MIC Investing in Canada: Lending vs Equity with Keasy MIC

Introduction

Welcome back to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. Today for the second time, I have Milan Djankovic with us.

How are you today? Good, Scott.

Good. Thank you very much.

No worries, no worries. So what we wanted to talk to you today, guys, is this. I get asked all the time, people call me up and say, hey, I have money. I want to lend it out.

The Core Idea

Can you guys lend it out? Can we do this?

Can we do that? And a lot of times I tell the investors, no, because it's really hard for a mortgage broker company to keep track of everybody's money where it is. And then on top of that, we've had it where we did bring forward a deal to an investor, but then their money was no longer there, right? So there's different things and challenges.

So we tried not to do it unless the investor had a large amount of money. However, this is why we wanted to set up this episode. Milan owns a mic, so that stands for Mortgage Investment Corporation.

So Milan, essentially, is a lender. And we're partnering. Lensity is partnering with Milan, and it's Kizi, the Kizi mic. And we're going to be offering lending opportunities and equity opportunities to investors.

Deep Dive

So this is why we wanted to set up the show. So again, thanks so much for coming, Milan. Do you mind sharing with the investors how you decided to become a lender and what that looked like, what it entails, and we can dive into some how it kind of works?

Thanks, Scott. Yeah, so the reason for the lending arm actually goes back all the way to when I started in real estate, which was 10 years ago. We had our own REIT in Toronto. And that REIT, the word REIT in general, was synonymous with cash distributions.

But when you have a very active value add strategy in real estate, what ends up happening is you oftentimes don't provide cash flow, not at the beginning, at least. You first have to stabilize the project, and then it can start paying distributions. So there were a lot of investors that wanted, that were saying, well, you guys are REIT.

What's your distribution? So and that's been prevailing for a very long time. So it sort of culminated in we went to our legal council for these security matters, which is castles. And they're really, really good at structuring these things.

Practical Steps

And so we ended up coming up with a structure, which is a joint offering, which offers limited partner units and then also preferred shares through the MIC. So investors have the ability to allocate their investment via high capital appreciation and income producing investments. And so it allows you to sort of, as an investor, tailor how much cash flow you want versus how much capital appreciation you want. And so the MIC specifically at the moment is focused on investing through mortgages in value add projects.

And as a result, we are charging interest. And those interest payments get received by the MIC, and then they flow through to the investor. And the structure that we set up is very cost effective.

It's a really great structure. We also accept RSP and TFSA funds as well. So we're really well set up for these projects and to take investor money.

No, that's fantastic. And so what that means to you guys, so a couple of things here to break down. So we're really like, I don't want to say we and speak for both of us, but myself, but I'm really excited about the equity side of things. Being in the mortgage space, there's so many lenders that are available.

Key Takeaways

But what happens is these lenders, they have their own LTVs in their own restrictions, preferred markets, or right now on land. So you want to buy some land and develop it. The financing is between 50% to 65% LTV. And so sometimes investors can't make deals work.

So that's why I'm really excited about the equity side of things, because that will enable different projects that a normal lender couldn't complete. It does allow additional opportunities for things to come through. In some lenders, for an example, let's pretend a bank has your first mortgage. They may not support a second mortgage because of their rules, right?

But maybe you need money to complete the project, right? So that's where equity comes in.

So it's quite a unique gap. And there's not too many people doing this as equity. And we'll dive more into what that means. But that's why I'm really excited.

Resources

And just for fun, Milen, since we have you here, can you touch on how equity is useful for projects as opposed to debt on top of what I stated? Absolutely.

So it's a matter of your exposure. So the exposure when you're investing in equity, oftentimes you have a piece of the pie, meaning that as we grow the pie, you're getting more. And so with our equity projects, depending project-specific, project-to-project, your returns could be significantly accelerated on that project when we execute. The beautiful thing about the MIC and actually this fund in general is that we have the ability to invest in projects either through lending to them or through actually participating in them.

So investors have the benefit, the best of both worlds, and they can sort of cater to which one they want, whether they want cash flow or capital appreciation. So I think that's an amazing feature of our fund specifically that a lot of other funds don't have, frankly. Yeah, and I think people are trying to get more into it. Like this is off topic and we're not sponsored by these guys at all, but wealth simple.

So I've had a bunch of investments with them for years and they have this fund that I would invest retirement funds into. But now the fund has been reworked. So it's 80% stocks, that type of thing, but 20% preferred equity in these real estate deals. So they're even building out funds to invest in these types of projects.

Introduction

So it is amazing. I will put a caveat here, whether you're a private lending or being an equity investor, there's risks. And what I would like to do is, if you're someone and you've got funds and you want to invest in this, we'll sit down, we'll have a conversation, we'll go over pros and cons. So then you can make a solid investing decision.

But the other cool thing that I think that we bring to the table is because I do so much lending in this space. We can analyze deals. And that's how I foresee this really going for us is analyzing these deals and spotting what ones are good versus what ones are bad. Because sometimes investors, when you are partnering, somebody makes a SIM, confidential information memorandum, which will have all the numbers on the property.

But some key things could be missing from it. You know what I mean? Because they want to sell that project, where on my end, I'll be reviewing these things like, OK, is there a clean exit here?

Can we make this work? So I feel like that will help to eliminate, not eliminate, but to minimize risk. Just wanted to throw that out there.

The Core Idea

But just then. And Scott, you're absolutely right, because we have to focus on the exit for investors up front. One of the first things I learned was that you don't really make money when you're selling a property. You make the money when you buy it.

