"Inspired to Invest" Real Estate Investing Podcast

How To Invest In Real Estate With No Money

• Serena Holmes • Episode 44

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How To Invest In Real Estate With No Money

How to invest in real estate when you're starting out is a key component to the peaks & valleys you'll face as an investor.

Welcome back to the "Inspired To Invest" podcast. This week, Judi Paré from Plentitude Inc. is a returning guest, this time here to speak to us about the importance of affordable housing and due diligence for both passive & active real estate investors.

If you'd rather watch this video than listen, click here.

Imagine facing a financial abyss and clawing your way back to stability, then striving to make a lasting impact on the housing crisis. 

Judi's voyage from monetary instability to real estate heavyweight is a testament to resilience & the power of savvy investing. She joins us, imparting wisdom on the nuances of affordable housing & the due diligence paramount for thriving in the real estate world. 

Her story is not just a personal triumph but a beacon for those seeking to turn adversity into social good through strategic investment.

As Canadians grapple with the stark reality of housing instability, the quest for affordable living spaces has never been more urgent. 

This episode isn't just about the struggles; it's about uncovering solutions and the ripple effects of collective efforts. We uncover the challenges that dishearten the younger generation & renters, and question the effectiveness of government interventions. 

The tales of homeowners downsizing to campers & seniors, caught in the web of soaring living costs, are stark reminders of the gravity of the situation. 

Yet, amidst these challenges, we uncover investment opportunities that promise not just returns, but also societal benefits.

Wrapping up our deep dive, we pivot to the criticality of financial literacy, highlighting programs that arm the youth with the financial prowess they need to navigate a complex future. 

Judi navigates us through the labyrinth of passive real estate investment, elucidating the importance of understanding risk & the potent mix of financial gain & societal contribution that comes with socially responsible investing. 

We close by championing the ultimate investment: oneself. 

Empowerment through knowledge isn't just a mantra; it's the key to unlocking a world of possibilities in your financial and investing journey.

To connect with Judi, go to plentitudeinc on social & https://plentitudeinc.com online.

Thank you to Judi from Plentitude Inc for bringing us this month’s episodes of “Inspired To Invest”.  

“Inspired to Invest” is proud to support the Beyond Success Program, a not-for-profit financial literacy program for students, launched by More To Give & MAK Investments. Find out more at https://more2give.ca/beyond.

Join us again on Wed., May. 8 to hear from a real estate investor who hosts one of the biggest real estate investing conferences in the entire country!

Thank you for tuning into & remember, “when you invest in yourself, the sky's the limit!"

Never miss an episode! https://serenaholmes.exprealty.com/ask/896312e0f685fdd06401c1e53ca6fd17

To connect with our host, Serena Holmes, go to https://www.linktr.ee/serenaholmes.

To buy a copy of The Accidental Entrepreneur, go to https://www.linktr.ee/serenaholmesauthor and for a free copy go to https://serenaholmes.exprealty.com/ask/f813c4efdfaead4980a467b614d73604 

And, for everything related to real estate and real estate investing, please make sure you've subscribed to @serenaholmesrealtor on YouTube & other platforms. We also have a page dedicated to this podcast on Instagram and Facebook @inspiredtoinvestpodcast where we preview guests each week, highlight their episodes, to

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Speaker 1:

Welcome to the Inspire to Invest podcast, where we're sharing stories from real estate investors and how investing has changed their lives. This episode of the Inspire to Invest podcast has been brought to you by Plentitude Inc. Hey everybody, welcome to the Inspire to Invest podcast. I'm excited to have Judy Paray here with us and, if you were turning in last fall, she did join us to have a little discussion on how she got started in real estate and how she scaled her portfolio. So I'll fill you guys in, just in case you didn't catch that episode. But she's been in real estate since 2014, and she's been a coach for investors for the past eight years. She's a highly respected and trusted coach, including one of mine, with a large network of peers and colleagues in real estate sales and development. She's always on the pulse, looking for the best investment and education opportunities to provide to her partners as well as her students, and when she's not working, she can be found at one of her vacation properties in either Northern Ontario or Italy, which is pretty amazing. She loves to travel the world.

Speaker 1:

Thanks for joining us again on Inspire to Invest and we're just going to dive right into it and we're going to talk about affordable housing and a big topic which is due diligence for real estate investors right now. How are you today, judy? That's great, thank you. Thank you for having me back. So obviously, last time we did talk about how you got started into real estate and really you've built this very significant portfolio over the last few years, but I know for you, one of the things that's really, really important and close to your heart is the topic of affordable housing, so maybe you can talk about why you feel like this is so important and how you're integrating it into your real estate portfolio.

