BiggerPockets Real Estate Podcast - 220: Student Rentals, Multifamily, & the Silent Cash Flow Killer with Jesse Fragale

Episode Date: March 30, 2017

Many people buy real estate hoping to make great cash flow. But all too often that cash flow is quickly eaten away by a silent but deadly thief. In this episode of the BiggerPockets Podcast, Josh and Brandon sit down with real estate investor Jesse Fragale to hear his story and learn more about how this silent killer can eat away your profits if you don’t analyze a deal right. You’ll also learn how Jesse found a way to invest in a crazy expensive market, as well as tips on using partners, scaling to larger properties, and the worst pickup line Jesse has ever used! In This Episode We Cover: How Jason got into real estate because of a car Why he chose the niche of student rentals 4 ways to earn in real estate Tips for managing student rentals The worst day of Jason’s life (aka why CapEx is important) How much you should prepare for capital expenditures The pros and cons of student rentals Thoughts on jumping into multifamily What you should know about the 50% rule Tips for finding the cap rate in an area How to fund a deals using a partnership A discussion on setting expectations with property managers And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Webinar BP Podcast 182: 674 Multifamily Units in Three Years with Jake & Gino Wheel Barrow Profits Podcast BiggerPockets Analysis Books Mentioned in this Show The Wealthy Renter by Alex Avery Landlording on Auto-Pilot by Mike Butler Getting to Yes by Roger Fisher The Book on Investing with No Money Down by Brandon Turner Tweetable Topics: “The bigger the deal, the easier it is to do.” (Tweet This!) “If you bring people a good deal, I believe that they will take it for what it’s worth.” (Tweet This!) “I think there’s success in every facet of real estate.” (Tweet This!) Connect with Jesse Jesse’s BiggerPockets Profile Jesse’s Company Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 220. What I found is that people are afraid or they're a little apprehensive with apartments because they feel they're these big deals that they could never do. And I remember early on somebody telling me, the bigger the deal, the easier it is to do. You're listening to Bigger Pockets Radio. Simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com.

Your home for real estate investing online. What's going on, everybody? This is Josh Dorkin. House to the Bigger Pockets podcast here with my co-host, the man, the myth, the legend in his own mind. Mr. Brandon Turner. Does that mean I'm a myth in my own mind as well? You're everything in your own mind. That's true.

I'm the man, the myth, the legend, Brandon Turner. Thank you. you doing, Josh? I'm okay, man. Thanks for asking. You know, you never really do ask me how I'm doing. That's because I don't really care. So it's easy. I just skip right over it. So and yet I continue to bring you on the show. It's weird, you know, whatever. It is weird. Blotin for punishment. I'm good. Thanks for asking. Life is, life's all right. It was kind of sick last week. That was a bit unfortunate, but things are going well. You know, we just had three new people start bigger pockets this week, in fact. So today we had somebody join us and yesterday we had two new people. So it's been

crazy. Just lots of change, lots of movement, lots of acceleration here at the at the company. Very exciting stuff. Yeah. I haven't actually met any of them. I need to reach out to them via Skype today and, you know, give them a virtual. Yeah, you should do that. But they creeped out if I give them a hug, like virtually, like just, you know, wrap my arm down on the computer screen. Whatever you do creeps this all out. People are used to at this point. It's okay. Not the creep factory. Yeah. Yeah. Yeah. Yeah. It's like that uncle who always touches you in a weird place. Wait, that's not me. Is that everybody or just?

That might be just you and your weird uncles. All right. So I tell you something. So I'm getting into this kind of this new real estate niche sort of. I'm trying to buy something a little different. And I'll explain more maybe in the future. Riches and niches. Yeah, the riches and niches.

So I'm working towards the new niche. What's fun about that is I feel like I'm a brand newbie again. Like I'm learning for the first time because like this is kind of new and exciting. So, you know, anybody who's brand new to real estate, you have about your first property? This show is brought to you by. I'm just saying, I'm with you. I get what it's like to be a newbie, you know, because I'm a total newbie when it comes to this niche.

If you want to know more about that, come to BiggerPockets webinars. I talk about it usually there, biggerpockets.com slash webinar. But with that, speaking of webinars, I don't really have anything to say about that. But why don't we get to today's quick. Quick tip? All right. So today's quick tip. So this has nothing to do the webinars other than that there was video.

So our quick tip today is, you know, we've been doing a lot more. video content here on Bigger Pockets and some really, really high quality of stuff. In fact, Josh is, what is he, your nephew? Is that right? Zach is incredible at video and he's been doing a ton of stuff with video. Anyway, we've been doing actual walkthroughs of properties and all these other cool things. And we were putting them out in two places. We're putting them on our Facebook wall.

We're doing Facebook Live. If you go to Facebook.com slash Bigger Pockets, make sure you're following us there. And you can watch them live and ask questions on the fly, which is really cool. Very, very cool. Yeah. And then we usually take them, not always, but usually take them and we download them and we put them on YouTube as well later. So make sure you're subscribed to our YouTube channel, which is, of course, YouTube.com slash BiggerPockets. Check it out. Check it out. Cool. Awesome. So we've got a great show today.

Again, this is Show 220 of the Bigger Pockets podcast, and you can check out the show notes at biggerpockets.com slash show 220. Also, of course, we would love it if you have not yet subscribed to us on iTunes, Stitcher SoundCloud, wherever else you are listening or watching. please do go and hit the subscribe button. And if you can, leave us a rating and review, we do always love that. Most investors spend all their time talking about their high-level returns. But that's not the number that actually matters. What actually matters is what you keep after taxes,

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Now is the perfect time to review your rates and coverage. Get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, landlord insurance designed for the modern investor. Here's the thing about traveling. If you buy food at the airport, a burrito, salad, bag of peanuts, you start wondering if you should have opened a savings account for snacks. So wouldn't it be great if you could actually earn money while you're traveling? Well, you can.

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Jesse is a real estate investor who has focused on college rentals for the first part of his career. And then he actually ended up transitioning into a larger multifamily, just closed on an 11 unit property. He's also a commercial real estate agent focused on leasing out properties. So really smart guy. He's got some fantastic wisdom and a good guy overall. So let's pay attention. Let's give him some respect. Let's bring him in. Like the respect you gave him during the recording. What? I'm sorry. I was trying to introduce him. Yeah, yeah. You know, we'll see how respectful you are when you bring him in. All right. I'm extremely respectful. All right. Let's bring him in. Jesse,

Well, hold on, hold on. Before we bring him in, let's talk about this. It seems like you got a bit of a problem here. No, I got no problem. I mean, do we have an issue? I'm just saying you made some, made some funny jokes at Jesse's expense today. Don't I always make funny jokes? You usually make jokes at my expense today.

You railed on Jesse a little bit. Not a bad thing. Jesse and I are friends. You guys are BFF. It's love between friends. You watch your soap operas together and stuff. I know. Can we bring him in?

I mean, I don't need this animal. You bring him in. Do it. Do it. All right. All right, guys. Let's bring him in. All right, Jesse. Welcome to the show, man. It's good to have you here. Good to be here. Good. So, Jesse, tell us a little bit about yourself. Where are you from? Where are you doing this real estate thing from? And then how did you get into it? Okay. Well, actually, first, I just want to say that every time, Josh, you get on the show and you get the bigger pockets podcast intro. It gets me going, man. It fires me up. Me too. Me too. Johnny.

On the bigger pockets podcast. I know I butchered it, but you know, it's all good. For Galley, it's all right. It's a Sicilian name. It's not the easiest one. Don't kill that. Well, not. Yeah, Brennan, just a bit of the background for me is I started investing in real estate

in Toronto. I live out in downtown Toronto area. But the way I got into it, you always hear about guys or, you know, some reason to get into something was because of a girl. Well, I was too young for that at the time. It was all because of a car. and a very specific car. It was a 1999 Viper RT cherry red with the old big old V10 engine in it.

