Transcription of Episode
Intro/Outro 0:04
Welcome to Investing Across Borders with Lauren Cohen. Every week she will share valuable information that you need to know in order to successfully invest in real estate and other business endeavors in North America. We believe in helping clients invest, live, work, and play across borders. And now, your host, Lauren Cohen.
Lauren Cohen 0:22
Hello everyone and welcome to Investing Across Borders. I’m your host Lauren Cohen, international legal and real estate expert. We teach you here at Investing Across Borders, how to invest live, work, and play globally, and I’m here today with my guest Marcin Drozdz. Drozdz is that right Marcin?
Marcin Drozdz 0:47
You got it. Hi!
Lauren Cohen 0:49
Good. I was very worried I would mess up that name, it’s a Polish name, and just like with Hebrew names, the consonants are together and sometimes hard to pronounce. But Marcin is currently in Kelowna BC. He has homes in Kelowna, Calgary and Toronto. So he is truly a nomad in a way and has multiple homes that he likes to visit and he has that flexibility because he’s a real estate investor. Now I met Marcin the other day and shockingly, it’s surprising that we haven’t run across each other before but I was just very enamored of his personality, of his demeanor, of his knowledge, of his generous, generous spirit and of the way that he presented all of the elements of what he was doing based on the questions we were asked in the webinar that we were on together. So Marcin, I would love it if you would introduce yourself and tell us a little bit about your background.
Marcin Drozdz 1:39
Sure. Well, thanks for having me, really, really appreciate the opportunity. Meeting you on the other podcast with Elizabeth and Glenn Sutherland was a breath of fresh air. It was just fun to kind of chop it up and talk on the US side. I mean, as far as a little bit about myself, I started out in private equity when I was 21 years old, I grew up in Oakville, Ontario and got recruited into PE when I was 21. So at the time I was buying houses in you know Oakville, London that whole kind of lower basin area there, and Ontario and then made the move into private equity. So immediately got kind of thrust from single family homes into large scale multifamily commercial land assemblies just things that blew my mind at the time. You know at 21,22 years old…
Lauren Cohen 2:26
At 21,22 it’s much easier to blow your mind than it is now right?
Marcin Drozdz 2:32
Yeah, I was just so excited. I’m like this is awesome, I read the whole Rich Dad Poor Dad book and Ty got into buying the houses and all of a sudden you’re working on multifamily and things like this. So yeah, did that for a few years the PE firm is family owned, family run, so after a few years I realized that there wasn’t really much more room to grow there and I broke out on my own.
Lauren Cohen 2:40
How old are you then, 24,25?
Marcin Drozdz 2:53
Yeah 25
Lauren Cohen 2:58
You broke out on your own so young, it really paved the path for you right?
Marcin Drozdz 3:02
You know it did, but it also created the gray hairSo I thought I knew a lot more than I did at that age.
Lauren Cohen 3:09
Of course. We all do, we have a little bit of arrogance because we think we know a lot more than we do. I remember when I was a new lawyer and I would walk around like you know, all hottie tottie and now I’m like, you know I stand back. I know what I know, and I don’t know what I don’t know.
Marcin Drozdz 3:25
Yeah, I mean in hindsight it would probably have helped me to have stayed there for another year. To perhaps get a little bit more, you know just take a minute. Early, mid 20s you think you know everything, like you just said, but regardless, I broke out on my own. I did have the foresight to know what size of deals I could do. So I went back to doing smaller deals, you know fourplexes eightplexes you know.
Lauren Cohen 3:44
And all in Canada?
Marcin Drozdz 3:45
No at that time it was in Manitoba actually. We were duplexes and triplexes, and fourplexus for like 50, 60, 70, you know really good quality stuff rents for 800 to 1200 aside you know it was utilities or said those are the good old days. Like that stuff doesn’t exist unless you go to small small town Canada now.
Lauren Cohen 3:45
At least not in Canada doesn’t exist.
Marcin Drozdz 3:48
Yeah, exactly. So, did that for a while, then around that time we partnered with some commercial guys, we started doing commercial on the back end of the US crash, so 2010, 2011. We put together an LP partnership, we went down to the US, we went to AZ we started buying strip malls, and they were about a third to half empty. And for those viewers that understand this, we were buying essentially half empty buildings at the price of the cash flow of that half occupied which is just insane. So you know we’re paying I think it was seven, eight caps at the time when our dollar was par or above and we were only paying for the remaining NOI on the building. So half empty building was just all gravy.