Speaker 2:

Yeah. So I think a lot of people don't know this about me is in 1997, I had gone through a separation. 1996, I had gone through separation 97, early part of the year my house was up for sale. It was. We could no longer afford it. We had an income property in it, our nanny lived in it and that's how we were able to afford daycare. To be honest is we had a live-in nanny. I was a flight attendant at the time, so I was traveling all the time and needed somebody to have full-time care for my kids when my husband was working and when I was working.

Speaker 2:

And with the breakdown of the marriage, there's a couple of things that happen that put people at risk. One or two paychecks away, or the majority of our population, let's say more than one third of Canadians, in unaffordable housing. I was in the same situation. We were paying, you know, more than half of what we were making into our mortgage. These are back in the times when mortgage interest rates were, you know, 12, 13, 14 percent Right, and when my husband and I separated, I was I was a bit of a money moron, to be perfectly honest.

Speaker 2:

I didn't understand where the money was going. The money would show up, you know, show up in my from my paycheck into our bank account, and it was a joint bank account and it would pay our mortgage and it would just set up automatically, right. So when we separated, I was now responsible for handling the finances and doing these things and I just thought things would happen automatically. And they didn't quite. They didn't quite happen that way and money was being moved around our accounts and whatnot and one day I came home from work we got a demand letter that said that we owed. I was alone with the kids. Demand letter that said that we owed. I was alone with the kids and we got a demand letter that said that we owed almost $14,000 in arrears in mortgages that hadn't been paid and back.

Speaker 2:

Yeah. So, as a single mom, $14,000 is not something I could come up with easily. You know, I barely had a credit card with, you know, a $5,000 limit.

Speaker 2:

I, you know, my, my family was, uh, wasn't very well off. I just didn't have resources for that kind of money. Um, so I was, you know I was. I was a bit taken aback. I was like how, how is this happening that I owe this much in mortgages? And what I didn't know is my mortgage wasn't being paid. It was, uh, my money was going into the bank account. My husband had bought a house. His mortgage was being paid.

Speaker 2:

There was some complications in the way we were setting up our banking and I wasn't aware. I literally wasn't aware. There's no excuse for it, but I really wasn't on the pulse of my money. I didn't understand money at the time. So, yes, I came home from the children, came off the bus and I was waiting for them in the driveway and when I went to get into the house, I walked up to the door with the kids in tow and I couldn't get into my own house. I was completely locked out. There was a sign on the door that said that the house had been taken over by the lender and who to contact if you had any questions, and I went to the back door and I went to the side door where my nanny's entrance was, and all of the locks had been changed.

Speaker 2:

So, there was no way in my house and I contacted my son's school. He was coming off the bus a little bit later and so I asked if he could take the bus to a friend's house and stay at the friend's house. My youngest was in days, so they were home a lot earlier. So the oldest one I sent to a friend's house and I called the parents and asked if he could stay for the weekend because it was nearing the weekend and so they were going to provide him with clothes and lunches and all of that for the last couple of days of that week so that he could stay with them. So because we had nowhere to go, you know, I guess we could have gone with family, but we had nowhere to go. My nanny was locked out, so I didn't have, I lost daycare immediately and put her into homelessness as well, and and we had nowhere that we could that we could go.

Speaker 2:

So, on the note, there was an address and there was a person to contact and I went to their office, which was in London, Ontario, and I took my two kids in tow with me and I sat there until somebody would speak to me and that day begged for my house back and they wouldn't give it to me. And I kept begging and begging and they said that they were going to assign a property manager to and that they would be managing it and I would have to contact the property manager to make arrangements to get my things out, et cetera. So what ended up happening that day is I became a property manager and I negotiated with them the keys back and I became the property manager of my own house and worked with the lender for the next few months in making sure the house was clean, the yard was done, everything was packed up and ready for us to move out, and I negotiated that we could stay until the end of the school year, and this was in May.

Speaker 1:

So I negotiated that. Did they ever send you any notices or anything like that? In could stay until the end of the school year and this was in May, so I negotiated that. Did they ever send you any notices or anything like that? In regards to like the payments, yeah, so a notice did come.

Speaker 2:

I didn't receive it. It was rerouted to another individual who lived in the home who didn't open them, just thought, oh, I'm not going to open these things. This is, you know, sometimes when you're going through financial trouble, you don't open your bills. You don't open statements. You don't do this and a lot of people do that. You put their head in the sand.

Speaker 1:

Oh my gosh.

