Are you planning to invest in a specific industry?
In this episode we talk with Axel Monsaigneon, founder of The Real Estate Effect, a real estate asset management investment firm based in Montreal, Quebec. Axel has a background in the corporate world and in various industries, and shares his experiences and how he could help you protect your investment.
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Axel Monsaingeon: Protecting Investors Investments
Yeah, and that’s, that’s really one of the keys is be comfortable with where we need to be at in terms of costs, and then just getting there. But again, like I’m relying on a contractor that as you said, I need to make sure that he’s got my best interest at heart, instead of looking at me like this guy is starting, he doesn’t really know what it’s worth, I’m going to, not only am I going to put I’m going to do costs plus plus, with 8%, I’ll do 10. Right.
But the reality is, again, if you’ve got a $10 million project, and he gets you for an extra 2%, that’s, you know, that’s an extra two and $1,000. But if he delivers the project on time, and you’re not facing a $4,000 a day interest cost, he’s gonna pay for himself really quickly, right. And I think that a lot of people forget that. And, you know, I’m actually in, I’m actually changing roles after 27 years in construction, I’m actually doing stuff out of Idaho. I’m down in Florida doing stuff. And I’m actually hiring general contractors, and I’m using all the same principles I wish people had used when they would go into their projects, right? I’m interviewing based on reputation. I’m interviewing based on can we do this? How does this feel? What’s your favorite contract? How do you like to set these things up? So at the end of the day, we’ve come up with a really good team. And I’m actually applying the principles that I keep talking about right to other people, oh, you should do this. I’m actually having to do it. So it’s really kind of funny, but you learn a lot, right? You continually learn. And I think after you’ve done the one, Alex, I’m sure that you’ll have a much better handle on costs, a much better understanding of what you can expect about what’s next about you know, what your next project could be easily, you’ll have more certainty. No, but
I would sorry, I would have another question for because you have a lot of experience in this is when it comes to investors, like, for now we’ve done almost all of our project with our own funds and refi, and so on, is is that for now for these bigger projects, we we can put some money into it, we just can’t fund all of it. And so we need to take investors, and I’m kind of having this, I really care when it’s my money. If I make a mistake, I’ll kick my own butt. And my wife won’t be happy, and I won’t be happy. But it’s our responsibility. You know, it’s us. When we take investor money, I actually feel really responsible. And I still have that, that little bit of that fear, to be honest. I’m like, Yeah, but what if, what if the project doesn’t go well? And what is your over budget? And what if all that and so now I almost feel like I’m, I’m almost I wouldn’t say scared to pitch it to investors. But I’m like, yeah, there’s a lot of uncertainty. But you can’t say that to investors, they walk away.
Yeah, but you can. And this is what I’ve learned. So when I first started getting into the world of syndication, you know, my background is I’ve been in construction for 27 years, as most people know. But it’s just been in the last couple years that I got into syndication where I was involving other investors, other than maybe a single partner to do you know, a single check ride or whatever like that. And what I found is that the people that I’m talking to, they have a problem also. Yeah, they have, they have a full time job, or they, they don’t trust themselves, or they, they don’t have as much experience as you do. There’s a lot of reasons why at the end of the day, they’re not doing this on their own. And so you’re helping them, you’re solving a problem for them, which I think is something that we forget often as we go out and talk to people about investing. But you’re right, if you don’t have that healthy fear, then your investors are going to sense that they think that you’re going to be cavalier with their money. They think that you’re not caring. I mean, look, I’m I’m, I’ve done over $300 million worth of development, and I still get scared. I still have those moments where I go, man, did I bid that right? These lumber prices going up? Are we sure that we’re locked in? Are we sure we’re gonna make our schedule? And that’s why a lot of people invest with me. Number one, I’m always checking the pulse. I’m always making sure that the project is my priority. Their money is more of a priority than mine, just like you said, but number two is it’s because they pay me to work. Yeah, they pay me to deal with the hassles to deal with the heartache to make sure that it gets delivered, that people have a place to rent, right, that the rent gets collected. Those are all my jobs that I do for them, and that they rely on me for. And, you know, we’ve had some issues, you know, we’ve we’ve been through the pandemic, I mean, we’ve, we’ve delayed projects, we’re behind on projects, which, you know, nobody’s happy about that. But at the end of the day, it’s about that clear communication, and I often see that the people that I think are going to be the most judgmental or the or have the best You just issue with what I think are actually relieved when they see that I’m human.
Exactly. But I can tell it upfront.
