Ep 98: Why Risk Is Not All It Is Made Out To Be with Steven Huang
While highly-leveraged deals are attractive, a lot of people forget that a good business model is also about risk mitigation. Today we talk to Steven Huang, a 25-year-old dentist from Canada whose part-time investing has seen him build up a portfolio of 38 doors across seven properties, with 18 units under contract in U.S. and Canadian markets. In this episode, we talk about the sense in buy-and-hold strategies, the double-edged sword of over leveraging, real estate investing in Canada, and a few lesser-known strategies for more sensible investing. Steven begins by giving listeners an idea of his background and how he got into real estate, choosing to buy foreclosures in Phoenix and Atlanta from a distance in Canada after getting some coaching and leveraging his networks. We talk about some of the downsides of buying properties with the intention of exiting soon after, hearing Steven talk about why he prefers to hang onto his properties, especially since he is only a part-time investor. On the topic of de-risking, we have a great discussion about real estate being a get rich slow game, meaning you can’t beat sound, cash-flowing deals like the ones Steven buys. Next up, Steven talks about how some of the high-level considerations about debt and cap rates are less considered in Canada, which is part of what is contributing to higher prices in its markets. Wrapping up for the day, John shares an awesome technique that values long-term leases over rent increases, resulting in higher returns at the end of the day. Be sure to catch today’s show!
Key Points From This Episode:
Thoughts about the upcoming elections and whether a new government will affect real estate.
Steven’s background growing up in Canada and why his first investments were in the U.S.
Exchange rate implications as a Canadian investing in the U.S. and why Steven chooses to buy and hold his U.S. properties.
The role that being a part-time investor plays in Steven’s choice to buy and hold.
All the work that goes into buying a new property, making buy and holds attractive.
The benefits of cash flow and de-risking provided by buy and hold strategies.
Knowing how much to leverage up so one is not at the whim of banks, markets, and unforeseen repairs.
How few investors query deals regarding debt, choosing rather to focus on returns.
Buying deals that don’t rely on debt to be good, and using debt to sweeten them.
Low cap rates in Canada making average ones in the U.S. seem very good.
Rookie investors confusing short-term hotel deals with long-term multifamily ones in Canada, driving prices higher.
Going with 15-month leases rather than rent raises to help squeeze more value out of long hold deals.
Vetting tenants with a 12-month trial before granting them a 15-month lease.
Steven’s strategy for how he got going in real estate by educating himself and leveraging his networks.
The ultimate simplicity of the real estate model which when done right makes for trustworthy investing.
Using models versus doing one’s research, and which of the two is the most important.
“Those markets where you have a decent population base and good appreciation potential plus a low price point and a good price to rent ratio are much fewer in Canada so that is why initially we jumped over to the U.S.” — Steven Huang [0:08:58]
“A lot of people that get into real estate, they are all about leveraging it up. Max leverage, 100%, grab whatever they can get, and they forget that part of running a business is about risk mitigation.” — Steven Huang [0:19:38]
“The thing about Canadian markets is you have a larger majority of rookie investors who will look at an Airbnb deal or a student rental deal and say, ‘This six or seven percent cap rate is the same as a multifamily, long-term rental deal.’” — Steven Huang [0:31:45]
Links Mentioned in Today’s Episode:
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