Lauren Cohen 4:57
That’s incredible. And then you also had the upside of the Currency because the bad part did not last very long.
Marcin Drozdz 5:02
Yeah, so thats when the currency turned on us I think we ended up selling when it was in the 80s or whatever. Was 80 cents or somewhere in that range and that was, you know we looked really smart, it was just good timing. Right place right time. Then we looked kind of dumb because at the same time we also bought in Alberta so right around the time that things were looking really good getting out of the US, Alberta started taking a crash, because NDP got elected, and regardless of political leanings in Alberta that was seen as a drawback from a business standpoint. So you know, we did really well there we had some tough times in Alberta and you know, fast forward to today in the last couple years I’ve really doubled down on multifamily in the US.
Lauren Cohen 5:45
Great area! I mean multifamily, you know, being with the eXp commercial, multifamily is the most in-demand industry area for sure in the commercial sector, in the US. Everybody wants a piece of it, including a lot of my clients.
Marcin Drozdz 5:59
You know what’s interesting about multifamily, is that there’s always this massive flight to perceived security when the market becomes volatile and you always need a place to live, and you know we got into it pre COVID so there was no way to even have predicted the implications of COVID and the whole work from home thing and loss of confidence in offices and all this stuff. But, you know to me it was always one of those things, that people are always getting in to see clean and affordable places to live, in places where there’s jobs, and at the end of the day if you can buy stuff for less than it cost to build, you know often less than half, to me that just seems like a no brainer and you know now with COVID in mind it’s just so much more important.
Lauren Cohen 6:40
Yeah, for sure. I mean COVID has changed so much. Being in South Florida the market here I’ve never seen a market like this. Like it’s insane. I am not in the production side but my boyfriend is and we are trying to find a property for somebody that you would know and we’ve looked at so many properties and because he has a Canadian approval there’s some limitations. Pre approval for the mortgage, there’s a little bit of limitations and he doesn’t have the same power to negotiate, although now he does because his house just went under contract in Canada, but the point is, you know I grew up in Toronto, so I’ve seen a crazy market my mom was in real estate before I ever was, so I’ve seen the craziness of the market and the multiple offers. When my mom’s boyfriend sold his home, he went way over asking, almost I think $100,000 over asking. I’ve never seen that here in Florida until now. I mean nobody has really. This is unprecedented and the reason is, or one of the reasons besides just being a hot market, there’s so many people moving to Florida especially from the northeast because they want, if they’re going to be working from home why do they need to deal with the winter. May as well be warm, let me get a bit bigger home, you can buy a lot more even with this crazy market for your buck and you get space, and you get a pool and you have summer all year round. I mean I’ve always been working with a lot of Canadians coming to Florida, but now it’s more than ever because everybody wants to come to Florida including Americans. And it’s not just south Florida, we’re going up to Orlando on Monday to look at some of the new projects for some of my clients. It’s crazy there too It’s crazy everywhere. I mean where Glen invest heavily is Jacksonville it’s also crazy there he just happens to have you know opportunities before they come to market which is great, but what I like about what you’re doing which is unique in with most of the Canadians that I’ve worked with is your focus on commercial. So most Canadians that I work with that are real estate investors down here, are investing in maybe small multifamily but a lot of single family and flips and doing the bur method and so on. So I like that, because it sets you apart from most of your so called competitors or your brethren or your fellow real estate investors in Canada, and that probably came from you being in this space when you were starting when you’re 21 and learning that model so you got very fortunate because you were you went in a different direction than a lot of your contemporaries correct
Marcin Drozdz 9:08
Yeah, and to your point i mean I’m happy to see anybody from Canada make it in the US whether it’s residential, commercial or multifamily. I think there’s so much opportunity down there, us as Canadians would be foolish to neglect that. Because again you look at the price per home and you know the median average house in Canada and again this is a gross kind of you know, bundling of everybody but it’s literally almost $800,000 in the US, it’s less than half of that and that includes all the major markets whether it’s Boise Idaho all the way to New York, like it’s literally less than half. So the economics are just so so beautiful down there that you know whether you’re buying houses or multifamily or whatever it is, I think everybody should have some exposure to it. But you know, like we talked about on the other podcast, I think it’s important that if you’re going to do it, you know that it’s not a flavor of the month you don’t just do it. This isn’t like buying Bitcoin, you know it’s not five minutes, you don’t just go online and buy it. It’s a business right, so you definitely need to have a strategy. And I mean you know on the multifamily side I think to myself, like last building we bought we bought 100 and close to 180 units and we paid less than $4 million for it and this was in Memphis, Tennessee I mean, for $4 million and this is a very good market. I have friends that have houses for $4 million. I mean, you want to buy compare apples to apples $4 million in Canada you might get what 20 units 22 units right? Granted we got to do some work on 170, 180 units but I mean it’s 180 units.
