JF1362: Make $500K In One Year With The BRRRR Method with Adam Kitchener

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Adam bought and renovated two 4 unit properties in 2017. His efforts with the rehab and raised rents brought the value of each property up tremendously, he made half a million dollars with those properties. We dive into the details of those two projects and discuss how he made it happen. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate investing podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff. With us today, Adam Kitchener. How are you doing, Adam?
Adam Kitchener: I'm doing very well, thanks for having me on the show.
Joe Fairless: My pleasure, nice to have you on the show. A little bit about Adam - well, he made $500,000 in 2017 through real estate. He owns property in Brantford, Ontario, he's based in Ontario... And with that being said, Adam, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Adam Kitchener: Absolutely. You see, I've been in real estate since I was a young kid; growing up, I followed along in my father's footsteps, who bought property when I was young, and my love grew from there. These days I'm actually working with small landlords who wanna make a name for themselves in real estate; maybe they've just bought their first property, they're not quite sure what they're doing, and rather than trial and error, they can come to a guy like me who's gonna walk him through the process, I'm gonna manage their properties for them, and we're gonna make their properties more valuable, get them better tenants, get those rents up, the expenses down, and in the end we all win.
So not only do I own my own property, I'm a landlord, I also have property that I manage on behalf of other people as well.
Joe Fairless: Okay. So you own your own property, and you also have a property management company. With the $500,000 that you made in 2017, what was the highest percent of that? Where did it come from?
Adam Kitchener: That was on the landlord side, so I actually found $500,000 in appreciated equity. I can tell you that last year I bought two properties, and they both appreciated and increased about $500,000 in equity that I was able to go after and refinance and buy more property after that.
So basically the idea is for me -- I've heard it's called the BRRRR investing philosophy, which is where you buy, you renovate, you re-rent, and then you refinance... That's exactly how I did it; I bought a really rundown property, I renovated it, I re-rented it at much higher rents, and then I refinanced it when I was done.
Joe Fairless: And you did that for two properties and in total you were able to get 500k out of it?
Adam Kitchener: Out of those two properties, I made 500k, yeah. We appreciated the value on one property about 300k, and the other one appreciated about 200k.
Joe Fairless: Wow, that's incredible. Congratulations on those! That's some good stuff.
Adam Kitchener: Those are four four-unit apartment buildings, so a total of eight apartments we're talking about right here.
Joe Fairless: Let's dive into those two. How about the $300,000 one where you got 300k in equity and got access to that after doing the refinance - what did you buy the property for and then what did you do to increase the value?
Adam Kitchener: I bought a rundown fourplex in the city of Woodstock, which is a small little town just along the highway 401 area. It's more of a blue-collar town. This building was very run down; bricks were falling off the side of the building, it didn't even have eavestroughs, the sewer was broken, the roof needed to be replaced, and the rents were extremely low. We're talking $500 for a two-bedroom apartment. So the first thing that I did is I went out and I took a look at it, and I was thinking to myself "What is it about this place? Why won't it sell? Why is it so scary?", and the thing is most people are scared of work, and I figured at the end of the day there's nothing really here that's that bad.
Everything has a shelf life. Right now, this building is at the end of its shelf life, so if I go in and I fix everything up, there's gotta be value to be made here. And when I did my research and I looked at properties in the area, I'm seeing on that street alone single-family homes are selling for 600k-700k, and then the fourplexes and the fiveplexes in the area are selling for about 450k, 500k, almost 600k in some cases. So I realized that if I put the time and the effort into this place, I'm able to get these low rents out and put new rents in, I'll be able to appreciate the value of this property, and that's exactly what I did.
So I went in and I addressed all the issues that were long-standing; I sent in a brick mason, he went in brick by brick, repinned, repointed the entire house, fixed all the issues that were there. We redid all of the eavestroughs, we put up new [unintelligible 00:05:19.09] the whole nine yards. We went in and we repaired all of the plumbing, we did all the real structural work that needed to be done, and none of it actually was that serious; it was more just -- roofs last 15 years, and it was at the end of that 15 years that needed to be done.
Then the next thing we did was we went into the units, and as they started to turn over -- we actually bought the building half empty... So two tenants were out and two were pre-existing. We went into the first two units and we renovated to what I would consider my level of quality, which is brand new cabinets, brand new bathrooms, brand new floors, brand new stainless steel appliances, and then we re-rented those apartments for about $1,000 each, which was literally double of what the previous rents were.
About six months after that we noticed that the other tenant was leaving... Just something about new management coming in and not letting them get away with their old behavior signaled the change; they left, we got them out, and then following that, the last tenant moved as well through no fault of our own, and ended up-- we had all four units out, we've renovated the remaining two units, doubled them up as well with $1,000 each... I took a building that was renting at $500, took it up to $1,000, and that's where we basically doubled the value, because we doubled the rents and just on the 6% cap rate the building was worth $600,000. The bank didn't give us that, they gave us 550k, but I'm not a greedy man, so I'm okay with that.
