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episode # 143

Habits for Successful Real Estate Investing with Justin Smith

Developing commercial and multi-family real estate is easier than you think! Founder and President of Hawkeye Wealth, Justin Smith, joins Adam and Matt to discuss huge private equity investing opportunities with top-tier developers in Vancouver and North America. Learn how you can get in on the ground-level in emerging markets with limited risk and maximum returns. Justin also covers the Vancouver real estate market, his strategies for picking winning investments, and pro-tips for aspiring real estate moguls. The ROI on this episode pays huge dividends… time to pony up!

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Episode Summary


Tell us about yourself

I grew up in Williams Lake, BC and spent some years in Kelowna, Quebec, and Edmonton. I moved to Vancouver in 2009 to do my MBA and got into real estate shortly thereafter.

Can you tell us about Hawkeye Wealth and how it started?

I went to a real estate conference many years ago and was blown away by the number of people attracted to the topic. I met someone at that conference who inspired me to change careers and get into the real estate industry. I began helping people purchase pre-sale properties. I went from a lot of structure in the 9 to 5 format to no structure and no one to report to. It was a real struggle as this industry is 100% commission based. If you’re not doing the work, you don’t make much money.

My wife looked at me one day a few months in and said, “You need to get a job!” And I was like, “No, no, no!” But I also knew she had a point. So, I told her I would make $10,000 in commissions that month and if I didn’t, I would go and get a job. I ended up making $10,035. The margin of error was not much!

At first, my favourite part was doing the transactions. I began to make a good living that way. But I realized that many of the investors I was working with were making much more so I started to invest back in the business and build my portfolio. I really liked private equity real estate deals.

And that’s when I started Hawkeye Wealth to focus exclusively on these private commercial opportunities that I really enjoyed.

On the entrepreneur attitude, mentorship & the early years

It’s all about habits. Instead of turning on Netflix with breakfast, you do something productive. You change what you do and over time that adds up to results.

My wife has been a huge part of this. I couldn’t be more grateful for my wife for supporting me in going from a steady pay cheque to something unsteady.

Another person for me was Dave Steele. He taught me that the main source of stress for most people is lack of action. It’s not the long to-do list but not doing anything. Once you start moving, the energy comes. The first project I ever did, a big part of that $10,000, was through Dave.

On the next project, we were at the sales meeting with Dave and he was asking us how many units we were going to sell. The entire room was saying big numbers like five, six, seven but I was thinking of “two” the entire time. But when Dave got to me, I confidently shouted, “Four!” He told me he was disappointed because he thought I was going to say ten. So, I was really glad I didn’t say two! But it made me realize I had been underestimating myself. I ended up selling 14 units in that development. To have someone who saw that potential in me was massive at that point.

What does Hawkeye Wealth do?

We specialize in helping investors get involved in commercial real estate. This includes things like multi-family, industrial, retail and office. And you can invest in each in a number of ways: buy and flip, buy and hold, invest in the development, hold debt and lend, etc. We look for people who are putting together these opportunities and we help investors get involved.

The amount of involvement is on a deal by deal basis. The funds go directly from the investors to the third-party issuers who will keep them in the loop while the project develops.

Usually deals are not 15-20-year projects, but it can happen. Some are as short as 1-2 years but the average would be about five years.

Investing in multi-family projects

Some do annual cash-flow distribution and others do it more or less frequently. It varies project by project.

We like the value-add model right now. You increase rent or decrease the expenses which increases the net operating income of the building.

On starting Hawkeye Wealth

I did have the option to join another firm. But I wanted to start my own for that control over the deals. I have met a lot of people over the years and have built a lot of trust with them. I didn’t want a deal to go sideways and for me to lose that trust.

My job is to go and find the best issuers and the best deals out there to bring to my investors. If I can’t tell my investors that this is the best opportunity for them, then I don’t want to be doing those deals.

Just because an issuer has been good in the past doesn’t mean they will be in the future. We can give that advice to our investors. We’re the third-party independent voice for the investors.

Where are you investing?

It’s all US and Canada at the moment. Regulatory-wise and area of expertise, this makes the most sense.

There are great opportunities in lots of places. Things are slowing down a bit in the local Vancouver market. But there are still some opportunities locally for investing a single unit or a commercial space. We really like the industrial space. There’s a dramatic shortage of land so it’s hard to get your hands on the space. It’s a space we like in the long term.

Outside of the Lower Mainland, we like the US market quite a bit. It’s a large market – 10x the size of Canada. Last year, my family and I did an RV trip through all 48 continental US states. We did that in about three months. It’s nice to see these cities that people are talking about and investing in.

