Episode 32: To Buy or Not to Buy: A Live Property Analysis

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In this episode, we dive into the intricacies of a recent property that crossed our desks, sharing the journey of negotiating our way to an accepted offer.

We provide a comprehensive overview of our process for efficiently finding and analyzing investment properties. From identifying potential opportunities to conducting thorough property inspections, we offer valuable insights to guide you in your own investment endeavors.

Decision-making metrics play a crucial role in determining whether a property is worth purchasing. We discuss the key factors to consider when evaluating an investment property, enabling you to make informed decisions aligned with your financial goals and investment comfort level.

Discover why a skilled realtor should never let a deal die on your end. We emphasize the importance of working with a real estate professional who understands your objectives and is committed to finding creative solutions to keep deals alive.

In this episode, we challenge the notion that good deals are simply “found.” Instead, we emphasize that successful investment opportunities are often created through strategic analysis, negotiation, and innovative thinking.

Additionally, we explore the concept of real estate deals that may not initially cash flow but still hold long-term value. We discuss the factors to consider when evaluating such opportunities, providing a nuanced perspective on how certain investments can deliver substantial returns over time.

Tune in to this episode of The Canadian Wealth Secrets Podcast to gain valuable insights into the world of real estate investing. Discover our negotiation tactics, learn about efficient property analysis, and expand your understanding of investment strategies that can help you achieve financial success.

Resources:

• The Canadian Wealth Secrets Wealth Building Booklist 
• The Real Group Windsor Real Estate Team
• Canadian Wealth Secrets Ontario Mortgages
• Download our Wealth Building Blueprint

Interested in Joint Venture Opportunities?

For those interested in being considered for potential Joint Venture (JV) opportunities, reach out to us here.

Contact Matt if you’re Buying or Selling Real Estate in Windsor or Essex County!

Reach out to Jon if you’re looking for an Ontario Mortgage or an Ontario Mortgage Refinance!

Check out the work Jon and Kyle do assisting mathematics educators and district leaders.

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00:00:00:14 – 00:00:13:16
Jon Orr
This is also speaking with the inspector of thinking about how do we spin this or how do we think about this? And because you might say like, now this is not for us, we’re moving on. We want a turnkey property, we’re going to move on. But that’s not the way we took it. And I think we still haven’t made a final decision.

00:00:13:16 – 00:00:34:06
Jon Orr
This is what this episode kind of is about. But I think when we all walked out, we were kind of thinking, okay, let’s maybe see where we go now, knowing that we might be sinking 60 to $80000 into the roof, possibly in the next few years, or maybe right away. Do we want to think about taking on all of these fixes right away?

00:00:34:07 – 00:01:11:17
Jon Orr
We do have systems in place for our property manager or maybe a new property manager to come in and do some of that work. So those are upfront costs that we know that we could absorb. But it’s like, Hey, where are our heads up? Could we build that into the price reduction when reaching back to this group or to the seller and go, Hey, we have some concerns over the state of the building compared to what we offered and we’ve now kind of come back with maybe a counteroffer.

00:01:11:19 – 00:01:18:21
Kyle Pearce
Welcome to the Canadian Wealth Secrets podcast with Kyle Pearce, Matt Biggley and Jon Orr.

00:01:19:00 – 00:01:28:11
Jon Orr
Get ready to be taught as we share our successes and failures encountered during our real life lessons. Learning how to build generation wealth from the ground Up.

00:01:28:14 – 00:01:33:19
Matt Biggley
Welcome investor students to another episode of the Investing Teacher podcast.

00:01:33:21 – 00:02:21:02
Kyle Pearce
Well, well, well Canadian Wealth Secrets friends in all those investment students out there today, we’ve got an interesting episode because actually we weren’t going to record an episode right now. We were actually going to meet to discuss something that is on our minds. And it actually is a current deal that we have under contract and we had an opportunity to go and do an inspection of the property with a property inspector yesterday and we chatted throughout, we discussed a little bit on the phone, but then we sort of all said, Hey, let’s sleep on it and let’s connect tomorrow and address some of the surprises that we found and really just play with our numbers and

00:02:21:02 – 00:02:35:21
Kyle Pearce
sort of check our emotions a little bit and really try to figure out where are we at. So we just hit the record button here. And I’m wondering, let’s go to Matt here. Matt, tell me or tell the audience what are we dealing with here with this particular deal?

