EP. 34 - What You Need To Know About Real Estate Investing w/ Michael Ponte
Welcome back to another episode of the YVR REMO Show. I am your host, Alex McFadyen. Today I have a special episode. We have a gentleman by the name of Michael Ponte. Michael Ponte is a guy that I've had a chance to get to know really well over the last 12 months and he is a very knowledgeable real estate investor.
Mike runs a Facebook group called Savvy Investor that's grown quite a lot over the last few months, specifically during COVID. One of his biggest things is giving back to the community through education and it's something that we appreciate a lot in what we do because I love sharing knowledge and educating people. Today we had Mike come on the show and I wanted him to talk a little bit about his most recent acquisition of a multi unit building.
We also talk a little bit about what he sees going on with the market and how he looks at investment properties. More particularly, a lot of people who are listening to our show may not be investors yet or may just be getting started in real estate investing. We wanted to get his insight into his recommendations for investing into the market.
Mike, one of the reasons I had you come down is because we've had a chance to connect quite a bit over the course of the last six months or so. You're a big educator and we were just chatting about this in real estate investing. It's educating and connecting people with the knowledge that they need. So, yeah, for anybody who doesn't know Mike, you are from which company?
The company is Prosperity Real Estate Investments. I've been investing for roughly around just under 20 years. Right now we've got our Facebook group, which I'm sure we'll talk about in a little bit. It's called Savvy Investor. It's really focused on the educational side and trying to help people learn this world called real estate investing. There's lots of information out there. And for us, we just like to share.
I think this this interview is really timely because, to your point, one of the reasons I wanted to have you on the show now is because we're post COVID at this point. Right now, we're figuring out where the new normal is. The industry is going crazy in so many different ways with low interest rates and sales and so forth but we've had a chance to kind of find a groove, if you will, in the space.
I think the investors are starting to find the opportunities as they are today or as they have been over the last few months where they might be going now that things are kind of settling in. I really wanted to have you come down and give us some feedback as to where things are at today. From an investment standpoint, what are some of the opportunities and where they might be going as well as maybe we can go over a little bit of if someone's listening to this their first time just thinking about getting to market, where they would start?
Let's start off with a little bit about where you're currently investing today? I know you just close on a deal recently.
We're just closing on a 12 unit apartment building, believe it or not, in Edmonton. Edmonton is still kind of a market that we pay really close attention to. We really like Halifax and New Brunswick is another market that we really see a lot of interest.
There are places in Ontario that makes some marginal sense. Unfortunately, the cash flow is just not necessarily there. I'm a big believer when it comes to investing in real estate. The properties have got to have some type of an equity position, which means, you're trying to buy some property with a little bit of equity. If the market is here now, we're going to be looking at kind of a little bit of a price variance.
The big one for us as an investor, the property has to cash flow. When I teach, share, or work with my investment partners on any project we pay attention to or we have any interest in, it's like a small business. So you never buy a business that doesn't generate any income, doesn't really make any sense. We treat real estate exactly the same way.
So when we're buying a piece of real estate, what's the profit? How is this thing going to be making any money? So we look for markets that have kind of a future, not necessarily a past. More importantly, the business itself or the real estate transaction is generating some some form of income because that's what it's all about at the end of the day.
So you hit Halifax and Edmonton. Edmonton, I think that's been a little bit of a depressed market but it's a market that's been pretty stagnant for a few years now. We do hear of a lot of investors going there still. You're sure it seems to be that way? One of the drawbacks, obviously, is the appreciation value may not be coming in, at least not in the short term. We hope it does in the long term for sure.
How are your feelings towards that? Not having the appreciation, at least recently, and being more depressed right now? What is your outlook on what Edmonton's future is going to be? Does that even have a play? You just talked about cash flow as your primary, correct?
Michael Ponte: It's a great point because in a lot of cases, for a lot of our investors, when we talk about appreciation, that's kind of a speculation game. Nobody necessarily knows what the market is going to dictate. And even when we look at any real estate transaction, what we're looking is for a diverse economy where they've got lots of different types of jobs that are being created, immigration's growth that's actually happening, and housing starts. All of those types of things that are showing some kind of stability within the economy in itself.
You're right, Edmonton is not seeing very much appreciation at all. That's why it's important when we do a lot of our analysis, we base it on kind of two key criterias. Number one, mortgage pay down is going to be one of the big pieces just like any real estate transaction. That's the one thing we know we will able to be generating when we're looking at an investment. Mortgage needs to be paid down. The bank is going to have to get paid no matter what that's going to happen.
