Working Capital The Real Estate Podcast
Twelve Properties in Twelve Months with Investors Dave & Melanie Dupuis|EP35
Jan 6, 2021
In This Episode
Investors Mel and Dave Dupuis are Speakers and Mentors across North America. They are BEST SELLING AUTHORS and share their secrets on how they solely purchased 12 properties in less than 12 months with none of their own money and now own over 170 units.
In this episode. We talked about:
- Their journey how they become both successful in being seller/owner financing
- Real estate investing secrets
- Their mentality to creative financing, repositioning and
renovating the asset
- Helping others to sell their property quickly compare in a buyer’s market
- How they started in 12 properties to over 170 units now with no partners and none of their own money
- How to become your own boss
- and MUCH MORE!
Resources and Links:
Jesse Fragale (1s):
Hey everybody. This is Jesse Fragale. Before we started this episode, I just want to say thank you so much for everybody that keeps on listening, it really is amazing to me and I can’t. Thank you enough. What would really help us out is if you enjoy the show to go over to iTunes and leave us a five star review. Also, if you have a favorite episode, what would be great is if you could share it on social media, whether that’s Facebook, Instagram, or LinkedIn, anyways, enjoy the show. Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time.
Jesse Fragale (46s):
All right, ladies and gentlemen, my name is Jesper galley. You’re listening to working capital the real estate podcast. A couple of great guests on the show today. Investor Mellon, Dave, Mel, and Dave are speakers and mentors across North America. They are bestselling authors and share their secrets on how they solely purchased 12 properties in 12 months with none of their own money. And now own over. I was just updated 200 units in real estate. How are you guys doing today?
Mel (1m 10s):
You’re fantastic. Thank you so much for having us on.
Jesse Fragale (1m 13s):
Great, Jesse. Thanks. Awesome. Well, thanks so much for coming on the show. I was kind of alluding to this when we were talking before that, I pretty much can’t go anywhere in terms of online presence with real estate, without bumping into one or both of you. So fantastic job on the marketing efforts, What I’d like to do as my listeners know, I’d like to take a step back and talk a little bit about the people that I have on the show. You know, what was your background in terms of how you initially got into real estate and maybe where you grew up? I think listeners will get a lot of value out of it.
Mel (1m 48s):
Yeah, absolutely. Well, we had zero background in real estate buck back in the day, Dave was a full-time firefighter. I used to work for a local college here, but we both knew that real estate investing could absolutely change our lives. And, and we, we grew up in Northern Ontario and although we didn’t know, you know, if we didn’t know at all, we didn’t have any family in it or anything like that. We did decide to, to grow a portfolio. And when I met Dave, I had two properties, they had one and that’s when we started, we started slowly buying the traditional way. And when I say traditional, I mean using my own money or our own money to put down the 20% down and we realized that that’s going to take us forever if we wanted to leave her full-time jobs.
Mel (2m 36s):
And then finally with, we discovered the power of creative financing.
Jesse Fragale (2m 41s):
Awesome. Sorry. Were you going to say something there to, yeah. When I met mal, like I purchased a single family dwelling, so I kind of didn’t really purchase that as an income property. I just said, just got my dream job as a firefighter. So yeah. Figured I’d buy a house. Right. Do what I’m told to buy a as the best
Dave (3m 0s):
Investment you can ever make and yeah. Kinda met Mel and, and then that’s when we started with the multi-family stuff
Jesse Fragale (3m 7s):
Right on. So was the beginning of your career in real estate? Was that in North Bay, Ontario? Yes. Correct. Yeah. So why don’t you talk to us a little bit about that light bulb moment? You mentioned creative financing and actually getting out to buy investment properties in a little bit of a different strategy that you were used to originally.
Mel (3m 27s):
Yeah, so we, we both knew that we would love to kill credit full-time jobs on th that road’s been more time. We have three kids. I want to spend more time with our, with our three children and that doing it, their traditional way was very time consuming. So we were working all the time. Dave was taking on every single overtime shift. She could, I was, I started teaching on top of working full time and it was just work, work, work. And then we were actually in Florida on a trip and we’re by the pool and we’re listening to rich dad, poor dad over Kiyosaki. And it, it was, it was that day that changed our lives. At least our mindset about time and money and leveraging other people’s money.
Mel (4m 7s):
And we realized that, Oh my gosh, all of these years we’ve been doing it wrong. Yes. I mean, it was doable. We were scaling, but very, very slowly. And it would take us 10, 15, 20 years to before we could actually retire. But with leveraging, we’re able to, to get started. Yeah.
Dave (4m 22s):
A number of, well, rich dad, poor dad’s rule, number one, right. The rich don’t work for money and I would kind of hit home like, okay, we’re working like crazy and things are changing. So obviously, and then when that’s, as soon as he explained that the rich don’t work for money, that leverage is power and debt is power. Yeah. Anyway, we were ready for that message. And we, and we heard a loud and clear.
Jesse Fragale (4m 44s):
So let’s talk about how you took that message and turn that into the first acquisition. Maybe a little bit about the details of that first property that was subsequent to the light bulb moment.
Mel (4m 55s):
Well, but before doing so, I was very scared about using other people’s money. And when we say other people’s money for us, we don’t have any joint venture partners. So it was solely, we would still solely be ours, but using somebody else’s money, whether it’s owner financing. So I’d find in saying all that, however, I was really, really skeptical. And so was they, we thought it was illegal. We, we thought it, you know, it’s just a scam know, I don’t wanna end up in prison. So I was very skeptical, skeptical to get started. Although I knew that that was the way to do it, but I was very skeptical. So we actually met with people across Canada that were buying properties this way. And many of them had actually lost their portfolio.
