Investing In Cash Flowing Real Estate (A REAL Deal)

The pics that you posted of the property, it appeared to be in very, very immaculate upkeep. You know, again, it's the whole essence of curb appeal and that first look. But that was one of the triggers for me instantly where I said, you know what, I'm going to reach out and see, see what he's got going on. And so. Well, it's a pleasure to be joined here today by Dakota and Jeff of Opinicon Investments. And the way that we came to be acquainted was through a mutual friend who is quite heavily involved in the real estate.

And Jeff had posted on Facebook a pending deal and had said, hey, if you're interested, direct message me, I can share details about this. And I thought this would be a great opportunity to get this deal out there into our community because as Jeff and Dakota are aware, we deal with quite a large number of real estate investors who are active and always on the lookout for high caliber opportunities. And so Dakota, Jeff, welcome to.

Thank you for having us. This is very exciting and obviously we're very excited to talk about this deal. I get, I guess we both get very excited when we talk about it.

So there are some main points that we really love about this and you'll see that come through.

Yeah. So we've, we've been investing for about four and a half years now. At the beginning, it was sort of a side gig. I guess we started slower, just, you know, figuring out our way. I think as we got into it, we realized how powerful real estate investing can be, especially in the wealth generation space. So as we grew into it, we realized how passionate we were about it, how excited we were to not only build financial freedom for ourselves, but also be able to help others build their own financial freedom through sharing our deals. So that's what started to really inspire us. Plus the idea that you get to play a role in being able to provide housing for your community. A big part of what, what we do is providing like beautiful, safe housing for those in the community. So that was another thing that really, really inspired us. And so much so that like I was in medicine before real estate, former IT professional.

So.

Yeah. So not real estate at all. Different.

Yeah.

But through this inspiration, we realized that this is what we wanted to do. So at the beginning of this year, just about a month apart, both of us left our full time jobs. Wow. So what started is, you know, a side gig, maybe, you know, build some little nest egg for ourselves. Became our full time gig.

Yeah, we started to scale pretty quickly and because of that we, we Actually found that our full time jobs were getting in the way of our side hustle. So we're like, we need to make.

A shift and you've taken the plunge.

We really did. We took a leap. Yeah.

And so far, so great.

Yeah, it's been really incredible. We have a lot of different experiences through the last couple of years. We've done burrs, we've done basement unit conversions where we've added units to bungalows, we've done flips, we've been property managers. We feel really excited to be sort of taking that next step to be getting into more of the apartment building space. This experience combined that we get to bring forward with the larger apartment buildings.

Well, and that's, you know, multifamily housing. I'm sure it's always been very attractive to the investment community, but it seems to be coming up more often, at least in my circles, than I may have heard in the past. And it's ideal too, because that's, that's the type of buyer that you would be attracting in the future if there was an exit plan for your projects. And we've got an exciting project to talk about today. And so let's dive right in and have a great conversation about this upcoming deal. The one thing that caught my eye, Jeff, right out of the gate, the pics that you posted of the property, it appeared to be in very, very immaculate upkeep. You know, again, it's the whole essence of curb appeal and that first look. But that was one of the triggers for me instantly where I said, you know what, I'm going to reach out and see, see what he's got going on.

And so, yeah, well, I mean it is immaculate. When I did my first walkthrough, I was surprised at how well taken care of this building was. And a lot of the work, like high ticket items have already been done in this. So we'll, we'll get into that a little bit more detail. But they do look really good. Landscaping was phenomenal as well. So you can, you can tell that there was a lot of care put into this from the previous owners.

And let's, let's start with what you're looking for. And so what is the ideal outcome from the real estate investment community? I last we spoke, you had a particular amount of capital in mind to get the deal done in the structure that you want to see that come together. And so let's start with that. What, what exactly is it that you need? And then we'll take a look at the property details.

Yeah. So really this property is, at its very core is a capital preservation property, which is why Jeff was saying how like, how immaculate it is. It really is at its essence a turnkey property, just because of the work that has been done already.