00:02:35:23 – 00:02:51:03
Jon Orr
I like that we’re going to Matt right away because usually our deals come into play because Matt sees one or we toss one to Matt, and Matt kind of goes like, Hey, let me get a little bit of details on a property. So this would be great to get Matt’s perspective where this one came from to begin. For sure.

00:02:51:03 – 00:03:11:15
Matt Biggley
For sure. Yeah. Thanks, guys. Thanks. It’s for process of vetting these properties and even finding any that are worthy of doing additional due diligence on is a pretty fluid one. We’ve got some auto searches set up so it will just send properties that pop up ready to our inbox. You guys flip properties to me, I’ll do a little bit investigating into them.

00:03:11:15 – 00:03:31:02
Matt Biggley
We’ll decide quickly whether or not they’re worth pursuing. And I think that’s kind of one of the lessons here. With investment properties especially, you can’t get stuck. It’s really a volume game, so you’ve got to look at a lot of different properties. Some you know, right away we’ve talked about our checklist for looking for properties before. Personally for our investor group, we like bigger properties.

00:03:31:08 – 00:03:51:19
Matt Biggley
Duplexes are fine, The duplexes aren’t really where the returns are and we like to lower that price per door. So rather than paying 250 grand at door for a duplex or more, we like to get that door number under that 200. So this was an eight plex and this one had first come on the market at 1.2 million.

00:03:51:21 – 00:04:15:16
Matt Biggley
And I think what drew us to it was first of all, the location. It’s in a location we have bought previous properties in. It’s a bedroom community of a major city. We’ve talked about this. Our own philosophy of investing is we like to find smaller towns, smaller communities inside properties. There we believe it’s created a little higher tenant profile, fewer less of the big city problems that can happen in any property.

00:04:15:18 – 00:04:45:14
Matt Biggley
But we’re comfortable with this location because we’ve bought here before. We like the number of units. It was a mixed six residential units and two commercial. Our experiences, we don’t love commercial, especially empty commercial. One of the largest unit was empty here. We really like residential, but we see the opportunity and the opportunity maybe convert here. What drew us back to this property was that the price had dropped from 1.2 million to 1000050.

00:04:45:14 – 00:05:07:23
Matt Biggley
So it was starting to get in our range. And what’s awesome with having two number crunchers for partners is I get the financials flipped in to you guys in in a matter of minutes. You’ve come up with a great financial analysis to look at not only cash flow and we’ve talked about this in a previous episode, we’ve actually started to adjust our expectations versus properties overall just looking at cash flow.

00:05:07:23 – 00:05:22:06
Matt Biggley
So that’s kind of the premise of the property. So the things that drew us in fundamentally to it, notable is that we ended up with an accepted offer this property without having actually visited it, and that’s going to probably be a surprise to many people.

00:05:22:08 – 00:05:39:17
Jon Orr
Yeah, and that’s something that we’re analyzing properties on our on a regular basis. Like you said, it’s a volume game in a sense that we need to get our reps in. We need to continue to analyze and analyze and analyze so that we can see what’s working for us on the numbers side of things and make sure that it can work.

00:05:39:17 – 00:06:00:04
Jon Orr
And we’ve said this before that good deals aren’t just found. It’s not like it just landed in our lap and it worked automatically. We tried to adjust and think about different scenarios, be creative. We’ve talked about that on the podcast before. So we say good deals aren’t found, they’re made. And I believe guys, when this one first came in, we put an offer in and it fell flat, right?

00:06:00:04 – 00:06:24:10
Jon Orr
It fell flat like it wasn’t returned and when we were looking at this one, we had some ideas in mind to run the numbers we knew right away. After running the numbers on the current rents, especially with that very large commercial in the ground floor of this building not being occupied, that the numbers weren’t cash flowing. And so in past years we’ve been looking at cash flowing.

00:06:24:10 – 00:06:44:15
Jon Orr
Hey, the cash flow. Yeah. All right. Is it cash long enough? All right, let’s now investigate a little bit further. And if you’ve been listening to this in the last six months, you’ve heard us talk about adjusting that strategy along the way to kind of think long term, think about what’s going to be working for you. There are different ways to win for investing in real estate and especially multifamily.

00:06:44:15 – 00:07:04:05
Jon Orr
So I think when we looked at this one, we played with some numbers, right? Colleague We got real creative here to make the numbers work before we even attempted to set foot in this thing. Before we even put an offer in, we were trying to see how creative could we get with looking at a different lender. There are some unique lender opportunities.