That's something that we know and can have clarity to because that's going to happen every single month. The second part that we can have some reasonable understanding with is the income stream. What are the rents going to be? What is the purchase price? What are some of the expenses? We will know what those expenses are and more importantly, do we know what the market rents are going to be? So at the end of the day, we'll see exactly what that property is going to be spitting out cash each and every single month.
So we have those two main targets and to me those are the most important pieces because if you've got control and if you have clarity between both of those that can ride out any type of recession whatsoever. If the property is generating cash flow in a stagnant market and it's putting money in your jeans every single month, that property is being paid down every single month. If the market even goes up 1% or 2%, that I call is the cherry on top.
The appreciation, that's what I reference. I always use the analogy that real estate investing is like an ice cream sundae. The mortgage pay down is the ice cream. Then you've got the cash flow, which is the chocolate sauce and then the appreciation. That's kind of the cherry on top.
We're seeing market appreciation going over and over and over again. It's really just continuing. The problem is we've seen it been appreciating since almost 2001-2002.
That's kind of the expectation. You've got a generation where you're seeing that people appreciate properties are going to appreciate between 10-13% per year and they think that's the norm. When you look at other parts of the country, that's not the norm other than Toronto, you tend to see the same type of statistics. So the concern that I always have is in these type of markets like Vancouver and Toronto, if there is some instability, that's a little bit concerning.
For people that are buying properties that are not able to sustain themselves, that's where trouble starts to kind of come in. We've seen a lot of that stuff happening down in the States back in 2008, 2009.
That was a great break down. Thanks for sharing that. I think people can pull a few tidbits as to your idea towards how you invest and what you're looking for and what your company looks for. Let's go back to the investment you just closed on because that's always exciting. So, the 12 unit apartment building in Edmonton. First question, because I know people are probably wondering this, how do you find this property or where do you look?
So for us, we're looking for that diamond in the rough. We were kind of talking about this earlier. Just making sure you have a good network of individuals that you want to be talking to are so important. We've got a network of great realtors, mortgage brokers, and lawyers. We really reach out to our contacts. We just let them know these are the types of properties that we're looking for.
This particular project that we acquired, there's eight units that are two bedrooms, which are very ideal. They're very large. They really focus on more of that young family clientele that we we're looking for. Four of those units are basement units or batch or single bedroom units. Again, these are more student based. So we've got a really good mix within this building in itself. But this project here was done very well.
This is a second generation owned apartment. Property's been completely paid off and very much under rented. All the units have been renovated with a brand new roof that cost around $55,000 to put on new windows. The problem that he had here is he just had the rents way too low so it devalued his building. He didn't necessarily know it because he just really wasn't a sophisticated investor. We were very fortunate that my realtor had come up and said, listen, this is going to be coming up for sale.
It was more of a one on one discussion. We bought it within about three hours of having an open dialogue with with the seller and just being able to capitalize that.
You only had three hours to actually do the research or was it three hour decision in regards to actually going forward to put an offer and get it secured?
So sometimes some of the strategies that we tend to use is if we know our numbers very well. That's one of the things we kind of highlighted even earlier on.
Just like knowing your numbers, you need to understand it and have a little bit of knowledge of what you're doing. Because I've been in the game for so long, we've been paying close attention to what the types of projects we're looking for and types of numbers we're looking for. When we did some kind of quick analysis on what the numbers looked like is like this one sticks out and there's a future, a significant future opportunity with this particular project as well.
We presented them with an offer which we thought was very good for u. For him, it was kind of a win-win scenario and it worked out well for all parties. Even in the very end as we're closing this, our seller actually didn't want to sell anymore because he came to the realization he made a very big mistake in his valuation and he was actually trying to get out.
Imagine that for your team, when you're doing this, you have a specific type of analyzer tool or series of tools that you use to analyze this. Is that fair to say?
That is absolutely true.
Are you looking at primarily current rents or projected rent in your circumstance?
So when we look at our analysis, I base any of my details to my investors or even to myself is based on current rent.
We want to have a snapshot of current reality. The numbers that I was talking to you about before is what the property is cash flowing? I look at it based on what the current reality is. I know once we take it over, this is what this property is going to produce and it should do well. Now, with the understanding that there's a budget, plan, a focus, and an exit strategy that comes along with that project as well.