Joe Fairless: 550k, so I'm guessing - quick math - you bought it for like 200k and put in 50k, something like that?
Adam Kitchener: We bought the building for 250k, and it came back at 550k. The value appreciated $300,000. Of course, I had to put in 60k-70k to get it up there, but capital in - I try to think differently when it comes to the value. The value increased 300k, and all I had to do was spend 70k to get it.
Joe Fairless: Cool. So all-in you're at 320k, and it appraised for 550k. How much out were you able to get of the equity? How much were you able to get out of it?
Adam Kitchener: Well, the first thing I did is I actually took all the money that I put into it and I paid that off, so that 70k was gone, it was clear. Then I pulled another 60k out of it and used it to buy another property. The remaining equity is going to sit there until I find another property. There's no need to pull the equity unless I need to use it.
The great thing about investment properties is it's like a well, and you can keep going back to that well for water, as you need it. So I paid off the debt, I cleared the 70k that I put in, I pulled an additional 60k to put in another investment (20% down on another building), and the rest of the equity is gonna stay there.
In Ontario we can finance up to about 80% of the loan-to-value, so there's still some equity left in the building, and I'm gonna wait until I find the next big opportunity before I collect that.
Joe Fairless: Mechanically - or logistically maybe - how does that work where you're able to get $60,000 in your pocket...? And how much is remaining that you can take out?
Adam Kitchener: The property was appraised at 550k; they'll give you 80% loan-to-value. 550k x 0.8, so that's 440k... Minus 250k, that's 190k. I took 130k out, so I have about another 50k there.
Joe Fairless: So that extra 50k - how does that work? You just go to the bank and say "Okay, now I want my 50k that I still have in there", or do you have to do a new loan, or what?
Adam Kitchener: I will have to redo the entire loan, or I could pull a second mortgage, and a second mortgage comes with higher interest rates, so it's probably not advised. I'm probably just gonna wait the year, and in the year refinance again and pull out the extra money.
Joe Fairless: The other one, your other four-unit - can you tell us about that one?
Adam Kitchener: That was another property we bought at a very reasonable price. We bought it at what's considered under 100k/door, which is a very good price to buy at. We bought it for 385k, and just through natural turnover we were able to bring the rents up... We took again another $530 tenant and got them up to $1,000, and we appreciated the value of the property up to 590k. So we took 385k and turned it into 590k.
Some of the things that we did was also submeter the services. When the tenant would move out, we would put them on their own heating source, which would then lower our overall heating bill. So we took a building where all the tenants had their heat included, and every time they moved out, we'd put them on their own individual unit, so they'd pay their own hydro, they'd pay their own heat. Those individual things appreciated the property at about $18,000.
If you put someone on their own hydro, you created $18,000 in value, so that's exactly what we did. We just lowered our operating expenses, and as the tenants turned over... At this point we now have two tenants who have left, and brought in new tenants at new rents, at about $400-$500 list on top of what the previous people were paying, and it's just a simple 6% cap rate to figure out the overall value... But that was re-appraised and came back at the $590,000 value. We got it reappraised, so we went from 385k to 590k.
Joe Fairless: For the Best Ever listeners who are handy and they're really interested in separately metering -- I love how you say "hydro"... You're talking about water, right? Just so we're talking about the same thing...
Adam Kitchener: Oh, sorry... No, electricity.
Joe Fairless: Oh, okay.
Adam Kitchener: We call it hydroelectricity. So electricity and heat.
Joe Fairless: Okay, electricity and heat. I'm glad I clarified... You don't wanna get electricity and water mixed up. I'm glad I clarified that. For the Best Ever listeners who are mechanically inclined (or wanting to be), can you describe how you were able to separately meter those two out - the heat and electricity?
Adam Kitchener: Well, in Ontario I typically won't buy a property that has electricity included. Our electricity rates are sky-rocketing; in the last year they've gone up 25%. That is no word of a lie, look up "ontario hydro rates." We're paying the most in this country, and due to very poor management.
So what happened is we're trying to at the landlord offset our costs as much as possible. There's companies that actually do that - they go in and they put individual meters on every single apartment. And as long as the tenant agrees to it, or the units is vacant, you can put them on their own individual meter, which means isolating the electrical panel to its own individual meter, and then the tenant will be held responsible for the electricity. Same thing with the heat.
Usually, these buildings are running off of boiler systems or furnace systems, and what I do is when the unit becomes vacant, I go through, I find an old closet that's not being used, we throw a furnace in there, run a new gas line, new ducting, and hook it up to its individual gas meter and put the onus on the tenant to pay for their own gas, which provides them with their heat, also their hot water as well, because it runs off the hot water tank, and keeps them nice and toasty in the winter; we have some cold winters here.