00:07:04:05 – 00:07:24:12
Jon Orr
I’m going to let Kyle fill you in on that as he did a lot of the investigating on what lender kind of helped us wrap our minds around some of our potential options because we always want to plan what’s option, what’s option B, what happens if this happens and what happens if this happens? We go through those scenarios like Matt said before we even attempt to put an offer in before we even set foot in this thing.

00:07:24:17 – 00:07:47:09
Kyle Pearce
Yeah, this is really interesting because I think when we first began, kind of goes back to what Matt was saying might surprise some people that we actually put an offer in, hadn’t actually gone inside the building. We knew of the building, we drove by the building. We know the area as was stated. But realistically, it’s like if those numbers don’t work, there’s no purpose in getting into that building, right?

00:07:47:09 – 00:08:22:05
Kyle Pearce
So that meant having actually needing to negotiate on that building even without going through and doing that inspection. So based on what we know about the building, based on what we see the building being in the future, and I think that’s the key piece here where even though right away we were dealing with a bit of a cash flow issue upfront, we had a vision for what this building could be or this particular unit that had been empty for some time and it wouldn’t take us too much in order to at least get ourselves to cash flow positive.

00:08:22:05 – 00:08:40:06
Kyle Pearce
And the one thing that I think really put us in a position where we felt like we could get something going was first of all, we knew that if we could get the price to a specific level that we would be at a really favorable cost per unit compared to the market. So there was that working for us.

00:08:40:08 – 00:09:07:24
Kyle Pearce
And then secondly, we had bumped into a lender that we had never used previously that was going to have some favorable terms, in particular having some interest only opportunities and little to no money down upfront for the first 3 to 5 years. So for us, there was a lot of positive things going on with this particular building, with this particular in the location.

00:09:07:24 – 00:09:27:06
Kyle Pearce
I should also mention was not just located in a smaller town, which we enjoy. We like that there’s a little less competition out there. As Matt said, the tenant profile tends to be a little bit different based on our experience and it was really on a main street, so there was a lot of things going there. We really like that.

00:09:27:07 – 00:09:50:22
Kyle Pearce
So we got our deal going and with those numbers based on what we knew, we were in a pretty good spot. However, when we got to the building yesterday for the inspection, we had some maybe surprises that we weren’t necessarily anticipating. So I’m wondering, Matt, you arrived first on the scene and by the time I got there, I was running a few minutes behind.

00:09:50:22 – 00:10:05:03
Kyle Pearce
By the time I got there, we had already sort of bumped into our first mystery that wasn’t sort of shared in the details of the listing. Tell us a little bit more about that experience and sort of how does that shift our perspective around this particular property?

00:10:05:06 – 00:10:30:21
Matt Biggley
And as you said, it was so key for us to negotiate and the negotiations unfolded over a couple of days to negotiate a deal before we went to see the property. And it’s integral to go and see a property. We’re big believers in buying where we live as opposed to buying elsewhere, because even though if all goes well, we will rarely, if ever, tend to this property personally, it’s a piece of mind to be able to drive by, check it out, whatever that might be.

00:10:30:23 – 00:10:47:23
Matt Biggley
When we arrived at the property, there was a maintenance worker just leaving the property with a mop and our inspector had beat us there. He was doing his drone of the roof and that sort of stuff that he said, Oh, that guy just left and said he was sent here to clean up the water from the leaking roof.

00:10:48:00 – 00:11:16:00
Matt Biggley
So I love the candor of those running into people like that. And then of actually talking to the tenants when you’re going through the units, listen, tenants rarely, if ever, see favorably their landlord, but through conversations with them, you’re also able to learn a fair amount about the building, verify rents, all those sorts of things. So not only was the roof leaking, there was a moment where it actually leaked on me and we were trying to figure out if it was rain water or toilet water.

00:11:16:03 – 00:11:20:08
Jon Orr
Yeah. You did not enjoy thinking of whether it was toilet water or rainwater.

00:11:20:14 – 00:11:38:10
Kyle Pearce
Now, Matt, before you go on, though, tell me the fact that the roof is leaking isn’t necessarily something that scares us. But when you have a negotiated deal under the assumption that the roof is not leaking, that is where we run into some problems, right?

00:11:38:13 – 00:12:05:23
Matt Biggley
That’s right. That’s right. And our numbers, our analysis was based on this being a relatively turnkey property, maintained at relatively expected levels. And so that our capital was going to go into converting this large commercial unit into some other residential units instead of investing in things like roofs, like electrical that are integral to the property fundamentally that do not bring any ROI.

