Practical Strategies to help you Raise Money & Find Deals

How to Attract Money Fast for Your Next Real Estate Investment

How to Attract Money Fast for Your Next Real Estate Investment

Early in life my parents told me to get good grades, get a good job, work hard and save your money- that was the key to success and becoming wealthy. 

And while this conventional wisdom sounds ‘good’- when I looked at the wealthiest in the small town of Whitecourt AB- they didn’t seem to work that hard (always on vacation) and weren’t that smart (many didn’t have grade 12). 

There was a disconnect.

Why had a few guys in our town created financial abundance– while my mom and dad worked 16 hours a day to survive?  

Growing up I didn’t have wealthy mentors.  I followed my parent’s strategy for making money: work as many hours as I could and keep getting higher paying jobs. 

The concept of making money while you sleep sounded like a fantasy to me, until my mom gave me the book, Rich Dad Poor Dad, by Robert Kiyosaki. 

The wealthiest figured out how to invest their money safely and it was a 3-part formula:   

  1. Make Money (what most focus on- trading Time for Money)
  2. Keep your money (Buffett’s #1 Rule- Don’t Lose Money)
  3. Grow it (invest your money so it pays you while you sleep) 

There was no shortage of people willing to do #3 for me- taking my money to ‘invest’ or, charge me to ‘learn how’ to invest it.  The market place was full of guru’s pitching:

  • Invest in Real estate– fix and flip, wholesale, Single family rentals, apartments, land, retail, storage, multi-bay industrial?
  • The Stock market- call or put options, value investing, momentum trading? 
  • Bonds
  • Commodities
  • Gold and precious metals
  • Investing in new start ups
  • Trade currencies
  • Crypto.

And, while I was committed to becoming wealthy, I learned some expensive lessons along the way. 

First Big Investing Lesson

One summer while living in Whitecourt AB, building logging roads, I was given the opportunity to invest with my boss in my first opportunity.   I trusted my boss.  He was a rich man by all measures. 

So, without asking questions- I handed over all the money I’d earned over the 4 months ($13,500).

(First mistake- investing in something I didn’t truly understand, control or could influence the outcome- is very risky).

I didn’t know back then what questions to ask.  What to look for in an investment opportunity.  How to even evaluate a good deal from a bad deal.

Questions like:

  • How much money is going into this deal?
  • When is the money going in?  Are you raising additional money down the road?
  • How much money will I get back?
  • When will I get my money back?

All simple questions- but you’d be amazed at how few people ask these questions when investing.  Back then I didn’t know what to ask.  Today I know and I’m comfortable asking them.

(2nd Mistake- not asking tough questions/or proper due diligence).

The Result:

Everything I’d saved that summer to go back for my 2nd year of university, $13,500 was lost.  It took me 1,200 hours to earn that money and less than an hour to hand over.

What was even worse than my loss- was that my parents followed me into the deal.  They had just paid off their home (achieving their dream of being debt free before 50). 

They remortgaged their home to invest $100,000.

This meant mom and dad would keep working for 10 years to pay for 1 shitty investment decision.  Every month reminded that they’d made a huge mistake.

This type of memory stays with you. 

I saw how money (or lack of money) impacted their relationship.  It was my dad’s idea to invest at the warning of my mom.  To my mom’s credit- she never brought it up after it was lost, but for some time there was an underlying friction about the loss. 

As I look back, it wasn’t their fault.  They didn’t have any investing criteria or principles to base their investment decisions on.

My parents were hard working teachers- dad was the Principle and mom taught grade 1 for 35 years.  How could they be expected to know if an investment was good or risky?

They followed the heard. 

A group of successful and wealthy business man in Whitecourt AB invested and my parents (and I) saw this as an opportunity to get ahead.  We didn’t want to miss out.

We wanted to be part of the incredible gains that this deal promised.

And, without any due diligence or research, we trusted the promoter (my boss)– and lost it all.

(3rd Mistake- investing on emotion- Fear of Missing out, Greed

After that event, I vowed I would not let that happen to me or people close to me again.  I spent years studying how to invest and learned how to avoid risky or flawed investment opportunities.

I read about Charlie Munger and Warren Buffett. 

Buffett’s first rule of investing – ‘Don’t Lose Money’. 

Which means you have a set criterion for how you invest.  So you can quickly narrow down your options. 

For me, I realized after the first loss, that I would focus on investing in what I understood, could control, was tangible and indestructible (going to be here for a long time).

That really meant I would invest in myself and in real estate.  I eliminated all other options – stocks, bonds etc because I had no influence or control over them.  And, I didn’t really understand how value was created.

See, Buffett doesn’t invest in the stock market- he invests in companies.  He takes such a large position in a company, that he’s able to influence their decisions and the direction of company (with a seat on the board etc).

I’m not at that level.  But, I can influence the value of a property I buy. 

Not loosing money became my driving investing philosophy and I’ve invested 20+ years of my life to applying it in the world of value-add real estate investing.

And, while I’d like to say that I’ve never lost money again (I have)- I have not made the same mistake twice and, the losses have been minimal.  But more importantly I’ve made millions for myself and my investors.  And that’s really what I want to share with you today.

Failing to find the right real estate properties to invest in

When I gradated from the University of Calgary (U of C) in 2003, I was still scared from losing my money in the 1st investment.  While attending U of C, I worked 3 and 4 jobs while taking a full course load, and I saved every dollar I could.  

Straight into my safety deposit box. I was still that distrustful of banks and everyone.

I thought I was getting ahead.  Keeping my costs low, living in my best friends’ basement.

Right before Christmas in 04’ I was dating my dream girl.  She was 5 years older than me, had a great paying job and owned her own condo. 

She was over at my place visiting and while walking past my 2 roommates who were playing video games and drinking wine in the middle of the day, she stopped.  She looked at me and said, “I have to go”.  I didn’t think much of it at the time.

Next day, I call her and she tells me she can’t date a guy still living in friends basement suite.  She was embarrassed to tell her successful friends about me.

I was devastated. 

I thought I was doing the right thing- working hard and saving money.  But I was fooling myself.  Cash in a safety deposit box is worthless pieces of paper.

I was merely existing.

3 months later, I took my savings and bought my first townhome.  I got a roommate to cover ½ the mortgage and thought- wow, this is great.  I have an asset, and someone is paying for ½ of it.

Four months later, I bought my first fixer upper.  My first investment property was a 1948 1 ½ story war time home I bought for $180k.  It didn’t have central heat (so in the winter’s you had to use the stove and firewood to keep it warm). 

I had no idea what I was doing.  My agent (who was my buddy) didn’t have a clue what he was doing.  It was the blind leading the blind.

For 8 weeks every evening after work I’d go to the house (then to home depot to buy supplies) and renovate.  Painting, cutting baseboards, replacing appliances and floors.  After 8 weeks, and the house was a disaster- and I was running out of cash.

I needed to get out of this deal. 

The fear came back to me and I thought I was going to lose all the money I’d put into it.