What is the future opportunity that we're paying close attention to? There is a plan about what we want to know is what's happening today. More importantly, what is the plan to execute an increased valuation, be it three, four, five, or even a year from now?
One of the challenges that a lot of tenants are not tenants, I should say landlords are facing right now is with covid.
There were a lot of rules and restrictions around raising rents and I'm not sure what Alberta is doing, but potentially raising rents as well as moving people out are quote unquote, kicking them out of their units and so forth. I don't know, you're not trying to necessarily displace people, but if you're doing renovations and changing a building quite frequently, you do need to end tenancy at a certain point. So what does it look like for you?
Is that a concern when purchasing an apartment building?
Well, for me in some of the markets, for example, you referenced Alberta that there really isn't. We don't have the same strict regulations as we do here in B.C. or even in Ontario. Some of the rules in regards to rent increases here is roughly about 1.4% in Alberta. It's infinite. We can raise it as much as we want, even 100% if we really wanted to.
In regards to ending tenancy, that's not an issue. They did do a freeze of roughly around, I think 60 days at that time, but it wasn't really a big concern. When you own a piece of real estate as an investment, as a business, you got to also remember your tenants are your clients and your customers. That's where maybe a little bit of a shift needs to be adjusted.
When you own real estate and you've got tenants, you need to have a clarity of what your culture is going to be as well within your own client base. You communicate accordingly with your clients. We look at our investors as our clients, but our actually most important clients are actually are our renters. Our renters are the ones that are paying us each and every single month so we want to make sure that they have a good experience. We've got to treat them with true respect and understanding and clarity. So even during this time, with COVID, as soon as this all hit, we definitely were having lots of communication with our investor clients or with our renters and just said, if you're having some challenges, reach out to us and our management team and we'll find a solution one way or another . So what happens is in a situation where you hear all these ugly stories and it happens like rent evictions and all these things, more often than not, it's just because they've not done a really good job in creating that kind of positive culture with their customers or renters. That's why you get that kind of reputation as we're landlords. I hate that, it drives me crazy. IT kind of goes back to why we want to teach and educate is just like we as a group, as investors, you own one property or 100 properties. We all need to do a better job in regards to getting that terminology slumlord out and trying to have a little bit more respect with our tenants.
We've got we've got to stop right now because that's like the mic drop moment for me. Well, it's not a realization for me, but it's something that's not talked about enough. So many businesses that you see fail or have struggles with retaining their client base or growing their business, one of the biggest challenges, they're not considering the end user. They're not considering the client on the other end of the equation, or the patient, or the member or whoever it is. It's about what's helpful for me as the company.
I think you're right. I think a lot of people, whether it's intentional or not, think I need to get paid. That's fair to a degree because it's an investment and and so forth. We have to remember that we're in a human business and we're working with people.
If you're thinking about getting into the investment game or any business for that matter, think about what is the experience for the end user. It may not always be perfect, but you can always get better. Let's let's move forward a little bit and talk about where some opportunities lie.
A lot of people who listen to our show are just getting to the market. Some people are real estate agents. Some people are from different parts of the industry.
The most common questions that I get asked is where is the opportunity? So, Mike, we are about, I guess, four months post locked down, thankfully. My question for you today is where are the primary opportunities for someone? I'll be more specific here, for those who's maybe a first or second time investor and maybe not ready to get into the multiunit. Where should they be looking today?
Right now with COVID and this has been an interesting piece and we talk about kind of education. We spent a lot of time doing research and understanding the kind of different markets literally across the country, in some cases in North America as well. Some of the key things that we pay attention to is GDP growth and unemployment rate. We're looking for immigration, average weekly earnings, and affordability. So we're looking at a lot of different statistics. For the most common investor, that's just like just overwhelming.
We get that and understand that. But the challenge that we face right now is we've never seen a situation like this in well, since I'm 40 years old, I've never seen anything like this where statistics is literally out the window at this point because none of the numbers make any fundamental sense whatsoever. When you've got an unemployment rate pushing kind of around that 11-13%, roughly all over Canada and every province is having this situation of unemployment rate, we've got the government kind of propping up the economy and a lot of ways with fictitious fictitious income.