00:12:06:00 – 00:12:28:08
Matt Biggley
So it got dripped on toilet water or rainwater. We later discovered that it was thankfully rainwater, although I took three showers when I got home and the thing that we quickly discovered from the conversation with the maintenance worker inspector is that there had been what was purported to be a sewage backup in one of the furnace rooms. And again, I got to get to know this main surface.

00:12:28:10 – 00:12:46:02
Matt Biggley
He was actually pretty funny, whether intentional or not. He said, I ain’t ruining my mop by clean in that room. And I loved it. I love that was awesome. That was great. And this is the reason why, as realtors, we see lots of properties and a ton of experience. This is why we bring out professional inspectors. We brought out a great one.

00:12:46:02 – 00:12:52:05
Matt Biggley
And so he said, the reason why I knew it was sewage is because I can see the little bits of toilet paper all over the floor.

00:12:52:05 – 00:12:55:01
Jon Orr
So yeah, that was gross. That was gross.

00:12:55:03 – 00:13:17:04
Matt Biggley
But needless to say, we did not walk into that room with a reported sewage leak. So any great inspector is going to kind of lead the way throughout the property, analyzing everything from h-back to electrical to plumbing to roof condition to exterior. And so he was really our guide through each of the units. And as we progressed through each the units we met, just about all the tenants were home.

00:13:17:05 – 00:13:36:12
Matt Biggley
I think everyone, every single one of them totally out. So we had the chance to have a chat with them to verify rents, to estimate their experience of living there. And it was interesting. Candid conversations is that tenants tend to be incredibly upfront and honest and tell you all of their issues and plans and you sort of take that with a grain of salt and move on.

00:13:36:12 – 00:13:57:02
Matt Biggley
I think that the challenge for us was as we continued on our tour of the building, we continue to find additional issues. So the roof, once we were actually able to get on the roof itself, we’re able to see was in terrible condition and we’ve just gone through a major flat roof replacement and another property have after spending years of trying Band-Aid fixes.

00:13:57:04 – 00:14:08:15
Matt Biggley
And it’s incredibly costly. And again, a roof is integral to the building, but it does not bring you any additional return on your investment, nor does it bring you a higher rent. So that was a challenge for us.

00:14:08:18 – 00:14:16:01
Kyle Pearce
And fixing it honestly didn’t bring me any additional joy. Matt I mean, I do think though, if I want to just throw that in there, right.

00:14:16:03 – 00:14:44:05
Matt Biggley
Although we’re getting fewer phone calls, which maybe is a tertiary joy factor. Yeah. We also found in a number of units old Fuze box electrical and of course an electrician lately incredibly skilled but incredibly expensive. So that was another challenge for us based again on the price that we had negotiated with the seller. As we continued on our two or three units, we had the roof, now we had the sewage leak, we had the electrical issues.

00:14:44:07 – 00:14:50:24
Matt Biggley
We found just a general state of disrepair. I’m going to probably estimate at least 40% of the windows were broken.

00:14:50:24 – 00:15:07:05
Jon Orr
Say most of those windows had cracks and tenants had to tape them up. And they’re trying to make sure that they want to keep the heat in on the winter and the cool air in the summer. There was a lot of disrepair over the course of seeing this unit, more so than, I think, what we anticipated on the price point that we had agreed upon.

00:15:07:11 – 00:15:24:22
Matt Biggley
Yeah, absolutely. And some of that is to be expected when there is a active property manager company involved. We were surprised by the volume of it and I think the seller had only owned the property since 2021. So clearly some of these issues were preexisting, but a lot of times when a new owner comes in, want to improve units because they want to up rents.

00:15:24:24 – 00:15:46:01
Matt Biggley
None of the units from my view anyways, had actually been updated or upgraded in any kind of substantial ways. The old cabinet’s old washrooms and presumably behind those walls or electrical plumbing, they had radiators and in some cases installed wall furnaces. So our initial excitement over locking up what we thought were going to be great units was definitely tanking at this point.

00:15:46:01 – 00:15:54:12
Matt Biggley
And this is kind of a process of maybe an inspection. It’s not going super, super well, but it certainly wasn’t the end of our story. And you don’t hand it off to one of you guys now.

00:15:54:14 – 00:16:14:20
Jon Orr
Yeah, I think it paints a picture that this ends we’re walking out of here and that shuts things down because you’re thinking, Oh my gosh, the roof needs to be replaced. All these things need to be fixed. The tenants are complaining about disrepair. It seemed like a lot of tenants had. There’s a lot of changeover between tenants. So sometimes it’s like, well, there’s high turnover.