Mel (5m 37s):
And I want to speak with them because I want to know what went wrong so I could avoid it. And they were kind enough to meet with us. And it all came down to their exit strategy. Right. So didn’t know how they going to pay back that private money. So, so that’s exactly what we did. We ended up approaching sellers and all that. We showed them our exit strategy. So they felt comfortable investing us. And that’s the year that we bought 12 properties in less than 12 months.
Dave (6m 2s):
Yeah. And if you want to start going into, into deals, Jesse, the first one. So we were, we were fresh from learning creative financing. We’re pumped up and 2017 rolls around and we had already negotiated some at the end of 2016 and they were closing. I think it was two at the end of Jan and one or two with, at the beginning of February. But the first one was, and this is the one that’s not, I shouldn’t say easy, but the easiest is seller financing with creative financing rates, seller financing, where do you have an institution or some sort of private lender or different mortgage broker that will give you that first mortgage. And that first deal, that kind of light bulb after a, Hey, this actually works well.
Dave (6m 46s):
We’ve been reading about and studying, he held, I think it was 20 or 25%. It was five units. And over, so yes, it was 25%, second mortgage. And we had a credit union in our city here, hold the first mortgage of 75%. So a hundred percent finance deals and we actually negotiated some of the, what do you call it? Legal fees and closing costs and land transfer and all that. So it actually ended up being literally a hundred percent, zero down deal. And I think even after disbursements and everything and adjustments from the, from the lawyers, we went home with a check on closing day, right from the last month’s rent. So anyway, once we saw that happen and we’re like, Hey, this is,
Mel (7m 28s):
I saw the power of it. And now my gosh, we finally got a yes then while we, we just, we got the yesterday, we couldn’t stop.
Jesse Fragale (7m 36s):
No for sure. And it looks like you had a, a cash on cash where the denominator would be zero on, on your return on that.
Mel (7m 43s):
That’s the thing, it’s, it becomes limitless because now using your own money and it’s infinite return on investment, which is absolutely amazing.
Jesse Fragale (7m 51s):
So let’s talk about that. Cause I mean, you’re getting into this, you’re admittedly, a little kind of worried is this, is it, you know, the proper way to do things now, just by listening to that example, a hundred percent financing. The first thing that comes to mind for probably listeners and myself is okay, that’s great. But in terms of finding deals that are actually going to cashflow at a hundred percent financing, so kind of alluding to the debt service coverage ratio, are you, were you able to find, well, it sounds like you were, but maybe talk about what the process was like to find deals that you could do at that level of, of leverage and still cashflow.
Mel (8m 26s):
Yeah, absolutely. I’ll let you go ahead this time and talking more than you.
Dave (8m 31s):
The thing is we have a cashflow analysis matrix and that it has four ways of underwriting the deal, sorry, four pillars that underwrite the deal. So that’s the thing is looking at it. We look at a lot of deals and people think, Oh, well, a hundred percent finance. I have to take this. Even if I don’t make money for the next 10 years. No, don’t, don’t touch those ones. So I’m glad you brought that up. This deal, cash flowed, even at a hundred percent financed, the ratio is still sense that sense of the institution, otherwise they would have said no. So even at a hundred percent finance, their ratios were met. Our cashflow ratios were met. And that, that was a negotiating tool with the seller as well. Right? Hey, we’ll do this deal. But look, this, you know, it has to be this purchase price or the interest rate that you’re holding has to be this.
Dave (9m 16s):
The term has to be this. The amortization has to be such a, such as this. And that’s where that I shouldn’t say buying power, but that negotiation power is it’s just amplified because it’s not even you it’s just strictly numbers. And for the deal to make sense, it has to be a certain way. So to, to kind of compound on that, Jesse, the amazing part of it is once you find those a hundred percent finance deals that still cashflow right forward for down the road here, let’s go forward. Let’s move down the road. Once you get that lift in the building, get the new appraisal, refinance it, pay out the more expensive second debt, secondary debt. And now you’ve got, let’s see you bring it to an, a lender.
Dave (9m 57s):
And you’ve got a lot, a lot cheaper debt, a lot, a lot lower interest rate. Well now your deal used to make sense of how a hundred percent finance and now it just cashflow is even more, your debt’s higher, but it’s, it’s cheaper. So it’s a, win-win
Mel (10m 11s):
The castle went from here to even higher, as soon as they’re able to pay out the lenders. Of course. Right. So it just made it so beneficial. And of course, I mean the key is to look at lots of deals, finding lots of deals. That’s a question we get all the time. Is it how you did do, did we get some nos? Absolutely. When we asked for owner financing and all that, we’re still getting, we still get notes. Is there some deals that were a hundred percent finance where we’re excited, we love the building. We love the location. We love everything about it, but the numbers don’t make sense or we don’t have an exit strategy. Yes there are. And we don’t do those because again, this is truly about setting yourselves up for longterm wealth and success for, for ourselves and for the kids that generational wealth. So it’s finding a lot of deals looking at listed deals and off market deals as well.
Mel (10m 55s):
And really making sure you do your numbers and not just jumping on it because you get excited again, make sure the ratios make sense of these financial institutions keep saying yes to you. Okay.
Jesse Fragale (11m 4s):
Yeah. That makes sense. And you kind of touched on the point of, you know, down the road when you do refinance and maybe you, you buy out that higher debt that maybe it’s interest only, or, you know, whatever the terms are, not as attractive as say, schedule one bank or any lender at that point, when you guys look at deals, are you looking typically a certain amount of time down the road where you are going to pay out that, that maybe a higher, a higher interest rate debt. And is that part of the strategy or is it these private lenders that you have? Are they some of them longer term lenders for you?
