The BRRRR strategy being implemented in a unique way fully explained on this episode.
At just 22, Nick made a play that would see him profit from his first property sale and set the tone for a flourishing investment career. He gets into the nitty-gritty of choosing a 20% down payment over a 5% down payment, and how that affected his future investments.
You will away from this episode with some great insight into investing in real estate wisely. Join us for an episode full of actionable knowledge to navigate the ever-evolving landscape of real estate investment and development.
I'm your host, Micaiah Gosman and The MGR Podcast is where I talk with Real people, about real money and real estate. To connect with me you can visit my Website or follow me on Instagram or Facebook
The BRRRR strategy being implemented in a unique way fully explained on this episode.
At just 22, Nick made a play that would see him profit from his first property sale and set the tone for a flourishing investment career. He gets into the nitty-gritty of choosing a 20% down payment over a 5% down payment, and how that affected his future investments.
You will away from this episode with some great insight into investing in real estate wisely. Join us for an episode full of actionable knowledge to navigate the ever-evolving landscape of real estate investment and development.
I'm your host, Micaiah Gosman and The MGR Podcast is where I talk with Real people, about real money and real estate. To connect with me you can visit my Website or follow me on Instagram or Facebook
Hey and welcome back to the MGR podcast, where we talk with real people about real money and real estate. Today we've got a super exciting episode planned for you. Today We've got a special guest, nick McCollum. He runs some real estate investing here in Fredericton, new Brunswick, and he has a lot of knowledge in investing and property management and development and a little bit of everything. So we're going to chat with him a little bit today and I'm super excited to have him on and he's going to share a lot of good stuff with us today.
Speaker 1:So let's jump right in. So, nick, my man, how you doing? Doing good man. Thanks for having me on the show. It's good to be here. Yeah, I'm super excited to have you here today. So you know, we're going to ask you a little bit of everything today and I'm just excited to kind of dive in. Nick and I have been good friends for a long, long time and you know I mostly know I know a lot about him, but I want him to share, kind of where he's from. You know what he's doing right now and his goals for the future. So let's get right into it. Nick, tell me a little bit about you, and just a little bit about you. About you and just a little bit about you.
Speaker 2:Yeah, sure. So I am a husband, dad, real estate investor. My first foray into real estate, I think I was about 22 or 23. I got into house hacking so I bought a house that had four bedrooms. Two guys moved in with me Between the rent that they paid me and some money that I had to kick in the mortgage and everything was really easily covered and kind of quickly realized that real estate was not as crazy hard as I thought it would be. So shortly after that got interested in some multifamily investing and now we're up to by the end of next month we'll have about 40 units under management. So that's our story in a nutshell so yeah.
Speaker 1:So. So you bought your first property back, you know, when you were 22 or 23,. Say now, tell me a little bit about, about that deal Like what did you pay for it? What was like? You know what were the rents back then? Um, you know, eventually, when you sold it a couple of years later, you know, was it a good purchase, you know, to get help, get you started into real estate.
Speaker 2:Yeah, it was awesome. So it was a little bungalow in Skyland Acres in Fredericton. For anyone familiar with the city you'll know where that is. It was four bedrooms when we bought it and one of the guys that was moving in with me was very handy construction so he helped me finish up the basement. We put in a fifth bedroom and framed in kind of a new living area in the basement. I bought it for $185,000 with 20% down, so do the math on that. It was a little under $40,000 to get into it and then, between the basement renovation and then just the wicked price appreciation that we got from being in the Fredericton area, we sold it for $270,000 about a year and a half later and that was a lot of the seed money that allowed our real estate business to really take off.
Speaker 1:Yeah, that's awesome. Now I mean, a lot of people are probably thinking like okay, you know you bought your first house. You had, you know, $40,000,. You know as a down payment, because you put 20% down and you probably could have gotten away. You know, because you moved into it as your personal residence, you probably could have gotten away with 5%. Am I correct?
