House Hacking to US Multifamily Investing for Canadians

Introduction

Welcome to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. The show is designed to help Canadians invest better in Canada and the United States. We are the North America-based mortgage financing lender and provide education to both countries.

Discover how you can become a better investor and access the financing you need. Welcome back to the Wisdom Lifestyle Money Show.

I'm your host, Scott Dillingham. Today, I have an amazing guest with us, Mike Nicolica.

Welcome, Mike. Thank you for having me, Scott.

The Core Idea

Yeah, you're most welcome. So I wanted to have Mike on because he is essentially a serial investor, right? So flipper, he flips properties and then he is journeying into the States for multifamily properties. So I want to hear about your story, Mike, how you kind of got into flipping, maybe some tips and best practices, and then we'll talk about sort of the US and what's bringing you there and how it looks for someone who's hearing this that might want to partner or invest with you along the journey.

Absolutely. Absolutely. So I'll try to synopsize 20 years in two minutes, I guess. Basically started investing when I was 22 in Windsor, where we both are from.

So the market was kind of different then. It was a very affordable place, but still I was pretty young and I decided to, before it was kind of coined as house hacking, basically bought a duplex by the university, lived with my buddy, rented out the other unit, and then kind of fixed it up and realized, hey, this is a good kind of way to kind of minimize your housing costs and watch appreciation kind of increase your net worth. And from there, I kind of got hired with police service and ended up moving away.

And part of that was a little bit of movement throughout the province. So every place I went to, I basically wouldn't say house hacked so much. Some of my rented out portions of those, but more it was like live-in kind of flips and capitalizing on the principal residence exemption on those properties because it was staying for a couple of years.

Deep Dive

So it was fine. And then finally made my way back to Windsor and really decided to kind of take it up notch. And that was 2015, 2016, when the market was kind of still down before everything took place. And so I was doing flips, I was doing Airbnbs, long-term rentals, and that sort of thing.

And then I discovered Guelph Genius and Mirison, who's from Windsor as well, and basically got involved with some coaching and then recognized like, wow, there's a whole other market out there with the states. That is, you know, at first intimidating until you kind of understand the nuances of it. You know, some of the mortgage issues that you might encounter as a non-resident, and I know we've talked about this in the past, but like DSCR loans, which, you know, it's just a different animal over there. But the opportunity is so much greater, I feel, because you've got 10x the properties, 10x the people, right?

Yeah. So, you know, where you might see kind of economic impacts in a certain location here, that can kind of be like a little bit more, a bit of a hindrance to kind of, you know, buying properties that are still cash flowing. Down in the states, there's like places like Cleveland and, you know, Florida, where you got pad splits, Texas, Arizona, some of the places I'm looking at. And it's just a lot more opportunity to make things cash flow.

So that was a long-winded answer. Setting up, I set up corporations down there through a lawyer in the states. And so I've got a, and that's a whole other topic. The discussion is trying to figure out what the best strategy is for setting up a corp.

Practical Steps

Yeah. So like a C corp, and then an LP that's, so one's in, the C corp's in Wyoming, and the LP is held in Ohio to start doing acquisitions there.

That's awesome. No, that's incredible. I think, I think for, for those listening, because I know we speak to investors every single day and people are calling in and they're like, there's this sense of urgency. And I think that's more so now than when you and I started investing, I think people want now, now, now, now, now, right?

That's kind of the culture we live in. But I think investors need to realize, because I know you summarized that in like three minutes, but that was years of you getting there, right? You started off slow, moving into them, staying there from what I heard, right? You stayed there a couple years, you did that thing, right?

You house hacked and then you moved on because you can do that, right? You can tap into 5% down, move into the property and, you know, add units and convert it to a rental, live there a little bit and move on.

Key Takeaways

So, so for those listening, right? Like this journey, it's not like flick a switch and it happens tomorrow. Like it can be over years. However, real estate has proven time and time again, right?

It's a physical, tangible asset, but it's proven that it can grow and it can make money over time. Even right now, we're looking at markets where, you know, values are lower and I'm speaking specifically Canada at this moment, but values are lower than what traditionally they have been the past few years. But if you're like me, like you, and you've invested years ago before that, we're way up. I'm way up over what I bought these places for.

Do you know what I mean? So it's, it's a long-term game.

It's, it's not overnight. So I just want to call that out as like a takeaway for somebody listening. But no, I love your story. So you're, you're flipping properties over here and then you decided to go to the States.

Resources

Now, what kind of triggered the, the States? I know previously we spoke about cashflow. Was that, is that still your number one reason or do you have additional reasons?

Yeah. Like we're, you know, and I'm sure we could go on about this for hours and just, you know, the, the 1% rule, right? You're looking for 1% of, you know, your purchase price in terms of rent. you're not seeing that as much in Ontario and some other places in Canada.