Lauren Cohen 10:46
For sure. It’s completely different, you can’t even compare the markets in so many ways. And you know, one of the common challenges that I hear or misconceptions really is you know, the money is expensive and I don’t want to deal with the exchange rate and you know, it’s like you have to bargain on the exchange rate so it will sometimes work in your favor. I’ll tell you what, I don’t think I’ve shared the story on my podcast when I bought my first house here in Florida. I sold my beautiful little staff townhouse in downtown Toronto and I converted the money, guess what I paid for my money you’ll never guess what I bought, I’m ashamed to say this, when I bought my first US House well it was actually my second but that’s another story because I had previously purchased a house with my ex husband. But anyway, when I bought my first US house and sold that property I paid over 50 cents on the dollar it was at its all time high. Okay kind of like when I first went into the stock market and I was working for Citigroup and I decided to go into the stock market the day of the merger not before so I haven’t always made the best financial decisions but it okay but anyway the point is that you have to bargain with that and you can’t let let things like that deter you from making the investment what what should deter you is not having the proper structure which should deter you is not having the proper guides which should deter you is just running like Mark Martin is saying and saying Okay, I see an opportunity let me just buy it because if you don’t have that structure and the strategy in place, something’s going to happen you’re going to be hit with double taxes you’re going to be hit with legal liability, you’re going to have a challenge closing you’re not going to get financing and the list goes on so you know I’m sure you have an amazing team that you’ve put together how many people are now scouting for you for opportunities?
Marcin Drozdz 12:36
Oh, a fair bit. I mean there’s the people that say they’re doing it and there’s the people that are actually doing it. That’s two different stories I mean, you know, almost every week I have someone new show up and tell me they’re going to go find me deals typically a lot of those people kind of fizzle out because they’re they they have the shiny syndrome where they Oh yes, they see everything and you know, they just spend themselves in a circle but if I mean I’d have to say probably about a dozen or so people that are consistently you know, bringing opportunities at least half packaged or at least at a point where we can have a meaningful discussion so you know there’s in some of those people I’ve done deals with before a lot of them I’m hoping to do a deal with at some point but you know it’s interesting what you say about having your structure cracked. Trying to time the market is something that you know even if you get it right I wouldn’t take credit for it because it’s only a matter of time before you get it horribly wrong. But I mean look the exchange rate is one thing and if you’re thinking about it long term you know you got to revert back to the medium right so what is the historic interest rates what are the historic you know, exchange rates you know, how far off the median are you and that’s really a good place to start your risk assessment. Now when you did it if it was close to 50 cents you’re probably looking at it when the median was probably close to you know, the mid 50s low 60s so you weren’t that far off you know, today I think we’re bouncing 70, 80 cents that range. And again, this is why I said earlier you can’t look at this as the flavor of the month like you’re going there like our intention on any of the assets we buy is we’re looking long term hold you know…
Lauren Cohen 14:14
You’re not flipping
Marcin Drozdz 14:15
No we’re not flipping. Flipping as Canadians in the US I mean I’m sure there’s some strategies around how to mitigate that but it’s an extremely heavy workload for Canadian let alone an American to make money in the US. Flipping as a Canadian, so for us, I mean, any building we buy we buy it with the intention of operating it long term and just remind it’s like a big bird essentially.
Lauren Cohen 14:47
I’ve never heard that before but I like it The Big Bird.
Marcin Drozdz 14:50
Yeah, so you got to have that mindset, right? And look, if someone comes along and offers to write you a check, that is, I mean, Everything is for sale for the right amount of money not only So, you know, someone comes along and offers you, you know, a value on a building that you’re like really? Okay, then, you know, you make a decision, but ultimately, you know, the goal is to be a long term player.
Lauren Cohen 15:15
So when you first started in this and you were buying those strip malls at a discount, was that also a long term play or was that more of you know, get in fix sell quick.