Okay.

So for. For this deal, the investors that we're looking to bring on board are people who are looking for something that's a long term game, so not something that we are taking under contract, doing a two to three year renovation on it, flipping it back to market, and then getting all the money back or refinancing at that point. This is more of an investment that has that same safety net of being turnkey.

Okay.

Something that you want in your portfolio for years to come.

Yeah, this is capital preservation at its core, for sure.

Got it. Okay, excellent. And what's the raise?

So the raise is 2.3 million. Within that is the down payment for the building. We're actually assuming a mortgage. So the previous owners have a seven year term left on their mortgage. Okay. So this is one of the beautiful points of it, is that we're actually assuming a 3.03 mortgage on this property. Property which is like incredible, especially in the landscape that we have right now.

And that's a fixed rate as well. So in these uncertain times, we see the interest rate hikes consistently. And this really is sheltered from that.

Awesome.

Yeah. So part of that raise is the down payment. So to fill the rest of that.

Okay.

We also have obviously closing costs. The really beautiful part about this deal is that there are actually three or six units that still need renovations. So there is still potential to increase the value of the building, which we can get into a little bit more in. A little bit.

Okay.

But with that, we do have a renovation budget, so that's to prevent us from having to go back and ask the investors for a cash call. So that is a part of the raise. And then we also have a small budget for Cash for Keys in Ontario. I mean, fair enough. You can't just kick out tenants, which is obviously to protect the tenants themselves. So one strategy is to use Cash for keys. So basically you offer them a certain number of months rent to vacation, vacate their unit.

Just an incentive to have a neutral release.

Yeah. And it's not something that we necessarily have to do because the building is already functioning really well without turning over those six units. But we figured we'll have a bit of. A bit of a budget for that. We're able to potentially offer Cash for keys to a couple of the tenants and then obviously A reserve. So that's what's included in that 2.3 million.

Excellent. Okay. And in terms of the budget, you know, for renos, have you estimated or sort of mapped out what that would be per square foot?

So we're actually gonna be going through with the contractor. We have done flips before, so we have a good idea of what renovations cost.

Okay. I think we anticipate about 30,000 per.

Unit to 30 to 40.

Yeah. To bring it up to where it needs to be.

Really? Got it. Okay, excellent. And let's take a close look at the package that you've put together. And as Jeff mentioned prior to us recording today, he did mention that there is an investor package that'll be made available upon request. And of course, any additional insights or questions that come up or a prospective investor, you can get in contact directly with Jeff and Dakota. They're more than happy to answer any questions that come up for you.

Exactly. So we're just going to pull up. We've actually touched on a couple of the things that are in the slides.

Okay.

So this is actually the front view of the two buildings. As you already mentioned. They look immaculate. They are gorgeous buildings. Gorgeous landscaping, which obviously is going to attract a higher end tenant.

Yeah. And so it's 24 units, it's two 12 unit buildings. They're on the same lot, they share the same driveway.

Okay.

So I just wanted to touch on this before we get too, too deep into it. With this deal, we are bringing on people who are family, friends, and then accredited investors.

Okay.

Obviously if you're interested in real estate, you want to learn more, you want to learn more about what we're doing, feel free to reach out. So this doesn't mean you can't talk to us.

But just for the sake of this deal and this discussion, this is what we're looking for as far as an investor goes.

Okay, Very good.

So there are really three big reasons why we love this deal. There's plenty of small reasons, but there are really three big key points. And the first one is the location of the building. Obviously, in real estate, location is a really big deal. You want to make sure that you're buying in the right spot. So this building in particular is in a town called Armpriar. Armprior itself is about 45 minutes from downtown Ottawa and then about 25, 20ish minutes from the tech hub in Canada, which is one of the, if not the biggest tech hub in the biggest.

It's massive.

You don't believe me? Every time I Say it. I've been looking for the biggest technology hub in Canada.

He used to work there. He would know.