Speaker 2:Yeah, so at that time I was still working at this stock market newsletter company and was very invested in the stock market, followed it pretty methodologically. So I knew very well what types of returns I could get in the stock market. And the way that I approached the decision on whether to do 5% down or 20% down was I basically looked at the extra money that I would have. Was I basically looked at the extra money that I would have, the 15% that I would save by putting 5% down, and I said, OK, what kind of returns can I get on that in the stock market versus how much extra am I going to be paying on that 15% in terms of extra mortgage payments and your CMHC insurance fee and things like that? And I decided to do 20% down because the ROI was better than stocks and it was like a guaranteed ROI because I knew exactly what I was getting into, Whereas stocks I could guess. But two months after I bought that house, COVID happened and stocks went down 40%.
Speaker 1:So that ended up being a good choice. Yeah, wow. So tell me a little bit about I've chatted before about the BRRRR strategy. You know buy, renovate, rent, refinance and then repeat, kind of thing. You know buy, renovate, rent, refinance and then repeat, kind of thing. So I mean it's a pretty common strategy amongst, like investors and whether they're flippers or long-term investors and stuff like this. So you know, we've chatted previously about kind of how your strategy is a little bit different. So give me your strategy on buying units. You know what you're looking for and how your BRRRR strategy is just a little bit different, sure.
Speaker 2:So I'll start just by describing the conventional BRRRR strategy and then I'll tell you our twist on it, because I guarantee you there's people listening who don't know what that means. It has nothing to do with temperature, but Makai said it. It's buy, renovate, rent, refinance, repeat. So the idea is you buy a building, you renovate it, so you invest some money and fix it all up, make it nice, you rent it and presumably, if you did a good job on the renovations, you can rent it for considerably more than what it would have rented for before you renovated it. Then you refinance. So what that means is you go to your lender and you say what that means is you go to your lender and you say hey, you originally gave me a mortgage for $100,000 on this property. The rents are a lot higher. Now Can you please give me a mortgage for $150,000?. What that means is your original mortgage gets taken out, paid off with the new mortgage, and then they deposit the difference that $50,000, right into your bank account. And this is where the next step comes in. You repeat that whole strategy. So you take that $50,000, you buy another property to renovate, and many people use this strategy to pretty quickly build a considerable little real estate business with only one original investment. It's what we did. There's a really popular website real estate investing website called BiggerPockets. That basically a whole media empire built on how to educate people to do the birth strategy. So if this sounds interesting to you, give BiggerPockets a read. It's a good resource for this.
Speaker 2:What we've done that's a little different is we don't typically renovate the units very extensively, but we just re-manage them. So a lot of places we've bought from either the rents are just considerably lower than what the market rent is in Fredericton. So if you see, if you regularly see listings for a thousand dollars for an apartment and you see a similar apartment for five hundred dollars and you can buy it, generally there's an opportunity to raise the rents a little bit just to get them in line with what the average rent is for that market. Um, and then there's just all kinds of other management things we can do to save money too. So, like, like we've seen, you know, we bought buildings where the owner was renting a dumpster but it was within the region for city garbage removal so they didn't need to. So there's like a couple hundred bucks a month that you can save.
Speaker 2:And ultimately lenders. They don't lend to you based on your rent, they lend you based on your profits. So one thing we do is we enforce that residents always pay their utilities. We one thing we do is we enforce that residents always pay their utilities. We feel it's better alignment of interests where, if you want to crank your apartment up to 30 degrees, you can do that, but you have to pay for it, not the landlord. So just like little things like that. So we our our strategy is basically buy, remanage, rent, refinance, repeat, and we've used that to build up to 40 units in four years or whatever it's been three years and we've talked a lot about that.
Speaker 1:Like how you know a lot of these buildings and because the market shifted so quick over the past couple years, like in the rental, you know costs you know got so much higher a lot of these buildings, like you try and buy them and then you know the sellers want these top dollars because they saw, you know one six unit sell for this and then another six units selling for this, so then they're thinking there's six unit is worth the same amount when really it's only because those other buildings were, you know, had higher rents.
