.
Retail is, since we last spoke retail, a lot of people are like,
oh, retail is not doing that. Great. And it's not necessarily true.
Like I always say, when you have like Joe's TaeKwonDo or, you know,
Stacy's nails, you know, you have those types of plazas that don't
have any grocery store anchored aspect to them, or you don't have
any essential service aspect to them. Yeah. Those have struggled.
But over the last year there's been a lot of opportunities and
assets purchased with those essential services and grocery store
anchored that institutional and private capital are putting money
into.
So I think that's going to remain strong. It's just has to be
fundamental because you know, the states is overbuilt and we're,
you know, we're not at that extreme, but we ha we overbuilt retail
for, for years and years. And then, you know, the question mark on
office is it will be interesting to see how this one plays out
because you know, to, to Rob's point in student rise where you have
people distancing, you know, same thing in off it's like are as a
company, number one, are we going to go back to the office? Number
two, if we do go back to the office, do we need less space or do we
need more space because of distancing?
And you know, this conversation was happening over the last little
while. I can say that. It definitely got to the point where a lot
of people put inventory onto the sublease market. For some contexts
in our city, we have normally 600,000 to 900,000 square feet on the
sublease market. I think in COVID we peaked at like three, I think
it was 3.3 million. So that is a lot of stuff going on the sublease
market. And a lot of that is like a knee-jerk reaction from a CFO
or CEO.
That's like, alright, well, put it on the sublease market. So we've
now come back down. I think we're now in the low twos. So from our
perspective in brokerage, that's going in the right direction. We
look at that as, you know, normalizing or have individuals that are
getting a little bit more clear on what they, what their plans are
in the future. But I think this is a net positive, obviously, you
know, fear and brokerage. If you're not glass half full, it's
gonna, it's gonna be a challenging time. And for me, that works in
office.
A lot of what we do is in the office space. This was something that
if you've been in office for a long time, you saw this trajectory
happening before COVID this hybrid working zoom. We now know so
well, this was something that predated COVID, it kind of pushed us
into really determining why we, we occupy space. What is the office
for? And I'm sure, you know, even you guys probably see it with the
businesses that you work with, or even in brokerage, you know, you
start asking serious questions of what are, what is the office for
and what is, you know, can we work in other ways?
And w from our clients, some of the answers were, we don't need to
be in the office for this. And other clients were like 100%, this
aspect of our business, we need a, we need a physical location. So
that's kind of the upshot of, I'd say like the major commercial
sectors
Speaker 5 (33m 54s): I'm saying.
Speaker 2 (33m 57s): And would you say that those, those ones, that
sort of the ones that said, absolutely we need an office. Those are
the ones that have basically brought those numbers back down. And
do you think that now there's going to be more sort of changing
their minds on that? Or do you think we're going to sit sort of
right around where we are now? And that's sort of going to be in a
new plateau.
Speaker 0 (34m 19s): There are a lot of offices that right now are
still sitting vacant because, you know, we, we had so many false
starts, especially in, in, you know, in Canada, Toronto,
specifically for us, we're, you know, we're okay, we're back. Oh,
no, we're not back. And I don't want to say, you know, there's the,
you know, the quote that this time it's different. I don't want to
be that bold. But one of the things this particular time is that we
have indication from the city of Toronto, that they are going to be
occupying their offices in March, the end of March.
So they usually don't say anything unless they're going to actually
do it because it would just look really poorly on them. And that
wasn't something we had over the last year. We didn't have the city
or any leadership really give clear direction. You know, like when
we, when we opened up again, a lot of the direction from the
province was all right, we're opened up, you know, but don't go
crazy. And you Yell at us like we're on queen street where retail
shop. You tell them that you can leave your house, but tell them
not to everybody go shop.
So I think this month particular, because just recently, we are now
allowed to occupy without a passport. We are going to be able to
unmask in a week. And then the city is giving the business
community direction. What you started to see after, as banks
starting to put in place their policies. Because what I've learned
over the years is that legal teams love to just point to other
reasons why their decision made sense. And, you know, you have a
legal team at a big bank. That's like, well, the city of Toronto
did it.