Dave (11m 37s):
Yeah. And, and a hundred percent. And I’m glad you brought that up. Jesse, the exit strategy before we, even before I even put an offer in, on a deal, right before we even bugged the realtors or the lawyers to get a, write up an offer for us, we need to know our exit strategy. Like you said, we’re highly leveraged. We’re using other people’s money. We’re using creative financing. So that’s something anyone that’s listening do not touch a cent of someone else’s money, unless you 100% know how you’re going to pay them back. So you hit the nail on the head before getting into it. That’s what we look at. Okay. Let’s see. Well, let’s take that example. It was a seven plus. And I knew if I got at least three of the rents up to market rent, cause they were, they had been there for 10, 12 years.
Dave (12m 21s):
The rents were very low. The, the previous owners slash landlord was good. He just got comfortable and which is nothing wrong with it. He just thought, you know what, less tone turnover, the better I’ll keep the rents low, keep the tenants happy, right. What you can still do with high rents. But so once those three or more units flipped over, we were able to get the market rent, you know, renovate and, and what’s the word I’m gonna position renovate the reposition in the asset. And we predicted, let’s say two to three years, we had a five-year term with the seller. That way we had our cushion in case it took four years already. The case it took longer, but at the about two and a half year, Mark three-year Mark, the rents had gone up enough, which justified a new value, which we had projected, went to the lender, got the appraisal, got the refinance, pay them out.
Dave (13m 10s):
So a hundred percent nailed it on the head. You have to know how you’re going to exit that expensive, more starting, more expensive money or creative financing before you jump into it. Right. If there are people that don’t know, and that’s what Mel was saying earlier, we researched as the people that failed didn’t have the exit. They were depending on the market to keep going the way it is and for interest rates to keep going down. And when that didn’t happen.
Jesse Fragale (13m 34s):
Yeah. It kind of reminds me of, I think it was another podcast I was listening to and it was talking about some of the differentiation between single family housing and commercial real estate. And a lot of that really came down to the net operating income, which is something that you can manipulate and investments, income producing assets that you can’t really do in say your, your house has a consumption. Good. And it sounds like despite what the market is doing, you know, if you can increase the rents, if you can add that value, you bet you’ll be able to reposition that property a couple of years down the line.
Dave (14m 4s):
Yeah. Yeah. You’re being on a house. How are we going to, how are you going to increase the rent? Well, no, it’s, it’s the, it’s the comparables. It’s, what’s the, market’s doing that’s, there’s nothing for you to tweak or, or I agree with you a hundred percent Jesse. That’s why income properties are amazing because once you tweak that NOI, get the rents up, get the expenses down, innovate, reposition, and you can justify it and you appreciate,
Jesse Fragale (14m 25s):
Okay. So I want to talk a little bit about you you’ve touched on it, seller financing, or, you know, some people will notice us vendor take back mortgage. We’ve talked about it a bit on the show. Let’s demystify it a little bit for listeners. When you say seller financing, what do you mean by that? And also you kind of also mentioned this, that you’ll put it in contracts. Sometimes you get it. Sometimes you don’t, maybe you could expand that a little bit on that. Yeah, absolutely.
Dave (14m 50s):
And we’re certainly not afraid to ask it anymore.
Mel (14m 52s):
You got to get comfortable with some nos, but yeah, seller finance was fine. It said seller financing, vendor take-back or VTB or owner financing. It’s firstly, all the same terms just defined differently. Different people use it, different terms, but it’s all the same thing, essentially. It’s where the owner holds part of the mortgage for you. So that means they are incense becoming think of it as a bank. They are becoming a bank for you to keep it very simple, just for the concept aspect of it. Now the bank or the, the owner can actually be a hundred percent owner financing. We’ve had some deals where we didn’t even go to financial institution whatsoever. This building that we are in right now, as we speak this one again, we didn’t use a financial institution.
Mel (15m 36s):
It was 80% owner financing and a 20% Mrs. Or RSP. So there’s different ways of doing it. And for those who are listening from the United States, it’s, that would be equivalent to, for one 401k. So there’s different ways to finance deals. And of course, quite often vendor take back the most popular is that they actually help you with the deposit. So 20 or 25% down that’s needed. That’s where they often are willing to do that. So that way let’s say I get approved for 85 or sorry, 80%. Let’s say to duplex, 80% of the financial institution, 20% owner financing, Melanie and Dave, we’re putting in none of our own money into the deal.
3 (16m 18s):
Yeah. That’s pretty incredible, sir. You wanted to expand on that too. Well, I, I just, I know the questions coming or I know the listeners are thinking, well, why would the seller ever do that? That’s something that we get all the time. Like why would they ever do that? They must be under water in their building. They must be in trouble. They must be under hardship. And it’s very simple. The fact that they’re doing it is because they benefit. If the seller was not benefiting from this seller financing, why would there ever be seller financing? So to touch on a couple of things, the obvious a they get to the seller property, right? If they didn’t have succession planning or an exit strategy themselves, a lot of them are mom and pops that got up there in age they’re the, the children are not interested.
3 (16m 59s):
So that was their succession plan. Sorry, succession planning. And I didn’t come to fruition. So now here we come offer them seller financing. They get to liquidate their assets. They get to make it cause we make it very easy for them. And the other thing too, they they’re used to getting a check every month from rent. So now we substitute that with a set of rent, you get, Hey, my mortgage payment, I pay you a mortgage payment. So that justifies that for them. The other thing, as well as taxes, right? When you sell an income property, real estate there’s taxes, there’s capital gains. Whether you sell it with owner financing or you sell a completely outright, you’re going to have capital gains, no one escapes that. And if you have American listeners, I know you go to your 10 31, I get it with the escrows.