00:16:14:20 – 00:16:41:10
Jon Orr
Are they leaving because of the state of the building? Or maybe there’s other factors and maybe that’s even actually not bad for us because of the ways we can adjust rents when tenant leaves or not. But I think before we kind of think about where our heads are at on this property. You did mention having that well or that really important character throughout this journey that we’ve been on right through this property, which is the inspector, and I think we talked about it really early in the podcast.

00:16:41:10 – 00:17:03:03
Jon Orr
If you go back to some of the early episodes, we talked about our team, who’s the right person on your team and this property inspectors. We’ve completely trusted the way he talked to us. He showed us all these different pieces that we need to think about. Choosing the right property inspector is huge, and I felt that you guys using this property inspector in the past, it felt very comfortable.

00:17:03:05 – 00:17:19:12
Jon Orr
He’s got our best interest at heart when pointing some of these things out and also when the report comes out to to kind of think about the way representing the state of the building. And so while we’ve just outlined a ton of negative features about this building, some folks might be like, well, that means why are.

00:17:19:12 – 00:17:20:13
Kyle Pearce
We talking about this?

00:17:20:15 – 00:17:33:20
Jon Orr
Right? They’re out. But we got to the this is also speaking with the inspector of thinking about how do we spin this or how do we think about this. And because you might say like, now this is not for us, we’re moving on. We want a turnkey property, we’re going to move on. But that’s not the way we took it.

00:17:33:20 – 00:17:52:12
Jon Orr
And I think we still haven’t made a final decision. This is what this episode kind of is about. But I think when we all walked out, we were kind of thinking, okay, let’s maybe see where we go now, knowing that we might be thinking 60 to $80000 into the roof, possibly in the next few years or maybe right away.

00:17:52:14 – 00:18:21:18
Jon Orr
Do we want to think about taking on all of these fixes right away? We do have systems in place for our property manager or maybe a new property manager to come in and do some of that work. So those are upfront costs that we know that we could absorb, but it’s like, hey, where our heads up? Could we build that into the price reduction when reaching back to this group or to the seller and go, Hey, we have some concerns over the state of the building compared to what we offered and we’ve now kind of come back with maybe a counteroffer.

00:18:21:18 – 00:18:34:12
Jon Orr
So I don’t think we’re tossing this out just from the walk through, even though we saw some disgusting moments or some concerns of ours. But I think we’re going to use that to kind of help this negotiation get a little bit sweeter for us.

00:18:34:18 – 00:18:48:18
Kyle Pearce
Yeah, for sure. It’s interesting because actually in the beginning of the journey, when Matt and I first partnered, it was sort of like our sweet spot, our property was this type of property, right? Lots of.

00:18:48:18 – 00:18:50:00
Matt Biggley
Problems.

00:18:50:02 – 00:19:10:15
Kyle Pearce
Most definitely. But the benefit that was taking place back then, that was in 2016 when we began, was the price point was very different as well. Right? So we’re in a different time. So it’s not that the property itself is a concern for us. It’s just with everything. So John, you had mentioned this idea about adjusting the price for us.

00:19:10:15 – 00:19:33:17
Kyle Pearce
We also have to analyze something else. We have to think about the time and effort that we’re going to have to put into just dealing and managing with these challenges. Right? We have to get ourselves to a place where we need to, and we’re not going to speak specifically to numbers in terms of what adjustment we’re going to make, but we’re going to land on a number that makes sense where we go, you know what?

00:19:33:17 – 00:19:57:16
Kyle Pearce
It’s worth it to put in all that extra time and effort and capital, right? Because there’s capital. It’s capital intensive to slowly bring this building up to a decent standard. And when you turn over a unit, right, like Matt already mentioned it, most of those units look like they have not been touched significantly. Right. Or updated in decades.

00:19:57:16 – 00:20:17:21
Kyle Pearce
Right. There is not a whole lot of awesome going on in there, which means if you turn over a tenant, turns over and you go, Yeah, tenants turning over. So now rents, we can raise them in Ontario here it’s very restrictive. You can’t just raise rates to whatever rate you want and you can’t ask them to leave. So you basically just have to wait.

00:20:17:21 – 00:20:39:22
Kyle Pearce
It’s a waiting game, so rents are low. But on the other hand, if you want to pump those rents up, you’re going to have to put more capital into updating those units. So some of that we anticipate when we take over any building right in the back of our mind, hey, if there’s a couple and we all usually are like, Hey, if we can get a better price, we’ll take on that role and we’ll deal with them as they come up.