So just give you guys some contacts. So my father is a mechanic by trade. And so he's his two brothers. They came from Italy. The whole family came down here and started an automotive company, basically a garage. So I'm a really big car guy. And when I was growing up, my dad had a really cool younger friend about 10 years as junior that was a real estate investor and he would invest in single family and i think brandon correct me if i'm

wrong you're at about 50 units i think from the last show that yeah yeah i think 50 alert 52 or something like that what's going on what so this guy's name was mikey he had about 30 units and uh when i was about i think it was 10 years old i saw this viper and i think back then the msr peted over 100 000 it's on my driveway and i was like whoa i'm like that is the coolest car and even to this day i mean it's kept up with the times. And I went to my mom, I think, at the time, and I was like, you know, what is, what does that guy do? What is the, like, because everybody has their vision of what successes when they're young. And to me, that, that was it. And she told me, well, Mikey invests in real estate and the stock market. And I started asking questions. And anyways,

throughout from there to when I got my first deal, I started reading books like, you know, Kiyosaki's books on business and real estate books in general. And then I made my first purchase when I was, was in university and it was a student rental property on William Street out in a suburb or a city just west of Toronto. I call Waterloo. Okay. Wow. So you were inspired by Mikey. By Mikey. This college investor because he had a red car. He had a red car and he had 30 rental units. So what basically she said was he invest in real estate. And that was really interesting to me at the time and I didn't understand what that meant. Sure. And as I got older, I started to realize what he did was single family homes investing.

Built up a portfolio. He was 20. He would have been about my age now and he was in his late 20s and he had built a portfolio of about 30 and change. And whatever impact that had, you know, being that young and seen, you know, that kind of car and not that success is defined by a car, but I think as a little kid, that was, that was big. I think that's cool. Yeah.

Did you ever buy the car? No, we're skipping way ahead, but. You know what? I bought a very different car last year because I'm a big tuner guy. I bought a 1985 Porsche Carrera when they brought the Carrera name back. So that's my little project. Nice. Yeah. That's pretty cool. All right.

So tell us about the student rental. Yeah, go for it. What was that? Okay. So the student rental, I was living in a property when I was in school there with my buddy. And he was house hacking it while in school. So he had four of us paying him to live there. And I'm sure you've heard this story before.

I was like, you know, why am I paying this guy? Why am I paying my buddy for his place? And it kind of inspired me to look for places down there. And one of the benefits of being a child of divorce is that, you know, when you get a bad answer from your father to invest, you can always turn over and be like, Hey, my. So what happened? And I just want to say my parents are both very entrepreneurial people in general. But my dad, rightly so. At the time, I think I saved up maybe 25, 30,000 by the time I was 1920. It was working construction in the summers. And he said basically, I like the idea. The answer is no because you have no money. You're playing sports in school and there's no income.

So I tried that on for size talking to my mother and she was able to co-sign. And so at the time, if I remember correctly, I know everybody, you know, everybody, including myself, always interested in numbers. I think at the time it was 10% down and it was going for about 250,000, property. But the issue wasn't the cash down. It was more getting the guarantor, getting a, you know, somebody to sign off for you. And so I got five female Waterloo students that were already preexisting leases, a little bit under market. But now I was supposed to be this guy that's pretending I'm 10 years older than the students. Meanwhile, I'm at the university, a couple kilometers, a couple miles down the street. So you didn't actually live in the property that you just bought it as a

rental, purely as a rental. Yeah. So what ended up happening is that because I signed a I think it was a one or two year lease with the guy I was with. I didn't want to leave them high and dry. And I assumed the property with five tenants currently living there. So I decided to do that. And then that kind of, you know, that led to the next kind of investments I slowly made. What kind of rents were you getting from these five female students? So the house was renting for just under $2,400 per month.

Okay. So, you know, back then, you know, I don't know if you guys, if you've seen our house. market, it probably be most comparable in the states to Denver, New York, San Francisco. It is extremely tight. My background is a broker by trade, but I work in commercial real estate. And I mean, the cap rate compression that we've seen is just incredible. Stuff is going, you know, pretty significant property is traded below a 3% cap, which is pretty insane. So who's buying that?

Yeah. We'll come back to that. Yeah. Okay. No problem. Okay. So, okay, yeah, let's go to your story. then we'll dig in there. So like I don't know much about you. So like since that point, I mean,

what have you done? What's your, like, what's your, what's your thing? What do you, what do you do? Hey, Brandon, wait, way to admit that you don't prepare. That's, that's good. I do it on purpose. You know, I want to, I want to be revealed when I, when I, when I, oh, is that right? Yeah, I want to be surprised me. What do you do? He knows, uh, talking to Canadian. I'd be a nice guy. And I'd be a nice guy. Forgive him. Exactly. Uh, sorry. Uh, sorry. Uh, sorry. Yeah. Yeah, what did you do? I tell you sorry. So since then, I've gotten into, I've moved from student rentals.

Basically from that, I rolled that into another property a couple of years. Just for context, I was 2008, I think was the first rental. So you guys felt the recession, obviously much more than we did. But there were still depressed prices here. So with that appreciation, I was able to get into a few more units. I got up to the point where I was at, I think, 35 doors, sorry, 35 beds. So that was 35 students by the time I was leaving university. And then I started working full time in Toronto.

And what I started to realize was that the property management piece for student rental properties, as I'm sure a lot of the listers know, it's a big component. And you need a very solid property manager if you're not going to be in town. And I was kind of getting tired of having properties where the maintenance and upkeep and the capital expenditures were significantly higher than, you know, safe. for instance, like you brand in a single family home or where I want it to be, which is multi-residential. I wanted to get into apartment buildings. So since then I bought, I think three or four more student rentals.

Then I switched into these are fairly popular here, student condos. So student rental condos. And what we do here, because the market allows it, is that they give you a two-year free property management and a two-year rental guarantee. And the thing that's interesting with that is, or the one thing that people really like is the fact that, there's no upkeep. So long story short, I went from there and I'm proud to say I know when I was talking to Alexandria on Bigger Pockets just prior to this, I think I was in negotiations for my first apartment building and we closed about six days ago. Oh, nice. So we're pretty excited about it. That was an 11 unit, wasn't it? Yeah, that was an 11 unit.

Somebody's doing their homework. Yeah, Josh is doing homework. Wow. Okay, so you went, you went from the student housing to the student condos and the next step was was this big multi that you bought the 10 unit 11 unit yeah that's right so what i saw was that i'm sure anybody who's been in real estate long enough they you know you understand that at least i see four ways that you make money at a real estate and why it's so attractive number one is cash flow number two is either forced appreciation if you can do it commercial is a little bit more like that or appreciation in general You know, we don't bank on it. I think as, you know, you guys usually say on the show as well.

And then the last two, I feel people kind of, they forget about until they sell or get into real estate. And that's the tax advantages of real estate. And then that's the, sorry, the tax advantages to having real estate, what you can do with your income. But the last one is not until you sell, do you realize how much principle you're paying down? Yep. And while we all love capital gains, I mean, it's profits awesome.

You pay taxes on it. And as I started to sell my student rentals, I wanted to position myself to start doing apartments to start pooling some money. And you realize that you paid down the principal that amount so that what you're taking out is, yeah, the capital gains piece, but really that for savings plan that now allows you to go do something else. And just briefly, one thing that's a lot of Canadian investors are really envious of in the States is the 1031 exchange you guys have. That's not a thing here. and that has implications for the fact that we just don't trade real estate as much as you guys. Just for those people who don't know, a 1031 exchange, what he's talking about there is where in America we can take properties.

And let's say you sell your property for, and of course, I'm not a CPA. I'm not giving legal or tax advice here, but you can sell a property and then buy another one within a short time frame. Usually I think it's like six months. And you don't have to pay taxes on the sale you just did. You defer the taxes further down the road. And some people will just keep doing that over and over and over their whole life. and then when they pass away or the kids inherit the property,

though all those taxes just kind of disappear. It's one of the greatest benefits, yeah, of being in real estate. You can really, it's basically your partnering, and I like to look at this, you're partnering with the IRS. They're like, IRS is like, hey, you did a pretty good job on that property. Just keep our money a little longer and put it in the next deal.