The great thing about that too is it also removes all of the phone calls that you would incur in the winter time here. We have really cold winters, and one of the biggest complaints is "I'm cold in my unit." When you have a shared system that's for all four units, you've gotta keep all four tenants happy and nice and warm, and that's very difficult when you've got people with different body sizes and body temperatures, and keeping them all happy is a battle. So by putting them on their own individual heat sources and electrical sources, they control their usage, they control their bill, and it's completely off your books, also for me removing a variable.
Joe Fairless: Yes, that is wonderful, to have an expense item be completely wiped away from the P&L statement for good. What is the investment to do that and pay the company?
Adam Kitchener: For me, I'm spending on individual units about $6,000 on furnaces; 6k-10k, depending on the size of the unit. Now, given the fact that my average heating bill would probably be around $250 in the winter time, it's not a very good payback period, but what I have done is 1) immediately increased value; I have controlled my operating expenses, and that's where I'm getting the increase in value. So that $18,000 comes from removing that variable from my operating expense.
So yeah, it's a lot of up front, and it's gonna take me about a seven-year period to get it paid off and start making new money again, but at the end of the day that's still a good investment for me, because these are long-term holdings. I plan on holding all of my assets for 10, 15, 20 years, so for me it's worth it.
The other thing too is I can run my business at a much lower cost, even though the up front capital cost is high.
Joe Fairless: Switching gears a little bit, how has having a property management company helped you as an investor?
Adam Kitchener: The great thing is when you find a group of contractors that are absolutely fantastic, giving them more work is always a joy. I have a team of guys who work for me around the clock on my own properties, and then I'm able to give them other work at other properties, and it just increases that sense of loyalty and creates a stronger bond when you go from building to building to building with the same crew over and over again... And it's almost like a rinse/repeat process. So the more buildings, the more work, the happier they are, and things just kind of keep going. And of course, when you run a property management service as well, and you've got your own properties, you're taking advantage of being a company, a corporation with multiple entities, multiple buildings, everyone's taking in the advantages of insurance rates, bulk pricing...
When I go and price a job, I want a landscaper to cut my lawn, I'm also giving him seven other buildings, so then he's more inclined to give me a great price for all seven buildings, which is my building and the six other clients that I have, rather than just quote me individually. So they're taking advantage of bulk pricing, they're taking advantage of using a well-respected contractor who works with me... Basically, I carry a lot of weight, so when I call someone, they're willing to come quickly because they know that it's not just me, it's me and all of my clients with me.
If I was a single landlord with one building, they might brush me off for a bigger job. They're not gonna do that because I'm the bigger job, I'm the guy they call for those types, and they come to me first. That's kind of the great thing about running a property management service, and being a landlord at the same time. That's an advantage for both myself and my clients as well.
Joe Fairless: How long have you been doing third-party property management?
Adam Kitchener: We actually just launched back in January. I used to work for other professional property management companies, a lot of large firms with hundreds of millions, if not billions of dollars in assets. Then I branched out and did my own thing back in January; I started as a small company, and we're quickly growing to take on small landlords who are feeling left out in the market, or don't quite know what they're doing.
Or there's the other end of the spectrum, which is investors, retired landlords, or business owners who don't have time to manage their day to day properties. A lot of my clients are actually professionals, engineers, doctors, actual bankers, and they come to me and they say "I've got more important things to do than worry about some kind of tap leaking." Yes, it's important, but of course, it's all about prioritizing their time in their life, so they call a guy like me who knows what he's doing, who's gonna protect their investment so they can get back to what they do best, whether it be being the doctor, the engineer, the lawyer, or just being retired - in that respect as well.
A lot of them say "Adam, I've managed this building for 20 years. I don't wanna sell it and all of the profits go to taxes. I'd rather just keep it in the family, give it to my kids, and have you manage it."
Joe Fairless: What type of jobs did you do when you were working at property management companies?
Adam Kitchener: Exactly what I'm doing now - I'm managing property. I'm repositioning under-valued assets and creating value. On turnover, we're renovating the right spots to get the best return on our investment. We are getting rid of bad tenants, undesirable tenants who are damaging the building, damaging the overall sense of community that's in these buildings, and bringing in new ones who are going to create value to the property, and a sense of ownership.
We're looking at outdated systems, boiler systems, heat systems, lighting systems and retro-fitting them to be the most cost-effective, low usage, energy efficient resources on the market. Again, lowering those operating lines, removing those variables. I've done this actually myself for large companies, and now I'm doing it on a much more hands-on, owner size scale, as opposed to working for someone else.
Joe Fairless: If you hadn't worked for those large companies and you were just starting a management company now, but you hadn't had that experience, what do you think is something that you would be making a mistake on because you didn't have that experience?
