GI2: Investing in US Apartment Complexes as a Canadian Citizen with Seth Ferguson

GI2: Investing in US Apartment Complexes as a Canadian Citizen with Seth Ferguson


Welcome to the Global Investors Podcast, a
show that focuses on helping foreign investors enter the lucrative US real estate market.
Host Charles Carrillo combines decades of real estate investing experience with a professional
background in international banking to interview experts in all areas of US real estate investing.
Now here’s your host, Charles Carrillo. All right, welcome to another episode of the
Global Investor Podcast. I’m your host Charles Carrillo. And today we have Seth Ferguson,
who is 11 year real estate veteran. He’s a co-host of Purchase to Profits podcast, where
he interviews successful real estate investors and is also the host of a cable TV real estate
show. Seth published his first book sell for more in 2018 and his second book that’s going
to be released in 2019. And Seth give me a little background, I know you’re based outside
of Toronto. And how did you go from, get into investing, real estate investing? Well, I started off from the real estate in
residential sales. So at the time I was doing, I was trying to make the NHL as a hockey referee,
believe it or not, so traveling all over the place and selling real estate seem like a
good fit, where the schedule was flexible so I could travel, still sell homes and do
the games. But I realized after a couple of years that I had a few clients where they
had acquired a number of homes and, they seem to be just thinking about real estate in a
different way. And, I was making what you would consider good money at the time. I had
the nice house with the pool, with the waterfalls in it. I was driving a nice car, going on
these nice trips. But I realized that, I hadn’t accumulated any assets, so whenever I sold
their home, the commission was good, but then the cast just went out again and I wasn’t
building anything. So you start acquiring some properties and at that time I didn’t
really know anything outside of, what I was selling, which was single family homes. So
it was a natural fit for me. I acquired, a number of single family homes that are duplex
conversion and this was in the Toronto market, which is one of the craziest markets right
now in the world at the average price right now I was looking at it to the other day is
like 800, let’s say $850,000 is the average price, which is pretty ridiculous. And so
there’s some challenges that go along with that because it’s not a cash flow market.
So your whole strategy has to change. Whereas, if I’m investing in a rural town in North
Dakota, chances are it’s going to be a cash flow market. Yeah. That’s great. Yeah, Cause it’s one of
those things where you make the sale and then you’re restarting it again. And I remember
that when we were flipping houses, it’ll be the same thing where it’s great, you’ve made
your money and then Monday you’re back to work. So it’s one of those things. That’s
great. Now, when you were a, when you’re doing real estate sales, are you still now, are
you still [inaudible] you keep that license, are you, so I imagine. I have my license stole. I have a group of
awesome clients, that, that I’ve worked with over the past 11 years now. So, they’ll call
me, I’ll help the metal. But, right now my main focus is on the investing. Oh, that’s great. So what was one of the determining
factors to go to multifamily if you started in with, you started with rentals and single
family. What was the reason for going to multifamily? I learned, after the fourth property that
banks don’t want to lend you any money, on single family they want your arms, two legs,
your firstborn child and rates that everything after that. So, and especially when you look
at the lending environment, this was in Canada, that was with the single families. And the
lending restrictions are a lot tighter in Canada than they are in the states. Pros and
cons to it, but it’s very tough to get financing, especially like I mentioned before, a Toronto
is not a cash flow market. So, when you’re looking at, your income on paper and your
portfolio, even though you’re, you’re accumulating the equity through appreciation, the cashflow
doesn’t really balance it out and get financing. So, what happened was my son was born and
I realized it was, I’m not sure if you have kids or not, but when they’re not that you
know of, but my son was born, you’ll hold your child for the first time. And I, as a
new father, I just had that, desire or that need to be better and do better for my son.
