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episode # 170

Gangsters, Casinos & Dirty Money with Mark Ting

If this podcast was a movie, Mark Ting would be played by Jason Statham. Granted, a version of Statham that could spot real estate opportunities, crunch numbers under pressure, fill spreadsheets, and offer top-notch investment advice. Come to think of it, Mark looks nothing like Statham, but he’s still a fearless male lead in this box office draw, complete with 3 Star Generals, prison time, shady money launderers, and all against the backdrop of a lifetime opportunity! This week we finally cover one of the most story-worthy real estate deals we’ve ever had on the show. What makes a good investment? How much risk is too much risk? And at what point do you accept defeat? Trust us: this is no holiday in Cambodia! Yippee-ki-yay, muh friends!

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Episode Summary


 

About Mark:

Mark is a partner of Foundation Wealth a private wealth management firm. They specialize in family enterprises with a focus on financial technology. He is also a frequent contributor to CBC’s On the Coast with Gloria Macarenko as the Guide to Personal Finance.

Tell us about your recent real estate investment in Cambodia:

Mark decided to invest in Cambodia for the same reasons that you would decide to invest anywhere, where people and jobs are going and where the money is flowing. The area that he was looking to invest was called SihanoukVille – strategically located close to other neighbouring countries, beautiful beaches, popular with tourists and also included a deep-sea port. The Cambodian government felt the area was underdeveloped, so they offered a tax-free area around the port to promote development of the area and foreign investment.

Mark was on vacation in Cambodia about 3 years ago when he discovered the area and felt that it would be a great investment opportunity. Relative to prices he was used to, this area was dirt cheap – 100 hectares of land for $200,000 USD. Cambodia also uses the US dollar, which removed a lot of the currency risk normally associated with investing in frontier economies.

Mark realized there was a problem with the investment from the outset. Cambodia’s civil war in the late 1970s was very tragic – millions of people lost their lives and the country was devastated. The Khmer Rouge ruled the country for 4 years and any record of land ownership was destroyed. This has forced the country to view title to land in two ways: Soft Title – we are pretty sure we know who owns this land based on known history, but there is always a chance that someone could lay claim to the land you have or Hard Title – we are sure that we know who owns this land because the ownership has been vetted and certified. Hard Title is much more expensive to obtain and most Cambodians do not go this route. Mark was a minority investor in this project and it was determined by the other investors that only Soft Title was going to be obtained.

After purchasing the land, the area started to explode. Land prices were increasing at an incredible pace of 200% or 300% on a monthly basis. This drew a lot of attention to the area and drastically increased the risk that someone would lay claim to Mark’s land. If you have Soft Title in Cambodia and feel your ownership will be challenged by an outside party, there are ways to strengthen your claim to the land. One of these ways is to use the land in some fashion. Mark and his investors started a goat farm on the land to ensure the land was put to use. Almost immediately, they were faced with vandalism and other problems – huts for goats were destroyed on a regular basis, creating uneasiness for the investors and costing them money.

Another way to strengthen the investor’s claim to the land was to partner up with a powerful person in the country – normally a powerful political or military figure. This option was known as a regular cost doing business in the country. Knowing that aligning themselves with a powerful person would most likely solve their vandalism and title issues, the investors decided to partner up with a 3-Star General in the army. The general would provide protection for a 50% share in the land. There was no valuation at the time on the investment, but they were giving away a lot more than $100,000 for this protection. This general would be an Ace in their pocket and this put Mark and the investors at ease.

Ultimately, an outside party brought a claim against Mark’s land. This new party was aligned with a very powerful politician. The 3-Star general that Mark’s team had aligned themselves with was arrested under suspicion of corruption and could no longer help them. Mark and his investors lost claim to their land with no compensation and little recourse. There was the illusion that Mark’s team could challenge the land claim in court, but in a system where power trumps everything, this was not a viable option for them. Mark and his partners have walked away from competing for the land against this new claim.

There is a chance that Mark will not lose all of his original investment. The party that originally sold the land to Mark and his other investors was obviously not the rightful owner. They hope they can recover a portion of their original purchase price in court from this original seller and they

Tell us about how you assessed this investment in Cambodia and the risk:

In Cambodia, it is very important who you know. Mark had made friends with some Cambodian’s when on vacation there and this allowed him entry to the economy. He also had a contact in Canada that had family in Cambodia. The system is very different than Canada in regards to how people acquire land. In Mark’s experience, some of the local people are very naïve about land ownership. The banking system in Cambodia is not very developed, so there is a lot of private lending. In a typical scenario, a farmer decides to borrow money from a private lender to get them through a tough year for crops. The loan carries a very high interest rate and ultimately, the farmer would default on the loan. This results in the farmer giving up a portion of their land to clear the debt. Another scenario involves gambling. Cambodia is one of the only countries in the region that allows gambling. Famers may become addicted to gambling and lose a significant amount of money. This will again force them to give up a portion of their land to clear the debt. There are loan sharks that are focused on this business model to acquire land in Cambodia.  Mark was approached to be involved in this system, but he was absolutely not interested in this.