You can buy something bigger and then pay us to then. Like, IRA, yeah, it's a pretty nice benefit there. So, but anyway, I like, I like that you broke that down. I call those like the four wealth generators, like cash flow appreciation, the tax advantages and the principal getting paid down. And every real estate deal pretty much has one, two, three or four of those mixed in there. And some are, I mean, I talked to a guy the other day who was wanting to buy a rental house.

But he was talking about this rental house and he'd have zero. I mean, he was paying overmarket for it. There was zero cash flow. He'd be losing money on it. And, you know, I'm talking about it. And I'm like, this is just a terrible deal. Don't do it. But the more I talked to him about it, the more I realized, well, in his position, the tax advantages and the principal paydown, you know, and well, and potential appreciation because it was in Southern California.

you know, maybe can make it up for it. Like, I wouldn't recommend a newbie doing it, but, you know, every deal's got those somehow. You just got to figure out where they're at. Yeah. And you know what? There's one that I always say because a lot of the books, you know, if you've read real estate books for a number of years, those always come up. The fifth one for me is the one, I'm a really big behavioral, kind of behavioral economics,

behavioral finance. It's behavioral sciences in general. I think the last few years, there's been a lot of books on this. And the one for me is that there's a book that recently came out. I think it was kind of a play on the wealthy barber. It's called The Wealthy Renter. I don't know if you guys have heard of it. I don't know.

I've basically talked about the why renting is in a lot of ways better than owning. And they were talking about principal residence here. And stuff, you know, Grant Cardone always talks about this, your principal residence. You have mobility. But what's interesting is that when you actually break down that, okay, say you're renting and then you can make this amount of money that, you know, you could save by not owning for, you know, for some reason in some theoretical situation, oh, you would position that money to do something else like invest. But the psychology is a little different because once we have that

$300, where does it go? Oftentimes it's nowhere. It's just gone. And I think the discipline that that real estate affords people is that because it's so illiquid, you can't access your money very easily. So sometimes you're a little bit more irrational. You kind of sit back. You can't pull money out of it and you pay into this savings plan that you've kind of created. Yep. And that's actually how I look at bad deals. Like I have a few houses that lose a little bit of money, you know, maybe break even. And I'm like, you know what? Worst case scenario, it's, it's forcing me every month to save a few hundred bucks because my principal's going down every month. My tenants are paying my principal down. You know, I've owned the properties for 10 years now. And, you know, worst case, that's what it does.

And it's not just the principal pay down. But I mean, over time, that principal pay down means your rents are obviously going to go up, right? So ultimately, once you've paid that note off, if you're going to hold on to the properties, now your income's going to jump. So, yeah. Yeah. It works. As I love that psychological thing there. I mean, like, yeah, people don't. If they had an extra few hundred dollars a month, they're not going to invest in something else, most likely. They're going to buy a nicer pair of shoes or a nicer TV or whatever. But by having that house, when you actually own the property, it forces you too.

So I think that's smart. All right. So let's go back a little bit and talk about the managing. The student rentals. Yeah, the student rentals a little bit because that would be, I mean, that 35, what was they say? 35, 10 unit or tenants, I mean, 35 beds. What's that like? How do you do that?

How do you manage that? Do you have a manager? I needed one by the end of it. So when I went into university, I was playing football at the school I went to. I was probably more social than when I really started having to kind of manage the properties. I think there was a tipping point, 20, probably 20. You got to think of these about five, six, five or six students per unit, right? So I think there was a tipping point about three properties that it was just, it was too much,

too much to manage well, well in school. And that's why I actually ended up leaving. one year early, finishing my degree by commuting and working in Toronto just because I, you know, it was just something that you needed that safety net at that point. One one story, I mean, you really, you really do earn your stripes with student rental, especially when things go, go wrong. And one of the big things was that that third property that I purchased, there was water damage. I think there was about three or four months after I purchased that. There was significant water damage. And what it did was it caused quite a bit of mold in the basement.

And I remember, I remember hearing, I remember talking to the construction guys after and to figure out what the extent of the mold was. And I remember this, it was literally the worst day of my life when I heard that figure. And it was $13,000 to fix it. And it was $8,000 to get everything to remediate. Sorry, 13,000 to remediate, another $8,000 for construction. And 22 year olds, like a mega bricks. I was just, whoa. And you know that, you know, when you've just been punched in the gut. Yep. That was the feeling. And luckily, I had kept all my profit within the company. So I was just barely able to cover that. So yeah, did insurance? There was no insurance. Yeah. So because it wasn't a flood, they said basically I went back and forth with the insurance

companies on on the extent of the damage and the reason for it being caused. And for whatever the circumstances, this is going back years now. Trust me, I fought it as hard as I could, but you know how it is. There was, it was just a, and that's why I think real estate, if I ever have a kid, you know, you know, a girl or a boy, I will definitely say to them, own a rental property for a certain time in your life. Because when I started in university, I was doing the flooring. I was, you know, there being the guy doing all the stuff and learning. And then outsourcing what you didn't know. But I think it does build a lot of character having these properties. So, Anyways, to answer your question, I stuck with the student stuff.

And then in my last year school, I went to a property manager that specializes in student rentals. There's a lot of them in the university towns. And they basically took it over. And, you know, you pay a little bit. But, you know, if it's a good manager, they save you, they save you the aggravation. Yeah. And that's why we always talk to people about factoring in property management when you buy a property. Lots of people say, well, I'm going to manage it.

I got this. This is easy. And, you know, it's all good. Well, guess what? It's all good until you're no longer wanting to manage your own properties and then you have to pay somebody. And if you didn't account for that, you know, all of a sudden, what was a cash flow on property is no longer a cash flow on property.

So, you know, it's hopefully you weren't in the red after you took on property management. No, you know, that's the one nice thing with student rentals. The, you know, stacks of the kids in there. Yeah, you get staff for kids in there. It's all licensed. It's all licensed stuff. Yeah, no, that's the reality is you're going to spend a little more on that stuff. But the cash flow is a little bit, it's a little higher.

Awesome. That makes sense. Cool. So a couple of quick things to ask you about. First of all, a good tip you mentioned in there, just like a tip to draw out of what you said. Talk to your insurance agent, people. Like, if you got Reynolds, talk to your insurance agent, what's covered, what's not. Because, yeah, it'd be miserable if you have a $20,000 thing.

It's another reason why, like, you know, a lot of times people buy rentals. they think that they're cash flowing, you know, really well. And then they're hit with a big expense. And like, you know, there goes, you know, I had a, you know, the house that burned down a year ago, year and a half ago, whatever it was. Not burned all the way down, but they burned the kitchen, right? Like, yeah, insurance covered majority of all that. But the tenant, I still evicted him.

It was in the process of eviction that it got burned down. And at the end of the day, I ended up losing $15,000, like out of my own pocket on that deal. I looked at the cash flow, everything I'd saved up for the past 10 years. It was $15,000. In other words, that one event killed my entire profit for $15,000. or for 10 years on that property, just like that. That's crazy.

Yeah, that was the property that we were hanging out at the lounge when you got the text. I might have burned your house down, Brad. Yeah, yeah. You need to call me your house. Yeah. It's funny you mention that because one of the impetus for myself to move into apartments was the idea that it's not a perfect science, right? It's a bit of an art and a bit of science when you're trying to estimate how much you

should put away for capital expenditures. We typically think, you know, our market is $250 a unit as a capital expenditure. and then for R&M, we use $750 for repair and maintenance. Okay. And when you scale up these properties to 50 units, 100 units, then it starts becoming more of a science. But when you only have three or four, to your point, you know, when you think your cash flowing, then you get hit with that big, you know, furnace or the big roof. And then it just wipes you out in terms of that year's cash flow.

Yeah. Well, actually, funny, on that note, a year ago, you know, that house was fixed up, right? So then it was done. It was cash flow and again. We're at about $2.50 a month in cash flow. And so over the last year now, we've kept a couple, I think, $3,000. The furnace went out last week or two weeks ago. I mean, they're shot, gone, no furnace anymore.