I took an add out in the newspaper to sell- “Investor Wanted: Fixer Upper in Great Neighborhood”.  No realtor fees- call Shane directly.

My saving grace was I’d studied direct response marketing, so I could market the home better than most of the agents.  I had 12 showings on Sat and ended up selling it that weekend to a fellow investor for a $22,000 profit.

I did most things wrong- except for the most important.  I bought in the right location.

I made $22,000 in 8 weeks without really knowing what I was doing- and I decided there was something to investing in real estate.

I hired a coach to help me invest and learn the business.  For the next 4 years I bought and sold millions in fixer upper properties.  As I ran out of my own money (at times I had 7 or 8 properties at one time), I went to friends to help with down payments and getting mortgages.

I was making decent money- but I was working 16-18-hour days.

I was still trading time for money and the allure of passive cashflow was nowhere.

There was no way I going to retire renting out single-family homes to earn $100- $200/month in passive income.

How do I get to the next level of investing – like the big boys investing in commercial real estate? 

How do I raise the money to be able to invest in these multi-million-dollar properties? 

In 2007, after a golf tournament at a local pub, I met a girl- Kelly. She was an interior designer and we hit it off immediately.

She helped me design, fix and flip my houses I was working on. 

Her father (Andy), was a commercial real estate developer.  His family owned a publicly traded development company which has been in business for more than 92 years.

As Andy got to know me and saw my hustle, he asked me to go on a trip with him to Palm Springs to look at an investment.

On the plane ride down, we talked about what I was doing.  As I look back, that flight changed the trajectory of my investing carer.

Andy had experience buying and selling billions of dollars in commercial real estate and was now open to showing me how to do the same.

I quite my job at Sun Life financial as a commercial lender and started working with him full time.  I was only paid on deals I found we executed on.  Some deals took months to find and secure- but when we found the right one, it would be worth 7 figures+.

This was an entirely new world of investing I didn’t know existed.

I helped his family company buy 742 Class A apartment units in Texas (Houston and Dallas) between ‘09 – ‘11.  They were able to increase rents and in 5 years more than tripled their money.

Andy and I also started investing.  We raised $2,000,000 USD to buy the 5 homes in Palm Springs. 

We raised another $2M to buy a portfolio of 1st mortgages on properties across Eastern Canada.  Because we bough the mortgages at 60% of face value we earned more than 22%/annualized returns for 6 years for ourselves and our investors. 

  • If a property had a $1,000,000 first mortgage- we bought the mortgage for $600,000. 
  • If the mortgage was paying 12%/year on $1M = $120,000/year, we earned $120,000/year on $600,000= 20% (as example).

I was starting to see how large deals got put together.

How millions are made in a short amount of time.

I kept my head down and focused on finding the right deals.  With the right deals, we had the investors network to be able to raise millions from.

Until…

Muskoka Communities, 1,153 Acre Development in Ontario.

Trying to do everything ourselves and having the wrong people on the team- we struggled for 3.5 years to make any money.

Our biggest deal was the acquisition of 2 resorts in Muskoka ON, Canada. 

Bonnie Lake Resort- was 1,100 acres surrounding a private 200 acre lake and Shamrock Bay Resort, a 53 acre resort located along the Trent Severn waterway in the desirable Muskoka’s.  The areas was a destination for people living in Toronto, where the avg home on the water would be worth $1M+

Andy and I partnered up with two other guys to take on the project.

The purchase price for both resorts was $8.5M. 

Andy and I raised $6,000,000 in cash from our investors and negotiated with the seller of Bonnie Lake to carry a $2.6M VTB (vendor take back mortgage).  That negotiation was a work of art- I could write a full story on that alone. 

Our game plan: redevelop the sites, fix up the resorts, raise rents, increase the number of sites we could sell cottages on at each resort.  Doubling-Tripling the value in 5 years.

The resorts were Land Lease Communities, where we sold cottages (profit center 1), collected rent for the lot each trailer was on, and had a marina where we earned $500-$900/season for keeping their boats.

All this sounds like a great deal.  And, it was, except for one thing.

We needed the right team to execute.

Cottage Sales.  Marketing. Operations. Development.  Rentals.  Taking care of park.  Setting up cottages.

We underestimated the team we needed to execute.  In the first year of operations we had a husband/wife team managing both resorts.  Working 18-hour days, we burned them out to the point they almost didn’t come back.

Our 2nd year, we were behind on sales – and some of cottage owners were leaving as we’d neglected them.

Cashflow was dropping and we were getting behind to investors.

Over the next 2 years, we went back to our investors twice to raise additional money from them.

This is one reason, I don’t recommend doing development projects to new investors.  They are risky, take twice as long as you think and cost twice as much to develop.

During our struggling time, one of the operating partners with me left in year 2 to work with our competition.  He wasn’t making money (like me) and realized it was going to be years before we, as General Partners would make any significant money.

I was now responsible for the success or failure of this project.

The development was, and sales were gaining signiant traction. But the pace at which we had to keep reinvesting into the development was sucking up our cash. 

I learned a tremendous about cash flow management.  The importance of having great partners. 

Who would stick with you when shit goes sideways.  Because, investing in commercial real estate- things don’t always go as planned.  You must be with the right guys/gals that will see a deal through to the end.  Even if it means you don’t make a lot of money.

Why?

Because you develop a reputation.  And, the reputation I wanted was- Shane puts his investors needs before his own.  He doesn’t quit.  He will make things right, and because this is the long game- I will keep putting my money with him.

In Dec 2014, we sold both resorts for $17,000,000 and were able to pay back our Limited partners the returns we promised +.

During that time, I developed the skills to manage a team.  To overcome adversity.  To treat investing in commercial real estate as a business.

With my track record and reputation, I can Syndicate, which is to pool money together from accredited investors, and raise several million dollars in a week.

Accredited Investors will, in almost all cased bet on the jockey 1st (you and your team) – then the horse (the actual deal).

If you’re the right guy(s)/girl(s) running the deal- and you can show that you don’t give up at the 1st sign of struggle, you can build a loyal following of investors that stick with you.

From flipping homes and raising $40-50k from my best friend– to today raising $2,000,000- $9,500,000+ per commercial deal and earning $100k-$200k upfront (my acquisition fee) plus 35% of the profits- I learned the game of investing in commercial real estate and how to raise money.

Over the years, I’ve been asked to many lunches and coffees to help other real estate investors scale their business.  To help them structure their deals, raise money, evaluate the deals they’re finding.  I bring 12+ years of raising money and investing – so that experience has saved some friends millions from the wrong deal. 

It’s such a big topic, that even a few hours of coaching weren’t enough to truly help them.

So, I started to send them long emails and word doc’s with principles on how I invest.

Eventually those emails and documents were organized and put into a Book:

Club Syndication
How the Wealthy Raise Money and Invest in Commercial Real Estate“.

