00:00.39

wongga

Hello investment community this is Garret Wong your host of the investing to win podcast gonna do something a little bit different I've received some feedback from a lot of our audience that they actually surprise surprise like it when I do a solo podcast I hate the sound of my own voice. But um, yeah, so hopefully I can provide some value there for you. What I'm going to do quite regularly is what I'm going to call. Ah let's call them episode reflections. My staff knows that I like to dename every policy and procedure so episode reflections. Ah, but on all seriousness in the past two weeks we've had ataf cocar and then cal resh on the show. So that's um, attaft is my real estate lawyer cal is ah, an associate in the property management industry. Um you know Attaft was focusing on joint ventures. And their agreements but cal is a real estate investor property management company owner obviously but has also set up you know dozens of of co-ownerships to purchase large apartment blocks. So 2 people on very different sides of the transaction. Ah, but had a lot of interesting things to say so I think I'm going to really kind of kind of summarize what my takeaways were from the 2 episodes. Um, and hopefully you know rather than you having to re-listen to those? Maybe you'll get the best. Um.

01:29.30

wongga

Nuggets so to speak out of it. So um, a taft was you know talking about joint venture agreements he he defined joint ventures but his main messages. Um were you know know who you're going to business with you know, ask questions. How long have you known them? Do you think they're a good person and it really is he was kind of pushing that whole relationship thing right? It's not enough just to bind yourself with ah a written agreement. Um, he did also stress that every situation every deal. Every group is different. Um. Generally speaking a joint venture and he defined it for us is at least in his mind and his clients that he deals with is something very short term with a specific purpose in mind. So a joint venture agreement. Is not something where you enter into a long-term buy and hold with somebody in. Ah, maybe you co-own a property together. That's not exactly in his context a joint venture. It's again, something short-term. Maybe you're you know you've got a joint venture because you're doing a flip together. And that end goal in mind forty six months you're going to sell it. You're going to make a profit. He also stressed and I'll deal I'll touch on this with cal because it's a very consistent message speak to your accountant. Ah your accountant knows you the best they know your finances they know how much you make.

02:53.50

wongga

Know the best thing for you with taxes and tax Advice. So You need a good accountant you need to speak to them regularly and you should be speaking to them before you enter into any deal each deal because again, everything's different. He also went on to say. That each each joint venturer he coined that term not partner joint Venturer should have independent legal representation I'm sure you've heard that um it is a very real thing audience. Um and for many many reasons because at the end of the day. You want to make sure that whatever agreement you're going into can withstand the test of challenge and if the other party did not have their own legal representation looking over that deal vetting it making having it signed on their side not in front of your lawyer there. You know it could be challenged later in a conflict of interest and as you all know, um, you do not want to get into litigation. It's very very expensive. Um, so attaff Also said you know make sure everything must be in writing um, write from the get-go put everything in writing. No Hard feelings. There aren't any things such things as handshake deals you know, Um, at the end of the day you want to put everything in writing. Um, and if you don't without a lawyer. You're just taking a huge risk. Um and everything can be challenged.

04:20.40

wongga

Make Sure you ask your advisors So That's not only an accountant. It's your you know your lawyer your finance professional. Maybe your property manager your realtor you know, get you've made your power Team. You created that make sure that you're asking them. Um. We talked about everything must be in writing but he said don't just use a previous agreement as a template and assume it will be good enough as every situation is different. Your partners might be different. They might have different financial obligations again maybe somebody's going through. I Don't know a separation and you didn't cover that in your agreement and and now they get separated and now or they pass away and now your partners with somebody that you didn't even you don't even know so very very Important. Um Litigation We all know litigation is very costly. He said it multiple. Multiple times know who you're going into business with one of the other things that I loved he said plan the exit at the beginning. Um, and that exit looks different for everyone for every partner So make sure that you cover those contingencies. And those business terms at the beginning not in the middle and certainly not when you're trying to separate. It's too late at that point um part of exiting Also he talked about valuation and that's specifically valuation on the asset and if you're you know, performing.