Speaker 2:

And that's what's happening is, our head was in the sand. We weren't. We had a sale of the house, so we were going to move anyway. Like we were going to move, I was already looking for a place to live, um, but our sale fell through. It was a conditional offer. It fell through and no other sale came through.

Speaker 2:

So during this time we weren't paying the mortgage, it wasn't being paid and we really felt that the the sale of the house was going to take care of that. And this was our lack of understanding of really home ownership and what the um the same process is. And we didn't know. It was our first home, we didn't know how it works and, uh, and we ended up. My husband had already moved, he already had a house of his own, but me and my children ended up with nowhere. And so that day I negotiated my little heart out and I ended up with with the keys back in an agreement that I would property manage it for it and an exit strategy on how they would exit me. And I still had no place to live. So I had to figure it out and nobody wanted me. Yeah, as soon as you're not paying your mortgage, it shows up in your credit score. So try renting a place when this is showing up on your credit score, yeah, it's really difficult to find a place yeah, so then what happened next?

Speaker 1:

like where did you end up renting?

Speaker 2:

I had a friend co-sign for me and uh for a rental property and they they co-signed and trusted me and uh got me into a house to rent. Um, and we moved in in the July. So as soon as the school year ended we provided a lease agreement with to the lender, uh, the house was sold. Probably a few weeks later it closed yeah.

Speaker 1:

Yeah, no, that's a powerful story and I think obviously, like sometimes life throws you lessons that are harder than you want them to have, but obviously an entrepreneur was kind of born because you negotiate.

Speaker 3:

Yeah absolutely Like the property manager I.

Speaker 2:

I literally learned so much just in listening to the process. Yeah, and I thought, what do you mean? People property manage and they get paid for it? Yeah, like how does that work? And so I actually became, you know, a pseudo property manager there. I would rent houses and lease out rooms and stuff like that and became a sandwich mixer. That's how I started, yeah.

Speaker 1:

But I mean, I think it goes to show you that you know when you are going through school and stuff like that. Nobody teaches you these basic fundamental life skills, right? And it's kind of ironic when you think about it, because you learn a lot of stuff in school. A lot of it's not relevant or practical, but something as simple as understanding secured mortgages and the power that that gives them as a lender, home ownership and budgeting and all of those different things right. So I think it's something that does speak for itself in a lot of ways.

Speaker 1:

Now, when you look at the way that life is today, obviously things are a lot different. Here it's kind of the opposite. You're probably in a buyer's market back then if you can sell your house, but now we're in this, you know, crazy situation where there's just not enough places for people to live and it's a bit of a housing crisis. So when you think about people that are coming up the ranks in these new generations, like, do you think that they will be able to afford to come back to the markets where they were raised or start their own families, like, I think, what are your thoughts on where affordability plays into that?

Speaker 2:

Yeah, I don't think necessarily. To be honest, I think that you know, unless you're being handed that house down through generational wealth and whatnot, you may not be able to buy in the neighborhood you grew up with. Like let's talk about the GTA. It's highly improbable. If you're, you know, if you came or want to buy in the GTA, you're going to have to amass some wealth first. You're going to have to go somewhere else and get some wealth unless it's family wealth before you can get into that market, because you're not buying one and $2 million homes with 5% down. You're just not allowed to right. So you have to come up with some sort of wealth. So getting into home ownership in the GTA or the greater Vancouver area, for example, is going to be difficult.

Speaker 2:

My son just moved to Saskatchewan to build wealth. So he's you know, by the end of one year he'll have 10 doors because he was able to move into a market where it's more affordable, where his money can go a little bit further, and when he's amassed some wealth he can come back to Ontario. He can come back. Now not everybody can do that, but my tip is that if you can't live in the market you want to live in because you can't afford it, then rent, thinking that you need to live on your own in a one bedroom or a two bedroom, and I never lived on my own until I got married and bought a house, like I had roommates, you know, and I think that people are getting back to that and savvy investors are investing with their friends. You know I've seen a lot of articles of girlfriends investing together or guy friends, and they're just like you know. Let's just pool our resources and our buying power and let's go buy something and get in the market.

Speaker 1:

Yeah, and I think to your point there. I think it's just for anyone that is considering that. I think you know Kind of like the saying like you don't divorce a person, you married, right. So when you go into a situation like that, know that it's obviously not going to be in the long term and make sure that you know her money partner in some ways and a few years into it wanted to sell it. So now she actually can't afford to buy with the equity she has left in that same market. So she's in that exact same situation. So she bought a camper, so she's a superintendent at a golf course but she's like well, I'll just live in my camper for now until we figure out what we're going to do, right, but it's sad that that's kind of the state of it. But it begs the question when you think about governments and community and stuff like that, like how do you think it's possible to provide this affordable housing for this big spectrum of residents that live here or want to live here?