3 (17m 41s):
And as long as you don’t touch it, so a hundred percent. However, like I said, the capital gains, no one can escape. It’s the other portion. And let’s use, I usually like using numbers, let’s use a million dollar asset. So Jesse, you’re willing to hold owner financing for me. And you’re going to hold the down payment of 20%. Let’s say so I get an institution, 80% loan to value. So on closing Jessie, you would receive $800,000 from the million dollar sale. And I know, you know, this, Jesse, I’m just using you as the Oh no, no, this is right. We like, we like to get in the weeds here. This is great. And then, so what is, you know, as long as you find that institution, that’s allowing a secondary behind them or creative financing.
3 (18m 23s):
So Jessie, your equity would end up now turning into, so that 200 K that you had an equity or that you’re leaving in the deal, let’s say now becomes a mortgage for Mellon Dave. So on closing, we don’t need to come up with $200,000. So that’s our down payment. So that’s a win for us. Now, the wind for you is when it comes to tax time, let’s say you personally own the asset. Jessie, you would receive $800,000 on top of your income that you got that year. So you would be taxed at that tax bracket, anything over and above, you know, on a knock. I’m not an account, so I’m not going to get into taxes, but you’re going to get taxed on that 800 K in that same year. So what, what the benefit for Jesse or any seller financing is that remaining 200 that you didn’t receive, right?
3 (19m 6s):
Because you did sell it, but you don’t actually get the money yet. You now get to, I call it spreading the love. So you can spread it up to five. You get to spread it over five years. You only pay taxes on the amount you received. So let’s say I pay you 50 K a year until the end. When I PO completely you’re only going to pay taxes on that amount. Plus you’re making interest on that money. You’re actually that 200 K is actually becoming an investment. So that’s why sellers do it. It’s because their accountant says, Oh my gosh, if you sell this million dollar building, do you know what your tax bill is going to be? And they say, okay. And then if I can deviate 200 from that and spread it over five. So again, it’s playing the tax game and that’s what real estate is all about.
4 (19m 45s):
They win and everybody should win. And remember that in, in real estate, don’t try. And, and we did it wrong at the beginning, very wrong. We did it very wrong. We were trying to win. We’re trying to get the best deal. It was all about Mellon Dave. And then we realized that we’re not going to be very successful until we had that mindset of, Hey, everybody’s going to anybody that does business without the sellers are gonna win. We’re gonna win. And everybody involves wins. And that’s going to get you way further, because guess what? There’s a lot of lenders that we didn’t even know it. Cause it didn’t even tell us at the beginning we paid them back. And then they said, well, I didn’t tell you this, but I have another property I want to sell. And I was a very positive transaction with you. I made money. You pay me on time.
4 (20m 25s):
You paid me back. When you said you would, or even early, let’s do it again with the next property. So that’s how you grow, right? It’s it’s your name as well behind, behind what you do.
3 (20m 36s):
Can I tell, I know you probably won’t go to the next, can I tell you a quick little story about what Mel just said? I would love you to tell me a story. Okay. So it’s so true, right? Sellers. Not that they’re reluctant, but they want to get that factor. And
5 (20m 48s):
The person that I told you, the gentleman that sold us, that asset, that held the second mortgage. He sold us that one, after the deal went through, you know, three, four or five months of payments on time, everything’s good. He sees us renovating, you know, one unit flips over. He sees the market. Rent is like, Oh my gosh, they’re doing what they said. They would do calls us and says, I haven’t six Plex. Right? Didn’t tell us this. Initially I have a six Plex. I took the proceeds of the sale from the first building. I sold you. I completely paid off the mortgage on the second building. I’m willing to, I’m willing to finance the deal a hundred percent if you buy it. And then we negotiated the terms. So because he now no longer has a mortgage. He now sells us this building a hundred percent financed.
5 (21m 29s):
We closed that deal. Everything goes well for a couple more months, he calls us again. I have a, a triplex, it was three townhouses. Side-by-side I have three townhouses. He was retiring, wanting to move to Florida and was getting out of the game type thing. But he wanted to build that trust. And he never told us more than, than, you know, what the next deal would would, would entail until we had that trust more and more. So what Mel said is more than likely if someone has an income property, they’d probably have more than one. So you build that reputation. And next thing you knew, we had three from that one seller and it was amazing. Or they know somebody who has one, right? I mean, most real estate investors or most landlords. We know other investors as well.
5 (22m 11s):
There were, we’re a tight knit community. So there’s so much good stuff there. And I just want to take it from just a couple points. So the 10 31 exchange for, for our listeners out there, American listeners know that, you know, if you buy like kind of asset, you can defer your capital gains. We don’t get that benefit, which I think for Canadians out there, this is going to be more and more topical trying to figure out how you can save on capital gains because we still don’t know what the result of COVID will be in terms of how the government decides how to pay back that money. And I think people forget that, you know, the capital gains tax is, was not always exactly what it is today for the last 50 years. It Abdin and flowed multiple times. So if you can save on the taxes, I think you’re absolutely right.
5 (22m 53s):
It’s it’s money in seller’s pockets. The second piece I just wanted to say was that it sounds like you really gave what this guy or what we call mailbox money in real estate, in any operator in real estate knows that it’s not completely passive. You’re usually doing some aspect, even if you have property management, but it sounds like what you were doing for this seller was literally completely passive. You were giving him a check, he was providing you with financing. And so that kind of moves into the wishlist when it comes to your offers. Now, you know, most of my offers and I’m sure yours are the same. It comes in fairly aggressive. And then you figure out what, what you’re going to get. So for me, I always want to put in a, you know, assignment clause just in case that I need to actually assign the contract.
