In this episode, Quentin talks with a member, who is looking to pull equity out of his properties to reinvest, we explore how investing in larger multifamily properties might be the best strategy for achieving his goal of building wealth.
The member shares that he currently owns five properties in Oshawa, three singles, and two duplexes. His future goals are to set up lines of credits on all of his properties to give him access to around $1.5 million in equity. He says that as it hard to find cash flow in Oshawa now, he is looking at smaller, less competitive markets. He adds that he is looking for guidance and coaching mentorship, or someone to point him in the direction about whether he would be better off continuing to buy bungalows and legalized basement apartments or if he should try to get into multifamily. Quentin suggests that as his goal is to create additional net worth, the member should go for multifamily properties, as the numbers work well, especially if you purchase it correctly.
The one-to-four-unit properties are more towards generating cash flow and appreciation, but if you’re looking for wealth, apartment buildings will do it for you. He adds that “you can invest yourself; you can invest with somebody else, you can do what you know, different approaches.” Furthermore, the best thing about them is that you can refinance them. They also don’t have the same roadblocks as one-to-four-unit properties. He further recommends going through the presentations by Pierre-Paul Turgeon on the subject. Quentin adds that the member would need to find a realtor that actually does multifamily buildings. They require 30% down or 35% down depending on the purchase prices, and working in the six-to-12-unit range, it’s pretty competitive. He can start by approaching people who have six to 12 units and see if they’re interested in selling those. He can connect with realtors and find out whether they have anything available. He needs to look at who is listing properties in the area, and then contact them.
Quentin adds that he needs to make sure that he is getting a yield on his money, like if his interest rate is 2% and the cap rate is 4%, at least he has a spread there. Talking about the competitiveness in the six-to-12-unit properties, Quentin says that “you have to have your cash ready; you have to have your ability to close and you have to understand all the pieces. So, getting your team together is going to be really important.” Additionally, he would have to get commercial mortgage, a holding company, insurance, all ready to go. That way, when he puts an offer in, he has the cash, he has the financing, he knows how they’ll evaluate the deal, and he can move ahead with it. Furthermore, Quentin suggests looking at an exercise called The Return of Equity Calculation, adding “it’s a good way of evaluating a property’s seeing and comparing your different assets based on your returns, it may give you a different insight. And then you could run the same calculation based on what you would buy an apartment building for and see what your return would be.”
He suggests that selling an asset and putting those funds into other assets that are easily re-financeable is a better option often and staying residential, as long as you’re willing to grow. He also recommends checking the discount on setting up a holding company in the discount section on the website as well as going through the roadmaps on The Multifamily Phase. He adds that for the most part, most holding companies are the same, as there’s not much different to them. But if you have high income, you may want to talk to your accountant just to make sure how they suggest you set it up. While having a paralegal set it up is a more economic option, if you haven’t done it before, it is better to work with the professionals.
In response to whether the member should disregard the idea of triplexes, Quentin says that if the numbers make sense, the deal makes sense, then move forward with it. If he plans on buying outside of his area, he should make sure that he has a property manager. In conclusion, Quinton suggests attending the Q&A sessions, and networking and connecting with other members who are working in similar spaces.
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Action Taker's Real Estate Investing Planner, The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords, The Filling Vacancies Toolbox: A Step-By-Step Guide for Ontario Real Estate Investors and Landlords for Renting Out Residential Real Estate, and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.