If you’re interested in learned how to attract money fast for your next real estate investment – my book outlines the 5 Step Framework I use to raise money to invest in commercial real estate.  If you’d like a free copy (just cover the shipping), just go to www.ClubSyndication.com and you can request a copy of the book.

If you’d like to work with me and you’re the right fit- I do have a small group of investors I coach in a small setting- you can get information on that in the book. 

The #1 Secret to Successful Commercial Real Estate Investing

How beginners can get started investing in commercial real estate. Think of this 2450 word post as Commercial Real Estate Investing for Dummies. The simple formula to create tremendous wealth investing in commercial real estate.  Find a commercial property that is underperforming. Add value.  Increase the rents.  Refinance and pull out the money you invested on day 1.  Find the next property. To get a Free Copy of my book- Club Syndication, how the Wealthy Raise Money and Invest in Commercial Real Estate, you can request it here.

Read More

Why Real Estate Investors Struggle to Create Real Wealth

Donald on the other hand, was different. My first meeting with Donald he brought his wife. They were both on the same page and focused on their financial future. Both were polite and listened intensely. They had great questions and we started off by defining their goals and outcomes. (I later learned, Donald brought his wife to vet me. To see if he could trust me. Funny- before I do business, I bring my wife to important meetings. Women seem to have a good 6th sense about people).
Over the next 3 months, Donald would tour properties and search online for opportunities. He’d send them to me and I’d run through the numbers and properties.

Read More

How to Invest in Commercial Real Estate

How to Invest in Commercial Real Estate

Stick with my Jiu Jitsu story (it’s short) and you’ll see an interesting relationship between self defense and how to invest in commercial real estate

Today (friday morning) at Jiu Jitsu, Sean, my instructor was teaching a new stand-up to take down move.  First, you take away space, (think- get in close), frame out, making sure to take away the ability of the attacker to strike and then positioning for the take down.

how to invest in commercial real estate self defense
Self defense: how to invest in commercial real estate the right way

We worked on the move for over an hour.  I could do it, but I was thinking about each step in the process and, it felt clumsy.  Sean, who’s extremely patient with me, kept going back over my foot work. 

For some reason, I kept moving my front foot around and shifting it – which, doesn’t seem like a big deal.  But, in a real fighting situation, I’d be off balance and at best 50/50 if the actual move would work.

It wasn’t until Sean realized my first step in was too far outside.  First, I was stepping in with the wrong foot.  So, when I went to control the arm, I had to move both feet.

Once we corrected which foot to step forward with, and how to brace properly- it took another 15 attempts to find out that my right foot was too far outside the attackers front foot.  

So what? 

What was happening? 

I couldn’t move my body to the side, without first moving my front right  foot.  This extra step, took extra time and put me off balance.

Once I stepped in with my front foot next to Sean’s leading foot, I was easily able to step behind with my left, in one motion, while controlling the arm and taking Sean down in 1 smoot movement.

After class, we were talking about how such a small realization can have a huge impact on the overall effectiveness.  If this were on the street, in a real fight, you don’t have time to think.  

You are reacting.  But, if you have the presence of mind to realize that you need to step into person, brace, with proper foot forward, move outside of the opponents knees and elbows (go to their side) and then how to take the person down to the ground- you have the tools to handle the assault.

How does this relate to investing in commercial real estate?

If you don’t know what the first step is in evaluating a deal, then, all the other steps are clumsy.

You could go back even further.  If you’re in the wrong market or, investing at the wrong time in the real estate cycle- even if you do everything else right (in your due diligence and property selection) – you can still get killed in the deal.

Quick Investing Story – that went bad:

I was working with a client who asked me to evaluate a $8.5-9M retail property in a small town in Alberta.  I was sent the financials and package and was asked to work with the sellers agent and underwrite the property.

On the surface, the deal looked decent.  It offered attractive returns (going in cash on cash) of above 12%.  

Tenants had been there a long time and didn’t appear they were going anywhere.

small town commercial real estate
Small town commercial retail property and risks

But, there was something that didn’t sit right with me.

  1. The property was in a small town.  It was primarily agricultural, so the population was stable, but certainly not growing.
  2. The property was tired and needed some capital invested back into it.
  3. The price per square foot was too high.  I don’t like buying properties that are above replacement value, unless they are in locations that you can’t replace or replicate (think power centres)
  4. The property was a 2 hour drive and I didn’t know the local players.  Commercial real estate is a localized market.

After two days of on the ground research and talking with locals, I heard a local developer owned a large tract of land that was zoned for a retail development.  He was planning to develop it and, rumor was, he had Walmart.

Now, I understood why the owner of the property was really selling. 

There would be a flight to quality and in a small town, there wasn’t enough demand for the retail proposed.

Fast forward 7 years. 

This retail center is more than 55% vacant and worth less than 1/2 what it sold for.

The new owners, I hear, were smart (son was MBA and dad was a doctor).  I wasn’t involved in the transaction, as I was hired by the buyer to be their acquisitions guy.  

It was their first commercial property and, maybe their last.  I estimate they have lost more than $4M in value, and maybe more.

So, how could they have protected themselves against such a loss?

As I look back- the fact they were in a small town, that they didn’t live in or understand was their first wrong step.  Like me, when I stepped out with my left foot first (and opened my body up to be kneed or kicked in the balls) – this buyer stepped into the wrong market.

They had no experience investing in commercial real estate.  So, they didn’t understand or have the intel to know that new supply would kill them.

All that really mattered- wrong first step.  I don’t even need to know the rest of the deal.  It was flawed from day 1.

Look for 6 inch hurdles to step over, don’t try and jump 10′ fences (Warren Buffett)

How to invest in commercial real estate – is really about looking for 6′ inch hurdles to step over.  Especially if you’re a new investor, why open yourself up to a complex and risky first move.

I made these mistakes when I first started investing.

I bought land in Costa Rica from a Canadian developer.

Talk about 10′ fences.  I had no idea what I was doing or how I was going to profit.  I took everything at face value and, suffice to say, 12 years later, still own the vacant land and can not find a buyer (pretty much at any price).

To close this out- if you’re looking to invest in commercial real estate.  Watch your first step.  Get advice from someone you can trust. 

Make sure you have identified the risk in the deal.

Ask the four basic investing questions when it comes to real estate:

  1. How much money goes into the deal?
  2. When does the money go in?
  3. How much money comes out?
  4. When does money come out?

Simple questions.  But, you’d be surprised how few investors can answer them with confidence.

If you have a question or deal you want me to look at- submit it below, or shoot me an email: shane@shane.melanson.com 

How To Create Passive Income Buying an Investment Property

Buying an Investment Property

Last week my dad and I were talking about my goals of buying an investment property.  I explained, my near term goals of creating what I call my money machine, commercial real estate that I own, and pays me just for waking up – that numbers is $360,000/year.

He looks at me and says- why?  Why do you need $360,00/year and to own $6,000,000 in commercial real estate?  What are you going to do with that many properties (not realizing this could be, 1 property).