5 (23m 37s):
But then secondly, on this point of vendor take-back or seller financing, you know, what do you typically look at for that structure? Is it going to interest only
3 (23m 46s):
Over five years? Is it prime plus something over two? How does that work? You know, when you’re at the offer stage.
4 (23m 53s):
Yeah. And honestly it’s every, and I don’t really, it varies. It’s kind of the answer if we’re dealing with the lender directly. So if it’s an awful list of deals, we’re really going to try to communicate with them and find out what’s important for them at the end of the day, am I willing to pay a little bit higher interest rate for example, or give them their asking price. If I know that I get to buy the property, it’s a great property. I have a huge lift upcoming. Yes, I’m going to be more flexible if I don’t have much of a lift and you know, the building needs a lot of repairs. So that means a lot of my capital’s going to be going into it. Then I might not be quite as aggressive. So it’s really unlike each deal separately. And even with it is with an agent, because of course we use agents as well, same thing as well.
4 (24m 38s):
It just depends of the deal. So my, my interest rate the term and all that it really, and that’s how we do it. It’s based on the actual property, not an actual formula. So we adjusted based on what’s going to be my cashflow and my cash flowing from day one and, and how much in my cash line, how much should I have to put into it? And if so, how long what’s my exit strategy? Can I flip this in, in a year or do I need five years to flip it? And all of these different calculations are going to be based on, or these different aspects are going to be based on our calculations to see what makes the deal make sense.
3 (25m 10s):
Yeah. You’re bang on like that’s the first thing is to find out their wants needs, right? And it sounds kind of backwards because some people will go in and we did this, we went very aggressive. The low-ball deal. We didn’t, we didn’t care if we offended people, but now it’s more, I want to know what the seller wants. Cause sometimes it’ll be like, for example, let’s say if you’re closing or you’re talking to the seller in August, September, and they’re dead set on closing next year, due to the fact that they have a tax implication. So let’s say we had found that deal in August of 20, 20 or September. And they said, you know what? I can only close at the end of January, 2021. Well, okay. So that’s their, that’s their non-negotiable. So now you can use that on. Yeah, I use that, but just now you can maybe get a win for you.
3 (25m 51s):
Maybe it’s the interest rate that can be adjusted. Maybe it’s like Mel said, but typically our mentality, because when we’re using creative financing, it’s all about like we smile. We said a bunch of times now, Jesse repositioning and renovating the asset. So the less money I can pay during that time to the, for my debt and the more I can put into the building, the faster I can get the lift and the faster I can pay them out. So I like how you said interest only. We always ask for interest only because that’s, you know, I know I’m going to pay the principal back when I refinance it anyway. So why should I pay a little bit back every month? I’d rather pay them interest only again, keeps your debt payment lower, keeps your capsule higher.
3 (26m 32s):
And the other thing I was gonna mention was even balloon payments as well. That’s great keeping as much money as possible again for that exact scenario. And that’s something we tell the sellers is because they’ll say, well, why, why you pay me a higher, you know, P and I principal and interest, why do you only pay interest? And I’ll explain to them, like I kind of said, I’m going to pay the princess principal when I pay the refinance anyway. But if you let me keep my cashflow high, my expenses lower, I can put more money into the asset quicker. And you’re also like, cause they’re, they’re looking at it as now a bank, right? And I, and we tell them, you’re going to be the bank on this deal. Don’t you want me to, to be in a, in a cashflow positive state where you know that things are going well, you know that I have the ability to pay you back.
3 (27m 16s):
If you squeeze me too much and I don’t have any cashflow to pay the debt, or I don’t have any, if I’m making 50 bucks a month and something goes wrong, I’m in trouble. And then now your, your debt is in trouble too. Your mortgage is in trouble. So let me make my cashflow, let me have some, some, some wiggle room, some breathing room. And at the end of the one year, two years, you’ve now helped yourself, help me pay back the loan. So it, again, it’s the win-win scenario that the sellers just, they love it. Yeah. It sounds like, you know, you’re making a concerted effort to align your interests with the seller. And it reminds me of, is a little bit about, you know, retail, commercial, real estate deals. Oftentimes rent is calculated with a base rent and then a percentage of sales.
3 (27m 59s):
And it’s pretty much the retailer telling the landlord, listen, like if I do well, we do well. So, you know, don’t hamstring me. So, so much with certain rent costs where I’m not going to be profitable. It sounds like you’re doing the same thing with the seller. Yeah, no, I love that. You’re a, I never thought of it that way, but kind of like almost like profit sharing or almost like a yeah, but the win-win is so important. And that’s really something again from the listeners today, like exit strategy, a hundred percent, number one, and number two, don’t be greedy, right? And let the bank win, let the bank bring them. You’re bringing them good assets to finance, right? You’re bringing them solid income properties that, you know, make sense that you’re taking care of. So the bank wins, the seller wins by providing them, you know, like I said, maybe they want to close next year.
3 (28m 43s):
Maybe they want different things. So they win as well. Tax wise, sometimes we have private lenders through promissary notes or private lenders, private investors. We pay them a good interest rate as well. They win. And then Mellon Dave win by getting zero down deals, infinite return on investment and continuing our acquisition mode. So all four people win. So if you can do that and still cashflow, it’s the best. It’s the best scenario that we found that works.