Speaker 2:

Yeah, I honestly don't think that we're doing enough. To be honest, I think as investors, we have too many investors that gravitate towards cash for keys and increasing rents, which is adding to the problem. Yeah, it's actually creating a bigger problem. Yeah, renters are twice likely to be in an unaffordable housing situation than an owner. They're twice as vulnerable as an owner.

Speaker 2:

And you know, I look at one of my tenants, bob, who's 78 years old. And you know I look at one of my tenants, bob, who's 78 years old, and I bought this, this property that had one tenant. The rest of the units were vacant and Bob was one of these tenants and he's paying five hundred and fifty dollars a month in rent and he pays with his money draft. At the end of every month, he gets his paycheck and he goes to the bank and he gets me a money draft and he pays me. And people have asked me well, why don't you just like that? Rent on that property is worth $1,850 for that unit. So why don't you give Bob cash for keys and exit him? And let's just do the quick math on that. Let's say I pay Bob $5,000 or $10,000 to leave and market rent is almost $2,000 a month. He's going to be out of money in three months.

Speaker 2:

Yeah, three months he will be out of money.

Speaker 1:

Fixed income right, because I mean that's something that, to be honest, like I never really looked at not to say, I didn't look at price tags, like I've always been cost sensitive, but my husband and I talk about that a lot is just how people are affording things that are on a fixed income. When you look at inflation whether that's the rising rents, the cost of food, just utilities and taxes and stuff like that, like there's just so many things rising, and I think it's just when you think about the seniors and the vulnerable population and stuff like that, like what do you think? What kind of options do they have?

Speaker 2:

do you think? What kind of options do they have? Well, they don't have a great deal of options, but there are options and I think you know there's a couple of things that I really love about senior housing and you know there's government programs out there for investors to invest in being part of the solution, for example, the MLI Select, or even there's co-invest renovation funds with CMHC and things like that, where you can go and you can find an apartment building and you can add accessible units to it. You can make accessible units to it and the government will pay you $25,000 to do that, and so now you've got a unit that a senior can move into. It's accessible and they can age in place. But also, because you you're working with CMHC, that can be one of your affordable units in your, in your property, so it's accessible and affordable.

Speaker 2:

You gain all of these points and I think what people don't realize is they think that you can. The best way to increase your you know your NOI or your income on a property is to increase rents, where you can also reduce your expenses. If you start reducing your expenses and let's take a look at your mortgage being one of those expenses, one of your greater expenses. When you start working with the government in the CMHC programs and you build or convert into affordable and accessible housing, you can solve some of the senior vulnerable issues that we have, because you're going to get a 50 year amortization. You may only get a 40 year, but you're at least getting a longer amortization.

Speaker 2:

And this isn't even just about amortization, it's about the rate. When I build affordable housing and when I build senior housing, my rate of construction loan is in the three percentile. I'm not paying six and seven percent. So imagine the cost savings you have on the front end in construction when you're getting preferred financing and then that stays in place for up to 10 years. So you've got these great rates, which which make it affordable for you as an investor to be able to have a return on investment, but also a return on the impact You're. You know, from a social perspective, you're being very impactful and making choices that are helping people that are vulnerable seniors, students, and seniors and students have, and our youth are the most vulnerable.

Speaker 1:

Now, do you think that that's something that, when you look at real estate investors I mean, obviously we know a lot of them that have taken that approach. You know they're coming in and they're either demolishing units or giving cash or keys to improve the value of the property and then increase all of the rents, but do you think that there's really enough education or awareness out there of this side of the strategy as well, when you think about the action that they could be taking as those active real estate investors that you know they can make that money?

Speaker 2:

obviously that's a priority, but then they're also helping on this side of the scale as well. Yeah, I don't think there's enough information and enough education. Like, our senior population in Canada is growing rapidly. The number of seniors are expected to double by 2036. Wow, this is going to result in a significant increase in demand for senior housing Right. And then, according to a report by the CMHC, a majority of seniors in Canada prefer to age in their place, like to age at home. However, as their health, their age or their needs change, they're going to specialize housing Right Things that that assist them, like assisted living or long care facilities and there's not enough of them. And the cost of senior housing in canada can range greatly depending on where you are. It ranges from 2500 to six thousand dollars a month, or even ten thousand.