I guess the bill was $3,500 for a new furnace. There goes last year's cash. I mean, because that's why, like, people think they're buying property that cash flow. And at the end of the day, they're really not. Because they're not. Yeah, like a cap X, the capital expenditures will eat you alive if you don't budget for that kind of stuff. Well, so let's repeat that one last time for everybody because, you know, you can't understate this. I mean, seriously, like, when if you're a new real estate investor and you're looking at a property and you're not accounting for what we talked about earlier, property management, if we're not accounting for what we just talked about, capital expenditures, repairs and maintenance, and the one that we haven't actually talked about, vacancy rate.

Yep. Yeah. If you're not accounting for that stuff and you're like, oh, well, you know, mortgage, minus taxes, insurance, you know. Well, I got a cash flow. Yeah, this is great. Yeah. Not how it works, guys. And that's the fast way to lose your shirt.

Yeah. And that's kind of the thing where you, you know, if you're looking for a property and you talk to a broker and who are you getting the financials from? You get into from the broker, the seller or the, or the vendor, right? And everybody has a different take of what they give you. So we'll see a lot of deals that come in that are apartment deals. And there's, oh, these are actuals. There's, there was nothing here in terms of, in terms of maintenance. So we didn't put anything down.

It's like, well, that's not the way it works. Yeah, for sure, for sure. Hey, so before we move on to asking you some questions about, oh, actually, Brandon, I know you've got a question. I apologize. You should apologize, Josh. You know what? I'm going to just take this question. So, Jesse, do you recommend student Reynolds is a good way to start?

You know what? It's a tough, it's a tough question. It's you definitely, like I said, you earn your stripes. It is, I'll tell you this. I'll tell you some of the advantages of. student rentals is that with student rentals, they're seen as high risk investments, but typically they're in university towns and they're guaranteed by their parents. The other pieces, and this is more specific to myself or anybody listeners that are in a market that has rent control,

because the tenants are there for only a year or two, you know, maybe three max. In our market, it's only when a tenant leaves that you could bring the rent back up. So you're stuck at the basically what they call the RTA, it's the basically you only have a certain percent you can raise it every year. I think this year it's 2 percent, right? So until that tenant leaves. Is that everywhere in Canada, by the way? So yeah, well, I'm in Ontario downtown, or sorry, in Toronto. So that's the Ontario landlord tenant board. But across Canada, every tenant board has different rules. But it is a challenge, right? And that's another reason that you see in, in these markets, you see a lot more buying holds. I'm pretty sure New York, you know, I'm not in next. Yeah, that you're going to have that

kind of situation. So that's one of the benefits is that you'll always be pretty much at market value with student rentals if you're in one of those environments. If you're not, maybe it's not the best. But as a first, as a first purchase, you know what? I think being a 20 year old guy, I would have rather deal with five student renters than maybe dealing with a 38-year-old It's a single family house where he's like, who's this kid, you know, who's my landlord. I don't know. There's a, there's a bit of a situation there. But I think, I think the important thing is if you have an opportunity to get in, it's a real estate, if it's, if the opportunity is student rental, as opposed to something, as opposed to not getting in the market, I would, I would say, you know, take it on.

Cool. Awesome. Awesome. All right. It's time for. It's time for. It's time. The random five.

So now, before we move on and talk about this 11-unit property, you just closed down, let's go to today's random. You're going to help me with that, Brandon? Random five. Is that our sound effect? I don't know. We don't have one yet. I don't know.

We need something in there. All right, so the random five is a new section of the show where we break from the real estate and get to know our guest on a more of a personal level with five random questions. A personal level? Are we getting deep? This is Oprah's. This is it. This is it.

This is it. Hold on, get on the couch. lay back. All right, here we go. First question for the random five. Jesse. Yes, sir. What movie could you see again and again and again?

It's not even hard. I could see Terminator 2 for the rest of time. Nice. Good choice. Wasn't that rated like the IMBD or whatever, Rotten Tomatoes is like the number one movie of all time? I think was that one in Toy Story too. Yeah, those two are like the highest rate of movies.

I have to say, just be Italian background. The Godfather, I could probably loop. Maybe not the third one, but I could probably loop those for it. Nice. Nice. All right. Mike, next one. What is the most important skill to have in school? In school. Yeah. Oh, geez. I would say for school, time management, I think being able to, one of the big things with school, at least for my experience, is you're kind of overwhelmed when you're coming from high school to university. I think time management's, you know, portion in that. I think that goes for any. any of us in the real estate world. Cool.

Nice. All right. How long before your flight do you arrive at the airport? Two hours. Always. If I can, depending on what's happened the night before. Do you watch the Super Bowl for the game or the commercials? Ah, you got to watch it for the game.

It's either, I'm not, honestly, it's funny. I've played hockey and football growing up my whole life. And all my friends are huge sports guys. And it sounded like Donald Trump there, huge. Sorry. Huge. Huge. So, but I mean, it always bought, one thing is funny.

Last time the guys were here, the Super Bowl, it goes to halftime, we take out the Xbox, and the girls started freaking out. We didn't, we weren't in the, the node that that's not, that's not cool. So we had to watch through the halftime stuff. Nice, nice. All right. Last question. What's the worst pickup line you've ever heard?

The worst pickup line. Jesus. That's a tough one. I don't know. I'm drawing a blank on that. All right, what's the worst pickup line you've ever given? You come here often? Going for the classic.

Just by that, just by that, you can tell it's the worst. Awesome, awesome. Oh, thank you for joining us for the random five. Hopefully it gives our listeners, you know, a little more insight into your head there. That's dangerous. Yeah. Yeah, yeah, for sure. All right.

So let's get to this property you just closed on. You said it was an N1. 11-unit property, you know, talk to us about why did you make the leap into larger apartments? And what was kind of the mindset? What was going through your head? Were you scared? I mean, talk a little bit about that. Yeah, sure. I think after selling a few more of these properties, I was, you know, ready to put money into an investment. I was, I was a little over the student rental game. I've done it for a number of years. And I wanted to have scalable assets. And part of it honestly your your show you guys had uh jake and gino on with uh at wheelbarrow uh profits

which i mean that those guys awesome awesome show uh great great information i mean sometimes you guys you guys ever watch the podcast where you press the one times or two times and the and the and the words go really quickly and i'm listening to gno and like he's just so he's so on sometimes i'll be like is he speak no that's regular time he's just so much information just coming in crank yeah absolutely so i i think like a lot of like a lot of people's journey with real estate is you start off by podcast books. And that's what turned me to apartment. And then a friend of mine at my brokerage. Now, I specialize as a broker in office. And my buddy John, who I partnered with on this deal, he's a VP in our apartments group. So he sees these big 20, 30 million, 40 million deals, you know, deals that we'd love to have,

you know, years down the line. And he sees the ones that, you know, don't, like, are too small for us to deal with. And we were talking and he said, have you ever considered investing in apartment buildings? And that's kind of what got this conversation going that, okay, well, how much will we need? You know, you need this much and I need them. Well, it's the process. What I found is that people are afraid or they're a little apprehensive with apartments because they feel that they're these big deals that they could never do. And I remember early on somebody telling me, the bigger the deal, the easier it is to do. And that's not a general rule. But with apartments, the one nice thing is that I probably could have got accepted for this apartment easier than for a single family house that I would live in

because the rules for apartments are commercial rules if they're over, you know, four units, is that the building is the is the critical piece, not just the individual. The individual definitely matters. But I mean, at a certain point, when you're buying $30, $40 million, you know, $100 million apartments, how much is, are they going to care that you make $200,000 a year or 500, you know, you'd have to make, that's just not the way they value them. So anyways, that shift in thinking and you know, Gino on the wheelbarrel, you know, limiting beliefs that's a constant theme with them is that you kind of break out of that idea and you start realizing that, wow, you know, I could buy this. It's just a matter of how to structure the deal. And I think Brandon, in one of

your books is just mentioning that a lot of times it's people think it's the money that deals don't get done. It's almost never the money. If you, people's backer up against the wall, whether that's syndication or, you know, single family house, people usually, you can usually figure out that piece, the money piece if it's a good deal. Yeah. Makes sense. Makes sense. Yeah. So you're, you know, you decide that you're going to get into larger multifamily. You have this friend who's at the, company who says he's going to look for stuff for you. How many properties did you have to look at before you found this thing? Oh, man. Back of napkin. Like, you guys know how it is, right? Like, even the 50% rule, which is people think that that 50% rule, or I hear a lot of people like,

that's, you know, that's a lot, you know, to take off the top. It's like, yeah, just wait. You know, 50, 60% is a good rule of thumb when you're when you're actually looking at these properties. I, you know, I'd be guessing, but it's definitely over 30 properties. Right. That would that you quickly, you quickly do an analysis and that's not going to work. That's not. And not to mention our, our market here. It's Josh, I'm sure in Denver, it's the same way. It's, it's just a tight market. It's crazy. You can't, you can't find anything. All right. Can you explain 50% rule for those who don't know what that is? Yeah, sure. So from from our perspective, when we're looking at net operating income, you're basically dividing it, dividing your gross income in half to get to arrive at your NOI. And what we do is if anybody's familiar with cap rates, you know, which is the yield on properties is that if you divide, say, for instance, you have $100,000 in gross income, you divide it in half to $50,000. You divide that $50,000 by whatever you're prevailing cap rate in your market is to arrive at a value.