4 (29m 9s):
And to add onto the promise here, to know that Dave just touched on, we’ve used this for different reasons. So sometimes we might, let’s say the is only willing to hold up to 15% and we have that gap of funding while we might use somebody’s line of credit. We would promise their note, which is essentially a contractual agreement to fund that. Or even we talked a lot about renovations taking w w we’re not the handy people. We have a team that says they’re not up to the experts. So, but we don’t, again, we don’t necessarily use our own money for that either. Again, if the don’t let that don’t let money be an excuse. Yes, you need some backup money for lawyer fees or deposits or emergency unforeseen repairs.
4 (29m 51s):
Of course, you, you, you want to set yourself up for success. However, if you want to do a flip and it’s going to be $80,000, do you thinking yet Malibu, I don’t have $80,000, so that’s okay. Again, you can actually use somebody else’s money as part of the funding as well. We do that all the time too.
Jesse Fragale (30m 7s):
So you talked a little bit about kind of the alignment here with, with the sellers. And it leads into the second part where people are hearing this, they’re hearing a hundred percent financing. They’re hearing these types of deals. A big part of this has to do with educating sellers. I would have imagined because not every you, every seller is a, at a different level of sophistication. And you’re, you guys are talking about things that even people that are in real estate investing maybe have only done a few deals that have the type of uniqueness that the ones that you’re doing have. So first of all, that education process, is it something that is, you know, thought out it’s something that you’ve kind of honed in over the years. And then secondly, to find these deals, what marketing strategies and roads are you employing to, to get these deals?
4 (30m 53s):
Yeah. And I’ll kind of start off with speaking with them. Absolutely. And, and we, we teach our mentees, this is the importance of explaining all the benefits in detail to them, right? Because a lot of lenders or a lot of potential sellers, they don’t under, they never heard about owner financing. And they might think, is that even legal? Right? The same thing as Dave and I thought when we first started. So really explaining all that, really showing that I’m your exit strategy and I to about 12 and 12 months, people want to see your exit strategy. How are you going to pay them back? Right. So don’t be afraid to show them your strategy. Like, Hey, look at these numbers is the deal today. This is my exit strategy. That’s what we do all the time. That’s how we’ve been able to grow. And what was the other question? Oh, the deal with the marketing,
Jesse Fragale (31m 34s):
A small piece of that, of your strategy.
4 (31m 37s):
Honestly, it’s just being out there and omnipresent, just letting everybody know that we are looking for lenders. We are looking for, to buy we’re growing our portfolio. And, and I mean, social media is, excuse me, it’s free for everyone to use. Right. I mean, when we first started, I, we started posting on my Facebook page and then we created a business page. And then I created, although Dave didn’t want me to, because he couldn’t believe it. I was like, what’s the point of this? So I told him, I said, if we’re going to create a website and he said, who is this site? And how is this going to make me money? I’m like, just, just leave it up to me. I’m in marketing, all of that.
4 (32m 17s):
So it’s cumulative of just being out there and not being afraid to ask and not being afraid of getting nos. We still get nos all the time, all the time. And, and that’s just the reality of it.
Jesse Fragale (32m 29s):
So it sounds like it’s a, you know, it’s a combination of quality and quantity when it comes to marketing, you know, just reminded me, we did a mailer campaign about two weeks ago. So for those that don’t know, you know, direct to direct to owner mailer campaigns. So we found the addresses, we sent them out. So they want to buy the property, no agents involved, even though I’m an agent and I’ve got love for all my other commercial and the residential agents, we would do these direct mailers. And I would just wanted to get a sense of your experience with direct mailers, because we, I know that a lot of times the value is added by finding off market deals that the owner didn’t put on the MLS and you get them before anybody else gets to take a look at them.
4 (33m 11s):
Yeah. And honestly, we had, we had tried once we didn’t get much success with it and I don’t know if it was a timing, but we, we weren’t overly successful with the actual millets. But I do hear a lot of people that are positive things. So maybe, you know, again, looking back, it might’ve just been again, you know, I’ll turn your finger back on me and say, well, maybe I need to look back back then. It’s been a while. Now that we’ve done that, looking back is looking back at, what did my letter say? Maybe I was too aggressive. Maybe I wasn’t aggressive enough. Maybe there’s no call to action. So again, I wouldn’t say that it doesn’t work cause I wouldn’t be very fair. Cause I know that it does work. Cause I know people, maybe it’s the wording of it, you know, make sure, obviously you have all the right contact information and yeah, that can be a great strategy.
4 (33m 58s):
Right. And, and, and I can, the more you do, if you do mail, it’s awesome. If you have an ad somewhere, I mean, we have big billboards across our city saying we buy properties with our heads on it and you know, people can’t miss it. So they contact us first. But of course it wasn’t always like that. At first we didn’t have the money to do big billboards. So we did just little things. We let people know, we handed up business cards with the website. We did the social media and, and just stopping by at properties as well.
Jesse Fragale (34m 26s):
So on the, on the point with social media, because I mean, I’m, I can pretty much guarantee the reason I had you on the podcast or, sorry. The reason I came across you was on some sort of ad online. I think that was probably where the first touch point was. So when it comes to your online ads throughout this conversation, we’ve touched on, I’m going to butcher it. But I think it’s a Jim Roan quote where you can get everything you want in life. If you give other people what they want. And it sounds like you talked about this when you’re talking with sellers and alignment and you have a podcast and you put a lot, put out a lot of good content, educational content online, you know, what’s your perspective on that that you have to put out good content. You have to add value to the people you’re talking to before that they’re going to come back and, you know, eventually, maybe that their investors on your deal or their lenders when you’re trying to raise capital.