It's really tough to determine which markets and which economy's going to do very, very well. A few people are actually seriously looking to invest in real estate. If you are looking at Canada as a market, look at what the provinces are doing. Look at what your premiers are doing and what are they trying to do to stir up the economy to get things back, get people back to work, and where are those jobs going to be created?
Once you see job growth starting to happen in a specific city or in a specific market, people will want to move to where the jobs are going to be. They become tenants and then hopefully homeowners.
Sometimes you just need to open our eyes to this. The one piece I think there's going to be some pretty big opportunities is actually on the Fraser Valley. You're going to be seeing stuff probably on the island. You'll be seeing stuff continuing up into the interior in Kelowna. I think the big thing that's going to shake things up a little bit is with everything that's happened, a lot of people that have that ability to now work from home.
Well, a lot of people live relatively close to where they work. That's why they've initially lived there. If people are starting to identify and companies are stating you're going to be able to work from home three to four days a week, well, they may not want to live in Vancouver anymore. They might just say, you're not going to spend a million dollars on a condo.
Downtown Vancouver or that same amount of money I can get out and Chilliwack for maybe five hundred thousand dollars. Don't quote me exactly on the numbers, but the reality is people will be much more willing to go outside of their main centre because it's all about affordability, keeping more money in their pocket. So if they're we've seen that recently, it's very much so. I'm sure that trend will probably continue because there's lots of companies right now that I'm talking to and hearing about that are just like really questioning the amount of square square footage space required in their office when they can actually be effective working from home.
The argument quite frequently, is that the the Fraser Valley is priced from an investment standpoint. There's not very much cash flow. I mean, the cost of living, depending on where you are, is actually relative to incomes actually higher in Kelowna than in the Fraser Valley in many circumstances. So what type of investment would someone to be looking for?
Well, those ones really are kind of like your buy hold strategy. So something that would have made an upstairs suite. So if you're looking at a single family home that has the ability to have multiple streams of income so you can get a garage, you know, you see these things down here in this a lot, you're seeing an upstairs suite, a downstairs suite, and then you also have a suite in the garage.
You can see anything that has more multiple income streams. Those will get closer to a cash flow. Cash flow here in the lower mainland is very, very challenging, almost nonexistent. So you've got to be really careful when you're paying close attention to what is it you're wanting to accomplish. It goes right back to what are your some of your investment goals. Looking for markets that, for a lot of people, are investing in the Lower Mainland, what's reasonable for them is just getting it to break even.
Maybe that is reasonable for people. Looking for those types of income streams, multiple income streams, that it can support the asset or the property itself and hopefully cover off a lot of your expenses, another market, maybe even Mission as well. It's another market that is not really necessarily talked about too much. Again, it's getting people starting to come from Vancouver or Burnaby and starting to look outside of the prison.
I think a lot of people, I guess, in Lower Mainland are thinking, well, should I go to the interior? Should should I go to the island? Speaking at the island, I'm sure you've had people ask you about are there any particular cities that that are looking good as far as growth and so forth?
I don't I'm not really that familiar with the island. If there was one specifically, the nanaimo area would be the one that's sticking out. Interesting for me. So interesting. We've had some conversations with some folks there. Really good feedback in regards to what your principles are as far as cash flow and looking at the multi unit properties and your thoughts on on the growth, the economy.
You know, if we have someone today who owns a piece of a real estate and they're they're starting to weigh the waters and looking into real estate investing, where should they look and who should they turn to typically?
Could be or your Facebook group. Let's just be honest with ourselves and say, like, maybe you're not top of mind in terms of the person that they're looking for. Is there a way that this person should be looking to get started? Are there particular groups of people that they should be hanging out with? Are you just going to say, hey, come check out my group? That's OK, too?
Not at all. To be really honest with you, we're just one group of many that's out there. I think in this world, especially with COVID, there's a lot of great people that are popping up on social media. And that's where it's kind of one of the places that everybody is going on right now is you go on Facebook and YouTube and lots of different programs and lots of different places to go. There's lots of fantastic investors that are taking some serious action.
So for those that are actually looking to get some insight or learn a little bit more that my recommendation is look for those people that are actually taking action and doing things than those that are just not necessarily doing a lot of this and just talking. It doesn't have to be people that are actually just on YouTube or on Facebook or have a tick tock or whatever the case may be.