00:20:39:24 – 00:21:02:10
Kyle Pearce
But the roof, this sewage issue, which could spiral into something much bigger and the electrical piece, as Matt already mentioned, those three things we can bury, say, 100 K and to all three of those things and we will not see any return from those. So we’re not going to see any returns. So it’s not just if let’s say the number is 100,000, right.

00:21:02:10 – 00:21:24:07
Kyle Pearce
Which it’s likely even more that will have to happen over the shorter term in the 1 to 3 year time period. That hundred K is not going to do anything to our bottom line. We haven’t touched the livability of these units. We’ve just sort of made sure that the building is now fully functional. So with that said, it’s like, what does that cost us?

00:21:24:07 – 00:21:45:22
Kyle Pearce
It’s like just to put 100,000 in or let’s say, get a rebate of 100,000 on the purchase price. We’re taking on all of this additional work and hassle, which we never anticipated having to take on. So you also have to put a price on that as well. And the one benefit, Matt, I’ve heard you say it a number of times is that we get to be emotionless about this decision making process.

00:21:45:22 – 00:22:12:09
Kyle Pearce
We don’t have to be upset if the seller is not okay with reducing the price. We just say this is not the property for us. These details, it suggests to us, to be honest, that those details or many of them were known to the current owners and they chose not to disclose them. So we’ve negotiated a price based on these things, and I’m guessing that they know that there’s going to be some pushback.

00:22:12:09 – 00:22:32:10
Kyle Pearce
And Matt, you spoke with the selling agent yesterday and you even said this idea that, hey, these aren’t things that are not going to come up with the eventual buyer, Right? So these buyers are going to come in, They’re going to make an agreement and they’re not going to assume the roof is leaking and they’re not going to assume maybe by chance it’s unknown.

00:22:32:10 – 00:23:04:20
Kyle Pearce
But now it’s a material fact that they now know these things are happening. So if we share that report with them and we say, like you now know this, which means you actually have to state that or you’re supposed to state that legally that these are known issues. And to be honest, discussing the price point, knowing those things could have been much more productive because either we don’t come to an agreement, we all walk away right from the get go, or we then start discussing this property at a more reasonable price point.

00:23:04:20 – 00:23:31:22
Kyle Pearce
So for us right now, I’ve got some numbers in mind and I want to see that price point come down pretty significantly to make it worth our time. But I want to flip back to Matt. Where’s your head at? You’re a busy guy. You’re running around showing properties, doing all the realtor stuff. I have a funny feeling that doing another flat roof is not exactly the thing you were dreaming about doing in the next 1 to 3 years.

00:23:32:01 – 00:23:52:21
Matt Biggley
I still feel like I need to wash my hair again. I think as we discussed it a little bit last night, I think that’s really what the crux of the decision. We have been trying to buy nicer properties, more turnkey properties so that they can be more served. However, we talked about how this is emotionless and almost. John, you haven’t been in as many of these multifamily properties as you comment yesterday.

00:23:52:23 – 00:24:09:11
Matt Biggley
The emotional part of residential real estate people really fall in love with properties. I think yesterday emotion actually had the opposite effect and you were so grossed out, you’re like, get me out of here. So I think what important thing to remember when you’re looking at investment properties, you’re not going to live there. You’re not going to live there.

00:24:09:11 – 00:24:28:23
Matt Biggley
And in fact you are literally providing a service to people. One of the tenants said to us, I really hope we don’t get kicked out by the new owners because they need a place to live. So that’s something going and I’ll have newer to invest in clients. They want to go see the places with the granite countertops that are fully renovated top to bottom, and there’s a market for that for sure.

00:24:29:04 – 00:24:47:12
Matt Biggley
I’ve got someone who just bought a premium duplex and is going to get premium rents for it. But our sweet spot has been buying things that are clean and safe and that are rentable for a number that works for us and that works with tenants as well. That’s kind of in our own sweet spot. So that’s something to keep in mind with the emotion.

00:24:47:16 – 00:25:07:08
Matt Biggley
I’m a big believer in never letting a deal die on your end. And so this comes down to relationships with agents. And as a realtor, it’s not just about writing up the deal and typing in the boxes and showing the property. It is really about your relationship with other agents. And so in this case, we had a great rapport with this agent.

00:25:07:14 – 00:25:24:13
Matt Biggley
We’ve had ongoing discussions about this property and he was open minded. When I share his disappointment, I’ve been able to be pretty candid. Is it? So we’re also going to see, you know, he can’t speak for his seller, but it sounds like the seller is reasonable as well. Seller has some other priorities that they’re interested in putting their investment dollars into.