Yeah. Because if you go in there and you go, man, my name is Alex, I’m the coolest cat around, I’m gonna build this thing, there’s never gonna be any problems, it’s going to be totally on budget, they’re gonna walk out of the gun, man, what a salesman, that guy is full of crap. Yeah, because there are going to be issues, right? But you don’t want to go in and go, Man, there’s not a real likelihood that you’re going to make any money, you know, you want to paint the picture that this is a really good deal. And this is a really good opportunity, I’ll do it. And what we always do is we put in a nice contingency, right here is the contingency money. And then everybody knows that if we go over the contingency money as the developer, I get to pay that. I pay that personally. So if we say it’s $10 million, and it winds up costing 11, I got to put in another million bucks, right? Those are the things that they’re buying from me. That’s the security that they’re purchasing by becoming my investor. And so that is, I think what you’re feeling is very, very healthy. I think that there are some people out there that don’t have a regard for other people’s money, like they do their own. And I think that there’s a lot of people that don’t understand the gravity of the situation. You are taking their money, borrowing millions of dollars to do the project. And that’s very cool. And you want to make sure that it works and you want to do everything in your power to make it work from there. Make sure that you have that healthy respect, and that you know, you’re not just sitting somewhere, you know, in your lawn chair watching somebody else mow the lawn, while you the investors money gets squandered. Right?
No, no, definitely. And you’re right. I do take it seriously. And I have to balance out between Okay, well, do take it seriously and have a clear communication with them. Right, the priority is making the deal work. And the deal happens. So everyone is happy with it.
Right? And, you know, the other thing that I love is, you know, we underwrite conservatively, right? We underwrite, like if you know we in, in the States right? Now they’re talking about cap rates going up, right are there, sorry, talking about interest rates going up, and we probably will see cap rates rise a little bit with interest rates, and we’re seeing different things. And so we were looking at some of our future projects that we have that we’re just getting ready to turn in for the building permits. So we’ll be starting in two months, three months. And I’m looking at it going man, we’re in a great position, because we priced that at a five and a half cap when stuff and our market is selling at a four. Yeah, I’m gonna look like an absolute genius. Nobody’s even if even if interest rates rise a little bit, and cap rates rise a little bit, we’re still going to be at the position where we don’t have to worry about what we projected, right. And maybe this is the other thing too, Alex, people are going to invest in you, because of you, they’re not necessarily going to invest in you because of the return. Although that’s important, that’s usually not people’s primary factor. So if you’re saying it’s a 17% return versus a 20% return, but the 17% return is more conservatively underwritten, people are going to see that and they’re going to like that more than if you go man, I’m gonna get you a 22% return. While we gotta sell it absolutely top dollar, they’re gonna look at that hill. So it might not happen. Right. So I think you’re I think you’re right, I think you’re doing these things exactly the way that I would do them and that healthy fear. And I wouldn’t I would make sure that it’s healthy, I wouldn’t say fear. Yeah, but it’s a concern. Yeah. Because you want to make sure that you are doing absolutely the best for your investors, because they are your priority. And I see that. And I hear you say that, and, and even the steps that you’re taking now to renegotiate, to look at this a little bit differently and to do some other things, I think is really smart. And it shows that you’re being prudent with your thought process so that when you do involve others, you’re getting things going the right direction.
Yeah, right. And that going into that transaction, if we decide to move forward by No, I will have negotiated the best possible terms and two months from now I’m gonna be like, maybe I should have gone back. Maybe I could have reduced it by 100k. Maybe all that and, and as you said, like, it’s always kind of been my motto, especially talking to investors. I’d much rather under commit and over deliver, then do the opposite, and then look like a fool in the long run.
Well, because you know, here’s the other thing, you you, you know, and you understand Alex is is, you know, investors don’t want to have to go find a new person to invest with every time. And so what I found is they never give you your they’re only 50 grand, right? But they want to see you prove yourself they want to see you prove your track record. They want to see you continue to do it. And they’ll get to that point where the investments will get bigger. There. They have more confidence, right? I got I got a guy called $50,000. Rob, right. He’s in all my projects. For 50,000 I said Rob I told you to diversify. He said I did. I said, No, I meant like, go get other investments with other syndicators. He goes, No, no, you’re fine. I’m just going to invest in all of them. But, but it’s because he believes in me, right. We’ve worked together, we’ve had exits, we’ve had successes, and they see that. And, you know, you’re, you’re building that relationship. And when Rob got his first investment back, he was anticipating a 90% return. We missed that by a longshot. It was 39%. Right. So Rob was like, oh, what’s the next project? And then where’s the next project? And where’s the next project? And then he called a couple of his friends. And, and so exactly what you’re saying, Man, that and I think a lot of people miss that. Because there’s so hot to get a deal, that they’ll do anything they can, man, they’ll stay up late at night, they’ll drink the Kool Aid, they’ll massage the spreadsheet, they’ll make it say what it’s supposed to say, I don’t know how I did it, but I got it to a 19% return. I got it. Well, how are you going to do that? I don’t have a plan. Right? I don’t have a physical way to get that done. So I think, Alex, what you’re what you’re saying is very, very healthy. And what you’re wanting to do is to protect your investors. And make sure that when they walk away they go man, that Alex guy, I tell you what, man, he was paying attention. There were some issues, there were some concerns and I took care of them. We had the funds, he did his underwriting on the marketplace, everything in there was really, really good. And I would recommend them to everyone.