building value. Let's do an example of that. Let's do an example of that so people in case they're confused with that. So, I mean, you use that number 100, what would you say? Like,

let's say $100,000 a year is your gross income. Yeah. Well, it's for simplicity. Let's say 200,000's gross income. Divide that in half. You're at 100,000. Okay.

Right. And you divide that at. And what is that half? The half is what your estimated expenses are going to be correct. Exactly. Yeah. And also your N-OI then what, like, what's left over,

not counting the mortgage, you know, right? Exactly. Yeah. what we call in commercial above the line, right? You know, anything below that was when you start putting into capital expenditures. Anyway, so you're at $100,000 net operating income.

Now, you divide that by whatever the prevailing cap rate is in your market. So if your market is seeing, I don't know what you guys are seeing in your markets, we'd be lucky, we'd be happy to get fives. I'm looking at like eight-ish. Josh is probably like, I don't know. I don't know, I don't know, I don't know, never, but five or six, yeah. I think you're saying right around six is. Yeah.

So you divide 100 by 5% and you're at a 2.5 million dollar valuation on those, right? Maybe. Yeah. 100, about it by 5. Oh, sorry, 2 million. 2 million. Yeah, yeah. I'm trying to do the math in my head.

Yeah, yeah. Because you're multi-you know why it's so hard for you guys? Because you're like, what the hell is a 5% cap rate? It's very confused. What's a 3? You said what? So $100,000 divided by 0.5. A person is going to get $2 million.

And that's generally the value. And that's why we love apartments, right? because now you decrease your expenses or increase your income a little bit. And it multiplies that significantly, right? Yeah. And now just not to get too technical, but when you're looking at pro forma, because a lot of the guys that do apartments, their private equity guys are in the states.

We don't have the yields to sustain this here, but there's a lot of syndication in the states, which is basically pooling people's money, having a general partner, as you guys know, but for anybody that doesn't, having a general partner who is the asset manager, finds the deal, and then having the limited partner who are people that want to invest, but only want to lose what they've put in.

And so that syndication model is you'd actually have running a return for these guys. And what you typically do is you'd look at what your outgoing cap rate is. And your outgoing cap rate is always higher than your ingoing cap rate because the buildings, they get older, they depreciate. But as you guys know, real estate does seem to go up. So usually that cap rate does get suppressed, again, depending on your market. Like, I don't know that we can go any lower, but people have been saying that for the last five years. So let me ask you this.

How does somebody go about, well, two questions about cap rate. First of all, how does somebody go about finding their cap rate in their area? Like they heard us talking about Josh and you and me are all different. How do you find that out in your area? Yeah. So I think you have to, it gets easier with apartments. But you have to compare like with like, you know, if you're looking at a seven unit apartment, you can't compare it to a 50 unit apartment, right?

you have to have something in in the ballpark. So really what you start looking at is when you get the financials on these deals, you start looking, okay, what is the gross income? What's the potential gross income? But really, they're going to take the financials as is. And then you figure out what the cap rate for that property is. And then so that's the income approach. And then you couple that with a comparable sales approach, right? And then comparing this type of net operating income with other buildings in the area. But I mean, I guess the short. answer, depending on, it really matters who you're getting the loan from. So I think in the states you guys call it agency debt when you get like a HUD loan or FHA loan. Is that correct?

I heard the term, but I don't use it, but maybe. So when you get debt from the government basically insured, I think Fannie Mae or Freddie Mac type, so in Canada, we have similar debt. CMHCs are mortgage insurer. And they will agency debt is known as an agency bond is a security, usually a bond issued by U.S. government sponsored agency or federal budget agency. Usually these are backed, but not guaranteed by the U.S. government. Well played, Jesse. Yeah.

So just a side note on that is that was one of the things in the, this is a little bit of a tangent, but in Canada, we're not allowed to walk away from our mortgages in the states you can. And I remember John Stewart on the John Stewart show making a joke. We're like, that can't be true. Canadian's not going to chase you down for anything. Maybe if you drop the piece of paper there, just wanted to catch up with you. So what happens is that when you have government.

been insured mortgages, you're going to have somebody saying, okay, the market, we're going to value you at this cap rate. So they have a kind of a pre-determined idea of what that area is going for. But I mean, from our point of view, as investors, you got to do your homework. You have to just go deal by deal by deal and you get a sense. Like, I'm sure you guys know what just through heuristics of having done this for a long time, you know what your areas are going for on a cap rate basis, right? Yeah. And if I don't know, I'm just going to go talk to like a local broker somebody who does know, like a mortgage broker or a real estate broker. If somebody's going to know the answer to my area, you know, if I don't know what normal is

and the reason, but I know that 8% is normal in my area because I've analyzed, you know, 100 deals in the past year that our apartments are multi-families. And I'm like, yeah, I've seen 7, 8, 9, 8, 12, 5. The average is right around that. Yeah, 12 is just that, that blows my mind. Well, you don't want to, you don't want that. You don't want that. You don't want that.

You don't want that. That's over, yeah. It's going to cost you a lot of money. Yeah, you can buy that. that. Yeah. Anyway. So, Jesse, tell us about the numbers on this, this particular property now that we've kind of given in. And what was it about this property that actually made you want to take the leap? So one, like I said, one of the advantages, because I am a broker, I'm privy to building a team that really I should have no business building. So what I mean by that is a mortgage broker that deals with

properties that are five, 10, 20 times more than mine, I get access to because we deal with. with our, you know, buying and selling. So he'll spend some time with me. So I think building that, building that team was really important. But for the numbers, where we purchased was, I guess the best way to, for listeners to see it is that it's a city called Hamilton, which is about an hour from Toronto. So it's kind of like a Brooklyn to Manhattan. So Toronto being Manhattan and kind of that's a comparison. So we saw this as an up and coming.

The path of progress is going out that way. And what we found was that, you know, everybody tries to find. find these unicorn off market deals. Is it a true off market deal? This one was not on the MLS. It was, it wasn't on any listings, but we have software that we use for work that is basically these guys, it's an American company, boots on the ground guys, they call up potential owners to find these deals. And I remember calling the agent. And he was like, how did you, how did you get this number? He's like, how do you know this is for sale? And it was like, well, is it for sale? And he was like, well, depends. It can bring us an offer. And to,

give you guys an idea of what prices are going for in Toronto. We, we couldn't, we didn't want to be in that market. It was too expensive. The lowest stuff is 150,000 a unit to up to 300,000 a unit. It's just, it wouldn't, wouldn't have been feasible. We were able to get this one at 100, I think around 110,000 a unit. It was 1.2 and change for the 11 units. And it is at currently. So our strategy was to buy things that were, there were still a value add component. So the rents are not market. They're below market. So the going in cap rate 4.2%. But when you take these rents and I've established a really good relationship with our property manager down there, which is crucial if you're not in your area to have a good property manager because nobody will,

you could have the best. They will not run their property like it's their own. Only you will do that. But if you manage the manager, you can have some good outcomes. So yeah, we looked at that. It was 1.1.2. And if we get the market rents up to where market is, I think we, I mean, we're up close to the double digits, which is for our areas, you know, that just doesn't happen. What are rents right now? Where do you think they can go? So rents in that particular building, one bedroom would be 800, 200, 2 bedroom would be 1100, 3 bedroom would be 1,300. And, downtown Toronto, a wedding bedroom,

1,800, 2-bedroom, 2,500 to 3,000. And God, I don't even know what a 3-bedroom's going for now. So you could potentially

double your rents on this thing. Well, that's the downtown Toronto. The upside on the, on the Hamilton, the one that I purchased, I think we could get

about 20 to 25% uptick on them. Okay. Wow. Yeah. That's awesome. And what's that going to cost to you?