I waited till he was finished and said:

I want to wake up knowing that as long as my properties pay me a 6% cash on cash return, then my family will have $30,000/month in passive income.  I want that level of certainty for Kelly and my kids.  It’s my insurance policy for them (above my actual policy).

Buying an investment property calgary
Well located Retail property – strong tenants

As dad’s do, he pressed me further – but why do you need to build up a nest egg of $6M?  What he was getting at, was, he couldn’t understand why I would delay living life now (i.e., saving money to invest) so I could build up a networth of $6M.  Thinking that it would take decades and eventually I’d die and have an asset I couldn’t enjoy.

It was an interesting perspective.  And, got me thinking, that there are probably not as many people who share the same philosophies on investing and saving as I do. 

For context, my parents were both teachers and have pensions. 

For me- I’m a business owner and entrepreneur.  I’ve never considered that one day, I’d have a pension that would pay me for not working. 

I remember my first week working at the City of Calgary as a junior assessor.  Our floor was invited down to a ceremony to celebrate a guy who was about to retire having been there for 25 years.  The guy who worked next to me, and had been at the city for 20+ years, only a few years away from retirement said, “just 25 years and that could be you“.  I think he was serious- but I laughed and said, No, that will not be me.  

I was very appreciative for the job and stayed 3 years at the City, but there was no way I was going to hang my hat on a pension as my lot in life.  It wasn’t in my DNA.

Back to my dad.  I told him it was actually very important for me to leave my family with an asset that can take care of them when I’m gone.  And, a $6M investment property would do that.    

But, I could sense this was not the real question he was asking.  There was something deeper he wanted to know.    

To my dad, he thought- if you’re buying an investment property and you need to save for years to do it- then you’re deferring living life now.  Meaning, in order to buy a commercial property- I’d have to give up certain things now.  I said yes- there are always sacrifices to achieving my goals.  But, probably not to the extent you think. 

My approach to investing is different.  

The goal: to buy an investment property (or properties) with $6,000,000 equity earning 6%/year. 

Next question- where does this money come from ?  For me- I have 2 options: 

  1. My own savings (discussed below) and,
  2. Other people who invest with me

To invest in a commercial real estate you do require capital.  The better question is – where else can I raise the capital required to invest? 

Who else wants to the same thing (own cash flowing commercial real estate) and
doesn’t have the time or knowledge to do it on their own?  

There are actually many accredited investors (business owners and professionals) who make good money, but don’t know how or don’t want to learn how to invest safely.  For 10 years, I’ve helped these investors make very good returns (one investment, we took from $8.5M in 2011 and sold it in 2014 for $17M). 

One of my greatest skills is in identifying good properties to buy.  Raising the money to buy them, is, with a good track record and reputation, the easy part.

So long as I have enough money to live, and to control properties (most commercial transactions require $100,000 – $250,000 of equity) just to put under contract and complete due diligence.  Then, I could take time out of the equation on how long it would take to build up my portfolio.

As long as I could keep my expenses stable, and grow my income, I’d have enough capital to stay in the game- finding and closing on the best properties.  This means, I can still live a good life now and enjoy the opportunity of investing in properties that will allow me to achieve my financial independence.

This is the Club Syndication Model.

Where, a group of accredited investors come together to purchase commercial real estate.  Generally, the General Partner would have experience in buying investment properties and take care of the day to day operations of the properties.  In exchange for rendering these services, he/she would get a % of profit above a certain threshold (to incentivize finding good properties and making sure they are taken care of).   

Let’s say you want to invest in commercial real estate.  But you think, well, I don’t have the money to do it. 

View from roof of commercial retail property – busy parking lot

This is for illustration only- the amounts are lessimportant; it’s the methodology that counts.  

  • In this example, we’ll say your baseline living costs you $150k/year in after tax dollars.
  • Before you can save anything, you need to Gross about $250,000.
  • If you can expand your income to $400k or $500k/year, and take the difference to invest.  

Let’s now assume your increased income allows you to invest $100,000/year in commercial real estate.   

What does $100,000/year allow you to buy?

You find a 12-unit apartment building, priced at $1,200,000 or, 100k/door.

To purchase, you require 25% down (equity required):

  • 25% of $1.2M = $300,000

Your options to buy this investment property?

  1. Save for 3 years and buy it personally (3 years x $100,000/year)
  2. Syndicate with two friends who have a $100,000.  Get in the game now.  For finding and structuring this deal, you could earn a small management and syndication fee for time and effort.  or,
  3. Try and negotiate with the seller and ask them to carry a $200,000 VTB (Vendor take back mortgage- assuming the lender in first position agrees to a 2nd mortgage).

Three possibilities- although #3 in a good market is rare.

I started off doing #1, till I ran out of money.  Then, I learned, from my father-in-law, how to do #2- doing Club Syndications (pooling together high networth individuals who want to invest in and own commercial real estate).

Next week, I’ll breakdown the returns.  Show you what one property could expect to payout each year.

 

Commercial Real Estate Investing

2 Vital Steps to start Commercial Real Estate Investing

How to start if you’re new to commercial real estate investing?   When I think back to how I got into commercial real estate investing, it was really by fluke.

I’d been working at the City of Calgary in urban planning, and in the evenings I was bartending and on weekends flipping houses. 

One evening, a guy I knew, came into the bar I was working at and we got to talking.  He told me where he was working (Sun Life Financial) and that he lent money on commercial real estate properties in Alberta.  I was interested, telling him I was investing in residential properties, but would love to learn more about the commercial world.

He said they were hiring for a new position and that I should apply.  In spite of my lack of industry experience, I applied and got the job. 

Looking back, I really had no clue on how the game of commercial real estate investing was played.  I didn’t understand the game of lending money, how brokers fit in, why we worked with some borrowers and not others.  Why we lent on some properties and not others.  How we looked at different markets.  Why we underwrote properties differently.

It wasn’t until I met my first mentor, Jim, that things started to click.  He was a broker, a private money lender and invested in commercial properties.

He took a liking to me and over the course of 2 years, over lunches and coffees- explained how commercial real estate worked.  He first introduced me to the idea of becoming a commercial real estate broker (but wasn’t until I met my father-in-law) that I became one.

So, how then does someone who is busy making good money owning a business, or as a professional (maybe you’re a doctor, lawyer or dentist) but still want to own commercial real estate.

I’ll layout the way that I help my clients who are new to investing.  

Step 1. Is to have a basic understanding of what commercial real estate is.  

Step 2. Understand how the different players fit in.  This is best done with someone who’s been in the business for 10+ years.  They should be able to explain how brokers, mortgage brokers, lenders/banks, appraisers, different types of sellers all fit in.  Maybe I’ll create a video of this one day, or podcast- but for now, read this article and it will help.

Now, if you had these two foundational pieces in place, you might think the next step would be to start touring commercial properties to make offers on.  This would be a mistake. 

Without a map for where you want to be in 3, 5 or 10 years- you’d waste tremendous time and possibly make the mistake of investing in the wrong type of property. 