So, you know, as silly as that sounds. So I think, I think TBD on,
on how the recovery happens, but I think that it's going to be
healthy for the office market, because as you guys know, it's not
just about the tenants or sorry, the landlords, it's a tenant
landlord market. And I think for a long time, it's been very
unhealthy for the tenants.
Speaker 2 (36m 14s): I find it odd Jessie, that you should expect
leadership from the leaders I've learned, I've learned over the
past a year and a half that that's just not going to happen.
Speaker 0 (36m 23s): Yeah. Yeah. Well, you know, direction is, you
know, not even leadership, just a little bit of direction would be,
would be a helpful piece for us. But, you know, that's, that's kind
of how I see, you know, the next year going in terms of, you know,
continued, you know, continued investment because money is still
very ubiquitous. Like we have a ton of money circulating, but it's
always that inverse relationship. It's like, you got to find the
deals now. And then, you know, when the deals are everywhere,
there's no money.
So
Speaker 3 (36m 57s): That's, you know, that's what I, that's what
we talked to a lot of clients or just people that we're talking
about investments is like, you know, anyone waiting for the next
opportunity, the next buying market or whatever. It's. And maybe,
maybe there's a slight bit of that even. I don't know if it's a
window right now, or if it's here for a little bit of a, of a few
months or whatever, but there's a little window. It feels like
almost today, actually, as we're sitting here, there's been a
couple of weeks of, of where we've been having these conversations
around, say, if, if you, if you missed and you hadn't bought in the
last couple of months and you really, really want to, or need to,
like now it's an amazing time.
And it's so funny. Every time this happens, the pushback, there's
always another reason to push back. And now they're all scared. So
you're like, well,
Speaker 2 (37m 39s): We're dealing with, you're dealing with
somebody that has that mentality in the first place. Like the
person that's like, oh, I'm going to wait and see what happens.
That's, that's, you know, that's going to be just heightened in
this climate. I think, you know, it's not going to alleviate any
doubts or fears just because the market's dipped a little bit.
They'll be like, oh, I'll wait and see if it continues. Yeah.
Yeah.
Speaker 0 (38m 0s): What have you guys seen on the, on the
residential side? Has the, has that market like, is that bifurcated
between between homes and condos has one, has one done better than
the other?
Speaker 3 (38m 15s): I mean, how like a detached and, and not, not
condos take away them, but everything else is definitely,
definitely a cool, the little in the, in the sense that it's only
cooled in the amount of offers, amount of action on the house. It's
not cool in terms of price, really, from what we've seen, prices
that, you know, we've just hit that level where people have gone.
Now we're past everyone buying for hundreds of thousands over
asking it every time it's still happening, but not every time
because now people are listing at already the hundreds of
thousands.
And they're not listing at the right where we were two months ago.
So I think, yeah,
Speaker 0 (38m 50s): Isn't that amazing with residential real
estate? My mom would call me and be like, ah, this place is so
familiar and a half. I was like, okay. It was listed at 600. I was
like, well, it shouldn't have been listed. It's like, no,
Speaker 3 (38m 60s): No, I know it's so silly. So now they're
listening at a million and a half and they're just selling at a
million and a half or the selling at a million, four seven, or
they're not, or they're not getting 10 offers or 20 or 50 offers on
offer day. They're getting one or none. And then they're, you know,
people are the buyers in general, a little tired of all that crap
too. So, you know, that being said, we, we, we had one of our, this
in the past few days, we, we sold the fourplex here in Hamilton
that was went nuts when like 500 grand over ASCA.
We didn't expect that we'd expect maybe maybe a hundred or, and
changeover. It went way, way over. And like, I don't know. I think
the, that, that multi-family investment market is still really,
really, really, really hot, whether that be small multi-families or
bigger in the apartment building style, like there's that market's
still, there's still a lot of money out there to invest in that
people have a lot of people that own real estate for sure have made
a lot of money and they need to do something. And they look at real
estate and go, well, I made my money in real estate.
I just guess I'll reinvest in real estate. I think that's a pretty
common a mindset out there. So the investors are going nuts still.
And yeah, I think the single family, new first time home buyers and
stuff, or are a little tired and maybe feel like they missed out
and probably
Speaker 2 (40m 19s): Now might be the time for them to jump back
in. Because like you said, like seen a drastic reduction in the
amount of showings over the past. Let's be three weeks even. Yeah.