I'm assuming there's a plan you're going to go and upgrade each of the units. So what does that look like? Yeah. So, well, first off, we are meeting next week with the fire code inspector to basically, we think we can put another

unit in the basement. It's a massive inefficient, inefficient basement. We went in there and we saw the washing, the washer and dryers and we were looking at all the empty space. We're like, wow, there's a lot of space here. And I mean, that's a really easy calculation, right? If you paid $110,000 per unit and you can do that thing for 50, 60 grand, you know, you pro forma of that out for five years, right? And say, in five years, it's going to generate this much. How much is that money worth today? And I mean, that's a no-brainer. So, and to your point, yeah. So like I said, but you're losing all those quarters. In the lower level. Yeah. But so to the point of the actual units themselves, like I said, because we have rent control here, if somebody moves out,

you know, God forbid passes away, anything you get in there and you do everything possible. as you know nothing you don't have to make it the Taj Mahal but you do everything you can to bring it up because I mean we were looking guys my the first renter that we saw that was like really under market we were looking at we're like 1991 I was like that's when she moved in she's been there and my partner morbidly is just like well it should be too long I don't say oh man come on I'm like come on john I'm like it's possible but yeah so it it really is for us it's a buy and hold I mean I this is the type of thing because of how our market is, I can't see myself getting rid of this in 20 years.

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So talk to us about how you guys came together. You've got a partner. You guys have gone in together on this project. What does that look like? How'd you find this person? And then on the financing, how'd you go about actually financing the property? Yeah. So like I said, John, he's one of the main guys in our apartment group at the place I work and kind of connected. because he knew I was doing this, investing. And one thing I find interesting is, and I'm sure your listeners find this too, is that regardless of what company you go to, you're always the outlier if you're a real estate investor, right?

If I think in the states, your W-2s, right, we call them T-4s where you have a job you go to 9 to 5. And it's not dissimilar in the real estate world, in brokerage, that you would think all these guys, oh, they're all these real estate guys, none of them invest. That's amazing. Yeah, it's not none of them. A few of them do, but it's incredible. Now, there is an argument to say that you might be over leverage if your day-to-day job is real estate and you invest in real estate. But usually they're not that pragmatic. They just aren't exposed to it. So, John and I sound like we're dating or something. John and I, so I met John. That's okay. Not that there's anything wrong with that. So we met and we basically said that it was a good yinging. Did you guys meet?

Was it a restaurant? I mean, what? Below our office. Yeah. Yeah. So, yeah, we basically talked about what we wanted to do. And what's funny is there's a great yin-yang is the fact that John had never bought an investment property.

He makes good income at the brokerage more than I do. And he has no, so he has no debt. And he rents. And he's just got a car, I think, as his only liability. And now you go turn to me. me is I've got all this debt, but I've actually done real estate before. So the banks looked at us. They look, okay, here's a credit score of a billion. And here's a guy with a couple assets that we can go after if things mess up. And we kind of like balanced out into this like

pretty good people to actually lend to. That couched with the fact that I think when lenders look the fact that we're investing in apartment and I specialize in office and John specializes in apartment buildings, it lended a bit of credibility, which, I think was nice with some of the lenders. But like I said, it's really about showing the lenders what the property can do. And what, you know, if you bring people a good deal, I really do believe that, you know, they will, they'll take it for what it's worth. I love that.

I love that. And just to point out something that you said there, like a couple things. First of all, I think that's like the ideal partnership, right, is where you might be lacking something and your partner's lacking something, but they're not the same thing, right? Like, hey, we're both broke and have no money, but lots of ambition doesn't usually work as well as I'm broke and have lots of ambition. you've got money and you got no time, you know, or whatever, right? I'm lacking a credit score.

I'm lacking cash. I'm lacking the ability to get a mortgage, whatever. But you combine that together. And then like you said, combine that with a deal and you shouldn't have a problem. Like, yeah. So people are who are saying, I can't, I don't have any money. I can't invest in real estate. We'll find somebody who does have money but doesn't have passion like you have and

make it work. Yeah. And I got to say, I was stubborn for a long time. I'm sure people have, you know, listeners have dealt with this before. I was stubborn for a long time to get a partner. I wanted to just do it myself. You know, every time I found that, oh, I might need an apartment. partner for this, I would figure out a way to do it on my own. And then I would just do that. But now that

we've kind of gotten into the swing of things, I really, it definitely takes, it's not just the burden of the actual day to day operations. Even in commercially, it can be an emotional game, right? And it's nice to have just another person that's kind of battling with you. So, you know, if stuff doesn't work out when you're trying to find a deal, you've got another person there. Yep. Yeah. Totally. 100%. That's very cool. And so like, Yeah, I mean, obviously partnerships are not like the end-all be-all. Like they're not problem-free, but I happen to like them a lot. Like I, there's just certain things that it just works better.

So cool. So a couple more questions before we get out of here. First of all, what do you think was the scariest thing for you, like jumping into this, like get the apartment complex doing the 11 unit. What was the scariest thing for you? The scariest was the first few. Okay, it's just a short story. The first unit that we, the first building we saw was a 14 unit.

We get there. John and I are in our cars. And like, it's not the best area of town. This is what we would call a C class building and maybe even worse. And we were looking at the stoop. And it just looked like a guy was like, guys were like rolling up on bicycles. A guy would hand him something and then go back. And I'm like, oh, okay, I see the first guy.

I don't know. I think, I think, Brandon, can you tell me? Can you tell me that? Yeah, I think they were playing Pokemon Go. What do you guys do on stoops, Brandon? Just Pokemon Go. That's all it is, Josh. Oh, no.

Okay. With the charger. Yeah, exactly. So, yeah, so we saw that. And now we're like, gosh, you know, geez, we're going to be. meet this guy here. So we go to meet the owner. He starts showing us through. And he's taken us through, but he's taken us through instead of going into the first unit, like logically going up, where we go like to the back unit, check this one first. Then we go up this area and we're like, you know,

you get that spiky sense pretty quick. You're like something, something's up. Not to mention we just saw a drug deal happen. So, oh, that's what it was. So we. And it's funny, that might be the guy that's paying the rent on time all the time. Yeah. Yeah. So what we. So what we, he found out was that we left. He's like, okay, guys, so this is the last unit. Because we always, you know, one of the rules is go to see every unit. If you're going to be serious about it. And he goes, okay, this last unit, I got to tell you, like, John looks at me. And I'm just like, okay, here we go. Okay, so somebody died four days ago. Just want to prepare you for that because was still in there. Yeah. And you know, the reality is, is that if you're in this game long enough,

that happens, like apartment buildings, people pass away. There's nobody there to, you know, it's just a reality. But the fact that it was the first apartment, the first deal, right after a drug deal, we're just like, okay, is this going to be, should we, should be getting involved in these things? That's true. I mean, I mean, on one hand, people do die and they pass away. But yeah, that's a, I can see that being a little bit scary for jumping in. All right, then we go ahead.

We went to see. Sorry, I was just going to say, then we went to tour the unit. I don't know, you know, how many people would want to do that after. but, you know, it is, it's the game we're in. That's the game you're in. What would you say, I guess, what mistakes would you say you've made in your investing career so far if you can look back? Well, we only have an hour here, so. You've got like three minutes.

Yeah. You know what? I think, first of all, being more open to the idea of partnership, not because partnerships are the best thing, but they might be the best thing for you. And if you're in a situation where they are, it's really something you should think about. Number two, the biggest one, bar none, is not understanding how much money goes in to these things and thinking your cash flowing on paper and not allotting enough to repair and maintenance. Repair and maintenance. I can't stress that enough.