Jesse Fragale (35m 13s):
4 (35m 14s):
Yes. And I’ll talk about that. Cause it’s kind of an interesting story and I’ll say it very quickly, but essentially we used to be the opposite. We used to be extremely secretive, like rewind a couple of years ago, we were nowhere. We both didn’t even have a Facebook account. Like we were nowhere to be found on social media. And then in 2018, we’re actually on our way to a real estate investing conference. It was just before Canada’s Wonderland and Ontario here. And we were in a really bad car crash and it was, it was caused by a transport driver. He hit a vehicle that hit us. We hit the guard. Rail started rolling upside down, landed upside down, almost died. And it was a day that forever forever changed our lives for many, many reasons, including that that’s a day.
4 (35m 57s):
You know, I decided after tours of his office to see severe concussion, I thought I don’t want to spend one more day, do something. I don’t love. I quit my full-time job, Dave, quit shortly after as well. And it was a day that also shift the way that we thought, because we thought, why are we not helping other people? You know, this is it. Like I almost died. Okay. Yeah. I have some properties. And now what, and it was the day that we decided to help other people. So we went from not being anywhere to that weekend, committed to writing a book. We wrote a book released at six months later, became number one bestseller and have since then have started our mentoring program where we teach people how to do this. So honestly it was just that life-changing event of why am I holding it a secret?
4 (36m 37s):
And then once I realized that helping others, what goes around again, that win-win what goes around, comes around when, you know, I help you and, and maybe somebody else knows somebody and it has just been really beneficial in so many, so many ways
3 (36m 50s):
Ever since we started helping people. It’s, it’s, we’ve grown our portfolio as well. Right. And that’s the thing there’s so much real estate. There’s so many deals. There’s so many private lenders. Even if we scream it from the rooftops, there’s still going to be so many deals the next day and then in the next week for everybody. So there’s nothing to really hold back. So why not share with people? Yeah, absolutely. So we’re coming close to the end here and I can’t believe time is time has flown on this. I want to talk a little bit about what your view is of, you know, the near to midterm. We are in a extremely new, a unique year in 2020. A lot of people are struggling. A lot of people are using this time to figure out how they can benefit from it and how they can kind of, you know, have some light at the end of the tunnel.
3 (37m 35s):
So what is your view on specifically? Let’s talk, firstly, about real estate over the next few years, where do you see the opportunities and how has this last year been for the two of you? Just maybe on a personal note. Yeah. So the last year melanoma, to be honest with you, we, we didn’t want to sit back. We did a massive refinance with CMHC at the end of March to, to kind of, for lack of better wording kickoff, the COVID. But so we were refinanced a bunch of, of buildings then. So we didn’t really what, at the beginning, we didn’t want to slow down. We’ve continued to purchase real estate. We, the last couple of months have been very active for the last well, in two months we purchased over a hundred units and then on December 1st we closed another 15 flags anyway.
3 (38m 23s):
So we’ve added 119 units to our portfolio this year. So again, none of our own money, so aggressively purchasing, we have one already firmed up for the end of January, 2021. And that’s going to be, we’re going into 2021,
5 (38m 36s):
Which is just to keep purchase real estate. We’re we’re trying to, how do I say this? We’re lining up where we’ve got investors lined up. We’ve got some refinances in that where we’re going to, because we’ve already renovated and repositioned the asset. And now we’re going to reap the benefits, have another refinance early 20, 21, and then be in a position of funds that we created from, from other assets. So LPM still and able to purchase, you know, a lot of deals because as everyone’s saying in 2021, there’s going to be a, I hate to use the word crash, but in all the, all the big players are predicting that 20, 21 is going to be a different year. So that’s kind of my take it.
4 (39m 16s):
Yeah. And I mean, I think there’s still a lot of opportunities out there. I think it’s, it’s a few things, you know, whether it’s off market deals or working with an investor focused agent like yourself and also so having the right team to find people do, people are willing to do owner financing, for example, because it benefits them. People who may have money in RSPs may want not. And again, it doesn’t work for everyone. You’re going to get some nos, but some people are tired of getting one, 2% of whatever they’re getting in RSPs. We’re going to offer them a more attractive rate and they feel secure because at the end of the day, especially, I mean we buy and hold multi-family properties. People will always need a place to stay. And that’s what we found. I mean, truly realize that even more than before, but what do people need?
4 (40m 0s):
Water, food shelter. We are providing one of the essential services to them.
5 (40m 5s):
Yeah, for sure. And that really kind of puts a spotlight on the multi-residential and the single family homes, you know, obviously being on the commercial real estate side, you know, retail office, industrial, everything, every asset class has had its unique story during this time. And like you just nailed it. The ones that is definitely a need for all of us, which is housing. It seems, it seems like it’s going to weather the storm a little bit better, better, but I guess we’ll see over the next few years. So we do a couple of questions at the end of the show for you guys and all, if you guys are okay with that, we’ll start this off. Now you’ve mentioned one of these books, but let’s talk about a book that has an impact on your real estate or business career that you couldn’t go without.
5 (40m 49s):
We’ll go with, well first.
4 (40m 50s):
Okay. I’ll go with a different one. I’m going to go with one. That’s not about real estate investing, but has absolutely shifted my goals. And I guess kind of believing in myself that I, you know, I have more control of my life than I think it is. And, and that’s the secret. It, it’s a great book about vision and believing that you can and kinda, you know, reflecting on what are you telling yourself? And I used to be hard on myself and sometimes I still am so human, but not thinking that I can do it and what not. And that just really gave me permission to, to think big and realize that I do have more control of my life. You know, don’t things don’t just happen to me. It happens for a reason and what am I going to do about it? So I’ve created vision boards and all that kind of stuff in both the night, Dave and I vision boards.
4 (41m 34s):
And then we had our dream house and quitting my job and all these, you know, a lot of buildings that we buy are on our vision boards. So just kind of opened up my, the way I was thinking. So, although it’s not real estate investing specifically, it absolutely helped change my life. How about, how about you Dave?