Speaker 1:And so yeah, like we've talked about how a lot of these buildings that are, you know, overpriced, it's usually due to just poor management, you know, and you know they're not keeping up with the market rents and and some people don't care about that Like if they want to hold on to the buildings forever, they just care about having good tenants that are just paying them just enough to get by and that's. But if it comes down to you know, wanting to sell it, you know you can't be expecting people to pay top dollar if their rents are stupid low because the banks just won't lend to most people.
Speaker 2:When you buy multifamily property, you're not buying property, you're buying a business. And, just like any other business, they get value based on how much money they make. So, in the same way that you would think one business that makes a million dollars is worth half as much as another business that makes $2 million, real estate's, the same way it doesn't matter how many units they are, it doesn't matter how many bedrooms. It all just comes down to how much money they make.
Speaker 1:So yeah, so what? So? You know, this year, you know, okay, maybe you added like 24 to 25 units or something or 25 leases. Um, what's your goal for next year? Is it to kind of just get all those um managed better and just clean those up, or are you hoping to add another?
Speaker 2:25 units next year. Yeah, definitely not adding 25 units again next year. Um, it's been busy, but the the. So I'll talk about our goals, like for this year going in, and then our goals for longer term. This year, the biggest thing we wanted to achieve is build systems and processes that are going to allow us to scale up quickly without compromising a few things. Number one our bookkeeping. So we want our bookkeeping to be real, dialed in, we want to know how much money we're making, what our main expenses are, and we want our filings with the government to be tuned in so that we don't ever get nailed on audit or anything like that. Yeah. Number two we want to make sure our tenant experience is super good. So, until earlier this year, if tenants had problems, they would literally text me, and that doesn't scale well at all. As I'm sure you can imagine, I have to be able to turn off from time to time too. So and then number three uh, we wanted to be able to improve our maintenance scheduling. So, um, when work orders happened again, it was it would just come to me. Tenant would usually text me and, um, I have a day job Like this is still a side business for me that I'm not working full time, so a lot of times I wouldn't get to it right away, which would result in either, you know, bad outcomes for residents, which I really care about, or occasionally, like even property damage, which I also care about in a different way. So to fix all that, we've hired our first full-time employee, so I have kind of a property management assistant now and she's taken over all of our bookkeeping, all of our accounting and it's been awesome and all of our resident relations. So that includes just questions and answers, but she also does all of our leasing, all of our work order, choreographing, et cetera. So that's been great. That's awesome To say that my big goal for this year was to hire someone and get them to systematize everything.
Speaker 2:So now we can slot in more units. It's very seamless, like it doesn't result in more direct stress for me, and we set up a compensation plan for her where the more units we manage, the more she gets paid. So she like, I win, she wins, everyone wins. Um, we've also started adopting better software and stuff which we can talk about later, but now all of our residents have a paper trail for every interaction that they have with us. I can. I can see it. Our assistants can see it. Um, once we start onboarding third party property owners to this system too, they'll be able to see it too. So, like if you own a building that we manage, you'll be able to go in and see the work orders if you feel like you know you have any reason to check in on us.
Speaker 1:Yeah, that's awesome. So what is your kind of long-term goal, like, well, let's just say, like that 50 mark? Um, you know you probably don't want to be grinding like you are now, um so much, but what's your goal, kind of by that time and kind of more long-term?
Speaker 2:Yeah, so you know I I I've done a lot of computer programming. I've seen like the venture capital funded business model where you take on these investors who don't really care about you, they're just in it to make money. Um, not a fan of that. I've also seen the business model where some guy starts a business, has no succession plan and then when he's 60, he winds it down and doesn't have anything to say for 40 years of hard work, right? So I kind of align somewhere in the middle where I would like to leave my kids a business to run, if they want to, when they're done. So for me, I am in the business of compounding our capital and our investors' capital quickly over the long term so that when my kids are old enough, if they want to, they can work in the business, and if they don't want to, that's fine too. Like we're not going to force it on them.