Adam Kitchener: The companies that I was working for hired me on the basis that I was already a landlord, so my mindset is very much an ownership mindset, which is I spend money the way I would on my own place; when you drive your own car, you drive it better than a rental, it's kind of a different mentality... And each job I worked at did create a value to me and it added to my professional development.
To pinpoint something individually, it's very hard to say. I would say that large-scale renovations - I'm talking 100+ units - was something I would not have done if it was not through large property management firms like the ones that I worked for. I had done it on much smaller scales, like through the fourplexes, and the tenplexes and the twentyplexes, 20-unit buildings, as opposed to 150, or 206 units in some cases. Complete building clean-outs and all that was done through professional property groups, and I probably would not have had that opportunity, or would have been making a lot of mistakes if I got those opportunities, if I hadn't been working for some of the larger firms earlier on.
Joe Fairless: What is your best real estate investing advice ever?
Adam Kitchener: The best real estate investing advice ever for me would be "Be prepared to work." I always say that there's one day of reward, which is rent day, and then 29 days of problems after that. So for me it's like a small business -- or real estate, for that matter, is like a baby; you have to watch it, you have to take care of it. You can't just leave it. It's not a stock, it's not a bond, it's not gonna appreciate through the work of someone else, it's gonna only appreciate through your hard work.
So if you're thinking of getting into real estate, the first advice that I'd give people is be prepared to roll up your sleeves and start working. And failing that, hire a property manager, find a guy like me who can do it for you, and then stick to them and be a sponge to absorb all of the wisdom that he has, so that way if you do go on your own, you're a little bit wiser for when you actually go out and take over.
Joe Fairless: We're gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Adam Kitchener: Absolutely!
Joe Fairless: Alright, well then absolutely let's do it! First, a quick word from our Best Ever partners.
Break: [00:20:59.11] to [00:21:41.04]
Joe Fairless: Okay, best ever book you've read?
Adam Kitchener: That's a good one. How To Win Friends And Influence People, by Dale Carnegie.
Joe Fairless: Best ever deal you've done that we have not talked about?
Adam Kitchener: Landing my first property management gig with a professional investment firm... 26 townhomes, actually [unintelligible 00:21:55.21]
Joe Fairless: What's a mistake that you've made on a deal?
Adam Kitchener: Being overly optimistic with the numbers.
Joe Fairless: And now if you were presented a similar opportunity, what do you do differently specifically?
Adam Kitchener: I'm a worst-case scenario thinker, so I always bet if everything goes wrong, what's the worst that's gonna happen type scenario, rather than think about the best.
Joe Fairless: Are you able to be competitive with your offers by thinking about the worst-case scenario?
Adam Kitchener: Yes. A lot of it has to depend on your gut and you have to offer thinking about your gut. A lot of the Woodstock deal was "If everything goes bad, what's the actual most amount of money that I can pour into this property?" And that numbers was not $250,000, which is what it was appreciated -- $300,000 is what I ended up appreciating, so I figured "Worst case scenario, what's the most amount of money I can dump into this place if everything goes bad?", and I was still able to make the numbers work.
Joe Fairless: Best ever way you like to give back?
Adam Kitchener: I usually give back to the people closest to me, the people who work hard for me and around me, whether that's friends, family, my contractors, my team, my crew, my network. The idea is that no one person is successful on their own; we are surrounded by people who help us succeed. [unintelligible 00:23:16.05] and the best thing to do is when you realize that you have a team of people who appreciate you and they're working their butts off for you, you reward them at every opportunity.
If I get wealthy, everyone around me who was with me along the way is gonna get wealthy with me, because there is no way I could have done it on my own.
Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about what you've got going on?
Adam Kitchener: If they wanna get in touch with me, they can go to my website at www.unlimitedresidential.ca, and they can get all of my contact information from there. They can also follow me on Instagram, @RentUnlimited at Twitter, and we also have a Facebook group, which is under UnlimitedResidentialGroup. They can also google me as well, Adam Kitchener (a couple or results should show up), and there's also ways to get in touch with me on the websites, as well.
Joe Fairless: Adam, thank you for being on the show, talking about your area of expertise and focus, which is repositioning properties. I love that you got into two case studies that are fresh on your mind, because they happened last year - the two four-unit apartment buildings... Your thought process going to one of them, asking yourself "Why is it that this isn't selling? What's so scary about it?" and ultimately "Is it permanent, or is it temporary?" If it's temporary, then you roll up your sleeves and you fix the temporary stuff, and as a result, you get a substantial amount of equity in that property, and then you use that to go buy more property, and you hold onto the property that you currently have. Great stuff.
I also enjoyed hearing about how you individually meter your heat and electric, and your thought process for your return on investment, more removing an expense item from the P&L statement. And you will get your money back, it's gonna be 7 years, but it's adding lifetime value to the property because of that.
Thanks again for being on the show. I hope you have a best ever day, and we'll talk to you soon.
Adam Kitchener: Thank you. Have a good day!