It was a really weird experience holding them for the first time. And I knew that I had
to scale my real estate investing a lot quicker and a lot better and I was doing it. And a
multifamily seemed like a really good fit. Yeah. That’s interesting that you say about
the banks because that’s one of the things that we have, for properties I have in the
United States personally. And they’re smaller multifamily. And then we get into, we have
an 81 unit that’s under a contract right now outside Tampa. And it’s amazing how the lending
criteria for going, what’s underwriter’s looking for, on a five unit I refinance, compare to
now on a portfolio. It’s amazing that it’s not that much on you. It’s more on the property
and they’re worried more about, they’re worried more about how long your leases are written
than what you made last year. Well, 100%. And this is a big message I always
try to get across from people. So don’t think small. Every, everybody thinks all the wall,
I want to get into real estate, so I’ll buy this one house and rent it for x amount and
then I’ll buy a house every year for the next 20 years and I’ll retire. Right. A Bank does not want to lend you $400,000
who have for your mortgage. That’s surely they do. They have that arm of the bank. But
the bank makes their money on the $10 million loans or the $20 million loans where you’re
dealing with, an actual the large multifamily properties. It’s a business. But when you
think about it, your tenants or your customers who have professional management or it’s cash
flowing. If I’m a lender, I want to lend my money on those types of assets rather than
just a single family home. Yeah. The risk is much lower. And, also you
have a loan originator that’s pushing that through and they’re getting their cut on that
too. And they’re going to be more likely to push through your $10 million mortgage than
it is for your $100,000 a turnkey house that you’re financing or whatever you’re doing
it. 100% and if I could go back in time and before
I acquired my first rental property, if I could go back in time and say, Seth, this
is Seth from the future. Don’t do it. No, I think bigger because you know it was, I
got into the single family homes because I just didn’t know any better. Right. I think
it’s people will make the right decision, the song as they’re exposed to the information.
And even when I’m talking now with potential investors, most people don’t know about the
benefits of real estate. They’ve never heard of depreciation, they’ve never heard of, you
know that the tax benefits and all that stuff. So it’s really educating other people so they
can make the best decision for themselves. Yeah, that’s partly, it’s kind of right into
where we’re going with this deep. If now you’re raising money currently for projects with
your capital group now you’re raising for a properties and projects in Canada and the
US, or just in US. So right now I’m concentrating on Houston.
I really liked the Houston market. There are some really good Canadian markets. But again,
I mentioned, so in Canada your two major markets are Toronto and Vancouver and right now for
multifamily that the cap rates are ultra, ultra compressed. It is ridiculous. And again,
different strategy. I prefer, the value add strategy, for multifamily, so I think there
are markets in the states that are a lot more conducive to that then some, pretty hot markets
in Canada. Now when you’re raising money for your deals,
in Houston mainly, you’re bringing, are you bringing Canadian investors in? do they usually
come with you from, obviously from your book of business, from being in sales and stuff
like that? And in Toronto. Yeah It’s interesting because I found that
the relationships, I built a selling homes and the relationships you build with, from
sophisticated and accredited investors that they’re not the same. A lot of my clients
selling their homes that they don’t meet the criteria of an accredited investor. So it’s
almost like building a totally different database. Yeah. I going into it, I didn’t realize it would
go that way, but yeah, it’s, it’s two totally different groups of people. Yeah. Did you have investors that you are
selling when you were selling single family properties? or you, did you have investors
that were doing that? How are they making money? Or is it just unappreciation when you’re
a back on Toronto selling? Yeah, so the market, it’s really based on
appreciation. So you’re, if you can acquire property and be cashflow neutral for your
first year, that’s a great buy. So it’s a, I interviewed a guy named Chris Gray, from
Australia. He, really amazing guy, but in Australia it’s the same kind of thing. For
some reason Australians think when they rent out their property, they should give the renter
at an extreme discount and actually take the loss on the cost for owning the property.
So very similar strategies in that way. And you just have to have a different toolbox,
in investing in that type of market. Right, right. That’s a, that’s a very interesting,
the when, what kind of projects are you involved with right now or that you have closed over
the last few months and use scenario? Yeah, so I was looking at a 160 unit to property.
didn’t go ahead with that one. so we are act so that just so everybody’s clear, I have
not closed my first deal yet. Okay. So I am actively hunting, so if somebody has a great
property in Houston, give me a call ready to rock and roll. But I am ready to rock.