05:47.64

wongga

Joint ventureture corporations here now. It's the valuation of the corporation either owning 1 property 1 asset or multiple so valuation. Normally it's independent so he recommended using. Ah you know a license independent appraiser or maybe you're getting opinion from several commercial real estate agents. But establishing that fair market value is critical in exiting in. You know, buying shares from somebody who wants to get out to how how equity is split later and at what point. Okay, so that was. Ah, taft the real estate lawyer talking about joint ventures transition over to cal reesh. Um, you know this guy I didn't even realize he's a property management professional. We've been been trading ideas. We've helped each other with software in the past for our management companies but I didn't realize that he had so much. Practical experience on the acquisition site I mean you know he actually specialized in bringing together groups of owners to put funds together into the purchase of apartment blocks. Um his main view of it seemed to exclusively use and create Bare. trust corporations according to cal a bear trust corp is an entity on title that owns the asset but it doesn't report any income because literally it's Bare. There's nothing there but each individual in that corporation in that ownership group then pays.

07:20.64

wongga

They're taxes I Guess according to whatever tax status that is whether they're an individual um, a corporation a hold co or whatnot so you know very very important because um I had heard of bear Trust Corporations a bear trustee. But. Never in the context so it was very enlightening to hear cal talk about that. He then stressed that these co-owners. Um the co-ownership is really governed by the co-ownership agreement the co-ownership agreement takes over and governs everything to do with that Asset. He referred to it as the holy bible of how co-owners behave amongst each other cal also said to make sure you get the proper people on your team. So That's pretty Consistent. He specifically made reference to a good accountant so you know cal and Ataf are um, right on point on this.

08:15.68

wongga

I asked him on you know how are you finding deals. Are you you know, looking for a deal and then putting together owners and he said you know it's it's not quite as structured. It's that it's very opportunistic. Some deals are from existing management clients other deals come. And reach out to cal because they know he's got a lot of ownership groups in his back pocket and they ask him if he knows anyone wanting to buy because they're considering selling their asset and then on the other side cal has a network of individuals as I mentioned. With maybe larger balance sheets that have said hey cal if you hear anything for sale I'd be interested. So then he puts 2 and 2 together and he structures the the co-ownership but you know in saying this cal also stressed you you have to make sure that that group of owners are compatible. Um, balance sheets and dollar signs is is not enough and certainly as we touched on with atta having everything in a good agreement and ah and a joint venture agreement is fine. It protects everybody but when everything goes south if it goes south you're much better to work out problems with people. Like mine that you can get along with so you know he said it's ah very very important to make sure that the components of that ownership group are compatible. Um, he then chooses it with him to go himself.

09:41.91

wongga

Um, to go into the ownership into a more traditional way with Cash. So What I'm referring to there is we We had a brief conversation about the acquisition process him putting together the co-ownership I mean for me when I'm structuring that I'm doing that as the active partner as most investors do in my space. As the active partner to take equity in lieu of having to put in cash but because of Cal's specific situation. Um, you know he's involved in a family holding company I can see why he would want to take his percentage as a fee. Outright and then invest in the deal himself or on behalf of his family hold co just because there's so much work involved and the hold co in the family structure isn't putting in that work. So It does make a lot of sense for cal to take his percentages as you know, project acquisition and management Fees. You know, either way is is Fine. There's no right or wrong way to do it I think it's all situational. Um and then yeah Network um he we we touched on this so Much. You know that that cliche your your net worth is your network is your net worth.

10:53.65

wongga

Yeah, so important to have these investors in your back pocket. So he said um because that's where the deals are going to come through and the speed in which you're able to put these together so it really is who you know and you know he's a twenty year vet I've also been in the industry for 20 years you know people and people know you're in the. In the business. So um, there's a lot that you can get out of your own network if you really look at it. We spoke about exits um, exits are tricky. He said they have to be transparent. Um, you know you you don't want to just do a side deal with one equity partner. 1 co-owner and take that share and not offer it to the others's you know feelings can get hurt very very quickly. Um, so he said you have to be transparent and when 1 owner wants to sell you. You really want to hope that the other co-owners are going to want to pick that up because if 1 ne's not interested at all. You can't really use the equity in the asset to reffi to buy out that partner you're going to have to bring in outside cash which could become complicated. Maybe you have to bring in another investor and that's another owner in the co-ownership group. That's not really, you don't really know them. You don't know how they're going to react or behave. Um. Distress properties we touched on touched on that as well. I'm very much in favor as a bur person and a buy andhold person to look for distressed property. You know, renovate them get that lift of of rent refi and get your capital back. But.