00:25:24:18 – 00:25:45:01
Matt Biggley
And investing is a business lesson on some properties, especially if you’re going to turn them over in a short amount of time. It’s not guaranteed you’re going to make money. But in 2001, here we are a little over two years later, our own personal strategy is to buy and hold for the long term. We tried, as we’ve talked about, some flips and single family, not our game.

00:25:45:06 – 00:26:08:19
Matt Biggley
Some people do terrifically at that. So for this property owner, he might actually have expectations where he would have liked to have made money. Clearly price point at which he started would have made a handsome return. But once we present to him the sort of facts and the logic here of the challenges, and it talked to the other realtor about how we might present this with a summary was estimated costs very logic based, no emotion whatsoever.

00:26:08:21 – 00:26:34:04
Matt Biggley
And the price reduced. Well, let’s see what he says. And so that relationship will allow us to have the conversation. But I would say that not walking away is probably where I’m leaning so far as we get this property for a renegotiated price because it comes back to the fundamentals, eight units at a great price per door in a terrifically walkable location with separate meters.

00:26:34:07 – 00:26:48:10
Matt Biggley
The exterior was in decent shape and we have a conversion opportunity. So the crux of our conversation last night was fast forwarded. 25 years into the future, would we be happy to have this building and deal with the current headaches?

00:26:48:12 – 00:27:05:00
Jon Orr
Yeah, I love that framework that you just said about 25 years. Often Kyle and I talk about the ten, ten, ten rule, which is if I make a decision that’s is not necessarily an investment kind of decision, but it works for you here. If I make a decision, how am I going to feel about it? 10 minutes right after I made it.

00:27:05:00 – 00:27:21:16
Jon Orr
How am I going to feel about it? Ten months after I made the decision? And then how am I going to feel about it ten years after? And I feel like where our heads are at, if we’re 10 minutes, we’re probably still like, Oh, we got some work to do here. And in ten months might be like, Not that such a big deal.

00:27:21:16 – 00:27:39:15
Jon Orr
We already did the work. It’s not that big of a deal of work. We’re going to be doing a little bit of managing. Maybe we haven’t sunk any extra money into it yet. And then ten years we’ll probably be laughing to say, Hey, we already did all this stuff and we still have this great like you said, Matt, there are a lot of great upsides to this property that you’ve articulated.

00:27:39:18 – 00:27:58:15
Jon Orr
We haven’t even really talked about that conversion idea right now. This is where my head’s at, guys, is that if we can manipulate this price point down enough so that we’re somewhat close to being cash flow positive, now think about how great it’s going to be in the ten year or even the ten months option on the ten, ten, ten rule.

00:27:58:15 – 00:28:27:12
Jon Orr
If we do sink a little bit more money, which will provide extra revenue to us by converting, say, that giant restaurant or that giant commercial property or commercial unit in the bottom into two, maybe three residential units, and then think about that in the ten year or even the ten month option. I think we’ll be laughing at that point by going like, Hey, we just added all of this to this when we got it for almost kind of cash flow positive.

00:28:27:12 – 00:28:43:06
Jon Orr
Now, even if we, I think, get it for where our heads are leaning towards to adjust for the roof and adjust for some of these other fixes we’re going to have, we’re probably still not out of cash flow positive yet, but lots of potential upside coming our way. I think if we can just bring that down just a little bit.

00:28:43:08 – 00:29:03:11
Kyle Pearce
Yeah, I love it. That’s a great way to sort of frame things and sounds like you’ve got a good sort of big take away. And I think that’s exactly where my head lands is that I certainly don’t want to walk into more work for not a whole lot of benefit, even if it is in that ten that first ten, like the 10 minutes or even ten months.

00:29:03:13 – 00:29:24:06
Kyle Pearce
I do want to make it worth it. But when we think about that longer range thinking, just like Matt had said a lot of times, things that seem like a big deal at the time go five years down the road, ten years down the road, they’re non-issues. So it’s a non-issue at all. So for me, I think the big takeaway from this conversation is this deal is definitely not a dead deal.

00:29:24:06 – 00:29:40:19
Kyle Pearce
And I love Matt, you saying and I’ve heard you say it before, is like, we’re not going to let this die on our end. We’re going to come back and we’re going to share more specifically what we’re hoping to achieve and why. Because, again, it’s got to be win win on both sides. And if it isn’t a win for the seller, hey, who knows?