Obviously, location wise, it is very close to Ottawa, very commutable. The two biggest industries in one of the two biggest industries in Ottawa are obviously government and tech. So very commutable for both of those. It's also located on the trans Canada highway, and it's actually in a spot that they just widened not too long ago.

Okay.

To allow more people to be able to commute between Armprior and Ottawa. So because of that, a lot of people have moved out to Armprior. And it's also allowed more industries to come into Armprior. I think it's a little bit cheaper for them to have land in Armprior. They have more opportunity for now. That's true. So it's brought in a lot of different types of companies in tourism. They have power generation because they're also on the water. There's also a nuclear power generation. They have aerospace, which to me is crazy, but they have an aerospace company. And then, of course, Ottawa, there's a lot of farming. So not only is Armprior a very commutable town from Ottawa, but it's also. It also has its own very strong economy. So it doesn't even really need to rely on Ottawa necessarily. So because of that, obviously a lot of people are moving out there. The town itself is this like, picturesque historical community that's on the water. It's really beautiful. So people are also moving out there and visiting there just because it does have that small town flow feel, but there's also the amenities of a larger city. It's like this really ideal place for people to be moving out to. And because of that, the town has actually seen just under 10% population growth between 2016 and 2020 21. So it's on the rise. They're building a lot in this town and it's only going to get bigger. So it's a place that Jeff and I have wanted to invest in for a really long time. We've been.

We've been trying. When we were flipping houses, we were trying to buy in our empire. And it was very difficult. It was through Covid and I mean, houses were going. We're going like crazy. So it was really difficult to find a good deal because it was just growing so much.

Well, and it seems.

Yeah, yeah, there you go.

And it seems like just a really cozy community. And, you know, people especially who are working in. In tech or in industry where they want a nice place to just go and replace their batteries and relax and kind of be away from the hustle and bustle of things. And so, yeah, it looks like a beautiful community.

Yeah, it's. Honestly it'. It's gorgeous. They have a lot of tourism and we even have. Our mentor actually is building a 60 unit apartment building in this town. So there's a lot of growth. So we're almost lucky because we're getting a building and there's very few purpose built apartment buildings in Armprior right now. They're starting to build them now because the town's expanding.

Okay.

But this is one of the few purpose built buildings of this size in Armprior. So there's not many opportunities like this that are going to come up. So we'll hop into a little bit, I guess, about the building itself. So not only is it in a very ideal town as far as location, it's actually in a great location within that town. As you can see on the map. The little red thing is the location of the building. And you can see it's like walking distance to childcare, restaurants, restaurants. There's schools nearby, there's gyms. That's actually about a 15 minute walk within that radius.

Okay.

Like a five minute drive from the hospital and a five minute drive from the beach. Because who doesn't love living near the water?

No kidding.

I know. It's. It's in a really incredible location in our prior. On top of that, it's actually in a community. So it's not like on a busy street downtown where there's nobody else living and it's just this building. The tenants will have this feeling of being a part of like the actual community that they're in.

Yeah, it was really interesting when I went to see it. It's like it was dropped in the middle of a housing community because it's just like single family homes that surround it.

Interesting.

Yeah, yeah.

It was very unique.

And the pic that we see here, that's a pic of the interior of one of the units.

That's one of the updated units. Yeah.

Okay. Yeah. You see a common area and then this is the kitchen, one of the updated units. I keep saying, like, I want this kitchen in my house. Like they've done a really extraordinary job of doing the renovations which obviously again, you're attracting a higher class of tenant at that point, which arm prior can handle because you do have a lot of people with high paying jobs that are commuting like to Ottawa from Armprior and also just working in Armprior Yeah, it's a gorgeous building. They've done a really good job.

Excellent.

So we've talked a little bit about the location. Obviously, I'm sure you can tell we're really excited about the town of Armpire, and we have been for a really long time. The other piece of it, which we did touch on a little bit earlier, is the hybrid component of it. So as I mentioned, it is a turnkey building we are walking in with all of the major capital expenditures being completed. The windows have been done, the roof has been done, the boiler system has been done, their common areas have been done, the exterior has been done, and. And 18 of the 24 units have been updated.