Question 1.

What do you want out of your investments?

The most common answers I hear are:

  • I want Future wealth for my kids and family- to create a legacy and generational wealth for my family.
  • I want Cash flow today– I want to put my money to work and earn a predicable stream of income every month.
  • I want a hedge against inflation – if my money is in a bank earning .02% and inflation (the cost of things, including real estate is going up) – I want to preserve my investments alongside inflation
  • I want to own tangible, hard assets (like commercial real estate vs. a stock or bond).
  • I understand commercial real estate investing – people need a place to live.

The reason I ask this question early on, is it helps new commercial real estate investors decide which asset class they should be focusing on and narrowing down where to invest.  

Question 2.

Why do you want it?

This question is generally answered with more superficial, knee-jerk responses, without the benefit of someone probing deeper.

Because money is such an emotional topic for people, they generally don’t dig deep enough (I’m guilty of this). 

Here’s what I mean: When going through this exercise with a recent, new commercial real estate investor (a doctor), we’ll call John.  He wanted to own commercial real estate and move some of his net worth out of the stock market.   

Shane: “what do you want to achieve as a result of owning a commercial property?  How does commercial real estate fit into your future?”

The first answers were reaction or surface answers-they were not the real reasons.

John: I want more Freedom

Shane: Ok, what does more freedom mean to you?

John: Well,I guess I’d like more Flexibility.

Shane: Sure, can you tell me what having more flexibility would do for you? Why do you want flexibility?

John: I want more time?

Shane: Yes, to do what?

John: To spend time with my family.

Shane: Great, how come?

John: Because I want to be there for my kids and my wife when they need me. I don’t want to be a dad that works all the time and doesn’t really know my kids.  I want to go skiing on weekends with them.  Be there for their soccer games.  Go on vacations and not be thinking about work (or the fact that I’m not at work).  I want to make sure that one day I don’t have to trade time for money.  I want to have time to show them and teach them things. To help them grow.

This was the real reason Jim wanted to invest in commercial real estate.  Once we understood his driving force for commercial real estate investing we could design a game plan that would get him where he wanted to go. 

Knowing what he wanted and why, we determined it wouldn’t make sense to start looking at properties 3 hours away that needed a bunch of work and real estate expertise (on leasing up, or repositioning).  John is a successful doctor.   Spending more time managing a new commercial property wasn’t going to get him closer to his goal of more time with his family.

He wanted an asset that was going to pay him every month, without John trading time for money.  John wanted to be able to pass it along to his kids one day.

And, he wanted to be proud of his asset (so we found a well located property, that was built in the last 3 years).

He was already busy making very good money in his profession, it made sense for him to focus his energy and time on what he does best, and leverage other people (like me) who understanding commercial real estate investing and how money is made, to help him find the right property. 

Invest his money in a safe, low maintenance property with predictable monthly cash flow.

When you go through this exercise – think about the Experiences you’d like to have more of.

Think about the feelings these experiences will give you. These are the emotional reasons that will keep you on track and committed to you investment plan.

The reality is, many business owners and professionals make very good money each year. Yet, only a handful have a plan to create financial certainty for their families.

The ability to delay spending money on fancy vacations, or buying the new sports car- so you can make a significant move a property requires, at a minimum,  $100k.  With more equity, like $500k or $1M (does not need to be all your capital, more on this later) your options to invest in a commercial real estate expand.

Once you own a commercial property paying you $5k/month or $10k/month or $20k/month, passively and predictably – you’ve started to buy back your time.

Here’s a quick example of my why and what below (condensed):

Shane’s what and why:

I want to have $30k/month in passive income coming to me from commercial real estate I own (mainly 50 unit+ multifamily and service based retail properties), so I can wake up every morning, knowing that I have the freedom to chose where I spend my time.

It doesn’t mean I’ll stop working- it means, I can do things that bring me joy and where I feel I’m making the biggest contribution.

Money allows me to buy back time- meaning I can do more of the things I want.

NEXT BIG IDEA:

What is your Philosophy on Money?

Said differently- when you think of money, what images and thoughts do you have?  Here were some of my limited beliefs that held me back for a long time:

  • money doesn’t grow on trees
  • money takes a lot of effort to earn
  • I have to work hard to make money
  • It’s hard to make and even harder to keep

It has taken me years to reprogram the way I look at money.  Growing up with a scarcity mindset, I thought making money was a zero sum game- the more I had, the less someone else had.

It was flawed thinking.

Today, I see money simply as a tool. It’s not good or bad- it’s all in how I use the tool.

So, if I earn money and invest it wisely, it allows me to buy back time.  

One new belief I learned (and applied) from being around wealthy people was this: Rich people invest their money first and spend what’s left.

What does Financial Independence mean to you?

The ability to live comfortably from the predictable cash flow of your personally invested resources.

Let’s say commercial real estate investing is something you’re committed to.   And, you know how much you’d like to earn, passively, each month.

Using the example above: to earn $30,000/month investing in commercial real estate, the next question is: what do I need to own that will pay me $30,000/month?  And – how much capital (cash) do I need to own it?

This really depends on 1 key factor- your expected annual cash on cash return?

I like conservative numbers (even though many investments I’m involved in can range from 8%-15%/year).  For this example, we will use 6% cash on cash return each year.

So for every $100,000 invested, I will earn $6,000 in cash flow each year.

To hit my goal of $30k/month x 12 months = $360,000/year
$360,000 / 6% = $6,000,000

This is my target:

Create $6M in capital that I can invest in assets which will pay me 6%/year to generate $360k/year.

(Yes, this does not take into consideration taxes, but let’s keep things simple. There are many tax advantages owing commercial real estate- so we are focused on 1 number: Cash on cash returns).

The new money game becomes:
– Get to $6,000,000 fast (expand my income- my money or other people’s)
– Make sure I don’t lose on the way there.

We have the What and Why invest in commercial real estate clear. 

What’s next?

Once you have the basics on where you want to be and why you want it- you can start to look at the how. 

Getting the Right knowledge from the right people.

The right knowledge includes tools and beliefs which will help you move in the right direction, while avoiding common investing mistakes.

Investing in commercial real estate can be done using a specific system.  There is an art to investing, but 95% of the time, you can rely on a predictable system for investing that will deliver a consistant result each time you follow you.

Next week, we’ll dive deep into this. 

I have created a 3 step system that I teach over a 12 week course to new commercial investors.  I’ll be sharing the big rocks of commercial real estate investing in the coming weeks to help you get started.

Commercial Real Estate Investing Principles

Commercial Real Estate Investing Principles 

Commercial Real Estate Investing Principles – Before we get into the 6 Stages of investing in Commercial Real Estate (where I left off last week), I thought I should share with you, how I think about investing.

About 3 months ago I was on a call with my coach.  He asked if I’d read the book, Principles, by Ray Dalio.  I said I hadn’t, but was familiar with Ray and his investing success (he owns a hedge fund, Bridgewater Associates).