00:29:40:19 – 00:30:02:24
Kyle Pearce
Matt, you always say like, hey, they can play the lottery numbers and maybe there’s somebody out there who’s got lots of cash sitting around and is looking for a building exactly like this. So cash flow is going to be a different situation for them. Maybe they’re not leveraging as much as we’re intending to leverage on that building, but ultimately, at the end of the day, without that roof, without the sewer issue, without the electrical, we were fine.

00:30:02:24 – 00:30:25:18
Kyle Pearce
Essentially with everything else. We could have taken it at that price. And you know what? Yeah, so the units aren’t in the best of shape, but we’ve been there before. It’s all fine. So for us, I definitely think that this deal is still alive and well. We just need to come to a conclusion with these sellers that, Hey, do you really want to sell this property right now to friends like us?

00:30:25:19 – 00:30:36:15
Kyle Pearce
Or maybe they’re just not ready for that to take place yet and they’re willing to let it sit a little bit longer? It seems like they’ve been letting it sit since they purchased it just two short years ago.

00:30:36:18 – 00:31:00:09
Matt Biggley
Every property is going to have its opportunities and its challenges, and the art of the deal comes in finding a solution that works for both sides. This isn’t about stealing anything. This isn’t about ripping somebody off. This is really about finding a property where the opportunities outweigh the challenges or the opportunities make the challenges palatable because you see those opportunities as being bigger.

00:31:00:11 – 00:31:18:19
Matt Biggley
And this property maybe very well that I think by the time this episode airs, we will have made our decision and it’ll be fun to update the audience on what we’ve done and then maybe dive into some of the more details about where and numbers and get into that. But this has been a lot of fun just having this live conversation about analyzing this property.

00:31:18:19 – 00:31:45:21
Jon Orr
I agree. And maybe we should do this more often. Maybe we should just just like hit record and start just talking about different things that are in our heads. But yeah, stick around, folks. In a few episodes you’ll be hearing the outcome of this property in our decision and the reasons that led to that decision. Like Matt said, we’ll share the numbers as well to kind of see where we landed and what lender we went with and why we went with that lender and what other team members we may have brought in along the way.

00:31:45:21 – 00:32:10:07
Jon Orr
So we’ll keep this as an ongoing update. But hey, if you are listening right now, then you should pat yourself on the back and we would love for you to give us or rate us on your favorite podcast platform. The one you’re listening to right now. Just hit that rating and review. Leave us an honest rating and review it helps every rating helps another listener start to change the trajectory of their wealth.

00:32:10:07 – 00:32:13:05
Jon Orr
So please do that and we’ll see you on the next episode.

00:32:13:10 – 00:32:25:13
Matt Biggley
All links, resources and transcripts from this episode can be found over on the website. That’s investor teacher account forward slash episode 32. Again that is investing teacher dot com career slash Episode 32.

00:32:25:16 – 00:32:31:20
Kyle Pearce
And if you’re watching over on YouTube you’ll see you’ll meet is it Murray or.

00:32:31:20 – 00:32:32:16
Jon Orr
Yeah that’s Murray.

00:32:32:16 – 00:32:34:20
Kyle Pearce
That’s Murray Murray the cat. John’s cat.

00:32:34:20 – 00:32:35:22
Jon Orr
Is oh my gosh.

00:32:35:22 – 00:33:01:24
Kyle Pearce
Practically standing on his head. But for those who are not interested about Murray, you can head on over to invest EW.com forward slash books and you can check out our book list all kinds of awesome, awesome reads over there. And if you actually click the button, you can grab a principal PDF and hey, there’s a couple additional titles on that particular PDF that you can print and take along with you.

00:33:02:01 – 00:33:31:00
Jon Orr
And if you are thinking about getting into real estate investing and are kind of like me and you weren’t ready to bite the bullet or take that first step on your own, then we encourage you to consider reaching out to us. We partner with people just like you. A lot of times when we enter into our deals as joint venture partners so that we can help you teach you along the way on what to expect and how to get comfortable making these kinds of decisions like we’re talking about here.

00:33:31:00 – 00:33:37:23
Jon Orr
So reach out to us at Investor Teacher Ecom Force at JB. It’s investor teacher account for GV.

00:33:38:02 – 00:33:54:18
Matt Biggley
All right, students, Class dismissed.

00:33:54:20 – 00:34:11:06
Kyle Pearce
Just a reminder to our invested students that this content is for informational purposes only. You should not construe any such information or other material as a legal tax, investment, financial or cat taking care of advice.

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