Speaker 1:

I've heard in some yeah and I'm like, yeah, it's just, it's just crazy services that we're offering to justify that it's crazy.

Speaker 2:

It's. I don't even know. I don't even know how you can justify that.

Speaker 3:

I know one of the bills that we're doing in.

Speaker 2:

Windsor is completely senior housing. Yeah, completely, they'll age in place. We're designing it in such a way that if you need a hospital bed in there, you can put a hospital bed. Yeah, you'll have enough.

Speaker 1:

probably know like that that segment is not rent controlled. Right, I was actually really surprised when I got my real estate license to learn that, because you think this is probably the most vulnerable population. So how is it possible that senior housing is not rent controlled?

Speaker 2:

Yeah, it's not rent controlled, because assisted living isn't rent controlled and long-term care facilities are not controlled because they're private.

Speaker 1:

I know, but still, when you think about LTB and stuff like that, like how is that not connected, Right? So I was very surprised to learn that it's just yeah, it's just not.

Speaker 2:

So what we can do is we can create homes. We can create safe, clean places that that are accessible, that handle the accessibility needs of our aging population. And because we're making them accessible, we're eligible for grants. Like our senior building in Windsor, they're going to provide us with the community, the municipality is going to provide us with the curved sidewalks. They'll do it. They'll provide the paint markers, they'll provide the braille on the sidewalks. They'll do all of that stuff for us. We'll probably have to contract it out, but they'll give us funding to do it. Yeah, and like, there's just so much that we can do to help our seniors and affordable. And the thing, one of the things that we need to consider about too, is um, memory care facilities, because we have an aging population. That's that's um. You know, there's a prevalence of conditions like alzheimer's disease and and dementia. Yeah, we need to start taking care of the vulnerable population. So we're building homes that and units that that. Think of them 20 years from now. Yeah, yeah, yeah, I think that we can do a lot.

Speaker 1:

Yeah, I mean I think that that's why even recording a podcast like this is so important, because it's something that maybe is not on the forefront of what investors are thinking about and talking about, and they may not just be aware of all the advantages that come along with that, and you're doing something good, so I think it's kind of a feel good action that you can take as an investor. Now we're just going to take a really brief break from a word from our sponsor, which happens to be Plenitude this month your time to invest in building wealth with purpose with eight projects in five cities.

Speaker 3:

You can choose from two real estate income funds, three real estate development funds. We have an abundance of affordable, accessible and age in place options. Sign up for a free strategy call with a member of our team.

Speaker 1:

Thanks again for following along with this episode of Inspired to Invest. In addition to real estate investing and running my own brand experience agency for 18 years, I also published a book called the Accidental Entrepreneur in October of 2021. This is my story and it chronicles how I turned tragedy into triumph to embrace my destiny in entrepreneurship. If you're interested in picking up a copy, you can find the link at serenahomesrealtorcom and you can also find my link tree with all of the retailers in the details below. Thanks again for your support.

Speaker 1:

Inspired to Invest is proud to support the Beyond Success program. In today's complex world, it's absolutely crucial for our youth to learn how to take charge of their financial future. We believe that every young person deserves access to accurate, practical financial information. Designed to bridge the gap, the Beyond Success Program leverages a comprehensive educational boot camp to equip young minds with essential financial literacy skills. At Beyond Success, it's not just about teaching financial literacy. It's also about fostering a foundation for a prosperous and empowered future. Join us Together, we can build a brighter financial future for the next generations. Join us Together, we can build a brighter financial future for the next generations.

Speaker 1:

Hey, everybody, welcome back to Inspire to Invest. We have Judy Paré here from Plenitude Inc and she's been talking to us about affordable housing and all the advantages that that can offer to the real estate investors that are creating these homes and these opportunities, but how it also helps the community and populations at large. Now we're going to kind of segue to the second half of the podcast into something that's really sensitive in our community right now, which is due diligence and how to protect yourself as a passive real estate investor, but also how to make sure that you're managing your portfolio properly to protect the people that are investing in you. So maybe, just to get started, you can talk about some of the situations that have occurred within the real estate investing community maybe in the last six-ish months or so, and what you think are maybe some of the common mistakes that people have been making that have led into situations like insolvency, protection, bankruptcy, causing payments to investors and stuff like that.