As you know, I’m not a fan of investing in stocks or the market- but that doesn’t mean I don’t study it.  In fact, many of the successful investors I learn from are stock investors.  Guys like Warren Buffett, Charlie Munger, Kyle Bass, Ray Dalio, Howard Marks – are all investors I have a great deal of respect for. 

I study their ‘investing principles‘ they follow.

So today, I want to share with you the Rules or Principles I follow when investing and guidance I give clients.

A few notes before we get into them. 

The list of Shane’s 10 Commercial Real Estate Investing Principles below are a compilation of research that has taken 10+ years.  Not all of these concepts are original or mine.  When possible, I will give credit to the person I have learned from. 

It’s not always possible, as I’m constantly updating and tweaking my investing philosophy.

Last, these are my Investing Philosophies.  I’m not asking you to agree with them or beleive any of them.  In fact, you may challenge all of them.  That’s fine. 

My hope is that it generates some critical thinking on how and what you invest in.  The questions you ask before investing.  The approach you take.  

Step 1.  Shane’ Values

    1. I value Control.  Definition: power, authority, command, dominant or mastery.
      This is why I believe in investing in Commercial Real Estate.  Because I control so much of the outcome vs. handing my money over to someone else.   If you study the great stock investors, like Warren Buffet and Charlie Munger – you find when they invest, they are not buying 1,000 shares of company and hoping it increases in value. They are buying a meaningful % of the business and with a seat on the board of directors they influence (or control) how the business operates.
    2. True Wealth. Wealth that can not be destroyed.  Which, means, that I have numerous flows of income coming to me such that if 1 or a few get cut off, that it doesn’t affect my life.  I am not there yet, but it is my ambition.  
    3. Freedom.  Free to choose where I spend my time.  Who I spend time with (clients, family, friends).  To me, it’s about choice.  What’s interesting, is how much time I chose to spend working with investors and in my own ventures.
  1. Integrity.  Simple. You say you’re going to do something, do it.
  2. Responsibility.  You take ownership of your life.  You don’t blame others for why things didn’t go your way.  This is something I have to work at every day.  It’s not easy to take 100% responsibility when things go sideways- but it is critical.  This lesson I learned during a 20x training with Navy Seals in San Diego in 2015.  They demand personal accountability, because it affects the group if 1 person is not holding up their end of the bargain.
  3. Discipline.  To have the discipline to do what’s required.  Not taking shortcuts.  Following through, even though its not easy and may not be fun.  Investing in Commercial Real Estate, there are going to be uncomfortable conversations. There will be people who are dishonest.  It’s easy to be tempted to take short cuts or do things that others may not catch on.  To maintain my reputation, I force myself to be disciplined throughout my working and non-working hours.   Something my father and father-in-law have reinforced throughout my life.
  4. Courage.  To do the things you know need to be done, even if you fear them.  
  5. Sense of Urgency. Investing in high stakes commercial real estate is requires action.  And, you to make things happen, you have to push.  Thanks Bill!
  6. Leadership Mentality.  this is harder to explain.  It’s a mindset that what I’m doing is bigger than me.  That whatever skills I’m developing, it’s important to share them with others.  It is why, I’m forcing myself to create more content.  To share what I’ve created, without fear of what others will say or think.

So, these are my underlying Values.  Without understanding my values, you would not have the context for my Commercial Real Estate Investing Principles or Philosophies. 

MINDSET: Create Predictable and Consistent Income investing in commercial real estate.  To create enough income that it pays for all your living expenses, without touching the principle – you now own your time.

Shane’s 10 Commercial Real Estate Investing Principles

  1. Strong long-term outlook (credit Buffett and Munger)
    1. MF, service based retail and Industrial are all sectors with a long horizon
    2. Do I understand the Predictability of the business long term?  If no- we do not invest (ie, single tenant industrial buildings with short term leases).
  2. Purchase on Cash flow today – Target 6% cash on cash (Credit Grant Cardone)
    1. Do not buy into the better management story, or price appreciation
    2. We do not financially engineer spreadsheets.  It’s very easy to ‘tweak’ the numbers, cap rates and assumptions.  Look at the property on an As Is basis and make your determination.
  3. Invest in what you understand
    If you do not understand retail tenants, don’t invest in them on your own.  Invest where you are competent and understand your clients.

    1. How do I get killed in this deal?  What are the disastrous outcomes?
    2. How much damage could a competitor do to me if they didn’t care about returns? (think Office downtown Calgary – Net 0 deals)
  4. Invest in properties that have real and measurable upside potential (improve vacancy, reposition a property, redevelop, add density).
    1. Solve a problem
    2. Can I buy this property with a good margin of safety – run sensitivity models to show how far rents can fall, vacancies to go up, unexpected expenses (Cap X), or interest rates can rise (debt service)
  5. Invest where there are Jobs and Growing GDP (Don Campbell- REIN)
    1. We do not fall in love with the city we live in.  That said, if you’re in a big enough city, and it has strong fundamentals, there are opportunities.
  6. Conservative Debt (father in law, Andy)
    Leverage can be amazing at increasing returns, but, on the downside, it can wipe you out.  So, we generally like 30% equity in our deals, with solid room for covering our debt service
  7. Supply and Demand Fundamentals (Munger/Cardone)
    Be careful investing in a markets where barrier to entry is low (large supply of land, cheap labor, etc).  If you can buy well below replacement value, that is a good starting point.

    1. Brand loyalty
    2. Barriers to entry
    3. Capital investment required (today and ongoing)
    4. Obsolescence (if too old, is it still relevant)
    5. Changing buying habits (online)
    6. Competitors ability to cut prices (lower cost base)
  8. Location and Timing are Crucial (Experience)
    Don’t be married to investing in 1 place and/or must invest today.  Goes back to patience and constant learning
  9. Invest where you have a Market or Analytical Advantage.  (Brokers I worked with in Houston and Texas)
    Meaning you know people in the cities or areas you are investing in and they have insights others do not, or, you have analytical data that gives you an adv over the competition.

    1. What happens if I’m wrong on this investment?
    2. Have you personally guaranteed the loan?
    3. Do you have investors money in this deal?
    4. Are you “All In” or, are you properly hedged?
  10. Competent and HONEST Management (experience, the hard way)
    1. How deep is the labor pool?
    2. Are you dependent on talented people to run the property?  If so, you could be beholden to them (ie, small towns, remote areas, complex properties)

These are my guiding beliefs and philosophies for investing in commercial real estate – and why I like Multifamily Properties.

If you have thoughts on comments – let me know.  I’m far from perfect.  

 

Why Invest in Commercial Real Estate?

Why invest in Commercial Real Estate ?

My passion for investing in commercial real estate originally started in my first year of University- although at the time, I didn’t know commercial real estate was my thing.

 

If you’ve ever lost significant money investing in stocks, real estate, someone’s company – then the story below will resonate. 