Speaker 2:But I'm pretty passionate about entrepreneurship because it's fun, it's creative. You know, one of the first things we learned about God in the Bible is that he's creative. He goes in and creates all these things, and entrepreneurship is a huge medium that people can use to express their creativity. You can create new systems, new ideas, new businesses. In real estate you can even build new buildings and it's very cool. So with that in mind, I'm not interested in building a small business. I want to build a big business, and for a long time we always said our goals were 30 units by 30 and 500 units by 50. So 30 units by 30, check that's done. Um, we may need to revisit the 500 by 50. There's literally no math behind those other than that they sounded cool. So maybe they're not really good goals, hey, but I mean, hey, we'd also like to start doing like some third-party management and then to go back to the mobile home park idea. Like, we have this 18 pad mobile home park that we're buying just outside fredericton and it's got 60 undeveloped acres. So, um, this is kind of going to get us into the affordable housing business.
Speaker 2:I'm sure you're pretty familiar with what Marcel LeBrun is doing at 12 Neighbors and, um, he set it up.
Speaker 2:His corporate structure is very different than what we're doing, like he's running as a non-profit.
Speaker 2:Um, we're a for-profit corporation that has employees and stuff that we need to feed, so it's a little different, but we're kind of, I think, aligned on the fact that Fredericton needs a lot more housing and New Brunswick and Canada as a whole. So you know we hit last year almost record low housing starts, so record low number of homes being built, and we hit record high immigration. So that's just like a bad combination and that's why prices are going so nuts on all kinds of housing, like housing to buy, housing to rent, because there's just not enough places to live for how many people are coming in. So we'd like to get into the I think more into the mobile home park development space, because mobile homes are cheap. Yeah, it gives tenants or residents they shouldn't be called tenants, they should be called residents because they own the homes but it gives them the opportunity to build something or buy something that they're proud of and that they own, without having to pay the crazy prices that regular stick construction costs.
Speaker 1:Being able to provide some more affordable housing and just more housing in general will hopefully balance the market out a little bit here in Fredericton and just allow for happier people. I don't know.
Speaker 2:Yeah, man, nobody likes to be housing insecure. The government, I think, has done an okay job at addressing this, like it's very clearly a strategic priority for them. I think they've been a little slow to act on some things. But you know, last year they introduced this new program through CMHC called the CMHC MLI Select program. It's a mortgage insurance program that allows you to basically for multifamily properties, so six units and higher is their definition of multifamily. Sorry, it's five units and higher, but they basically allow you to insure a mortgage through CMHC with significantly better terms than you would traditionally be able to get from a bank, and the motivation for this is to help encourage developers to build more housing. So with MLI Select you can go up to 50-year amortization. You can do 95% loan to value, and that moved the needle a little bit.
Speaker 1:Yeah, seriously, seriously Now, can you do new builds and stuff with this as well, or is it just for if you're just buying an existing building?
Speaker 2:Yeah, to qualify for MLI Select, there's like a points system that you have to satisfy. You have to get, I think, 100 points between three different categories, and there's this whole rubric on the CMHC website. I would encourage you to just go look at the rubric because I'm not going to be able to remember it perfectly from memory. But the three areas that you can get points from are number one, accessibility. So for example, if your building has an elevator, you get a certain number of points. If it has wheelchair ramps, for every stairs, for every set of stairs, you get a certain number of points, et cetera. Another one is energy efficiency. So if you have like high efficiency heat pumps, a lot of insulation, you get points for those, and an engineer would have to come in and measure those, obviously.
Speaker 2:And then the third points system rubric element is affordability. So if you have 10% of your units that are under I think the threshold is 30% of the median income in your municipality, then you get a certain number of points. If it's 30% of units, you get more points. If it's 50% of units, you get more points. So for used buildings, most people qualify solely under the affordability element, just because it's much easier to qualify than to try to retrofit the whole building with accessibility or energy efficiency upgrades. But for new buildings they typically have very high rents because you can't build new affordable housing. That's just not how it works. If you build a building, it's usually a class A luxury apartment and it deteriorates into class B or class C over time. But they can qualify through energy efficiency or accessibility.