And that's like in the common area. That's not just paint and looks nice. They replaced the flooring as well. There's new tile flooring that goes throughout and everything's in really good shape.

Excellent.

So it has that, like, safety component of walking into a building that's turnkey, it's functioning. You're not relying on tenant turnover to make it work. You're walking into a building that's working.

And no unpleasant surprises.

Exactly. So you're not like walking in and suddenly your boiler goes, and now you have to replace the boiler and you're like, I wasn't expect. Expecting that. So there's that safety net piece, but then there's the hybrid, where there are still six units that need to be updated. So with those updates, and they're undervalued or under rented right now by about half. So there's a lot of potential there to increase the rental income, which of course is going to increase your noi and increase the value of the building, of course. So with those six units, we're looking at still around a million potential for value add. There are also potential potentials for decreasing the expenses, which of course is going to increase your noi. Three of the units, for whatever reason, they have separate hydro meters, but they aren't paying the hydro. So on turnover, you can put that now onto the tenant, decrease your expenses. And then Jeff and I are also doing a lot of due diligence right now to see where we can also decrease expenses in other places.

Okay.

There's no on site super at the moment, but we would be looking to get somebody living there and being the superintendent and they should be able to take care of a lot of the items, like landscaping, for example. I think there's a lot of expense being spent on landscaping, but I think that can be reduced easily just as a Quick example.

Yeah. And with that many units, you know, in both buildings combined, it makes perfect sense to have an on site super there.

Yeah, it's, it's really an ideal deal to have a super on site for. That's something that we are going to be working on, to have somebody sort of boots on the ground there all the time.

Awesome.

So obviously a lot of potential for this building, despite the fact that it's like turnkey and you're walking into an investment that's already working. And then the third one we did touch on, we are assuming the mortgage at 3.03%, which is like mind blowing.

Right now.

We'Re underrating deals at 6%. And so just to give you kind of a gauge.

Yeah.

And we're basically guaranteed that for seven years, which is the remainder of the term. So these are like the three big reasons we really love this deal.

And those, those six units that need renovations, that's just a bonus on top of this deal. Right. So this deal works from day one. It cash flows, it's a good deal. But renovating those six units is really just a bonus on top of it.

And then you mentioned in terms of the deal structure when we had spoke previously prior to today's session. So you have a structure in mind in terms of how investors will participate in this investment and is that something that you would be able to expand on and just provide some particulars about?

Yeah, of course. We have, I guess an ideal structure that we're looking at. Yeah. So scenario one is our ideal structure. So with the raise of 2.3, the ideal scenario is we're going to bring on four to six investors. They're going to be shareholders in the corporation because we're going to form a corporation specifically for this building.

Okay.

So they would be shareholders under that corporation. With us, we'd all be partners. And if that's the case, then what we're going to offer is a 70:30 split, which typically when we do deals we do more of a 5050 or a 6040 split, especially if there's a.

Lot of heavy lifting, if we are doing a lot of tenant turnover and.

Renovations and that kind of thing with this one. The potential that we know the building has where we can see. I guess I would say no, but I guess I shouldn't say no. Where we can see this building going. We were comfortable giving the investors the 70% and us taking a smaller chunk basically of the 30% just because we believe in this deal so much and we wanted to sweeten the deal for our investors and make sure that they were comfortable so that 70% will be for the investors. The important thing, though, with our deals to note is this only comes into play once the investors have been paid out all of their capital.

Okay.

So what we do on our deals is any income from the building that initially goes back to the investors as capital payback.

100% of the cash flow goes to the investors.