There's lots of people that you can surround yourself of like mind, and you want to surround yourself with people that are actually taking action, learning from some of those experiences, learning some of those things that they want. Then again, if you don't necessarily know where to go, this is where you can start to go out to social media and different things and look at what some of those individuals are doing and paying attention.
The other part to this, and probably no different than what will happen when when this goes out to look at some of the comments, see some of the individuals that are maybe actually taking action, that are actually responding, maybe disagreeing or agreeing with me. That's OK. I'm happy to have a little bit of a debate, but more importantly, I'm open to always listening as well. Listen to what some of these individuals are talking to.
You've got to feel comfortable with the person that you're listening to. I may not be the person that's the right fit in regards to learning from. That's OK. There's lots of other people that are out there. The important part is just like anything. Who do you feel comfortable with? Do you do you feel confident that person that you're working with or talking with has a lot of respect and more importantly, is willing to help you achieve that objective of owning an investment property?
I like what you said about action takers, someone who's been involved in this type of whatever it is that you're looking to do in the past. I think that's that's quite big. I wish I had time to sit down with each and every individual and tell them how to build a plan.
Do you have a framework to what you recommend people do if they're just kind of like, they've got this? Maybe they have a ton of equity in their home. They're like, holy cow, where do I even start your framework here?
Yeah, I think the best part the best part to begin with is you've got to really understand. For those we can we can spend two hours just on this one particular topic in itself.
It goes right back to the simplistic reasoning, simplistic point. Your understanding exactly what is it you want to accomplish? What are your goals? Look at yourself five years from you, I know I sound very cliche as well as your New Year's resolutions and all that wonderful stuff. It has to start there. It really does. So when I work with any clients myself, that's always the very first question is what is it you want?
We talk about investing in real estate. Why? Why do you want to invest in real estate? Because I want to generate some cash flow. I want to offset some income or whatever the case may be. OK, now I've got an idea of why you want that. OK, so start with that first and try to get some clarity to if you don't personally know that yourself, engage your wife, engage your spouse, engage your family, have an understanding of what you you're wanting to do, and then we build a plan of attack to try to accomplish that.
So we start by understanding that part first and foremost. And then the second part is you start to work with individuals that can maybe help support you. You're right, you can't be just saying, OK, I want to be generating around two hundred dollars or three hundred dollars a month cash flow and investment property. Now you're expecting your mortgage broker and your realtor to teach you how to do that. That's not their job.
Your job is to find a mortgage for this person to help support them. Your job is not necessarily to teach them how to invest in real estate. The same thing with your realtor. Your realtor is there to help sell a property to you, and they're expecting you to have that knowledge to tell them that's the right one or not. So you need to find the right individuals to help support you with the learning. More importantly, as you send that information to your investment team, be at your mortgage broker and say, Alex, I'm looking for this property.
This is the type of program I'm looking for. Can you help me?
That's that's that's a very fair point. I think it's something where to a point like I do want to help people and help them understand. But to your point, it could be overstepping boundaries and suggesting what research should do. I think the number one thing you hit when I'm talking to people is why are you investing? What are your goals?
Again, it's just it's almost like being in a business. Why do you do what you do? The number one question that you need to ask yourself to figure out what what you're going to go from there. So, Mike, really quickly, I just want to for anybody interested, talk a little bit about the Facebook group, Savvy Investor.
Well, I think for a savvy investor to begin with, it is a forum where people can kind of come and learn. So you rephrase the question, where do they go? Definitely come check it out. It cost you nothing. It's absolutely free. We bring in a lot of great content, lots of great guest speakers. Alex, thank you for being part of that as well.
It's about bringing the experts in to share some of their knowledge and hopefully these individuals can connect with these people that they feel comfortable with as well. More importantly, bring those that network together amongst each other and so everybody can learn from each other. For our company side of things, we're in a growth mode. So for the old saying, be greedy when others are fearful and fearful when others are greedy, we see the situation as an opportunity.
We've been through a couple of recessions, obviously, and Alberta. We've been very successful during those times. So this could be a great time for people that are looking to invest and get started. So if you've ever considered that, definitely this is a great time for you to kind of explore it and look at some of the options, be it worth investing with the company or investing on your own. This is a great time to at least get your head wrapped around it, understand it, get your team engaged, talk to the right people and see if that's the right thing for you.
So again, check out Mike's group, Savvy Investor. I think you're going to learn a ton if you are having a little bit of trouble trying to figure out what to invest in.
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