Meaning, selecting the right property, making sure the numbers make sense, and that there's a path towards execution. So what you're saying is spot on. I'd love to run through, if we have time, one of the deals that we're doing on the lending side to give your listeners a breakdown of how we look at these things.

Yeah, yeah, yeah. We can absolutely give an example, especially if it's a past one that you've done, that the numbers are locked in.

Then absolutely. Yeah, let's do it.

Deep Dive

So right now, the loan has been placed. So this is a property out in Hamilton. And Scott, I think you had a tour of this property.

This was the 10 Plex. Yes, yes, sir.

Yes. So this 10 Plex, it's an amazing property.

We acquired these 10. Well, our partner, who's also an investor, acquired these 10 units. And he paid a really great price for them. And one of the reasons why this property is so interesting is because it has the ability to add at least four additional apartments.

Practical Steps

And so where the MIC came in is basically to help fund the construction of those units. So we came in for $600,000 of mortgage. And we want to add four units. Now, that takes the property from 10 units to 14.

And with that now, you have a lot more value. And then that property can then be taken through the CMHC or MLI Select program. And then that's how we get paid out at the end. So it's about finding the right deal, making sure the numbers make sense, and that there's a clear exit, as you said, Scott.

So that's where your advice will be very, very valuable as we look towards these new deals and helping us exit the deals that we have right now. Yeah, absolutely. We can set this up by two ways as well, just for those. So, and for those listening, I mean, we are finalizing the details and everything, but there's just so much out there.

So the way that I see this going really nicely for the investors is you have a project that you've seen, and you want to invest in it, but you want to make sure it's all good, would obviously set you up with the paperwork right. You deposit the funds into the MIC, and then we get it all set up for you. So it's all legit and not this handshake, and you're just sending money here and there, right? So we'll work with that, and we'll make sure there's a clean exit, so I can see that happening.

Key Takeaways

And then I also see us having pre-vetted, pre-underwritten projects, where there's people that either debt or equity want to invest in these projects and get it going and turned over. So I can really see both angles being advantageous to the investors. Yeah, and to touch on your point there, on the last episode, we talked of the importance of governance, and with our MIC, we really wanted to make sure that everything is at the highest level and performing very well.

So the MIC is audited annually. Our auditors are BDO. We prepare regular communications with our investors. Investors get onboarded actually through an exempt market dealer, which basically does the know your client and suitability and takes all the information.

And so there's a very good process in place for taking investor money and placing it. And with that, you get your certificates and your shares, and you get my personal number. So we're always available to our investors at any time. Yeah, and you know what, I do want to clarify that because I'm saying, this is newer.

I'm referring to the partnership between Lensity and Keesey, but yes, Keesey has had this established for some time, but our investors are asking us all the time for a place to put their money. And the one thing that I tell every investor that comes to me too, that has money, and this is my own opinion, okay? So this is Scott Dillingham talking, but let's say you have a client who is past due on their car loans, past due on their credit cards, past due on their mortgage, right?

Resources

Those guys are seeking private lenders. That's who we don't work with on this. We like seeing deals and projects where we can see the turnover, we can see the exit, where it's nice and clean. And I think, you know, if I'm investing my own money into something, I would rather lend to a real estate deal that I can see the growth as opposed to someone who's already having a hard time making their bill payments.

And I know it sucks really badly for those people in that situation, but as a private lender, I would feel more comfortable personally with working with an investor. So I think we have that to bring to the table too. 100%, that's a very good point.

I agree with you completely. We need to be very selective, and a lot of our projects, there's a clear line of sight for exit, which is very good. And the teams in place and the people that are working on them, they are very good and they're very fast at executing. So we have everything in place for success.

Yeah, and you know, a lot of investors, I don't know if they realize this too, but you know, let's just say you're 10 plex, right? That's going to 14. I can get you an approval from a lender who's pre-underwritten this based on the CMHC criteria. Obviously it's not a final commitment, CMHC has to go through it, but it's still us doing the underwriting.

Introduction

It's still the lender doing the underwriting based on the CMHC specs. So it's a very, very high likely of approval. Obviously again, you know, there could be something missing or CMHC, you know, different flavor of the month, right? So there's always a little bit of risk, but in most cases, we can get you those term sheets and approvals upfront.

So then you know that exit's there. There you go, that's amazing. Yeah, it really is nice because you're not investing, you know, as an investor, I wouldn't ask you to invest unless we could work towards something like that.

So, you know, it helps, it helps. So okay, so what we'll do, because we have to wrap up, we'll put the details in the show notes so you guys can reach out and contact us if you're interested in this, but we can talk about the projects. If you'd rather just be a lender and not in on equity, that's fine. But like Milan's, you know, said, if the project is successful and it goes up in value, right?

If it's an equity-style investment, then that will go up in value. Obviously the inverse happens too if it fails, right? And that's why we're gonna put in all of our underwriting and everything else to minimize that as much as possible. But it's a little bit different.

The Core Idea

Where debt is, you're just getting that set interest rate. So pros and cons to both. And we'll talk during the onboarding about the options and you can kind of pick what, maybe it's a mix, right? But we'll talk about all of that stuff with you guys.

Thank you. And Scott, I just wanna say, we're very excited for this partnership and working with you and Lens City. And we couldn't have asked for a better partner. You've helped us a lot already, so we're very appreciative.

Well, thank you. I'm grateful and I'm excited. It's something we always wanted to do. And you guys had the infrastructure set up and you're literally doing the properties that we wanted to lend on.

So it's just, it's a really nice fit. Excellent.

Deep Dive

Thanks so much for coming on today. Thank you very much.

Take care.