Once again, I had the good fortune to pick the brain of yet another real estate investor - which has allowed these recent Captain's Log Episodes to morph into this three-part series about investing. We hadn't planned on this happening, but sometimes we like to "go with the flow" and things just sort of work themselves out!

This time, I reached out to one of my long-time clients and all around great guy - Angelo Aceto.

Angelo lives with his family in Beacon Hill where he bought his home back in 2008.  Not long after purchasing his principal residence, Angelo knew that he wanted to get into the investing side of things.

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M:  Angelo, can you tell me how you got the idea to purchase an income property?  Did you know a friend who was an investor, a colleague at work perhaps?  Had you read a book about it?

 A:  None of the above!  If anything, I grew up in a triplex that my parents owned. Our family lived in one of the units and we rented out the other two apartments. That background might have had some influence on me, but my parents never went on to buy more buildings. That was just a practical and affordable solution for my parents to own their own property.  I suppose I just knew that it was an idea worth exploring, and so I did.

M: Did you know what type of property you were looking for?

 A: Yes, because at that time the market was very different than it is now.  Back in 2010, multiplexes in many parts of the city were still relatively affordable - and it wasn't hard to find one that generated more revenue then it cost to own it.  So I had my sights set on finding a multi-family dwelling with at least 3 units or more.

M: Why 3 or units or more?  

 A: Because there's less risk over the long-run than a single family unit or even a duplex for example.  It's not a concern when the rental market is as hot as it is now, because the chances of having an empty, unrented apartment are pretty slim. But when the rental market shifts, and vacancy rates start to go up again - it's important to have your revenue coming in from multiple sources. If you own a duplex and one apartment sits vacant - that's half your income gone... whereas if you own a 6-plex and you lose one tenant - you're only missing out on 17% of your revenue. That's important if you plan to be in the game for a long time. 

M: What was your first acquisition?

 A: I found a 6-plex in Verdun with really good rents for that time and that location. It was still competitive and I was up against at least 4 or 5 other buyers - but luckily I came out on top. I was already pre-approved and I remember that having my letter from the bank showing I had 20% cash gave me a lot of credibility compared to those who had nothing in writing. I think I paid $550,000 for it!

M: Where did you find the money to invest in it?  How did you cover the down payment?

A: I had purchased my family home in Beaconsfield in 2008, and by 2010 I knew that the market had gone up, so I asked the bank for a valuation.  The value they gave me was high enough to allow me to refinance my mortgage and that provided me with enough equity for my down payment.

M: In other words, you didn't have to use any of your own money, is that correct?
A: Yes, that's correct. And that's one of my key principles when it comes to investing... always leverage other people's money - never your own!

M: I've heard that advice before, and obviously there's a lot of truth and merit to it. Leverage seems to be an investor's best friend. So what was your next investment after the 6-plex?

 A: Well, as you know, I kept a very close eye on the market in Verdun, which was experiencing great appreciation at that time, between 2010 and 2012. So after having owned the 6-plex for 2 years, I went to see my bank again to have it re-evaluated. The numbers came back favourable which allowed me to refinance the mortgage and provide me with enough equity for the down payment on another building.  

M: That was when we found the 4-plex on 4th Ave.  And if I recall correctly - that also sold in multiple offers.
A: That's right - but we managed to knock off quite a bit after the inspection, so the purchase price ended up being pretty reasonable for the rental income it was generating.  That building was also cash-flow positive from day one.

M: And you bought a 3rd building in 2018, but this time you went off-island. What was the reason for that?

A: Well, I was always looking for the next good deal in Verdun, but that time, the prices had risen so much that it became impossible to find a building that produced positive cash flow - unless you were putting 40% - 50% cash down. So we started looking elsewhere and sure enough, there were still properties out there where the numbers made sense, so I picked up that 7-plex in Ile Perrot and it's still doing quite well.

M: Have you had any problems collecting rents since the COVID-19 crisis hit?  

A: Fortunately not. All of my tenants are still paying rent on time with the exception of one who I'm in the process of evicting. But that problem is not related to COVID-19 or a job-loss... it's just a case of a bad apple, which is bound to happen to from time to time. 

M: That's encouraging to hear. I've been wondering what kind of an impact the pandemic might be having on landlords, but in your case it seems to have had little effect on you.  I think the commercial and retail guys are feeling it a lot more than the residential owners.
A: I think you're right about that.  

M: Angelo, this has been very informative and I really appreciate you taking the time to share your story with me.  Can you offer any parting advice for someone considering buying a multi-family dwelling?

A: My advice would be to follow these basic principles:

1.     Never use your own money to invest

2.     Be patient, study the market, and hire a good realtor.

3.     Make sure the numbers make sense. Never try to fudge things in your favour. 

4.   Treat your tenants well. Show them respect

M: I'm glad you mentioned that last one. I think a lot of landlords make this mistake. It’s important to remember that if they're your source of revenue, the more respect you show them, the more likely they are to show it back. Great point. Thank you Angelo for taking the time to speak with me about your investing experiences.

Looking back at the past three weeks of Captain’s Logs, we had the opportunity to discuss a wide range of residential real estate investment options. 
 
 We had Catherine and her husband who have focused on investing in single-family homes in the West Island.

We had Desiree and her husband who have invested in a newly-built condo in the city. 

And finally, we had Angelo who has chosen to invest in multi-family units both in Verdun and Ile-Perrot. 

One of the things I enjoy the most about writing these “Logs” is the engagement we get from our audience – which includes many of our friends, business partners, and clients. 

Sometimes I get emails back from people saying they enjoyed a certain story, or that something I wrote about resonated with them or inspired them. And sometimes I receive emails with constructive feedback or criticism as well.  This is especially helpful when someone shares their own perspective on a topic that I perhaps failed to see. To be perfectly honest – I appreciate and value all the feedback I can get! 

There was one message I received in response to last week’s blog from one our readers, who also happens to be an investment advisor with a large wealth management firm. They were concerned that some of the data I had presented in Episode 24 about mutual funds and registered retirement plans may have been inaccurate, and that my message could have been perceived or interpreted the wrong way by certain readers. And you know what… they were absolutely correct! 

I think we can all agree that another key investment principle to follow is that of DIVERSIFICATION. It’s never a good idea to keep all your eggs in one basket – whether that be real estate, or the stock market. 

We are all limited to our own narrow perspectives and it’s easy to allow that to influence our beliefs without properly considering other valid perspectives that may be different from our own. 

 So this week I’m adding an important cautionary disclaimer…
 
 “I am not a qualified investment advisor or retirement planner. I do not claim to have all the answers to the questions, nor the solutions to the problems we all face when it comes to saving and investing.” 

But I do have many great resources at my disposal and no shortage of other, smarter and more experienced people to consult with.
 
 Until next time, signing off…

Capt’n Mark