Right? And then to go back to the example of your you know, your 50k Rob there? Are these most of your investors, are they looking in your local community? Or because even one idea that I had was like, hey, you know, what, why don’t we move ahead on this project, investors that are here locally in Montreal, you know, once every three months if you want to come on site, and we’ll spend, you know, 45 minutes kind of touring. And so you can see where we’re at, see actually where your money is being spent. And then if you want, we can all go out for dinner. It was like, do you kind of mix and build a community? Are you really gonna bid on a transactional basis?
No, absolutely not. I try not to do a newsletter. I mean, we have cameras on job sites so that people can see what’s going on. I think we’ve got people in 23 states that are investing with us in more countries. And so and, and very few people come to see us, right come to look and physically touch. But those that do, I’m more than happy to take the time to do that. And the other thing is, they might know, it’s an open door, you can call me anytime, I’d be more than happy to meet you at the job site. We can make an afternoon, but we can go check it out. Because this is possible because of you. And I think some investors or some general partners missed that. Because they don’t, they don’t look at it that without my investors, you I can’t do it. Right. Without my team. I can’t bring value to them. But without them. We can’t. My plumber doesn’t work. It’s not that he doesn’t work. But you know, so there’s a lot of value back and forth. And I think a lot of people forget that. And they try to make it transactional. You know, I’ll give you an example for Christmas. My wife made it. My wife is very crafty. And I learned later that that means something different than what I thought when we were dating. I thought she was crafty. And then she moved in these big boxes of things that she makes all this stuff with. And I was like, a different kind of crafty, but that’s a story for another time. But she put together all these boxes that were Idaho products, they were local products. They were you know, all the different things that we’re known for around here and some candies and all this. And she shipped them out. Yeah. And the reaction by people was that they didn’t just get a stupid card. They didn’t get a Harry and David’s gift basket that came from Costco. That’s anonymous. Yeah, we really built that community. And so we’re doing another event in March, where we’ve got a bunch of our investors coming, we’ve got some things happening, we really tried to make that as personal as possible, because we need each other. Right. And so I think you’re on a really good track there where you’re saying, Hey, I’m going to be doing the walkthrough. And this is another thing that I do. We’re going to be doing the walkthrough with the bank on the fifth of every month. If you guys want to come and do the walkthrough, go through the budget line by line. We have a bunch of people show up on the first one. And nobody after that, right, because they realize that the numbers are exactly what Shannon said they were gonna be right. The walkthrough is kind of boring and dirty, right? I can see the same thing on the camera, but they realize that they’re always welcome. You know, that they truly are the reason that we’re doing what we’re doing and being as successful as we are. Yeah.
Well, that’s really good inspiration, man. Thank you so much for sharing that because it’s
Well, this is an interesting podcast because normally I’m the one peppering everybody with the questions. So this is a nice reverse. I love it. But you know, so When we look at what you’re doing and what you’re underwriting, and you’re making this transition from a condo, you know, that’s the gateway drug, right? You got together with your wife, you got an extra house, we got to keep the extra, all of a sudden next thing you know, man, you’re full blown addicted to real estate doing 17 unit, multi-level apartments, and this is this is your journey. Where do you see yourself? I mean, did you see yourself here five years ago?
No. And that’s and that’s the thing is that really like, we have two kids, a two year old and a four year old? And I pretty much
Wife has three children, by the way.
Yeah, I hate when she says that. But kind of it’s been like full time now. It’s been about three and a half to four years. And back in May 2019, we bought our first five units, the one that I partly renovated myself, and I would have never expected three years later to be looking at, you know, 16 units, new builds, and be able to do it. And since then, we’ve already done four on four, four projects. So it’s been very good. And I’m happy and proud of the evolution. And it’s not like oh, I want more I want more like we’ve stopped thinking people around us are like, oh, I want to own 200 units and stuff like that. We don’t care about the number of units, its flow, and its assets under management. That’s the only thing that matters to us. And our goal is actually like, you know, I just turned 39. We had this goal when we were 38 there were 10 million in assets by 40. And then 50 million by 50. I think we can do it. Yeah.