Yep. Yeah, I love that. Cool. Cool. So what's next? So, you know what? For us, we've kind of set up a goal after we incorporated, you know, set up our actual business for this apartment. It's ambitious. I'd like to be at 100 units in five years. And that's that's kind of the goal right now. And I'm actually, we're positioning all our kind of capital right now to make a run for it. But, you know, it's tough. And you know, you talk about scary things in or mistakes you've made. Right now, the scariest thing for us is how how hot our market is right now. And you're you're always second guessing yourself. You know how the best thing when you get a deal is, you know, you hear the best thing in the world followed by the worst thing in the world. You, you know, you know,

And somebody says, say you bid on a deal and somebody says, okay, you got the deal. You're like, yes, wait a minute. Because you don't know if you overpaid for them, right? So that's the challenge right now. But I think just making sure you have a little bit of capital set aside so that if the market goes, you know, a certain way that you're ready to kind of deploy it. I'll tell you about a hot market. So somebody this morning came to me and said, hey, I was looking at a duplex in town here. And it came on the market on Sunday.

are currently on Tuesday, they said there were 17 or it was either 17 or 27 offers on that property. Wow. And since that things come on the market. Well, it's, it's funny right now, I'm in my, I'm in my condo in kind of the east end of Toronto and I've listed this place. And our commercial real estate market is one thing. Our residential real estate market is bananas. I've had, I listed it yesterday. I've had three offers and about, I think 15 or 16 tours. I got to get out of here in like half an hour just so I can not be here. Okay, don't worry. We'll cut this show.

Yeah. So this show's over. That was great. Yeah. Yeah, I had to be explicit with the guy helping me out. I'm like, listen, nobody can come in at this time. Not even knocks on the door. That would be fun.

Bring him on the mic. Yeah, tell us what you think about Jesse's house here while live on the air. All right. It's a really hot market. All right, cool. So let's shift gears here and head over to the world famous fire out. It's time. for the fire round.

Famous, dangerous fire round. These questions come direct out of the bigger pockets forums. So let's get to the questions. Number one, when screening tenants, in addition to running a credit report, checking landlord references and checking bad tenant databases, I also try to check the applicant's social media accounts. Let's see.

I checked the social media profile to see if they had any pets, et cetera. Would it be okay and legal to require, you know if they answer to legal, you know you're not a cop or a lawyer, but would it be okay to require, require applicants to connect their social media accounts with me so I can get access to their social media profiles, even if they're set to private. That's fascinating. That's an interesting one. I think that that's a little, that's a little invasive. What I would say is not being a lawyer,

I think there probably, you know, there's, there might be legal ramifications for that. I don't know, specifically with single family housing or multi-residential for that matter. I don't know how it is in your markets, but they're very sensitive to housing and how you deal with tenants. And I can't help but feel that that might be a privacy issue. But that being said, for anything public, you know, I always look at people on social media, you know, not even just in real estate. You know, we're in an age now where if you're going to meet a meeting, you know, you'll pull up somebody's LinkedIn, see what they're all about.

I think it's a tool in your tool belt. So as long as it's legal, now requiring them to do it, even if it's, was legal. I don't know if you want to start off a relationship like that with a tenant. So yeah, that's it. That's an interesting one. Yeah. Yeah, I'm not sure. I've never even thought of that before requiring social media for like to be my Facebook friend in order to apply for this unit. It's weird. It's weird. Yeah, I wouldn't even want to be your Facebook friend if you paid me to. I do pay you. I just, I didn't pay you last month. And that's why you be friend of me. All right, number two. Okay. Next question. Coming into real estate investing, something I learned from the

start is how much people dislike property management companies. Common complaint I hear is that they feel like the property is treated just as a member or they didn't properly screen the tenants or monitor the property now that they've to repair a trash rental unit, squeezing all the profits they hope to gain. I guess at the end of the day, the question, they've got a whole flurry questions here, but I'll just paraphrase. What do you think are the keys to finding a good property management company? So for me, I think you need boots on the ground in the local market that you, you're in. I think that's that's huge. The one that we ended up going with in Hamilton was a gentleman that doesn't live in Hamilton was born and raised in the area, understands the tenants and the type of

tendencies in that area. Now, you know, property managers, I'm one that complains about them, but I'm also, you know, when stuff goes wrong, they're the first person to get blamed, right? Because they are, they are, you know, the front line. But I think John, my partner said something really interesting when we were interviewing property managers. And he says, you're the face of our company. And you're you're going to be a representation of our company owning this building. And we need to make sure that you're a good representation. So I think when choosing a property manager, first of all, you should always, always check more than one person. Don't just go with the local, you know, Google, first thing on Google. And really, really talk to them. And then I think you have to set expectations

early. One of the mistakes I ran into with the first property manager I chose about seven, eight years ago was I didn't set the expectations of how payments made. I wanted it deposited right into my account. He wanted to run it through his company. I wanted him to use my credit cards so I could link it to my accounting software easier. He said that wasn't feasible because of how their system set up. So I think expectations are really important right at the start. And then I think the last piece I would just say is communication. If you are not in constant communication with your property manager, without, you know, bogging him down or her down, I think that's crucial. I think you really need to have, you need to be as much on the front line as they are,

but not get that call at 4 in the morning. Yeah. Makes sense. It's good. Cool. All right. Number three, would you invest in a location where the population is declining? This person was talking about Chicago, there is areas of Chicago that are declining.

Would you invest in a market where the population is going down? Yeah, I think that question, it's kind of counterintuitive, right? You would think that you should be investing in population. increasing. But I think there's so many variables there. I would say, why is the population declining? Is it that the population, it was overpopulated before and there's some macro reason that that it is declining? So I think you'd have to go back. You know, it's funny. Every time we joke about this at work, every time there's an unknown, you got to go back to fundamentals. So every time there's, you know, an unknown of how appreciation is going to go in a market,

go back to the fundamentals cash flow. And I think to answer that question, it would be go back to the fundamentals. Where's transit? Where's the path of progress? where are people moving to? Are people investing? Our businesses moving there? The Fortune 500 companies are they headquartered there? I think those are all variables. It's a tough question to answer without more information. Fair enough. Last question. What should a new investor look for in a real estate broker? Oh, a real estate broker. Not you. Yeah. Like somebody who really does it. Really makes it rain. Just going to pretend that didn't happen. We'll just move on to the answer here. I think, you know, it's easy for me

to say, you know, this is what I do for a living, but I would suggest to anybody that's looking for whether it's a commercial or a residential broker that, first of all, you look for a track record. I can't speak for residential. And honestly, I think guys in my industry, they besmirch the resi guys a little too much. I think they're a little hard on them. They don't, they think they're cowboys and it's not really a business. And, And I think there's success in every different facet of real estate. There's good brokers in every market. And I think when you're choosing a broker, it sounds corny, but I think just being transparent

and honest, you know, what's funny, we always mention at work is that, and I'm sure you guys having met a bunch of brokers, if you looked at the most successful people that work at my company, Avis and Young, the thread, the commonality that they have is not intelligence. It's not, oh, all the smart guys are making the most. It's a lot of times it's the likeability of the person. It's somebody that you want to transact with, somebody that you feel comfortable with. So I think transparency and having a broker that's going to be honest with you is really important. It's great.

Good answer. Well, played. All right. You are likable. Yeah. Surely you're good at your job. Appreciate that. All right.

Let's shift gears one last time and head over to the last segment of our show, which we lovingly refer to as our Famous for. These are the four questions that we ask every guest every week. And I know you've heard our show before. So you know what's coming. Number one, what is your favorite real estate related book? Okay. So there's, I mean, there's a bunch of them.

The one that I've revisited, just, you know, how you have books, ones on your bookshelves from when you were really young or when you first got into it. It's landlording on autopilot. And it's by Mike Butler. It's one that, you know, I've come back to, you know, more and more as a kind of, you progress and you find new things. things because you're doing something different than you did years ago. But it's just all around for the reason I pick this one is I'm thinking about the people

that are maybe at the earlier stages and just want to understand, you know, what real estate investing can do. And if it's okay with you, I would just say find also books that are specific to your market. If you're a Canadian, don't really read tax books that are germane to the states and vice versa. And it's a little harder for us, right, in Canada because there's just not as much out there. But I think there's a gentleman named Don Campbell, you know, for selfishly for my market, if guys are looking to kind of get into the market. Cool.