Yeah. And then on refinance, all of the capital would be paid back. Once that's done, then the 70, 37 split comes into play. Okay. So that only is after all the capital payback, which is kind of sweet because, you know, you're. You're getting your capital payback over time. And then once you're paid out, you're still a partner in the deal. You just now have all your capital back and you can go and do whatever you want to do with it, hopefully invest it again in something, but you're still a partner in this deal despite having your money back. So it's like infinite return basically at that point, which is incredible. That being said, we've had a lot of people ask us questions about, okay, what if I don't sort of fit into that 4 to 6 investor range? We do have another scenario where it'll be more of a GPLP structure. What we're going to be doing is once we have an idea of who's coming on board with us, then we're going to decide on the finalized structure.

And it might be a hybrid between this. Either way, the building is going to be purchased under a corporation. It's a matter of how we can organize and actually structure it with all the investors that come on board.

Okay, so this is finalized. So that's why, like, if, if you're like, oh, like, I, I want to get involved, but maybe I don't. I'm. I'm not in that, like, $500,000 range. That's okay. Still, like, come and chat with us, because this isn't set in stone. This is something we're going to figure out once we know who's. Who's going to be involved.

Okay.

Yeah, it's very good to know. And are there any other particulars about the deal that you think would be helpful for people initially to take a look at? Because this investor package, people will get a copy of that. They can connect with you. But are there any specifics about the deal that you think would be really helpful to highlight?

I think the really exciting part is the roi. I think that's, we Won't go over all this. Obviously this is a lot to consume all at once, but I think looking at just the roi, so if we walk into this deal, we do nothing. It just functions as it is. The ROI year one is around 14% which in any investment, especially a relatively safe investment, is an incredible return with.

The, with just the cash flow. That's a 3% cash on cash.

Obviously if we, the best case scenarios, we're able to optimize every single unit, which in Ontario might be difficult, is I'm going to say close to impossible.

However, like the best case scenario is around a 63% ROI. And then our likely scenario is we're able to turn over three of the units and then in that case the year one ROI is 36% right now is pretty good, I'd like to think a pretty good return to be getting on a relatively safe investment.

Yeah. And once, you know, all the units are renovated, what's the potential impact there on your cap rate as well?

So right now we've been using 4.4. Yeah, I think right about a 4.4, 4.5 cap rate. I think at the best case I think we're above 5, which in like in the Ottawa area is a wild cap rate. But actually the cash on cash appeals to that as well.

Yeah, cash on cash definitely hits 5% in the best case.

Yeah. Excellent. I think this case, it falls around like the 4.7, I want to say with this, the likely scenario. So there's a lot of potential for growth in the building.

Excellent. And what's your time frame in terms of the race? What would be the ideal time frame?

It's quick.

I was gonna say.

Really fast.

Yeah. So we're actually within the next week we're looking to have our letters of intent and deposits in place. Okay. And then by October 7th we would need all funds in the account and like the corp. Created bank account ready and all funds at September 17th.

That's a pretty tight window of time. And so we want to obviously get this out there and get it communicated so that we people know this deal exists and that there's an opportunity. This was really good because people, people want to know who are the folks behind the deal and you know, what's the driving aspiration and what motivates, you know, the both of you to do what you do. And people buy people.

Yeah, exactly. And I think that's where, where we sort of shine a little bit is that we like this is our full time gig.

Right.

Like we're, we are. This is not a part time thing for us. We're not doing this on the side. This is our full time job. This is something we're taking extremely seriously, like day in, day out to make sure that we're finding the best deals for our investors. And it literally is how we're putting food on the table. So we better be serious about it. Right? So. And we want to make sure that we're finding the best, the best deals for ourselves and the best deals for our investors and making sure it's a win win for everybody that's involved.

That's awesome. Koda, Jeff, it was a pleasure to be with you both and hopefully, you know, I think the analogy I used earlier was around fishing, you know, if we've got, if we throw the line out in the right body of water, we should be able attract the right investor to come forward and group of investors to come forward and say, hey, this is a really good deal. And so thank you both again. It was awesome. This is all part of, like I shared with you, you know, we're developing the money X community and just really bringing opportunity of high caliber to people who are seeking opportunity of high caliber. And so this is a sharp example of that.