so, right now, we’re IMAT, it’s underwriting properties every week, building those ideal
funnel, looking at all the deals and I am ready to pounce, whenever I find the right
property. What are your criteria for properties you’re
looking at? Yeah, so again I mentioned I moved the value
investing, mindset. So I’m looking for a property 1980 to 2000, value I component not a super
heavy left with the renovations. I’m not afraid of doing the renovations, but let’s say it
needs a total overhaul, like, redo. That’s probably a little too labor intensive for
myself. Operational value add, no going in with some better management. I have some great
contacts with some really solid property managers in the area. That’s awesome. So it’s mainly the Houston
area. Have you looked at any other, areas through Texas or anything like that? No. and I understand a lot of people now just
for rat in the market cycle. So we’re in June, 2019 right now when we were talking. The market’s
pretty tight and it’s hard to get deals. So I know a lot of people have expanded their
geographical area because it’s hard to get deals that pencil out. My mindset is, I want
to go in and I want to know a market like the back of my hand. I didn’t want to build
in that market. I did a lot of research on some markets out there and I chose Houston
for a number of reasons. But so I’m on a focus, my business there, dominate there, get really
good at it and then branch out, once type of acquired three or four properties in the
area. Now when you’re looking, because of obviously
you find one the properties, only one half of it and now you have investors for the other
half of it. Yeah. Where are your most of your investors that
you’re finding? are they Toronto? are they Canadian? Yeah. So great. Yeah. Very good question.
So, of course I am meeting with a lot of Canadians. Now structure wise, you have to be very careful
and this is a really good message to somebody who is in Canada and investing in a multifamily
deal or any type of commercial real estate deal in the states. If the deal is set up
as an LLC, you are going to get double tax. You are going to get bang twice once by the
IRS, ones by the Canada Revenue Agency. Has to be LLP, right? Yeah. You have to go on as an LP hundred percent.
just because the way the CRA, so the Canadian IRS thinks about it, they don’t have a something
that equates to an LLC. So they say, well, we don’t have anything similar. So double
tax from you on the LP side. They do there, there is something that’s very similar so
you’re allowed to flow it through. Awesome. So I imagine if you were raising
money and bringing it to another syndicator and other sponsors deal, you would have to
obviously tell them, hey, this has to be LP, can’t be an LLC. 100%. And I know LLC is the most, most people
just go to that structure by default. But I do know a good number of syndicators that
are doing deals in an LP structure. So it’s just, a dentist just educating yourself. So
if you are a foreign investor, you have to know, the tax laws and all the different entities
and all the pros and cons before you put your money in a deal. Now, are you, when say Canadian investor comes
to you and they’re interested and they’re on the sidelines until you find your property,
the, are you putting them together with say, a CPA, someone, a lawyer in the United States
that will kind of help them, guide them through the process or… yeah, 100%. So, we mentioned, finding deals
only half fit, the other half was finding capital. This will totally different part
where your support structure and that team that you’ve built. So, I thought a couple
of really solid syndication lawyers who are able to answer any questions somebody has.
I do have a CPA who is it, who’s very familiar with cross border investing. So again, able
to answer any question that anybody has. So, from a capital raising standpoint, you need
to make sure that you have all the answers and investors can come up with, because let’s
say if I’m putting my money in the deal and I ask a question and the person doesn’t have
the answer, can’t get the answer, chances are I don’t want to invest in them because
they haven’t done their homework. It’s all about being prepared. Yeah. And it’s, and there’s so many different
facets now dealing with, it’s not just, “Hey, US LLC, you’re investing into this deal”,
and it goes from there. Now it’s, and especially now the cross border thing and you want to
make sure that you’re not getting everything, so many different parts of it that come out
when you’re, when you’re crossing the border there. But, that’s interesting. That’s awesome.