And, and I think that's a good indication that now might be time
for those people who have been sitting there or, or thinking,
feeling a little defeated maybe to, to jump back in.
Speaker 0 (40m 40s): I was a little surprised during the, during
the pandemic where people were, you know, saying the thesis was
okay, everybody's leaving cities where, you know, the condos are
dead. And I was just kind of, you know, first of all, I was
surprised that that was of you're hearing that by these, you know,
talking heads or people that are supposed to be experts in our
industry when I was my thinking was good cities, like quality
cities, whether it's New York, Toronto, Bo like the city, the city
is really where everybody comes for efficiencies.
And even now like condo prices, it at least like in my building, I
think there's been a couple of record condo prices in the building
in the last few weeks. So it seems to me that condo is still a huge
demand, unless, unless I'm totally misreading,
Speaker 3 (41m 27s): I think at the rate at a, at a, at a standard
sort of priced condo, like if you get in the more expensive ones,
there's definitely little slower, but an average price gone over
for sure. I mean, we're selling, we're seeing, we're seeing new
builds in Hamilton now over a thousand square foot, which is new
for Hamilton, not new for Toronto. I think Toronto are more of what
1500 square foot maybe are up in that range. Yeah. You know, so
some of these, you know, a Hamilton market at a thousand per square
foot is seemingly crazy for condos. They're going to sell they're
selling. They're not going to stop.
It's like, they're not going to sell out. They're going to sell it
for sure.
Speaker 0 (42m 0s): Yeah, it's crazy. But people are still buying
them and like the developments in Hamilton, cause there was a F a
few condo, I think it's a Brad lamb had a condo development and are
there a couple other
Speaker 3 (42m 13s): Television city was his big one, which has
been in a few, few years in the works, which is why it had maybe a
little more hype around it than, than some, but a lot of the
Toronto developers for sure. Coming in, coming that way. And I know
Hampton's not probably alone in that there's other markets that
have had some version of that, like a kitchen of our or London. And
I th there's definitely a lot more to come. I mean, Hamilton's
going through a condo explosion. It's been, that's been a few years
in the making and, and certainly more to come, literally the whole
waterfront developments, all that sort of stuff.
A lot of the Toronto, cause I think it's just tough to the, the
numbers are tight in Toronto. I mean, I've heard Toronto is about
as tight as any market in north America in terms of building and
developing those types of products.
Speaker 0 (42m 58s): I say like how many times people said myself
included where it's just like, if I was just out of school right
now, I wouldn't be able to afford the place that I live in. You
know, if very difficult to get into the market at this point. Like
pre-construction, I always thought was a great kind of way to get
into, you know, break into a market because you have a bit of a
forced savings plan, especially if you're younger, but you know,
it's, it's typically a little bit more achievable to get in when
you have somebody, you know, saying you got to make this payment
every 60 or 90 days, whatever that is.
Speaker 3 (43m 32s): Yeah. Now it's, you know, you're getting into,
what's certainly over half a million, if not up to where it's a
million, even in some cases. So it's, yeah, it's really hard to get
in at that point now. Yeah. It's hard to say we could be w by the
time the show airs, you know, when we're sitting here reviewing
this, we could be this all can change. Right. A lot of things in
the world they're making changes happen pretty fast. We know the
governments, historically government likes to intervene, so they
could, they could be jumping in here. I think he pointed saying,
you know, we're changing the down payment amount needed on an
investment properties or we're changing the, you know, the, the
dreaded one that everyone's worried about as the, no more, or, or
taxing now on your sale of your primary residence.
Like that could be that major, like that could change, could change
the dynamic completely. So that's another reason why I tell people
just get in because you never know when anything could happen. And
the, we, we learned in 2017, it's like a week's notice. And all of
a sudden there's major changes that are
Speaker 0 (44m 32s): Going to affect that. Your broker said he,
any, any reason is get in your, the news. Get it. But no, it makes
sense that we've had, like the capital gains thing is something
that has come up with investors, like interest rates too. But it's
funny, like, it's, it is something that people think about, like
that aspect of the business and not even just capital gains on
principle residents, but for our investors who are, it's normally
investment properties where they're just, you know, just
increasing, I think Trudeau mentioned, I don't know if it was like
in the middle of last year of increasing the actual inclusion rate
on even investment properties.