Speaker 2:

I think the biggest issue is that people grow their portfolio, but not their team, and they, you know they're. You need to have a business infrastructure that supports your growth. So, like an entrepreneurial operating system you know that includes people, processes, tools operating system you know that includes people, processes, tools, technology all of the things that are key to growing your business. They often run out of runway and don't consider the burn rate of carrying a project. They don't consider how long it's going to take for that project to complete, and I think it's really important that we identify that some of the folks that are having the most difficulty don't have infrastructure. They don't have key processes in place. It comes as a surprise when this happens. This shouldn't be a surprise If you're an entrepreneur and you're an investor, and you know we get a lot of people that go from renter to investor, or so a renter to homeowner, homeowner to investor and then investor to business owner. When you're an investor to business owner, you need to actually operate your business like it's a business, yeah, and you need to get that guidance, and I don't think people are looking at their portfolio well enough to understand when they're running out of runway.

Speaker 2:

Yeah, you know, I looked at my portfolio a couple years ago and I didn't have a CPA. You know, I had my accountant and whatnot. But I called a friend who's a CPA and and said Can you take a look at this? Like, am I missing something? And we looked at my entire portfolio and he laid some calculations and formulas to it and said you need to sell something. I said I need to sell something. I said this is my primary residence. I don't want to sell my primary residence.

Speaker 2:

And he says you need to sell your primary residence. You will run out of runway if you don't. And that's the term he used, term he used. And I said well, what do you mean by that? But because you, you get to a point where you can no longer leverage it, yeah right, because you you just don't have and and I'm not a big believer in going over 80 loan to value, and I think that that's a mistake that a lot of people are thinking they they use other people's money like they don't have a responsibility to it. You have a fiduciary responsibility to care for that, of course, like it's your own and these are your investors. And you need to be able to sometimes take criticism from others and get guidance from others and be vulnerable and open up your, your portfolio, or open up your books per se to a third party, someone who is um, that has the tools. Yeah, and I mean I, because we're not accountants, and math may not be your thing, but construction may be, now I think like the team is one aspect to it.

Speaker 1:

Now can you talk a little bit about how you know you've seen real estate investors raising money, so I know in our community there's been a lot of talk about, you know, using debt versus equity and just the different ways that you, as an investor, can engage other people when you're raising private money for your projects and what the implications of that can be just in terms of, like you know, if you are carrying that debt and project runs late, like just what those different scenarios can look like as the investor and then also, as you know, the people that are putting money into those projects.

Speaker 2:

Sure, so I think one of the things that's really important is understanding where the money's coming from. Are they in an equity position? Are they in a private lending position? Do they have security? Let's talk a little bit about security versus insecurity.

Speaker 2:

If you have security on a property through private lending, through a mortgage first, second, third, whatever the mortgage is or you have equity as a JV partner or a limited partner equity as a JV partner or a limited partner you're in a much better position as the borrower. You're also in a much better position as the lender. Yeah, sorry, you know, because the lender obviously gets their security right. They have something to fall back on and when you start water falling, the debt order and who's getting paid first, you want to be first or second. You certainly don't want to be last and you don't want to have your security in question.

Speaker 2:

Right, and that's where P notes come into effect. Right Is? You now have a promissory note and you're behind. How many people don't even know where you are on the list of promissory that you're behind. There's a difference between borrowing $20,000 from a family member to get you your down payment and to help you out to get into your first home. There's a difference. But when I borrow and let's just say it was $100,000 home down east and that was 20% down, right, but when I borrow 20% down on a property and then I go get the funding a first position mortgage, but this 20% over here is invisible debt because it's a promissory.

Speaker 2:

It literally is invisible, not only to institutions.

Speaker 1:

You just cut out there for one second, so just backtrack a sentence and you want to start over it was so good up until now.

Speaker 2:

Sure Are we talking about promissory notes. Yeah, yeah, okay, whereabouts in the promissory note?

Speaker 1:

So you can just talk about the position and the invisible debt, okay.

Speaker 2:

So when we start talking about promissory notes versus private lending or a mortgage let's say institutional lending you get an 80% loan to value on your property and you're in a first position mortgage, but you've borrowed your down payment through a you know another party and it's done on a property promissory note. You're now 100% leveraged and that promissory note is really at risk because it's at 100% leveraged right and you're in second position, but you're not really in second position because you don't know if there's another promissory note for the construction, for example. I think it's important that you work with mortgage brokers that are credible. I think it's important that you work with mortgage brokers that are credible that will find you. There are private lenders. There are private lenders that will lend you on the after repair value. It's higher risk. You pay for it, it's expensive, but it's better than buying P&O debt because you're not protecting your lender when you have the p note.