My first big lesson in ‘how not’ to invest, came during the summer after my first year of University.   I was living in Calgary, going to the University of Calgary, taking Economics and Business and had moved back to Whitecourt to make money over the summer.  Whitecourt is a small logging town where I grew up. 

During the summer,I’d operate D5 and D8 Caterpillars to build logging roads with my friends dad.  It was a great summer job that paid well. 

My friend, we’ll call him Sean, would take the summers off to do other entrepreneurial ventures.  I’d get picked up at 5am and dropped off at 7pm, 7 days a week, as long there was no rain.  Long hours, and good money.

Anyway, that summer, my friend Sean was working on a new business.  He told me about an incredible investment opportunity that would 36% every 2 months.  I wouldn’t have to do anything- just give him my money and I’d get a check every 2 months.

He told me a few big names of other very successful business man in Whitecourt who had already put in money- I think he raised more than $1m and that there was room he could make for me (playing on scarcity, fear of missing out).

At age 19- someone telling me I could basically be a millionaire in 2 years if I invested now and didn’t have to wake up everyday at 4:30 and work 16 hours.  Sounded good to me.

Plus, look at all the other smart people already investing.  I was lucky to even be invited in.

Well, I couldn’t get the money I’d saved all summer out of my bank and to him fast enough.  Every penny I  saved over the summer, went into the investment.  I think it was about $10k USD or about $13.5k CAD.

BTW- that money was to pay for 2nd year of university living/food and the downpayment for my dream car – a purple mustang GT.  Used, of course, but it was a beautiful car.

My dream car- Purple Mustang GT 1997
My dream car- Purple Mustang GT 1997

My dad,  heard about the opportunity, met my buddy and was also sold on it.  He had just paid off the mortgage on their home and took a line of credit against it to invest $100k.

As you can imagine, it was a complete scam.  No profits.  No returns.  Just loss. For me, at 19, I was pissed off having lost that much money.  Especially, because it was my buddy who sold me on it.

For my parents, watching them remortgage their home, after they had worked as teachers for 30 years to have their dreams killed.  It was heart breaking.  If I think too hard about it now, I still wish someone would have given us sound investing advice.

Like, don’t go into debt (bad debt) to invest in something you don’t understand, with someone who has no track record. 

If you’ve ever made a huge mistake investing, you know how embarrassing it is.  You don’t want to think about it or talk about it.  It’s easier to try and forget it.

That was not an option for me.  I took responsibility for that loss and felt that I should have known better for my parents too.

 

For me, that event put me on the path for learning how the rich created and then KEPT their wealth.  I started reading books, going to seminars and hiring mentors.  I became obsessed with making money so I could invest it.

First I needed a way to grow my income.  That year, going back to University, I ended up working 3 and then 4 jobs.  I was working early morning and evening and weekends.  I don’t think I took a weekend off in 5 years after that.  And, I saved every cent I made.

Once I graduated, I got my first ‘real’ job at the City of Calgary in Urban Planning and Assessment.  There I met a guy, Richard who was into building houses and investing in real estate.  About the same time, my roommate Jeff, also started investing in real estate.

Seeing them make money, I felt it was time for me to learn this.  So, within a year, I had my real estate license and was buying and selling homes. I started fixing and flipping, then built spec homes and finally started to buy and hold rentals.  I was making money, but it was not predicable and I knew I was not creating wealth.

I think it was 2006, when I landed a job at Sun Life Financial.  We would lend money (mortgages) to owners of commercial real estate.  This was the first time I interacted with individuals worth $10M, $50M, and one man I met, Harvey, was worth mid 9-figures.

During my time at Sun Life, at an industry Golf tournament, I met my now wife.  She was a designer who specialized in commercial real estate.  Her dad, was dad also a major player in commercial real estate.  Over time, as he got to know me, he took me under his wing and brought me into some of the investments he was doing with high networth friends/family.

This was the first time I was on the other side of the table.  Able to see how money was really made.

It was incredible to experience this level of investing.  Growing up in a small town, I’d watch movies about how the rich and famous lived.  But this wasn’t anything like that.  There were big houses and nice cars.  But, the investors were all very focused and clear on what they wanted.  They understood risk. 

They were, for the most part, good judges of character.

They did business with one another.  And, I realized how small the circle was for these successful investors.  They all knew each other and most did business with each other. 

If you were an outsider, it would be very difficult to penetrate these circles.  Most people, even successful businessmen, would not have the opportunity to work on the deals I was involved in;

  • Selling $20M – $30M commercial properties (apartment buildings and retail properties). *
  • Raising $6.5M in a week for a syndication of a resort development I was the president of.*
  • Helping an investor turn $4.5M into $15m in 5 years, plus earning more than 10%/year during the 5 years.*
  • One property we bought for 8.5M in 2011, we later sold for 17M in 2014. *

*CAVEAT: Results not typical.  I’m not suggesting it’s easy or that these are typical.  

You couldn’t do this in single family real estate. 

You wouldn’t have the same level of control investing in stocks, bonds or private companies.

So what did I learn working with these sophisticated investors?  And, how is it going to help you?

This post is long enough.  I’ll go into that next week.  Where I’ll discuss the 6 Stages of investing in Commercial Real Estate.  

5 Questions to Ask before Investing In Calgary Commercial Real Estate

Here are 5 Questions to ask yourself or your broker before Investing in Calgary Commercial Real Estate

Before we look at the five questions- let’s take a step back so you understand where I’m coming from.  If you are considering buying Calgary commercial real estate, it’s likely you are looking for a few things:

  • Predictable cash flow and,
  • Wealth Preservation (the value of the property will remain over time)

If you are not familiar with investing in Calgary commercial real estate, it’s important to know there is no shortage of buyers who have money and want to buy.  The challenge is in finding properties at a reasonable price, well located, with stable and predictable cash flow.

In my experience, as both an investor in Calgary commercial real estate and investment salesperson- with so much money on the sidelines, looking for commercial properties, it’s difficult for smaller private investors (relatively speaking) to purchase properties under $15M with decent returns.

The difficulty arises when there are 10 buyers and 1 seller. 

Supply and Demand.

Some buyers stretch to make a purchase- the winner, usually has what is called a low ‘cost of capital‘. 

Cost of Capital – is the return an investor needs on their equity.  For example, if a Pension fund, or Life Company can raise equity at 2% and can buy commercial properties in Calgary at a >5% return, they have positive leverage.

For you, a private investor, it’s unlikely you would purchase real estate and only expect 5% cash on cash return.  

Most business owners, doctors, lawyers and dentists I work with, are looking for stable 6-10% cash on cash returns (plus, whatever mortgage payments are made each year, which increases their equity).  

To do this- it’s unlikely you are going to find good, commercial real estate listed from larger brokerages.  Knowing there are a line up of buyers who want good commercial properties, brokers run auction style sales processes to bid up the price.  And, often this eliminates the private investors from getting any type of advantage.

So, what is the solution?  Let’s look at the five questions (as they set up the answer well).