So it's definitely something people are thinking about. I think
across the board, it's not just interest rates, definitely tax
policy, but like you said, like anything can change. You know,
there's a global pandemic, there's a war in the Ukraine, like one,
you know, a couple of things change and everybody needs to
pivot.
Speaker 2 (45m 20s): Yeah. And, and I mean, it's, it's almost
impossible now for us to stick to this, but Sandy and I, you know,
sort of started out saying, okay, we're not going to do like market
updates and stuff like that because, you know, we want to stay
timely if someone listens to this down the road, but you know what
I do think it'll, it'll put some little, like little bookmarks, you
know, in history and it adds like a way of saying, okay, that's
where they were, then here's where we are now. And sort of, how has
it changed since then, right? Yeah.
Speaker 0 (45m 48s): So yeah. You notice when you do 50 minute
podcasts, it's really hard to have evergreen content, you know,
like somebody saying something topical and you know, something's
going on this month or this year.
Speaker 2 (45m 59s): Yeah. Speaking to topical. Why don't you tell
us about your podcast?
Speaker 0 (46m 2s): Yeah, sure. So working capital, the real estate
podcast, that's the name? I started it, it just, coincidentally,
the first episodes started at the beginning of COVID where people
were like, oh, that's great. You know, and you're doing stuff to
keep yourself occupied, but it was like, you know, how podcasts
are, they don't just come out like that. You actually have to
prepare. And I think on the last episode I kind of bent Sandy's
ear. He helped me out at the beginning. I'm like, you know, when
you're not in the, in your world, it's like, where do the podcasts
live with? Like, how do I click that link? Where does that link
come from?
So for the podcast, I think we're close to a hundred episodes now.
I've been, I haven't taken a week off. So I've been pretty happy to
be consistent. You know, it's like going to the gym where you, you
know, people are like, I don't have time, but if you make time, if
you're committed to it, and it's very selfish of me to bring on
people that are a lot smarter than me and get to talk to them for
45 minutes. And I'm sure you guys, you know, same thing where
especially being in brokerage, you know, I have access to a lot of
individuals that I have no business having a 15 minute conversation
with that are, you know, high up in our industry, but can give
great advice to listeners.
So for me, the way I kind of summarize it for individuals that are,
that are curious, what it is, is it's focused on real estate
investors, but it comes from all different types of guests, you
know, from lawyers to actual investors, to people that are, you
know, tax or tax or just accountants. So for us, it's really kind
of holistically looking at it. And, you know, just a small example,
we talked about raising capital at the beginning of the show, you
know, having somebody on that's actually a securities lawyer and
kind of walks through what that process is.
And, you know, obviously get legal advice, but it can give you kind
of an understanding of that aspect of the business. So yeah,
that's, that's it, you can, I mean, Google it it's, you can go to
working capital podcast.com if you want to check out any of
the recent episodes.
Speaker 2 (48m 0s): And obviously we'll put that link in the show
notes,
Speaker 3 (48m 4s): Definitely gotta be a, you raise an
interesting, just, there's been some news around that people
getting in trouble with securities and stuff like that. You
definitely want to be careful and know what you're doing when
you're getting involved in that sort of side of raising money and
making sure it's, you know, just, just, I don't even really want to
say stuff cause I don't want to give advice really on it, but you
gotta be careful just to make sure, you know, when you're doing
Speaker 2 (48m 24s): Everything we see on the show is our opinions
only, and, and our experiences, not legal advice,
Speaker 0 (48m 31s): But
Speaker 2 (48m 31s): Somebody's going to say Sandy,
Speaker 0 (48m 35s): If you get on the, even on the investor end of
things, like not even just the legal piece, but obviously you owed,
you owe a fiduciary responsibility now. And for people that don't
work in brokerage, maybe that might be the first time they're doing
something like that. But one thing I have found is it's not for
everybody, some people investing on their own bootstrapping, their
own properties, or maybe working with one or two partners is the
way to go because there are stressors that are involved in capital
raising that are not involved with, you know, if John and I, and my
partner, we own our property, let's make an executive decision to
do this for us, that same decision we're thinking about 10 other
people or, you know, 50 other people, whatever your investment
is.