Speaker 1:

So I just got the small example. When you think 20 000, say, compared to a ratio of one property, now obviously in our community it's not 20 000, sometimes it could be 10 million dollars, 20 million dollars and it's so significant. So you know, I'm not going to say I would necessarily advocate for promissory notes, like I do have a lot of experience with them and I had a lot of success for over five years where nothing had ever gone wrong. But looking back, you know what I'm learning now in this last, say, four to six months where there have been some challenges. What do you think are some of the things that a passive investor should be asking and looking at legally, in terms of looking at financials and stuff like what do you think someone should be asking and exploring to determine if it is a safe investment? And from the active side, like, what kind of things you know do you provide to your investors to make sure that they have the full scope of the situation?

Speaker 2:

yeah. So I think there's two sides of this. There's the borrower side. Yeah, uh, what? What are they producing? Um, you, you, you want them to understand what the money's going for. So in some cases I've had to show um construction budgets. I've had to show, uh, what I'm doing on the project and send updates. You know, send regular updates. It's like, okay, I've borrowed this money to do this on this project. My lenders want to know that I'm doing it.

Speaker 2:

So, I have this video updates or I you know. But the budget, I think, is one of the biggest things. And show quotes and show you know, show where the money's going. Yeah, that's really important is you should be able to show where that money is going, not just a blanket. Oh, I need 60,000 for this renovation. Do you have quotes? What are you doing on this? What, like I think that's one of the things you can ask for is well, what kind of work are you doing on this? Another thing is you know, I just recently went through a, an acquisition that I wasn't expecting. I wasn't expecting this acquisition. I needed some private money, this acquisition. I needed some private money and I needed it quickly. So, yes, I entered to a couple of peanuts to get that done.

Speaker 2:

And do I like promissory notes? I don't like them. I don't like them on both sides, you know. I don't like them as a borrower, I don't like them as a, as the lender, but I see the necessary evil in them sometimes, or that you know, to get you to point B. Sometimes you have to do this. But the most important thing is are you going to exit this? How are you exiting that P note? Are you doing it through a refi?

Speaker 2:

Are you doing and this is one of the things that you need to ask is how will you exit my promissory note? And if it's through a refinance, find out when and when the refinance is happening. We're going through a ton of refinancing right now. When the refinance is happening, let your lenders know if you're not timeline.

Speaker 2:

we just had to ask for an extension on a mortgage and it's not fun, but it's necessary and sometimes when people pull out, you actually impact the project more than if you stay in. So I think it's really important to know the project you're in. What is your money being used for? There's so many people that have lent and they don't know where their money went. They just lent on the credibility of the individual and they don't know where their money went. They just lent on the credibility of the individual and they don't know where their money went. And I think that's a big thing is you need to know where your money's going. And the last thing, I think, from a lender's perspective, is you need to understand who you are really, who you are and what you can afford to lose and your tolerance for risk. I have a lot of people that come to me in a coaching scenario that said but I love this deal, it's 15 or 16% ROI, is it if you don't get your money back?

Speaker 2:

or if there's that risk. There's a reason. Credit cards have high interest. They're directly related to the default rate on the credit card. So when you think of your promissory notes, you should think that if you're getting 16%, there's a likelihood that there's a 16% default. Banks do this for a reason, right Like you have to be able to afford that. And one thing I think is you should never give more than 10% of what you have to anybody.

Speaker 1:

Yeah, and I'm even finding too, like with some of the lending that I had done, like there were times that I made exceptions on what I felt comfortable with and did a little more, and you know, of course, those are the ones that have hit a snag. But I think, just understanding what your bandwidth is and what your comfortable lending, and then, when it even comes to diversifying, just really diversifying like companies that have absolutely no attachment to each other, and even, as we've learned with the mortgage broker situation recently, like you know, a lot of people felt very diversified and now, because of what's happened, everybody has been impacted, regardless of the fact that you could be completely diversified, right, Now, I guess, the other aspect to know as well is there are different commitment levels depending on how you come in as an investor.

Speaker 1:

So you know, whether it's a syndicated mortgage or a promissory note or a GPLP like there could be different implications on time. So in some instances it could be very like fixed, like it's supposed to be 12 months or six months, but depending on the nature of that relationship you know, I know what you'd mentioned with some of your projects in a GPLP like you know, once you're in it then you're kind of in it to that extent when the project is done. So maybe you can just shed a little bit light on like what that could look like.

Speaker 2:

Sure. So, and this is something that people don't understand about limited partnerships is that they're a partner, right, they are a partner in the project and their money is actually being used for the project and it's earmarked for the project. So they're typically, from the general partner's perspective, there isn't an expectation to pay it out during the being used for the project and it's earmarked for the project. Yeah, so they're. They're typically, from the general partner's perspective, there isn't an expectation to pay it out during the the the project. Yeah, and? And now having to go raise money because somebody wants out is not ideal, because it takes you away from the actual construction of what you're doing. Now you're, you're in this lane and doing something else rather than doing the project.