12:24.75

wongga

It was an interesting perspective. He said you don't always have to look for distressed properties with a huge lift at the end and there's absolutely nothing wrong with purchasing a building in a good area with decent cash flow because in his mind and I agree real estate is all about the long game. You know you want to make sure that you know if you're finding something in a good area and there's not much you can do with the rents but it is cash flowing. Maybe a little bit less than just buy the asset because you're you're getting that long-term return on your investment. We talked about financing a little bit. He favors using credit unions which he finds is very flexible. Specifically you know I think he's referring to construction draws and inspections he said he's enjoyed working with credit unions I've also done some very large renovations in the. Four hundred to six seven hundred thousand dollars range using credit unions. So I think I would agree with that. But you know I've also used private to fund a lot of our larger projects and that's gone very well too I think it's ah you have to use what's available to you and use which terms. Are favorable for the project. We talked about being very detailed. Don't forget line items. Ah 1 of the line items. You know he he mentioned obviously had made a mistake when time is you know, paying tenant moving expenses if you buy.

13:55.70

wongga

Ah, 40 unit block and you're emptying out the building in order to do a renovation people can't live there. You know at least here in Manitoba at the time of this recording you have to pay out $500 of moving expenses to every single tenant. Well 500 times forty. That's a lot of money. You forget that line item now you have to go back to your investment group and say I'm sorry I forgot about something well that that kind of loses a little bit of credibility. So you know when you're presenting an opportunity um to your potential co-owners make sure you get as many upfront expenses as possible out in the open. And set expectations at the very beginning. Um, one of the things that he touched on and I'm going to use this cliche. It was ah an episode full of cliches. We laughed about it. But you're not building a grand piano and what he refers to there specifically is do the necessary work to. Increase the rents to lift the rents but don't rebuild the building because you're not going to get the value from it if you're going to do capital improvements. Be strategic, do them long-term over a certain period of time but also be transparent with your ownership group because somebody who's. Ah, use this all the time. Do you want to invest in real estate or be a real estate investor while most of my investors are all passive. Um, they don't have the experience necessarily and they don't want to be active so they are investing in real estate. They might not realize that there is going to be renovations down the road.

15:29.20

wongga

So tell them about it. You know we're doing this right now to increase the rent from $700 to a thousand dollars and then the market right now is only a thousand and then we'll do phase 2 in two or three years when we predict the rents are going to be 1200. Don't spend all your money right now get off rent control and then you're. You're held back by the market by the market rents. So very very important you're not building a grand piano. Okay, so I'm going to end off these mini solo podcasts with ah.

16:03.77

wongga

I'll say maybe we'll do a top 10 takeaway. Okay I'll see if I can get a top 10 takeaways on every episode reflection. So here. We go number one have a good team on your side number 2 every situation is different and every person or group is different speak to your accountant make sure you perform your due diligence on every deal get as many issues and details as possible in the hands of your potential co-owners at the very beginning. Sorry I guess that was point 2 and point 3.4 put everything in writing put everything in writing point five everyone should have independent legal representation point 6 know who you're going into business with. And if it doesn't feel right? No matter how much money they bring to the table walk away have the courage to walk away number 7 don't build a grand piano be strategic on the types of upgrades you're doing and don't think you're rebuilding the entire building. Takeaway number 8 credit unions can be very flexible in providing financing up um number 9 when exiting valuation is very important use an independent person if possible like an accredited appraiser and finally number 10.

17:35.70

wongga

Make sure you plan the exit at the beginning I'll repeat that because that's very important. We're not just wanting to scale real estate and get real estate and say oh I have a hundred units or 500 units. There has to be an end game. How are you going to exit while you do that by planning at the beginning so make sure you x. Make sure you plan the exit at the beginning and that'll do it. Um I'll be doing a little bit more of these I think there is a lot of I know the podcast is fairly young I think this is episode number 17 or 18 but there's a lot of value when I go back and review these things so I'm going to tease out those that you know that so those that value for you the community and we'll have some more of these reflection episodes. But I hope you enjoy and we'll see you on the next podcast.