JF1304: A Canadian Investing In The USA with Glen Sutherland

Listen to the Episode Below (25:11)
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Glen is buying properties in different states using turn-key operators. Remote investing is a great way to invest when you live in a less desirable area for investing. Glen has built teams on the ground and has tips and suggestions for anyone else who would like to invest in the US as a Canadian, as well as anyone who wants to remotely invest. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Glen Sutherland Real Estate Background:

  • Host of the podcast and youtube channel “A Canadian investing in the USA”.
  • Canadian investing in both Canada and the USA
  • Started his Investing journey purchasing ‘buy and hold’ rental real estate locally
  • Currently investing in the US by purchasing single family ‘buy and hold’ rental real estate
  • Based in Cambridge, Ontario

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Glen Sutherland. How are you doing, Glen?

Glen Sutherland: Hi, I’m doing great.

Joe Fairless: Well, I’m glad to hear that. A little bit about Glen – he has four single-family homes that he rents out, he’s a Canadian investing in both Canada and the United States, based in Cambridge, Ontario, and he’s the host of a podcast and YouTube channel called  A Canadian Investing in the U.S. No grey area there, it’s very clear what that podcast and YouTube channel is all about. With that being said, Glen, do you  wanna give the Best Ever listeners a little bit more about your background and your current focus?

Glen Sutherland: Yeah, actually that pretty much sums it up. I actually have five properties now and a sixth in Alabama, and I’ve got two under contract, so in the next month or so we’ll have another couple more to the portfolio.

Joe Fairless: Where are your properties and what are they?

Glen Sutherland: Right now they’re all single-family. I used to own some duplexes, but we sold those. I used to invest with my brother. We sold those about a year ago, so now it’s all single-family. Cambridge, Ontario, Strathroy, Ontario, Huntsville, Alabama, and two properties I’m gonna be getting in Kansas City, or Raytown, which is just on the edge of Kansas City.

Joe Fairless: Two in Canada, one in Huntsville, Alabama–

Glen Sutherland: No, actually there’s several in Cambridge, yes.

Joe Fairless: Okay, several in Cambridge (your backyard), and then you’ve got one in Huntsville, and you’re gonna be buying two more in Kansas City?

Glen Sutherland: Yes.

Joe Fairless: How are you finding these properties all across the United States? And I get the Canada thing, because that’s your backyard, but how are you finding the ones in the U.S.?

Glen Sutherland: In the States I’m using turnkey operators, because there’s a bit of a gap when you’re this far away. Until you have a team established, even if you just pick a specific market and you get established somewhere, until you have your contractors set up, it’s much easier to work with someone who can find the property (ideally wholesale) and then renovate it for you and still sell it to you undervalued.

Joe Fairless: How do you qualify the turnkey operator?

Glen Sutherland: Well, to be honest, the ones I’ve been working with, I’ve either gotten references from some people running podcasts, or I’ve worked with some of the other podcast hosts. So yeah, I don’t know. I guess whenever you listen to somebody for a few thousand episodes, you get to know, like and trust them, and you sort of go with that.

Joe Fairless: It makes sense. You said that you used to own some duplexes with your brother but you sold them… How come?

Glen Sutherland: The main reason was that we were just having problems… We didn’t have the hydro or the utility split, so we were having problems with the tenants having basically water battles. They’d hear the other one in the shower so they’d turn on the laundry… [laughter]

In Canada I property-manage myself, which I know is not the best idea, but in the States I use property management, obviously… But when we were managing ourselves, after a while it just took a toll. It was like, “Okay, this is enough. We can sell it above what we bought it for, we can walk away with some money… Let’s just do it.”

Joe Fairless: Why does it take a toll as a manager? I think it wouldn’t take a toll on the manager, it’d take a toll on the owner, because the owner is having to foot that bill with the water battles.

Glen Sutherland: Yes, but I was the property manager, so I was doing both. I was dealing with them calling me and complaining about each other, as well as dealing with water bills… I was having both sides.

Joe Fairless: Okay, that’s no fun.

Glen Sutherland: No.

Joe Fairless: The two that you’re buying near Kansas City – what’s the price point? What are the rents for and what can you tell us about them?

Glen Sutherland: The properties in Kansas City – I’m basically looking for stuff around the 1% rule. I wanna do better than that. Off the start, these first few properties — I’ve been going for B-class properties, so they’re really nice-looking properties, which I know I could do better by going down to the $65,000 range instead of up in the $100,000… But I’m still getting my toes wet, and it’s a comfortable factor. You look at houses and you’re like “I could live in these houses”, whereas whenever I got into some of the $65,000 ones…

I know you have to not get the mental attachment to it, but I believe that these should appreciate better being in a B neighborhood than the C neighborhood. I know that the cashflow isn’t as good; I’m only gonna make 10% without leverage, and it’s really gonna be about diversifying my portfolio.

The plan is to get a bunch of them that are these B-class neighborhoods so that I’ll make the 10% now. Once you add some leverage, you’ll make a little bit higher than that. And then go to some C-clas neighborhoods… I was already looking at putting seller financing on one in Indianapolis and in Jacksonville – the Jacksonville one will be seller financing – and just having a little bit of different things.

By diversifying in different markets, you’re dealing with different cycles for different states. I have properties in Canada, so you’re dealing with different countries… And ideally, I’m planning to move into different asset classes. I don’t know if I’m supposed to talk about your stuff, but on your next project, I plan on giving that a go and at least dipping my toe with your syndication.

I know the multifamily, single-family in different states are all running on different cycles, so you might be going down on some of them and you might be going up on others, and it’s just like a way to keep yourself going up, because ideally, I wanna get to a point where I can leave my job, and it’s a security thing. I guess this is like when people buy different kinds of mutual funds and stocks just to do different things, but I’m more interested in real estate.

Joe Fairless: What is your full-time job?

Glen Sutherland: I work for IBM, fixing bank machines and servers. [laughs] Yeah, not really related.