Marcin Drozdz 15:27
So that could have gone either way, the challenge, not the challenge, the opportunity I think we were trying to capitalize on was because the dollar was so high against the historic medium rate, I think it made so much more sense just to get out, because you could pick up a heck of a spread just on the like, even if we just took the money, you know, whatever amount of money went in those, like the average building was $2 million. So you know, even if you just send $2 million to work and you pick up a spread 30% on the Forex
Lauren Cohen 15:58
I mean, pretty good that 600,000 bucks coming in the door.
Marcin Drozdz 16:01
That’s real money, right? So so you have that on top of the fact that someone’s offering to buy it out, you know, at an at a new valuation. I mean, you know, it’s it’s hard not to overlook that plus, I guess one of the benefits of and one of the challenges is that when you’re dealing with syndication model, typically you have a five to 10 year timeframe on that, right. So when you look at when you look at you know, the IRR is we use IRR is all the time it’s not a function of how much money you make. Can you define that for the audience? Sure, internal rate of return. So an internal rate of return is it’s one of the factors it’s not the only factor in SAS a good deal but IRR takes the time element into the return. So you know if I tell you you’re gonna make $10 or you’re gonna make $20, which is more? And the answer is I don’t know yet because how long is it going to take me to take $9 or $20. Because if I can make $10 in a day, right where I make $20 in a month, my IRR on the 10 bucks in a day is much higher.
Lauren Cohen 16:59
So it’s funny that you say that because I’m going through this right now it’s not a real estate play. But I have a client looking at a business, the two businesses and one of them is a much higher valuation than the other. So the numbers are higher, but also the inputs are higher. So it’s kind of like you when you you know you’re comparing apples to oranges versus apples to apples and $1 or sorry, $10 in one day could be a lot more than $20 over seven, obviously because you do have a much it’s an economy of scale thing and everything and a lot of people fail to realize that they’re just looking for the quick how do I get that buck?
Marcin Drozdz 17:35
Yeah, well in an operating company so some of the portfolio companies that I’ve looked at before that are operating businesses not real estate based, they use a different measurement to him to sort of calibrate what you just said it’s called grm GM ROI gross margin return on investment and essentially it’s the amount of times you can turn over inventory multiplied by the margin and how many times you can turn over that widget to make that margin in that same time frame right so that’s what retailers use but the premise is the same as how it’s not a function of how much money you make but how quickly you can make it against how many resources you’ve tied up against that acquisition.
Lauren Cohen 18:11
Right. You know I guess it’s also the same like in what I do you know, because what I do is package everything in one neat little package and save some client All right, you want to visa all right you want to invest in real estate All right, you want to structure come to me I’m going to package it all together might cost you a few more dollars but you’re not going to have to have that spend that time and effort finding all of these professionals and figuring out if they’re going to work for you and that takes time and money and it’s the cost of money right that’s that the cost of time and people don’t factor that in often they have a lot of time on their hands good knock yourself out you know, but if you’re busy real estate investors you want to work with somebody that gets it and understands how to move you through the process quickly which is actually what prompted me as I mentioned the other day to create the 10 steps to immigrate to real estate because my colleague here a friend of mine he from Ottawa originally and I met him through Little League and we he said my friends you know he’s very high end does has done very well do the tech play and everything and he said my friends don’t want to know about the details. They just want you to take them from A to Zed and get them through the whole process and they don’t want to think they want to sign a check and say here you go and that’s it and so you know you have to make you have to it’s different strokes for different folks but I think that people that are coming from working with you are coming and working with you because you’ve taken them you’re taking them through that process right and I assume you’re taking investors as well.
Marcin Drozdz 19:33
Yeah, we have it depends on the deal. But yeah, oftentimes I mean I have my set group of friends and people I know that always just say Hey, what are you doing? What are you working on? I got you know, 100 grand, a million bucks, whatever it is, but yeah, sometimes we do work with accredited investors. That’s typically the only people we work with just because it’s you know, it saves a lot of hassle. You’re working with people that are typically professionals, they understand business, they understand the business and that’s really helpful. But, as you were talking about the package, reminded me of a female entrepreneur friend of mine, Shelby says, Look, I don’t want the pregnancy. I just want the baby.
Lauren Cohen 20:10
Or they want the grandchildren without kids.
Marcin Drozdz 20:13
Actually, that’s my mom.
Lauren Cohen 20:14
Well now she’s getting to that point almost, November right? Well, Marcin it’s been an absolute pleasure getting to know you. Tell me what you would share with our listeners that are interested in investing across borders, and learning more about how to potentially work with you, or learn about what you’re doing. I know you have a podcast, hopefully, I’ll be a guest on there. We’d love to learn about that. But tell us how to reach you, and so on and so forth.