Speaker 2:

And a lot of people don't understand that limited partnerships. Although there's an estimate of the time, typically they say it's going to be a one or two year term. I have one recently that I have in Hamilton, cumberland, as an example. It was meant to be an 18 month project. It should have been an 18 month project, but the city of Hamilton took 16 months to process our permit, to give us a permit. So there is no way that you can actually do all of the work that you're doing in two months because you can't do the work without the permit, or you should not do the work without the permit because that creates risk as well and insurance liabilities.

Speaker 2:

So I think that time is really important, your time in the project and your willingness to stay in it until the end and understanding that sometimes, like you don't have that option.

Speaker 1:

I mean there were syndicated mortgages I went into six years ago that were all between 12 and 24 months and here we are at six years with no end date in sight. So you know, I think people go into it, but you need to really understand from a legal standpoint. You know what that could look like, Cause it could say like you want to understand the implications and like how long it could possibly go on, for what the risk of losing your money is, and things like that. But now I know that we're kind of running short on time. Is there anything that you feel like you want to pass along to either an active investor or a passive investor that we haven't touched on, Like anything you feel like is really valuable advice based on your experience?

Speaker 2:

I think that it's important to understand your risk profile. I mean, I talked a little bit about it, but if you have no tolerance to lose, then you have no business doing private lending or private equity, because that there is a risk, there's an inherent risk in doing these, but slow and steady wins the race. I mean, there's lots of opportunities out there that give you consistently, you know, 10% return, 8 to 10%. They're lower risk, but they move you forward in a reliable way. And I think that people should look at their, their age and their, their age when they're going into a deal and their capacity to recover and the time that they have to recover when you're looking at private lending or private equity.

Speaker 2:

This is why, um, graybrook doesn't, um, you know, an 80 year olds isn't an ideal investor in a Graybrook land development deal. Yeah Right, you need to have the, the, the longevity and the capacity to recover should you have any losses. Yeah Right, and I think that's something really important to think about. And when you reach a certain age and I'm 58 years old, I'm not, you know, although I do land development and I do these things, I do it in a very controlled environment because I have a very controlled team and I have processes in place. It is high risk, but I'm not going to put all of my eggs in one project because when you put all your eggs in and it gets shaken up, it becomes scrambled right.

Speaker 2:

Like you, I think risk is one of the big things that people need to think about and their ability to recover one of the big things that people need to think about, and their ability to recover. And one last thing is, if you're going to do investing outside of you know private lending, private equity, whatever take a look at why you're doing investing in a passive way and look at some projects that do good, that have a social impact, because then, if you can't reach your goal of you know, a lot of us say, oh my, why is to do this?

Speaker 1:

If you can't do that, alone.

Speaker 2:

do it with somebody else who's doing it for you, because you're going to get a return on investment investment and you're also going to get our society is going to get a return on the impact that you make. So I think, just making good choices about where you placed your money um money, know the organization and what they're doing and you know I think that's something that we just need to think about is what is my money doing?

Speaker 1:

I think that's a feel good way to look at it and I know it's part of your company mission as well. Now I think obviously a lot of people value your input and be interested in some of your projects. So what would be the best way for people to find you?

Speaker 2:

Yeah, so you can go to our website, which is plentitudeinccom. I'm on Instagram. It's mamaJudes01, something like that, mamajudes, and I'm on Instagram. I'm on Facebook. You can find me on Facebook, but really I know you're going to put the information below. Uh, really, just check out our website and speak to somebody on our team.

Speaker 1:

Yeah, no, and I think that's important because obviously there has been, you know, lots of scandals kind of in our community in the last little while. So you want to work with someone that is reputable and is going to take care of your money the same way that you would. So thank you for sharing your wisdom with us today. If you haven't enjoyed, please make sure that you're following along at Inspired to Invest podcast and you have subscribed below, and remember, above all else, when you invest in yourself, the sky's the limit. Thanks again, thank you to Plenitude Inc for bringing you this episode of Inspired to Invest. The views represented on this podcast are for general information only and does not constitute investment or other professional advice or an offering of securities. The host and guests featured on Inspired to Invest make no representations as to the performance of any particular investment. Should you decide to make an investment, you are responsible for conducting your own review and analysis. It is recommended that you obtain independent legal accounting and tax advice from licensed professionals.