Mark felt that he could see the overall positives for the area (US currency, the deep-sea port, beaches), but he couldn’t really perform any due diligence. Mark’s standards that he would normally use in Canada were not an option in Cambodia. In the end, he was not investing a lot of money and he was using money that he had earned on another investment. He was not interested in borrowing money to invest in Cambodia, but he was using a windfall from a previous investment that was only a small % of his overall portfolio. For this reason, he felt like a risky investment was a great option. He was well aware it was a risky investment.

Vancouver has been in the news recently related to money laundering and you also have a story about money laundering related to your Cambodia investment. Can you tell us about it?

Cambodia is attracting a lot of money launderers as of late. There are various factors that attract money launderers to Cambodia. One is that the country trades in US dollars. This allows money launderers to keep cash in USD and avoid having to use the Countries home currency. A second factor is the large number of casinos in Cambodia. Various countries around Cambodia do not allow casinos, so people go to Cambodia for gambling. Gangsters and other people looking to launder money find the casinos in Cambodia to be a great way to do so and this attracts these people to the region.

In Vancouver, the news about money laundering as of late may be a positive for home buyers. If a buyer is using a very good realtor – that is analytical and has great interpersonal skills. The market in Vancouver is ripe for low ball offers at this time, but you have a much better chance of having a low-ball offer accepted by the buyer if you can justify the offer using support. For example, money laundering has been suggested to have added 5% to Vancouver home prices in the last year. So, if a buyer was looking to purchase a property, you should be discounting you offer by 5%. This gets to closer to what you could call the intrinsic value.  Money laundering is helping buyers justify lower offers to sellers. To be clear, this is a positive for home buyers, but not necessarily for investors.

For example, Mark has an investor friend that was looking to increase the square footage on his rental property. The city approved the upgrade, but only if the property would remain rental for 99 years – which was a burden. The city is putting strict rules on landlords and allowing the tenants a leg up. This market is not a great market for investors and landlords right now.

On the investment in Cambodia and any lessons learned:

Mark would do it again if he had the chance. As long as you are smart about a risky investment, it is safe to attempt. The potential upside was huge and there is always a chance that a risky investment will pay off. There is still opportunity in Cambodia for legitimate investments – these can be pursued. Also, Cambodia is a nice place to visit, which is always a plus!

High risk investments are generally not something you can count on, but if they pay off, the pay off is large. For example, people who engage in venture capital investments, might only see success in 3% of their ventures (97% fail rate). Mark’s investment was not quite that, but it puts you in the correct mindset to avoid disappointment if something doesn’t work out how you expected.

On his predictions on the Vancouver Real Estate market:

He feels that the slowdown in the market currently is policy driven. He is positive on the 5 year outlook for Vancouver, but not as positive in the short term. If the policies change, we could see some changes in the market, but he doesn’t expect anything huge. As a buyer over the next year or two, there will be opportunities for some good deals. Over the longer term, Vancouver will always be a popular place to live and invest, which suggests a strong real estate market in the long term. This current market reminds him of a typical real estate cycle. The prices are pretty high right now, so the market has room to go down. He doesn’t see it crashing though. In the long term, the market will continue to go up.

As a financial advisor, he stresses that investors should diversify their portfolio to things beyond real estate – even though he loves real estate as an asset class.

On areas in Vancouver he thinks are good investments:

The last place he purchased was in Whistler about 2 years ago. It has done very well for him and he is very happy with this investment. If he was planning to buy property soon, he would look to the area of Burkeville, right by the Vancouver airport. You can purchase a single-family home in this area for about $875,000 – a decent house. If you were looking for a condo in Richmond, a house in Burkeville starts to look very attractive. The area is right by the airport, but Richmond is also by the airport and you just get used to the additional noise. Burkeville is very close to the Canada line (about 15min walk). This makes a good investment in his eyes.

5 Wire (five quick questions about Vancouver)

Favourite neighbourhood: New Westminster – uptown

Favourite bar or restaurant: A good value for money restaurant – L.A. Grill in Richmond. Handmade burger with salad and potatoes for $5.50. Some really good deals and good quality food.

First place you would bring someone from out of town: Riley Park – Bird Sanctuary. Buy birdseed before you go. They sell it there, but the birds are sick of this birdseed. If you bring something new, the birds will flock to you!

A piece of advice you would tell your 18 self today: Debt is a huge problem all over the world. Try to limit your debt in most instances and use your own money for investment. Have fun, but don’t spend a ton of money. The only caveat would be to take on debt if you can find a cash flowing property.

Something you have purchased for under $500 that has positively changed your life: Classic skateboards that are hanging in his office (see picture below). This gives him a lot of joy.

Find out more about Mark Ting and Foundation Wealth.

Mark Ting, goat farm in Cambodia

Mark Ting skateboard collect

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