Speaker 1:Yeah, yeah yeah, now you're kind of now talk a little bit about that program. I mean, so a couple months ago, when it was kind of introduced, you know, a lot of people, I think, were pretty excited about it and that kind of resulted in some backup right.
Speaker 2:Yeah. So what I'm hearing from guys that I know that work pretty closely with the program is that that if you buy a building right now and put in an application to get one of these CMHC MLS select mortgages, your application will take between six and nine months to be reviewed, and that's like you might not even get approved at that point. So there's a couple ways you can get around this. If you are really dead set on buying a building Number one you can buy a building all cash and then refinance it into this program afterwards, and if you can get up to 95% loan to value, you'd be able to get almost all of your money back. So that's one option.
Speaker 2:There's also some lenders that will allow you to get like a one-year repayable bridge loan. So you get this bridge loan. It's usually pretty high interest but it's oftentimes interest-only payments and then whenever your MLI Select loan is approved, you can use the MLI Select loan to pay off the bridge loan, and that's why it's called a bridge loan. It's a bridge just from purchase until your real long-term mortgage gets approved and dispersed.
Speaker 1:You know, if we don't have the infrastructure and you know places for people to live, you know it could run into some issues. So hopefully there'll just be some, even some more opportunities for to incentivize, you know, new construction and building and development stuff and affordable housing like and building and development stuff and affordable housing like we've chatted about in the past.
Speaker 2:Yeah, people give landlords and developers a really hard time, but ultimately the reason why rental prices and home prices have become so mismatched is just that it's a supply-demand imbalance, so there's not enough supply for a lot of demand. We had record immigration last year in Canada as a country, and over the last two or three years since the coronavirus pandemic happened, we've had this humongous influx of people moving to New Brunswick because all of a sudden their nice cushy jobs in downtown Toronto could now be done anywhere. So they would rather pay $1,500 rent in New Brunswick than $4,000 rent in Toronto and a lot of people came here because of that and people just developers just cannot respond to demand like that as fast as the demand can change. So there's been a lot of housing insecurity over the last three years or so here.
Speaker 1:Yeah, yeah, yeah, yeah, yeah. So this has been awesome. So we're going to kind of conclude here in just a sec. But you know Nick is always open to chat with you know, anybody interested in real estate investing, anybody who's, you know, maybe has a pile of cash that's looking for a place to invest in stuff, estate investing. Anybody who maybe has a pile of cash that's looking for a place to invest in stuff. Now, if somebody wants to kind of potentially partner with you or something like that, chat with you, maybe it's through, just like a silent partner, hard money lending, or maybe they want to partner on buying a property, is there a way they can contact you? Or do you want people to contact you? Or like, what are your thoughts around that? Like, if somebody wants to kind of get into it with you.
Speaker 2:Yeah, you can email me my uh. My work emails nick at foxhillcorpcom. That's our holding company, um, and happy to talk shop. Help you guys out, however I can.
Speaker 1:Yeah, yeah, that's awesome. Well, nick, I really appreciate you coming on here and that this has been awesome. It's's great to kind of you know, um, you know, finally share some of your, some of your knowledge and information and stuff with with some of you know, some more people and, uh, this is super exciting and we're we're definitely going to have you back on. You know, and I know that a lot of people are going to look forward to kind of hearing about um, you know, as you get into this, you know how you built this team of you know developers to kind of you know help. You know build the roads. You know make the pads. You know get these homes in and how you're sourcing them and stuff as well, because there's going to be other people that are interested in kind of starting mini home parks or maybe buying existing ones and growing them. So, you know, I'm going to be, I'm going to be looking forward to hearing about it, and I know other people are too.
Speaker 1:Thanks so much for tuning in. If you have any questions or want to learn more, feel free to check out my website at gosmanca, wherever you're listening from, leave me a five-star review and let me know what you'd like to see in future episodes. Also, if you're a buyer or a seller and looking for some guidance in this ever-changing real estate market, I want to work with you. So get in touch today through my website at gosmanca, or you can search Makai Gosman Realtor on Google and get connected with me through any of my social media platforms. Thanks so much. We'll catch you on the next episode.