Marcin Drozdz 20:43
Sure, yeah, my website is Marcindrozdz.com and that’s the easiest way to find me, as far as you know, people that do want to explore the US. I mean, the first question and we talked about this on the last podcast is you have to identify whether you want to be an active investor or a passive investor now, either or you need someone like Lauren on your team just to help make sure that you’ve got the you know, your ducks in a row lined up. But if you want to be in and if you want to be passive, you need to find somebody, a group like ours or other groups out there, there’s other syndication groups out there that you can, you know, be comfortable with, understand how to get exposure to and figure out how to become a passive investor. Now, in our case, when we do things, we make sure we keep our Canadian investors on the Canadian side, they don’t have US filings. There are opportunities, we have to do cross border with other firms. But regardless, having somebody like Lauren, look over stuff for you, you can actually figure out which side of the fence you fit on, which is really important. And I mean, I think the best thing for somebody who is active, so not passive, is really understanding how to build out that team and understanding how to how to marshal the capital together to be able to do deals…
Lauren Cohen 21:55
You need capital, because you’re gonna lose deals if you don’t have access to capital, and a lot of people fail to realize that. They find the deal, and then they look for the capital, and you’re going to lose the deal, especially now. Nobody is waiting on capital.
Marcin Drozdz 22:10
No, I had a friend/broker call me yesterday, 300 plus unit building, I forget what it was per door, but it was something really attractive. And he said to me, can you guys close? I said, when do we want to close? He said, 30-45 days. I go,if the deal checks out, sure, no problem. Just having that confidence that we can close will immediately get me in that deal in that room in that conversation. Otherwise, you know, there’s nothing to talk about. So I’m not saying you need to start at that level. If you’re buying houses, great. Make sure you have your 100, 200, 500 grand ready, whether it’s yours, your partners, whoever it is, you got to have it. And like Lauren said, that structure that even the US bank accounts, like just even simplicity understanding these, like, like Canadians think that you know, and I used to think this when I went down there and 2008, 2009 is that, oh, yeah, we’re basically the same. Yeah, no, we’re not the same. You might as well be from Spain, or France.
Lauren Cohen 23:08
And people don’t think that, Oh, you’re Canadian, it was easy for you. No, it’s the same process. The only difference is usually it’s easier to drive across the border. Not today. But usually.
Marcin Drozdz 23:20
Yeah. So that would be my best advice. If you’re looking passively, be involved, find people like Lauren, for your team, find people like us to help you assess risk and figure out what deals make sense. And if you want to be active, you still need somebody like Lauren, and then you need to really understand the deal side and you know that that’s that comes with its own, you know, level of work. And that’s typically why people don’t do it. You know, it’s there.
Lauren Cohen 23:46
Well, I thank you very much for your time. I wish you luck with your impending birth of your child. So you’ll have to let me know, mine is november fourth, you’re due on the 10th? So we’re pretty close. And we’ll see if he has as much of a personality as my 10 year old who will be 11 on November 10th. And I want to thank you again and I look forward to continuing our building our relationship and working with you. I’m Lauren Cohen, please subscribe to our podcast investing across borders. We are on all of the major podcasts, distribution channels, Apple, Google Spotify, and I am here to support you in any way when it comes to investing across borders. And we are about to announce that we have a sponsor. And actually this is somebody that you should meet Marcin, it’s called Lendi. And Lendi is a company that provides financing, only at this moment to Israelis and Canadians investing in US real estate, not commercial up to four unit buildings. So single family to four unit but it’s a brilliant model because it gives Canadians that otherwise don’t have access to financing a way to get financing quickly get answers quickly and easily. And I’m super excited. We’re just about to announce that and put a press release out. We’re just thinking all of that right now and I’ve been working with them for a while and my clients are thrilled. So it’s a pleasure to be here again Lauren Cohen, Investing Across Borders, please reach out anytime you need and also reach out to Marcin as well. Thank you so much.
Intro/Outro 25:16
Thanks for listening to Investing Across Borders with Lauren Cohen. Make sure to check the show notes for any links and for guests contact information. If you have questions for Lauren, please reach out to her at FOUNDER@ecouncilglobal.com. If you enjoyed today’s episode, please subscribe, rate, review, and share the podcast with a friend.