5 (41m 50s):
Well, I would have said rich dad, poor dad. We already talked about 10 X by grant Cardone. Again, it just like, even Mel, like Mel’s goal was to have 10 products, 10 buildings. By the time she turned 40, when she turned 40, we had 27 and 10 X was a big reason of that is why are we settling? And now our goal, I think we’re a year into it. Anyway, we had to under a hundred when we made it, but it’s to have a, was it a thousand properties in five years? I think we’re coming to the one year Mark. So we added 119 this year. And again, next year let’s add units, starting up buildings, units apartments. So that’s just getting us to think bigger. And then, Hey, if I end up at 800, I fail on my thousand. I end up with 800. Am I really, you know, Madame myself, no, I’m happy.
5 (42m 31s):
A hundred percent. You know, that’s the first time we’ve had, we’ve had 10 X on here. And just on that note, I, I always joke with, with my friends when this book comes up and I, because I listened to the audio book and grant Cardone, you know, a lot of opinions about kind of the hype and the content, but I pretty much said I’m like, that book is not the same book without him narrating it. And you know, when he narrates it, it’s just like that energy. And you’re like, okay, I’m going to 10 X. Whereas I could only imagine if it was just, you know, some audible speaker, I’d be like, ah, this isn’t the same. I agree. I agree. I’ve never actually read the book. I I’m an audio book guy. So I agree grant and he gives so much extra because he’s talking right? Yeah. Yeah. Just ad-lib okay. So this one, a second one who were your mentors?
4 (43m 13s):
Yes. And I mean, we’ve had, I’ve had a lot of mentors and in so many ways, some of them don’t want to be disclosed
5 (43m 21s):
Generally. Like who were those people?
4 (43m 23s):
We’ve invested so much in mentors. I wish I did more earlier. And that’s something, yeah. At first we didn’t do. Cause we, I think we were afraid of, I think I was just stubborn. I was a stubborn, I thought I could do it on my own. And then I quickly came to realize that, wow, you know, without, without, you know, but there’s been so many, I mean, Tony Robbins is one of my favorite coaches. I’ve had, he, when it comes to mind set against non real estate, but when it comes to mindset and all that, he’s certainly helped me level up and just get a that right mindset. But yeah, we’re continuing. I mean, we even had a YouTube mentor recently, so it’s not something we just did in past is something that we’re always continuing on.
4 (44m 3s):
5 (44m 5s):
Yeah. I can hear that in the way that you talk. I just kind of reminded me. I think it’s a Tony Robbins quote, where he said, life doesn’t happen to you. It happens for you and kind of your, you can react to what happens in life. So another one that I like to ask is what’s something that you didn’t know at the beginning of this real estate journey that you wish you do that you wish you did that, you know, now I would say, I thought it was going to be, and I’ve actually never had that question. So it’s a good question. What was I going to say? I thought it was going to be a melon, Dave, you know, kind of venture journey, but it’s unreal how much you need other people with real, especially if you’re gonna use creative financing and seller financing you are.
5 (44m 49s):
And, and I guess it’s different than joint ventures, but you are relying on a lot of other people that have funds and that are willing to finance you and things like that. So it truly, when you do real estate investing with creative financing, it’s not just a you thing. It’s like I, our power team, I rely on them heavily. Right. So I, I wouldn’t be where I am without them. So it’s unreal how much it’s, it’s almost like a team sport as opposed to just a, just Melanie.
4 (45m 11s):
And for me, it’d probably be, I didn’t realize how much, I didn’t know. You know, you kind of think you got it figured out, you read a lot of books, you do a lot of things and you think you’re on the right path. And then boom off send center mean when it comes to, for example, our PR or business structure, we had it all wrong. And then we find every day when we hit it, we sent hundreds of thousands having it to fix it. Right. Those kinds of mistakes, where I go, Oh, again, kind of going back to your previous question. I wish I would’ve started sooner. So just realizing that, although I thought it was fairly educated, I thought I was hitting my numbers and I thought it was in this and this and this. Right. I love the saying, you don’t know what you don’t know because it’s so, so true. So that’s where education is, is, is so important. And you know, your, your, your podcast here is awesome to see.
5 (45m 50s):
I appreciate that. And it’s, you know, a hundred percent agree with that. And the one thing I love about real estate on the brokerage and or the investor in is you learn something every week. It’s, it’s amazing how many times you think you’ve seen the same, say, you know, at least contract for an office space, and then there’s just one wrinkle in there that you’ve never seen before. And you, the only way you really find out about, as you talk to somebody that’s done it for 30 years or 35 years, or you read about it and educate yourself. And yeah. So listen, I appreciate you guys for coming on so much. I think for people that want to reach out to you in 2020, I always find it weird to even say, where can people find you? I mean, a Google search, but where’s the best place for people to, to see your content, to listen to your podcasts?
4 (46m 32s):
Yes. Well, we’re on Instagram, YouTube, Facebook, any social media, and it’s always investor Mel and Dave. We post content every, every day on most platforms. So yeah, investor melon, Dave,
5 (46m 45s):
My guests today have been investor melon, Dave, thanks for being on the show. Awesome. Thanks Jesse
6 (46m 55s):
Favor. Listening to the working capital podcast. My goal is to help individuals break into real estate investing as well as educate experienced investors. If you enjoyed the show, please share with a friend subscribe and give us a rating on iTunes. It really helps us. If you have any questions, want to learn more or likely to cover a specific topic on the show. Please reach out to me via email@example.com. My name is Jesper galley, and I’ll see you back here for the next episode or the working capital real estate podcast.