Whereas like, you know, place like Cleveland, you're seeing two, two and a half percent, which is, which is crazy. Now you have to factor in the dollar exchange and that, but what I also like about Cleveland and Ohio specifically is that it's very favorable to landlords.

So it's a lot more balanced over there. I've had about experiences with, you know, 18 months to get a hearing in Ontario for the tribunal while my tenants didn't pay and trash, you know, your units. So a place like that is just very appealing and I think a lot of people have kind of moved or at least opened up their horizons that way. What spurred it was a boots on the ground that I did with Thomas Lorini and went and scoped out some properties there and just saw the value and, you know, it's a kind of a comeback story for Cleveland as well as Detroit.

Introduction

I also really like Detroit and that's changed substantially in the last few years. So what, you know, what I'm looking at is cash flow. I'm looking at appreciation in those cities where there's major investments going on. Cleveland Clinic's got a billion dollar investment.

Detroit's, you know, for anybody that hasn't looked at it, it's really growing fast and a lot of great places to eat, nightlife, that sort of thing. And just different models like in Florida, a fellow that we both know is doing pad splits and, you know, the cash flow in that is absolutely incredible. So it's keeping in mind to some of these other opportunities and it all depends on what you're looking for. Are you looking for cash, you know, in terms of a flip real fast or are you looking for long-term appreciation and cash flow?

You know, there's different strategies, of course, and it depends on the investor and what they're trying to achieve. No, I agree.

I love it. And I love specifically that you're tapping into the multifamily and I'm going to elaborate a little bit why. You might not even know this, but certain markets where they have cheap real estate prices, so like Ohio and Michigan, there's a few southern states too that are very, very cheap. And what's happening is, and again, it's more towards like single-family homes and smaller properties, but the lenders, they are raising their minimum loan sizes in those markets.

The Core Idea

Some lenders even pulling out because the smaller loans, like how it kind of works in the states if you're not aware, is the lenders, when they give you the loan, the loan doesn't stay with that lender. And I'll give you a perfect example, but ultimately they sell the debt. So in Canada, right, if you go to bank A and you get your mortgage, 10 years later when you get your mortgage statement, it's still going to be with bank A. But there is a Canadian bank, and I won't say names or anything, but there's a Canadian bank that got into some issues there in the states, and they got into some issues and they had fines.

So what they did to pay the fines was they sold their mortgage book, part of it, to another bank in the states so they could have liquidity to pay the fines. So in the states that's very, very common. So to tie it back in, these loans, they're being sold and they're not being held on that lender's books. So nobody's buying these small loans, and lenders don't want it on their books.

They want to stay liquid, right? So they can money in and out. That's how they want to operate. And it's good for the customers in that sense too, because say the bank goes under, right?

S. banks. It's okay for you as a customer because that loan will be sold to another bank, and it's not like you're in this massive trouble and what do you do because you have a loan sizes. So I see clients more and more that are buying these $50,000, $60,000 homes because you can, and they can't get any financing on it.

Deep Dive

So I just want to preface it that the minimum loan amount on those smaller areas is $100,000. Again, with you buying multifamily, that should be a non-issue. But for investors hearing this and they want to jump in, that's a problem.

But multifamily is fantastic. Now when you say multifamily, how many units are you looking at personally? I'm looking at anywhere between like $8,000 and $24,000.

Nice. You know, I walked a property that I'm kind of kicking myself for not moving on faster, but it was 11 units and I'm just like floored by it. The sellers bought it for $380,000. And the rents are around $1,000 a unit.

Now that's that market rent and some of these units obviously needed rehabbing. But they turned over five units when we walked it and they were asking $690,000. And I think it ended up selling for around that price. But you do another six units and you're getting somewhere around that $1,000 mark at that $600,000 purchase price.

Practical Steps

it's just really and the economies of scale are there and again the favorable landlord laws. And this is a purpose built brick building with carports in the back in a C-class neighborhood.

So you're not seeing that. 5 million.

It's pretty wild. So yeah, that's kind of what is really appealing to me about that and kind of the model that Thomas outlined as well and how he acquires underwrites and then brings in investors to be the passive side while he handles all the operations and the turnover of the property.

I love it. I love it. And that's what listeners here can do, right? Like if you want to get started in this and you like what Mike is talking about, I'm going to leave Mike's details at the end here in the show notes so anybody can reach out to Mike and get that going.

Key Takeaways

But that's fantastic. S.

S. investors that don't manage their properties properly and they don't maximize things like a Canadian does. Do you find that is a common theme over there?

You know what? It seems like there's a lot of people that perhaps are from what I'm seeing that are out of state investors. So they're probably not using it to the highest and best use. Like there's outbuildings that could be, you know, turned into storage units and that sort of thing.

Like I'm always keeping an eye to that. Can I modify the property in any way to add some more value? And I think for the folks that are, you know, older that have a large portfolio that perhaps don't want to sink any money into it because they were looking to exit, they have left some money on the table that way. But again, where there is that opportunity, there's opportunity for profit, right?