There are a lot of opportunities in these markets where buildings are under operated. Particularly multi-family in that market. We’re looking for niches that cash flow. We look at different opportunities like seniors’ centres or luxury furnished rentals.

Government exuberance to intervene in the market has had some major effects across Canada. We like places like Ottawa and other markets in Ontario where there might be less regulation. Montreal is another hot market at the moment with many international investors from Asia.

Winnipeg has a strongly regulated rental market. With the interest rate increase, your mortgage payments may go up more than you can increase the rent. Winnipeg has limited supply and tight rental rules – many investors are scared of this and stay out. With the luxury rentals, it’s a shorter term of rent (apt 2-3 months). After that, they’re gone and you’re able to reset rents to market rates. That’s why we like looking into the luxury furnished rental market.

How does a Canadian resident get involved with US investing?

Many people wish they had invested in 2010-2012 when the currencies were at par. If people are worried about currency, it’s because they’re upset they didn’t invest back then. Many investors like having their money in a few currencies. The diversification is a risk mitigation for them.

In a perfect world, you can get your ideal investment portfolio in your own backyard. But sometimes it makes more sense to go somewhere else. You’ll need a premium to encourage you to go somewhere else. The premium to go into the US is worth it to some investors.

Are there certain US cities we’re looking at?

There are a number in the northwest that we really like. Seattle is going crazy. Many investors were scared away from the Lower Mainland with the foreign buyer’s tax so fled to Seattle. Portland is a great market too. Phoenix, Houston, San Antonio, Dallas, Atlanta, some in Florida, some in North Carolina, some in Minnesota – there are lots of great opportunities.

How does your investment strategy safeguard against risks?

Prices have come up a lot in the US. We need to change expectations on the investor side. Expecting the same returns as back in the day will lead to disappointment. In the commercial space, instead of just relying on the market, we’re able to do forced appreciation. We can raise the rents by adding value to the units, such as adding washer/dryers to each unit.

The evaluations for multi-family buildings are done differently than residential real estate. It’s appraised on the net operating income. In Vancouver, you have to spend a lot to get a low return – there’s only a 2% cap rate. In Phoenix or San Antonio, it’s closer to a 6% cap rate. If you’re in a 6% cap market, one installation of a washer/dryer can increase the value of your unit by $10,000. You can increase your rent by $50/month which is $600/year.

If the owner isn’t directly involved, often rents don’t get raised with the market. If the owner isn’t local, they don’t have those conversations with their property manager. Some don’t have the energy to make those minor renovations or add in things like washer/dryers. We look for those value-add opportunities for risk mitigation in a cashflow market.

Thoughts on the LNG announcement:

I was in Shanghai when I heard the news and there was smog everywhere. The air quality is so awful there. How awesome is it that we have an LNG plant in BC to help clean up the air in China? It’s good for the world. This is a good thing for the air we all breath.

The knee jerk reaction was to go and buy in Kitimat. But you will likely lose your renters in the long run. It will be good for the next couple of years as it’s being built. But once it’s built and those jobs dry up, selling may be dicey. I like the idea but it’s not the deal for me. I want to buy where I can be long-term for multiple decades. The long-term play will not be in Kitimat. We also need to be wary of the limited availability of rental increases. Overall, you will make money in the northeast but keep these cautions in mind.

What were some of your failures/mistakes along the way in your long career?

The biggest mistake I have made is being overconfident in my ability to predict the future. Earlier on, that overconfidence would stop me from designing and building my portfolio in a way that no matter what happens, you’ll be okay. Overconfidence leads to over-concentration. If you take the emotion out of it and get more rational about the design of your portfolio, over the long-term you’re optimizing your returns and designing in a way where you’re not panicked about tomorrow.Five Wire Questions:

Favourite Neighbourhood: Granville Island

Favourite Bar or Restaurant: Lin Chinese Cuisine – try the Xiao Long Bao and Kung Pao Chicken

West Side Mansion or Downtown Penthouse:  Westside Mansion

First place you bring someone from out of town: Fly Over Canada

Something you have purchased for under $500 that has improved your life: Audible membership where I walk and listen to 2 books a week.

Bonus question: What is a book you can recommend? The One Thing by Gary Keller; 7 habits of highly effective people by Stephen Covey; Quiet by Susan Cain.

Learn more about Justin Smith and Hawkeye Wealth.

Download the Private Equity Investment Guide.

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