And it's something that is definitely a different way because
you're kind of a steward for these investors. So it's definitely
something you want to be careful of just jumping into, talk to
people that have done it before.
Speaker 3 (49m 27s): Totally different mindset. Yeah. It's like
owning a private versus public company. It's totally changes the
way that the leaders of the, of the company or the investment make
decisions. It's it changes the whole mindset certainly want to,
yeah, certainly lots of talks about that. We don't have time to get
into, but, but definitely go check out your show. That's awesome.
They've built it that much content. I think that's one of the
things that's, you know, any real estate investor or any, anyone in
business of any kind, really could really benefit from this is
going into interviewing people. Like that's like the easiest way to
learn and grow yourself, but also provide value to the marketplace
is like a lot of people are really, really excited to get
interviewed and they will, it doesn't really much matter who it is
talking to them about it.
If you invite someone to come into your, your blog and do your show
and your videos and your book, they read any magazine, whatever,
it's a pretty easy way to get access to people. It's a great way.
So, you know, we're kind of encouraging the competition with that,
but a lot of people should, should get into that. I think that's of
the most underutilized versions of a kind of business growth in
general, right?
Speaker 0 (50m 32s): Yep. A hundred percent
Speaker 2 (50m 34s): Jesse, what's next for you?
Speaker 0 (50m 37s): So we didn't touch on it here, but I purchased
a property, a townhouse in Florida. And part of the reason I did
that was I wanted to start actually again, do the training wheels
version of investing in Florida on the small scale, and then figure
out maybe in a year or two, if we want to raise capital to buy
stuff in the states. So that will probably be something I do in the
next few years or hopefully expand, but yeah, we'll see. We'll,
we'll talk to you in a year or two and see, see where we're at.
Speaker 2 (51m 8s): All right. That sounds good, man. That sounds
good. Costa Rica, any, any thoughts on investing?
Speaker 0 (51m 14s): I'm going to have to bug you about that.
That's that's pretty cool that, that you're down there now.
Speaker 3 (51m 19s): So many people following, following you or
you're following them or whatever, or the pack is just going. I
know so many people are going that way now. Hmm. That's exciting.
Yeah.
Speaker 2 (51m 28s): There's been a lot of interest for sure, man.
And it's been exciting so far definitely to, to spend a whole
winter, you know, not, not in the snow.
Speaker 0 (51m 40s): Yeah.
Speaker 2 (51m 40s): There's been a different experience, so, okay.
So Jesse, what is the best way for someone to get in touch with
you?
Speaker 0 (51m 48s): They can get in touch working capital
podcasts.com or at Jesse for galleon Instagram. It's funny.
I spent a lot of time. There are people will DM me. And oftentimes
that turns into kind of an email conversation if it's more formal.
So Jesse J E S S E F R a G a L E. You can look me up and if you
have any questions about real estate, don't, don't hesitate to
reach out. I'm always happy to help.
Speaker 2 (52m 13s): Are you still looking for investors for other
projects?
Speaker 0 (52m 16s): Yeah, we're, we're always keeping investors
kind of interests because we're always actively looking. It's just,
you know, like we talked about, it's more so finding the right
deal. But when we do definitely, you know, if you're interested on
that aspect, happy to have a conversation.
Speaker 3 (52m 33s): Awesome.
Speaker 2 (52m 35s): Perfect. And again, those, the, the, those
points of contact will be in the show notes for Jesse, anyone that
missed that can just go back in there and there'll be able to
contact him through there. Sandy, how can people get in touch with
you?
Speaker 3 (52m 49s): The easiest way now is just a it's through
social media, for sure or sandy@freedomreps.com.
Speaker 2 (52m 56s): You can reach
me@robatmisterbreakthrough.ca. Thanks for joining us,
everybody. We'll see you next time.
Speaker 0 (53m 12s): Thank you so much for listening to working
capital the real estate podcast. I'm your host, Jesse for galley.
If you liked the episode, head on to iTunes and leave us a five
star review and share on social media, it really helps us out. If
you have any questions, feel free to reach out to me on Instagram,
Jesse for galley, F R a G a L E, have a good one. Take
care.