So, have you had any hurdles with any of your investors that you’ve had kind of set with
soft commitments or anything like that that say, well, this might be an issue for me when
I speak to my CPA or anything like that? Any issues that you might foresee that. Yeah. Oh, so whenever I’m having that initial
investor conversation, I don’t really do much talking. I do a lot of listening, which I
think is one of the keys to successfully raising capital. I would say right now, one of the
concerns is the Canadian dollar is garbage to compared to the US dollar. There’s about
a 31% premium that you pay. So I wouldn’t call it a hard objection. It’s just something
that comes up in the course of the conversation. Hey, if I’m putting in a hundred grand, I
actually need to put in 103 grand. It’s like, yes, that’s true. But let’s talk about your
return on that money within this five year hold period, how the steal pencils out. And
it’s always important to be cognizant of, if exchange rates fluctuating during that
whole period. So it’s just working out through the, with the investors saying, hey, these
are the deal fundamentals. This is how it’s penciling right now. Even if the exchange
rate changed, this is still a good deal and this is why. Okay. And is it pretty easy I’ve ever worked
with Canadian investors before? Is it pretty easy getting funds? I imagine it’s not an
issue getting them into the United States when you’re funding. Yeah, the tax treaty makes it easy. When I’ve
never dealt with international investors, but Canadian and the US have a very, it’s
not tax law is never easy to understand, but it’s a pretty good, a tax treaty that goes
back and forth. Yeah. The only thing that I understand from
a syndication lawyer that I was speaking to before is the main thing is to LLC and LP
thing. That has to be, that’s huge. So give us a little information on your, on your books
and your podcasts – Purchase to Profits, and then also you’re a cable TV hosts back that. Yeah. So that, that show is called Real Estate
Simplified. So it’s myself and two expert guests and we’ll discuss and it’s not just
a, that shows not a strictly real estate investing. So we’ll talk about development, we’ll talk
about, investing, we’ll talk about selling your home. So it’s an all encompassing shell,
so that’s a lot of fun going to be on with a lot of great people. In terms of the books,
my first real estate book was written for somebody looking to maximize their sale of
their property. So it’s called self for more how to sell your property for maximum value
in any market. That came out at the start of 2018, now $24.99. You can pick it up. And,
my second book is, I’m in the middle of putting the final touches on the manuscript. I’ve
done about 150 interviews with successful real estate investors. Lots of great people
like you have on your show. And, I noticed a lot of similarities or trends. Once I got
speaking with a lot of them, they’re successful for, specific reasons and the things that
they’re doing. So I’m taking all the lessons I’ve learned from all those interviews and
putting it into a book format. Awesome. And so that’s great. And when do
you think I’ll be out? That’s can be, Yeah, towards the end of the year, a once
in manuscripts, then it goes off to the editor, then it goes through all that stuff. So probably
the end of 2019. That’s awesome. That’s really, that’s really
exciting. How did you get involved with your, with your TV show? I mean, the podcast, I
understand. I mean, I’ve listened to it before, it’s great. How do the, for the TV show and
where does that, and that’s in Toronto? Yeah. Yeah. So unfortunately you’re, you’re
American audience. I can see me in action. But, how I got, I had filmed a couple short
segments, about five years ago and I had a life change, and I reached out to the stations
that, “Hey, listen, like you guys said you wanted to do a real estate TV show! Is the
offer is still open?”. And they’re like, “Yeah, let’s do it.” That’s awesome. I must’ve been, it must have
been great for, for business, for what you were doing when you are a selling real estate
and stuff like that as well. I imagine. Yeah, the show launched a this year, so it
just wants to here relatively fresh. But it’s been awesome. It’s lot different than podcasting
because like you’ve got all the super bright lights and they felt like three different
cameras and all that stuff instead of just like the one webcam. But it’s a lot of fun. That’s awesome. Well that’s great. Well, Seth,
I really appreciate you being on the show with us. And, what I’ll do is if, how can
people get in touch with you and I’ll put all the links for everything, including your
books and everything like that in the show notes. Yeah. The best way to get ahold of me is through
my website – sethferguson.org. Don’t go to.com. It’s an evangelical preacher guy. So sethfergson.org.
and you can also just Google purchased of profits. we’re on youtube, iTunes, stitcher,
you name it, Google play. Okay, great. And then for your books, that’s
where can someone pick those up. Yeah, but right now for your American listeners,
just go to Amazon and search, sell for more and I’ll have to come back on your show once
the second book is released and then you can talk all about that. Yeah, that’d be great. I really appreciate
it. So well, thank you very much for all the time today and great success. Hopefully you’re
able to find a property in Houston pretty soon and you guys can get that started. We are ready to rock, so it is imminent, but
the, it’s my pleasure. Thanks so much for having me on your show. Thanks a lot, Seth. Have a great day. Yeah,
bye bye. Thank you for listening to the Global Investor
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