But you’re doing it the right way too. Because you’re not focused on a number you’re not focused on, you’re focused on a process, the cash flow, I gotta have the cash flow, once I get the cash flow. And the deal works, then I did it right. If it didn’t work, I’m not forcing myself to come to some conclusion, or making up a conclusion that I got to under doors under management. Yeah, but you know, 100 of them lose money. That’s not the point. That’s not the point. There’s that. Don’t worry about that part. Right. And that’s why I think people get into trouble. Right. So when you’re looking at it now. Do you think you set your goals high enough?
It’s a really good question. You know, what, 50 million in assets by 50 years old. So 11 years from now? I think we can ease? Well, I think it’s very attainable. It’s absolutely doable. My reality?
I almost heard you say it easily.
Yeah, easily, I think we can. I think we can do it. And at the same time makes
you believe that it’s easily achievable. Because we’ve
being able to increase the frequency of the deals and the size of the deals, and if it’s a snowball, it will grow bigger and easier. You know, what,
how much different are you doing in the first deal, you’re still finding the deal. You’re underwriting the deal, you’re making the things happen that make the deal complete, and you’re providing the cash flow. Right? Yeah.
But now we want to be able to, as you said, Fine package close, and then we’ll manage the downstream instead of doing it all ourselves if we’ll put it with a contractor who will have regular meetings and will pay regularly. And then once it’s stabilized, it’ll go into a management company, but we’re not going to be dealing with the tenants ourselves anymore. And really, that’s That’s our new process, and focus on setting this up. So instead of doing one or two deals a year, we could do five or six.
Well, and the other thing you look at to Alex is when you talk about professional grade, right? I mean, look, I manage my properties for a little bit. But then I hired people that that’s what they do all day long. And they’re not coming home from their other job trying to go to the store to get a water heater to go replace something. I mean it and what you’ll find is you’ll find that you’ll, your time is worth more money somewhere else. And now you’re freeing that up by duplicating yourself and triplicating yourself because you’re hiring professionals. And you’ll see that evolution where now you start to nail these processes down. And it’s not that you’re rich, it’s not that you, it’s that you value what you need to do. You’re focused on what you need to do, and you’re not so worried about what else is happening. Yes, they’re making money, they need to make money because you need good property management, right. But at the end of the day, you’re building that team that then allows you to go beat the highest best Alex that you can be to bring in more deals to make the whole downstream thing work. Yeah. And I when I and the reason I pressed you on your numbers, and pressed you on easily is because you are exactly right. Once you figure out the rinse and repeat process, it’s about adding to it but you still have to stay with your core fundamentals. Right. And you’re going to see that as you add investors, those investors are going to talk to other people. Those investors are going to add investors, you’re going to see new investors, you’re going to meet new people, new projects are going to come to you. I think that as this whole thing grows and builds you You’re going to see that become easier and easier and easier and easier. So I congratulate you for taking that hard right turn into construction and development. It’s not for the faint of heart. But I think that your approach is very, very smart. And I think that you’re gonna, you’re gonna have great success because I can see that you’re determined to do it. So, before we go, Alex, where can people find you?
Yeah, okay. So we have a website, it’s the real estate effect.ca Because we’re in Canada. And about a year and a half ago, I started a little podcast about real estate investing, mostly here in Quebec, but it’s really for everyone. And it’s called the very real estate effect podcast and we interview successful real estate investors and professionals who are experts in their niche. People are welcome to check it out anywhere they listen to podcasts. And otherwise, you can find me on LinkedIn on Instagram. Monique said, “For a very real estate effect shoot me a little message and I’ll be more than happy to connect with whoever wants to chat.So Alex, I appreciate you man. This has been a great conversation. And you know, it’s not often that I get to answer questions, but I really do appreciate you coming on the show. And being a part of the real estate rundown it definitely was a pleasure to have you. And for those of you that are watching the real estate rundown and do this often I want you to call or I want you to apologize. Leave us a review. Find us on Facebook, find us on Twitter, we’re in all the same regular spots. But leave us a review. Let us know what you’re thinking. Let us know who you want to see for the next guests. And join us again the next time on The Real Estate rundown. Thanks again. Alex. Thank you.
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About Axel Monsaingeon:
Axel Monsaingeon is a Real Estate investor, constantly looking for new multifamily properties. Host of the “The Very Real Estate Effect” Podcast focused on real estate investing in Quebec.
With a background in the corporate world with a demonstrated history of working in various industries ranging from consumer products to manufacturing. Skilled in Negotiation, Supply Chain Optimization, Analytical Skills, Operations Management, and International Trade. Strong operations professional graduated with a BA in Economics and Masters in Supply Chain Management.