All right. What about favorite business book on real estate? So this one here is just sorry, I got these in front of me. It's called Getting to Yes. I don't know if you guys have heard this one. It's negotiating. Yeah, so I was really fortunate. My work, a gentleman, I work with a great guy named Sean who, you know, if he's listening,

He's having the battle of his life right now. He unfortunately was diagnosed with cancer. So we're all kind of pulling for him. We were really lucky to go to Harvard and take this three-day course there on negotiation. And really the takeaway with getting to yes is like anything else, negotiating can be learned and it can be taught and people can get better. I think a lot of people just assume that negotiators are just as good as they are. And it's just part of their DNA. it's a genetic thing.

And it really isn't. I think negotiating really comes down to practicing and really doing your due diligence before going into them. Yeah. Sorry to hear about your friend, Sean. And hopefully he does get better. So good luck to Sean. If you're listening. Cool.

Jesse, hobbies. What do you do for fun, man? So like I said, I am a big car guy. So F1's firing up again. I've kind of purchased an old tuner that I'm going to be working with this summer. And aside from that, going out with friends, I play guitar less and less as real estate kind of picks up more and more. But yeah, it's, you know, just trying to relax on the weekends. I'm about two weeks from finishing up a part-time MBA.

So I haven't really had time to do much else. You're not very busy, you know, real estate investing, selling property, going doing your MBA. Yeah. Trying to keep the calendar full. Yeah. Watching the so. Obviously. Obviously. All right. Number four. What do you believe sets apart successful real estate investors from those who give up, fail, or never get started besides watching soaps? Yeah. For me, limiting beliefs 100%. I think people put them on themselves. I think we're not,

I can't remember. There's success talks is a really good podcast. And we're not really wired to search for things that are uncomfortable. And I think the whole point, with real estate is that it's not comfortable doing their first deal at this size. And then when you break out of that, going to the next deal. So I think one thing that's really interesting, and I'm not sure you guys can tell me if you've noticed this, that when you're listening to real estate investing podcasts, you find a common trait of all of these individuals. And it's that, you know, the coaching trait, the success, you know, the success kind of back books, the idea of not just making money, but prospering and being successful, whatever that means to that particular individual.

And I think that's kind of a philosophical commonality that a lot of real estate, for whatever reason, people that kind of want to better themselves, whether it's for your kids or just, you know, getting to the bigger and better next deal and just improving yourself as an individual. Yeah. That's great. And I do agree. I think that most of the folks that I believe to be successful in, the real estate investing space are definitely

focused on their own self-improvement, focused on, they read a lot, they're always trying to better themselves. So yeah, it's great. That's great. Cool.

Awesome, man. Well, before we let you go, where can people find out more about you? How can they reach out? Sure. I mean, the easiest way to find me,

I'd be more than happy to take, I'm always interested in taking emails for people trying to get in. That's Jesse, J-E-S-E-F-A-G-A-L-E at g-Mel.com. Or you guys can go, to my actual brokerage site, which it's Avesonyoung.com and A-B-I-S-O-N, Young spelled the normal way.com. Cool. Awesome, man. Well, thank you for sharing your story with us. Thank you for coming on. We definitely appreciate it. Great story. Lots of luck to you. And again,

best of luck to your friend. Okay, great. Thanks, guys. Appreciate it. Yeah, thank you. See around. Cheers. All right, guys, that was Jesse for Gali. Big thanks to Jesse for coming on the show. That was great. Awesome. Good guy. It was. Yeah, he's a fun guy doing a lot of cool stuff. And, you know, even though he's Canadian, you know, and he says, uh, and apparently I was the guy who was making the fun of him, but it's like, look at you like ripping the second he's gone. No, even though he's Canadian and can't say about a bout very well. It's a boat. You know, I didn't notice that at all. It still was an awesome show. I think there's a lot of wisdom I took from that. I loved, uh, our discussion about like cap X and like how we buy properties that seem on paper to be good. Uh, they did not. So make sure you guys are calculating for capital expenditure. And if you want help with that, a couple quick resources for you. First of all, we've got a lot of stuff on capital expenditures or cap X on bigger pockets. Go to bigger pockets.com and in the little navigation bar at the top of the page, there's a search bar. Just type in capx.

You'll find a ton of good stuff on that. Also, if you use the bigger pockets calculators like the rental property calculator or the burr calculator, we have a section in both of those for estimating your capital expenditures. So check that as well, biggerpockets.com slash analysis. You know, I think the important thing about that conversation beyond just planning really came down to things happen that you can't plan for. You know, the story of your property with the fire losing the 15 grand or whatever it was, you know, Jesse's story. That stuff, even if you account for everything possible, even if you're conservative, stuff like that can happen. And that's really why you need some extra money.

I mean, that's why you need some cash and account that, you know, you can't be getting into rental real estate, you know, and using every last penny that you have in order to get in. Because when things come up, you need to be able to take care of them. Yeah. And that's why I like the idea of, you know, there's a lot of low down ways to invest in real estate. I mean, I wrote the book on it, right? But like, I like the idea of partnerships more than most because there's somebody else there that can help through those tough times.

Because like, let's say you figure out a way to buy a property with zero money down. But if you have no money, then when those bad things do happen, you're just like, you know, like, it can bankrupt you. But if you have a partner, you can weather those storms a little bit better. So again, Jesse talked about that as well. And I thought that was right on. Yeah. Awesome. Awesome.

Cool, man. Well, good show, good stuff. Lots of luck to you on this new thing that you're working on, whatever that might be. And yeah, what are you looking at? It's mobile. It's not looking at anybody. I mean, it looks like you're looking at some. I'm twirling a pen.

Is that what you're noticing? I don't know why are you doing that. I twirl pens whenever. I don't know if you guys notice that, but I twirl a pen on almost every podcast episode. If you're watching this on YouTube, I'm always like twirling pens in my hand. That started from, I don't remember it was a movie like an old James Bond movie or something like that where a guy would twirl a coin in his hand. And ever since seen that, I would, I would do that all the time with pens and coins and whatever. And it's just now my.

Nobody really cares. Nobody does. By the way, my thing, mobile homes. Mobile home parks. I'm looking into buying my, this year I want to buy a mobile home. park. Wow. That's awesome. Yeah, we'll see. Maybe you'll come along in your backyard. I might put a mobile home park in my backyard. I have actually like five acres of land out behind me, except for four and a half of it. Flightly hilly. Yeah, four and half of it is on a slightly,

a slight hill, which is barely even walkable. I mean, it's a hill and full of trees. But you know what? You could have tiered mobile homes all the way down it. That would be great. That'd be awesome. It's a new thing. You could live there. Yeah. Oh, you're going to rent out to me. I'll rent to you. Yeah. That's good. As long as you pass the credit check, which, you know, I'm not too sure about you. All right, guys. Time to go. Show 220 is in the books.

Thank you so much for listening. You can check out the show notes for today's show at biggerpockets.com slash show 220. Thanks again. Until next time, I'm Josh Dorkin. Signing off. You're listening to Bigger Pockets Radio. Simplifying Real Estate for investors large and small. If you're here looking to learn about real estate.

investing without all the hype. You're in the right place. Be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. Let's jump into this thing. These questions come direct from the Bigger Pockets forums. All right. Question number one. Talking awfully slowly there, Brad. Why is that, buddy? Hold on. Let me let me jump on the same place. Give me a link. Let's talk a little bit slower here. here while we pull up the fire round questions in front of me. I'm going to actually go to the forums and we're going to find. Give me a link so I can look to the forums. It's called biggerpockets.com slash forums. Come on. Come on, Josh, biggerpockets.com slash forums. Okay, fine. I didn't invent that link. Oh, that's right. You might have. Okay, hold on. Now my slack is frozen. All right. Well,

whatever. You're doing it. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple. Spotify or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter,

please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this

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