Resources

So I kind of really, I love that. Yeah. So anytime there's something that we can do to kind of change use perhaps or sever or, you know, add another unit that obviously increases value. So we're always kind of scoping and looking at it from a different lens, right?

Always having multiple sets of eyes. Now there's, just to share this with you, I don't think it would be possible on a smaller loan like this. I feel like the lenders would want it to be a bigger loan. But in the States, they're very open to business and they get creative.

So this investor that I know is, is buying this, it's about $10 million complex. They've got to renovate a bunch of units. They're anticipating it'll be worth 20, 25 when it's done. It already is bringing in awesome income.

But anyways, we were able to like essentially line up debt plus equity. So we got them a hundred percent financing essentially on the full amount of the purchase because the lenders and investors could see that it was going to be worth so much more. And then at the end, we just do a regular refinance through an agency loan through Freddie or Fannie. And then we pay off this debt and equity sort of bundle.

Introduction

And it's specifically called like mezzanine loans and things like that. So there are so many options out there when you get into the investment space. It's crazy that are just not like not really in Canada unless you want to pay like top, top, top dollar to get it.

You know what I mean? So I, I love that. And I'm sure that you found that too, like just the creativity and how the market works is just so much different over there.

A hundred percent. Yeah. You said that they're open for business. It's, it's just a different mentality.

Everything's faster. Money is more prevalent and available. I think people are a little bit more, I don't want to say they're risk takers, but maybe, maybe that isn't accurate description. I think people are willing to kind of take chances for the, for the opportunities of gain where I think Canada is a little bit more conservative in that regard.

The Core Idea

You know, of course, with our mortgage lending practices and that, which again, could be a whole other three hour podcast episode. You know, it just, it makes it a lot more difficult here, you know, to kind of get mortgages. I, I've just heard that they're, you know, they're passing if it's not already in place, but you can't use HELOCs to finance secondary properties, which again, that's just, you know, that's incredible.

That's your equity. You know, you should be able to use it, but you know, in the States, there's just a lot more leniency and freedom.

So, and, and a bigger market. Yeah. And I think what they do in Canada too, is they look at trends. So if they start to see like, okay, we've had a couple power of sales and they happened because someone was using a line of credit as the down payment.

So then they stop all that in, in the, cause they, they do look at the trends. So it's, it's weird like that because like when I think of a trend, I think of something like everyone's doing right, but they'll look at it and they'll just spot like just an isolated handful amount and then policies change across the board. So it is really hard because things are always, always different here, but no, and you're, you're right. That's, that's what I love about the States.

Deep Dive

And usually in the States you can always find a lender. The challenge is, or the only challenge that I see that's not like fully lined up over there is if you're buying a smaller property and you want to get a hundred percent financing, there are some options on that would like flip financing, but a permanent, you know, buy and hold.

It's usually not the case. Or I know, you know, in Canada, we can potentially line up some of those things as well. But beyond that, yeah, I just think, like I said, it's open for business.

There's many more options. So, okay. So we're coming to the close of the show. So I'd like to hear sort of last thing, if you have any opportunities right now and maybe high level what they look like, and then let us know how an investor could get in touch with you if they want to invest, you know, passively with you.

So do you have anything? And then how do people invest with you? Well, I am looking at an Aplex and a 24 unit in Cleveland. I'm waiting on some numbers in regards to that.

Practical Steps

So if anybody's interested in finding out more about that, absolutely contact me. I'm also looking at Pat's Blitz in Jacksonville because, again, the cash flow is just so good and the market is very open to that. So in terms of laws and that, so, but I'm also actively looking at Memphis and Detroit and Phoenix, Surprise, Arizona. there's a lot of opportunity there as well.

Again, there's, there is, if you do some market research, depending on what you're interested in, again, you know, quick kind of flip money or, you know, more of an appreciation, you know, cash flowing type game. But we can discuss any of that. If anybody wants to reach out, please do. And we can set up a chat.

That's awesome. Awesome.

So how do they reach out? Email, phone number?

Key Takeaways

Do you have a website? Yeah.

ca for email. And there's also a booking link there. So if you want to book a call, you can do that on there and we can meet on a Zoom call and, and, you know, just kind of exchange ideas or, you know, possibly partner up in some sort of joint venture.

I love it. Thanks for coming, Mike.

I greatly appreciate it. I love hearing people's stories and kind of what they're, what they're up to and what's getting them out of bed.

Resources

So thank you for coming. Thank you for having me.

It was awesome. No worries.

Take care, everybody. Take care.

Bye now. Awesome.

Introduction

Good work. So I'll stop that. Thank you so much for tuning into the show today. If you found value, please follow the show and rate it five stars.

It would mean the world to me. And lastly, all the resources that we spoke about are at the bottom of the show notes. Looking forward to seeing you on the next episode.