First: The 5 questions a Private Investor should ask before buying Calgary Commercial Real Estate are:

  1. Why should a bargain/deal exist on a property?  If a property is priced ‘low’ or at a bargain, the first question is ‘why’.  If there are many buyers who will purchase good commercial real estate- why then does a bargain exist?  In some cases, it’s not a bargain, and/or, it’s not a good piece of real estate.
  2. When returns are ‘generous’ when compared to the risk – ask yourself: ‘am I overlooking or missing something’?  Don’t assume you have found the holy grail.  Look for skeletons.  Sellers of properties are not stupid.  They use Greed and Fear of missing out as leverage to entice buyers to stretch.
  3. Why is the Seller Selling, especially if they are selling at price that is going to give me tremendous upside?  What problem am I solving for the seller?  What am I missing?
  4. Why are you showing me the deal first?  Or, am I the first person to see this property?
  5. Look at 50 properties before you buy 1.  It’s the Law of Large Numbers – you need to see a of properties in most cases before you find the right one.  So, either you do this, or, you have someone do it for you.

These questions came from my research on how some of the greatest stock investors look at companies and invest.  Some of these questions were inspired from and credit to Howard Marks).

When you understand these questions- it’s easier to identify when you actually have a competitive edge.

In commercial real estate, to get that edge, here are a few ways to improve your odds of finding a property that will give you stable cash flow, at solid in place returns:

  1. Off market properties.  Unlisted and you are first to know about (either you are doing the cold calling or, you have a relationship with a commercial agent, who will find you a property directly from owner).  Much of my business is done this way.
  2. Properties in submarkets– they are off the grid for most larger players
  3. Properties priced between $2M- $10M.  Too small for big players and too big for mom and pop investors
  4. Properties that are ‘out of fad’.  Today, that would be office (however, I still would not personally recommend most office properties given the uncertainty of where this market will be in 2-10 years).  Industrial properties are another, non-sexy investment that most private investors are unaware of, but can give great returns.

These are a few ideas you can use to identify gaps in the market, and give yourself a competitive Edge.  

The key, in my experience is having a solid Acquisition plan in place.  When you know what you want, where you want it and how much you are prepared to pay- that clarity, gives you power.  When you’re speaking with a broker or property owners, they can sense you are serious and will often come to you first.

If you’d like helping crafting your Acquisition Plan– set up a time with me to do this.  I have a 10 point process that will get you crystal clear on your objectives.  It takes about an hour, and once you have it, you will be in the 1% of Private Investors who has a clear Acquisition Plan, to build Lifelong Wealth for you and your family through commercial real estate.

Set up a Time to create your 10 Point Commercial Real Estate Acquisition Plan– Email smelanson@blackwatchproperty.com 

How to profit from owning Multifamily Properties in Calgary

Investing in Multifamily Properties in Calgary

Here are 8 Ways to Invest for Cash flow in Commercial Real Estate today (specifically Multifamily properties in Calgary).

It should be noted, there is no one right way to invest in apartment buildings.  There are no Guarantees when you buy an apartment building, that you will make money.  BUT, if you follow these strategies, you greatly improve your percentages.

1. Buy on Today’s Cash flow.  Consider upside but look at Cash today.  Leases, tenants and viability long term.

2. What is your Disposition Plan – Once you purchase, have you considered, how you will sell?  When will you sell?  This could dictate how long of a term you take for your mortgage.  It’s amazing how many times I work with investors that go into the acquisition without a clearly define exit plan?

3. Look for Value ad – This is a commonly thrown around term.  “I want a value add property”.  The problem with that statement, is it’s too vague.  Specifically what value ad are you looking for?  Major capital expenditures, like new roofs, windows, foundation issues, parking lot issues? Or, are you looking for cosmetic renovations, new flooring, light fixtures, appliances to add value? 

I recently spoke with an investor, who owns a General Contracting company.  He is looking for buildings with large offices or common area that he can go in and, through proper permitting, increase the number of actual units in the building.

The other question you want to ask is – when will you do the renovations?  Ideally, you get better pricing by doing bulk reno’s.  But, you run the risk of frustrating your tenants.  So, when a tenant leaves is ideal to get in your crews, so you want to be thinking 3-6 months out.  What units are going to be vacant?  How long will they be vacant?

Looking for buildings with high tenant turn over, unusually high vacancies, and, depending on the area you are in, redevelopment opportunities.

4. Long Term leases –  Goes without saying, but having good tenants, with jobs that can pay the rent is critical.  Before buying a property, look at where the tenants work.  Is there public transit?  How many vehicles are in the parking lot (during the day and evening, weekends)?  What is the quality of the cars parked there?  

I like to understand exactly who my clients (tenants) are going to be in a building before I buy it.  

5. Location– Goes without saying location is key.  Close to amenities, employment hubs, new infrastructure, public transit.  The reason apartments have grown in demand over the past 5 years, is the demographic shifts going on in Canada and the US.  Millennials and Baby Boomers make up the two largest segments of the population now and are renting more often and for longer.

6. Financing Consideration: There are important considerations before securing your debt.  Broker or bank?  CMHC vs. Conventional debt?  Can you find Non-recourse (or limited recourse).  If you’re buying with partners, are you Joint and Several or Several Liability?  Based on your timeframe for owing, are you getting the longest term you can find (with rates rising, that might be the smart thing to do- less room for rates to fall and lots of room for rates to rise).

What does the prepayment penalty look like?  I’ve worked on a apartment transaction where the prepayment penalty was more than $2.7M.   

Last, can the debt be assumed?  If so, are you still guaranteeing the loan or can you be released?

7. Looking for Problems (ie, opportunities) – In commercial real estate, owners don’t generally advertise they are having an issue.  Which is why having intel, talking with owners regularly and driving the market is key. 

A few ares to watch for opportunities:

  • partnership problems,
  • Higher than usual vacancy,
  • building issues
  • Property management issues
  • Deferred maintenance,
  • Leasing issues (can you get a hold of the property manager, can they sell/sign up new tenants)
  • Tenant issues – are you in a war zone?  Do you feel unsafe touring the property at night?
  • Lack of parking.

8. Finding The Void– where in the Calgary apartment rental market is there a void or shortage?  Look for opportunities where there is demand that is not being met.  Today, when I look around at the Purpose built rentals in Calgary, there is a shortage of new, quality product.  I also see Airbnb starting to grow in demand.  I am not the expert at Airbnb, but, we are looking at this for an apartment building I own in Edmonton.

If I can generate $75-$100/night on Airbnb and lease it up 75% of the time, it far exceeds the $825/month I’m getting now.

These are some ideas for investors looking to purchase a cash flowing apartment building.  

If you are looking to purchase an apartment building in Calgary or surrounding area – connect with me.  The market is stabilizing and there are more sellers today than I’ve seen in the past few years.  

Shane

c. 403 681 6021

Click the Link Below to download free book

Club Syndication, How to Invest in Commercial Real Estate

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