Joe Fairless: Yeah, that’s why I was like, “Okay, dead end there, so I’ll move on…” I was gonna tie that into something, but I couldn’t think of anything. Alright, so you’ve mentioned Indianapolis, Jacksonville, Florida, Huntsville, Alabama – you have property there – Kansas City, Missouri, and you’ve talked about diversifying in different markets and different states. Are there certain states or certain characteristics of states that you look for whenever you’re investing?

Glen Sutherland: Yes. A big thing I look for, basically, to start with, is the landlord laws. Ontario isn’t a really landlord-friendly province, so if I’m gonna go outside of that, I might as well pick states or other provinces that are more landlord-friendly, so I can have the law on my side instead of on their side. So I look for landlord states, and when I first broke it down, that gave me about 10-15 states that were landlord-friendly.

Then it was property taxes – I wanted property taxes not to be ridiculously high. There’s like some of the markets that are really landlord-friendly, but then the property taxes were gonna kill me. I looked at the vacancy rate, and crime, and I also wanted to look at areas where there’s a good job pool… Like, there’s big employers, but ideally it’s not one employer that provides all employment. So I want them to be around 20%-25% for that state.

Joe Fairless: Okay, 20%-25%. So no one industry makes up more than 20%-25% of the total jobs?

Glen Sutherland: Yes, that’s the idea.

Joe Fairless: Cool. Yeah, I’m with you on that. As far as landlord-friendly laws, you said you narrowed it down to 10-15 states… How do you quantify what friendly means, or qualify what friendly means? However you define it.

Glen Sutherland: Well, to be honest, I looked at a lot of online reviews of what — there’s been a lot of people that have written articles on that, but for me, if it’s down to making the eviction process simple and being able to hold a larger amount as a deposit for the renters… And if there was issues — like, states where if you had to go and get a judgment done, where you’re gonna be sitting held up in a court for like four months or six months until they can actually see you and your tenant might not be paying you, or only partially paying you for a long period of time… If I could choose places that wasn’t gonna happen, where the system was quick, and the system would ideally be favoring me, that’s what I’d pick.

Joe Fairless: A similar question for property taxes – you said some are high, some are not… How are you determining what high is?

Glen Sutherland: I was looking for ideally around like $1,000/year or less for like a single-family 4-bedroom 2-bath sort of area.

Joe Fairless: $1,000/year for a house?

Glen Sutherland: Yeah.

Joe Fairless: Wow!

Glen Sutherland: Yeah, well in Alabama the property I have is a 4-bedroom 2-bath and I got $560/year, the state with the second-lowest property taxes in the entire United States.

Joe Fairless: Goodness gracious, that blows my mind. How much did you buy that property for?

Glen Sutherland: $95,000.

Joe Fairless: A $95,000 purchase price, and the property taxes are less than $600/year?

Glen Sutherland: Yeah.

Joe Fairless: Huh… Okay. I’ve never looked in Alabama.

Glen Sutherland: It helps with the cashflow, yeah.

Joe Fairless: Wow…

Glen Sutherland: [unintelligible [00:11:45].15] Huntsville too, because it’s Northern Alabama, so you’re not gonna be dealing with Hurricanes too much, and that sort of thing… And they have Mercedes, and a rocket program, and the FBI, so there’s a lot of big employers. And it’s a growing city, so that’s my main reason for Huntsville.

Joe Fairless: That’s really interesting… I guess because I’ve just been focused on Texas, and the property taxes are not low in Texas, because there’s no state income tax, so… They get you one way or the other, that’s interesting. Okay, and then vacancy rate?

Glen Sutherland: Yes, I do look at the vacancy rate, too.

Joe Fairless: Okay, what do you look for?

Glen Sutherland: To be honest, I haven’t looked at vacancy rate that closely. It’s been sort of like something I kept  in my backpocket. I’ve heard people talk on podcasts about certain cities, but I didn’t go into the states that website mentioned, and “Oh, this is my number that I need to get…”

Joe Fairless: Fair enough. And by the way, just for comparison purposes on the property taxes… I bought a house – and I still own it – in Duncanville, Texas, which is South of Dallas a little bit. I bought it in 2009 for $76,000. The taxes on it now are $3,000. Believe whatever you wanna believe from Zillow, but Zillow says it’s worth $161,000 right now, I bought it for $76,000; the tax is $3,000 and you’re saying you bought a $95,000, mine was $76,000. You bought a $95,000 house and your houses are less than $600. That’s incredible.

Glen Sutherland: Yeah. But when you’re talking about tax, we’re talking similar — not in landlord; you’re much more landlord-friendly in Texas, but compared to Ontario. You’re comparing similar taxes. My property is here $200,000(ish) and you’re paying $250,000 a year for taxes for these properties. You compound that with the landlord laws, and the rent is not phenomenally high here. For a $200,000 place you’re getting like $1,500/month in rent, and it makes sense to move your money to Midwest, where it will give a better ratio, right?

Joe Fairless: And on the moving money part, from where you’re at to the United States, what unique challenges do you have as a Canadian investing in the United States?

Glen Sutherland: Well, as you mentioned that, getting your money across the border – the first time I was doing it, I didn’t know better, so I was just wiring money from Canada to the U.S. I did a professional wire, so it was like $70 you just wasted sending money across, and I believe you don’t have to do that. You don’t even have to deal with the real banks, because then you can get a much lower interest rate, but now talking to sub-banks, that’ll do like 0,50% to move your money across, whereas off a start, a typical bank is taking 1,5%-2% as their points in order just to move money from Canadian to the U.S., on top of the exchange rate, so you’re losing money there.

Financing is a big challenge from the Canadians. It’s not the same. We go to any of these large banks or anything, and they’re like “Well, what’s your social security number?” and you’re like “Well, I have an ITIN number…” It’s like, I have an international tax ID number…

Joe Fairless: [laughs] Like, “What’s that?”

Glen Sutherland: Yeah, exactly, and I go “What’s that?” and they go “Well, it’s kind of like a social security number, or a social insurance number in Canada… Kind of the same thing, but I use it to pay taxes in the United States. That’s my tax number.” And surprisingly enough, if you do a little bit of research, you can actually find credit cards — you can find some that will build your FICO score with your ITIN number. It’s a little trickier to find some… You’re gonna have to find like basically pre-paid ones, and you’re gonna be treated like you don’t have any credit at all, and you’re starting right from scratch… But it is a way that then the banks will deal with you.

They’ve told me that once I’ve been down there for two years and have a bunch of properties that things are gonna get a lot easier. If I want to have some tax returns to show – I have one tax return, but once I have several tax returns to show that I’m a  little bit more consistent and reliable… I’ve just set up some refinance on my property in Huntsville, so now that I will be able to show that I’m making mortgage payments, and… You’re starting from scratch, you’ve gotta show that you have a history and that you’re reliable to make the payments, and then things will start to grow for you.

But there are other options. There’s a bunch of Canadian banks that are down in the United States, as well. We have banks down there, for instance Royal Bank (RBC), BMO, which is BMO Harris in the States, and TD Bank… The tricky part I find talking with them is it’s depending on the bank loan-to-value ratios; really good interest rates though, and they only loan in the states they’re in. So you’ve almost gotta add a new thing to your criteria if you’re trying to buy a property, like “Where is my financing? Can I get financing from here, or there…?” Because right now I’m mostly dealing with private money, hard money, seller financing and insurance companies. [unintelligible [00:16:54].09] mortgages from insurance companies and there’s a lot less hoops to jump through. They’ll actually accept your Canadian credit score, too. It’s one way to get around it.

Joe Fairless: What was the first deal you bought in the United States?

Glen Sutherland: The Huntsville property.

Joe Fairless: Huntsville property. How did you get financing for that property?

Glen Sutherland: I bought it cash, because I thought it would be simpler, but in actuality it would have been simpler to actually close it with financing, because now it’s considered refinance, even if it hasn’t gone up in any value, and I’m still putting the same amount of mortgage on. You’re not gonna get the same rate on a refinance as the original purchase.

Joe Fairless: I wanna come back to that one… What’s the first deal that you got financing on in the United States?

Glen Sutherland: This Huntsville property.

Joe Fairless: Oh, on the refinance. So this is the very first time you’re getting financing, on this refi?

Glen Sutherland: Yes, that’s the first actual one.

Joe Fairless: Got it, okay. So you haven’t gotten traditional financing yet, but you’re working on it right now with the refi?

Glen Sutherland: Yeah, the refi is all approved, so that’ll go through, and then I’m planning to switch that out after a year to a lower interest rate. I’ve been talking to a lot of banks, which is really the system to use as a Canadian – just to call several banks every day and here a no, no, a no, and then a “Yes, we’ll deal with you, but these are our unique situations for a Canadian. We’re only gonna give 65% loan-to-value.” Some of them will give you 80% loan-to-value, but will want a higher interest rate. They all have different things. Or they want a certain number of tax returns. Some of them want co-signers by an American… But yeah, it’s a lot of just calling over and over again. I think a lot of people don’t have it in them to actually sit there and do that, and that’s why I’ve been mentoring a few people here in Canada, just to show them “Here’s what I’ve already done. Make it easier for you. You can use all these people I have already vetted and used, just to shorten the process.”

Joe Fairless: So for all the Canadians out there who are listening who are wanting to invest in the U.S., they can talk to you and you’ve got some shortcuts for them.

Glen Sutherland: Definitely, yeah. Ideally, I would love them to at least listen to episode one of the podcast, just so they have some general ideas of how it all works, and then feel free to call me. I sit on the phone – you can ask my wife – a couple hours a  night just talking to people while I’m playing with the kids and doing stuff. Actually, I try not to do that, but… Yeah. [laughs]

Joe Fairless: Cool. And the podcast is called A Canadian Investing in the U.S.A.

Glen Sutherland: Yeah.

Joe Fairless: Sweet. What is your best real estate investing advice ever?

Glen Sutherland: I would say the best advice would be to be bold, be willing to try stuff, because if I just kept getting stuck in like Canadian real estate… There’s so much more for everything if you’re willing to just step outside the box and do a little bit of research. You get boxed in with financing in certain spots, which is one of my reasons I switched… But if it feels uncomfortable, it’s probably a good idea to try it.

Joe Fairless: How have you applied that in your life?

Glen Sutherland: Well, I guess the obvious one is going to the states and taking the jump. I know we don’t do a lot of real estate meetups here; as far as I know, there’s only one other person I know that’s actually been investing in the states. Everyone stays in their backyard, a lot of people aren’t even willing to cross the province to do investing.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Glen Sutherland: Sure.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:20:27].06] to [[00:21:03].03]

Joe Fairless: Okay, best ever book you’ve read?

Glen Sutherland: I can probably do the obvious, Rich Dad, Poor Dad… Or maybe The Millionaire Real Estate Investor. I like that one as well.

Joe Fairless: Best ever deal you’ve done?

Glen Sutherland: I would say any of the properties that I have in Cambridge, Ontario. Right now, because I’m still new in the United States, those are really high cashflow deals, but the market in 2017 – every property gained about $100,000, which makes phenomenal equity that I can refinance and turn into whatever I want. But without that, it really would have stunted my growth a lot in order to get to where I’m planning to go.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Glen Sutherland: Well, I guess my biggest mistake was my first rental property I bought when I was still new. I didn’t really understand how to properly charge the right amount of rent. I basically  figured it out the wrong way by figuring out what it cost me, and then charging a little bit more than that, which was really backwards. Then I ended up having tenants walk all over me, and I ended up having to go through the Landlord Board in order to do the eviction process… And we had the police involved because people were running a scam out of my property…

Joe Fairless: What were they doing?

Glen Sutherland: It was something to do with Rogers, which up in Canada it’s like a telephone internet company. So they had a whole bunch of boxes, and stuff, so the police basically froze the property and I couldn’t even empty the property out because they wanted to go through everything.

Joe Fairless: [laughs] Fun stuff. If you have a similar situation, next time how would you approach it?

Glen Sutherland: Well, now I run everything like a business, so whenever someone’s late on the rent, I give them an N-4, which in Canada is like your notice that you have 14 days to pay your rent or leave.

On the 2nd of the month I am there with the paperwork to get that set up. If they don’t pay it on the 17th, I’m dropping off their L1, I’m getting the paperwork done… I basically have written out in a book how I want the properties to run, and whenever I kind of like get emotional or get into it, I just look at the book: “This is how it runs, these are the rules, and I can’t take favors because I like this tenant, or whatever. We have to run the process right through”, which I didn’t do off the start; I would take favors… “Yeah, sure, you can have an extra week, or two weeks…” “No, I’ve gotta start the process.”

Joe Fairless: It’s a slippery slope.

Glen Sutherland: Yup.

Joe Fairless: Best ever way you like to give back?

Glen Sutherland: Well, my big thing right now is doing the podcast and the YouTube channel that I’ve just started in the new year. I’ve been doing it every week, I’ve been trying to give all of the information that I’ve been coming up with as I come across it. People – they can go to my website, GlenSutherland.com, and they can message me there. I’ve just been getting into many e-mail conversations back and forth, and lunch meetings just to walk people through how they can do this.

Joe Fairless: Well, Glen, thank you for being on the show and talking about how you as a Canadian and real estate investor are investing in the United States, what you look for, the landlord-friendly laws, specifically the eviction process and how simple it is, as well as what type of deposit can be held… The property taxes – you blew my mind with Huntsville, Alabama, the $95,000 property, less than $600/year in property taxes. The vacancy rate crime and good job pool or diversity; you don’t want any one industry to make up more than 20%-25% of all the jobs. And then your unique challenges as a Canadian investing in the U.S., and some shortcuts along the way.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Glen Sutherland: Thanks, Joe.

Best Ever Show Real Estate Advice

JF137: Probates, Living Trusts and Joint Tenancies…Oh My.

How do you identify the most motivated sellers? You find the people who own properties but don’t want them. Today’s Best Ever guests talks about the importance of finding them and the research he’s done in the space.

Best Ever Tweet:

Morry Eghbal’s real estate background:

–        CEO of Successors Data, a database that connects investors with motivated sellers

–        Over 25 years of experience in real estate investing and is based in Ontario, California

–        Did 1500 flips over last 22 years

 

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Best Ever Show Real Estate Advice

JF123: Want a Loan? MUST Listen.

Today’s Best Ever guest tells you the difference between Fannie May and Freddie Mack and how to get approved for the each of the programs.

Tweetable quote:

Shaun Weeks’s real estate background:

–        Outside Loan Officer for Banc Home Loans and he is based in Ontario, California

–        Been in the industry for 10 years and have expensive knowledge of FHA, Fannie and Freddie loan programs

–        Licensed in 48 states and does both purchase and refinance loans

Subscribe in  iTunes  and  Stitcher  so you don’t miss an episode!

Sponsored by Cozy – Simple, free online rent payments, tenant screening and credit checks. Get Cozy for free at cozy.co

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Best Real Estate Investing Crash Course Ever!