You’re listening to Your Happy Place Podcast. Each week we will be bring you interviews with real estate experts and investors. The show features interviews and discussions on real estate, investing and inspiration. With your host Jenna Ross.
Jenna: Today on the podcast I am so pleased to have Marty Crouse from Phoenix Financial here with me. Welcome to the podcast Marty.
Marty: Thanks Jenna, happy to be here.
Jenna: Tell us about how you got started into your business at Phoenix Financial.
Marty: Well Phoenix Financial I started about 8 years ago a little over 8 years ago. Basically it came about from a little word of mouth of somebody I knew and respected very much in the finance business who was doing a similar thing in New Brunswick. A little background I have about 22-23 years experience in finance now. I started in the call centre with RBC in Moncton and worked in various places around the world with RBC. I came back and did a little bit with TD and decided I wanted to work for myself with all the ups and downs it has with it.
Jenna: It is always an adventure. I remember when you first got started in the business and it’s been really exciting to see it evolve and certainly myself and Greg are your biggest fans and we have enjoyed investing with you over the years. It has been really great. Can you tell us how can real estate investors if they have money they want to lend out, how can they get involved in private mortgages?
Marty: Well there are a few different ways. I would be the first to say I am not the only game in town(but would like to think one of the better ones). |You can invest in private mortgages is you have cash, if you are one of the few people who have cash laying around, hmm but if you also have RRSP’s, ESP’s, RIFTS, TFA’s, I am a huge fan of TFA’s for many many reason but for the private lending game for TFAs you don’t pay tax on the return that you get. Even when you take it out that is the best thing you can have for big returns gain. Even RRSPs it’s great you don’t pay taxes at the time but when you take that money out later you are still paying tax on it down the road.The only true tax free thing we have is a tax free savings account. I am a huge fan of that for higher yield investment.
Jenna: Yes, that is really cool and I know for Greg and I we got started with RRSPs which has been really good a nice way for us to have that money growing and it has been really good for us. At one point we had looked at going RESP and I was trying to build up my daughter’s RESP to get it to $10,000 and I thought I ok I am going to invest in one for stock and that will do it. Well like I know you are chuckling and then 4 years late, 4 or 5 years later I was still investing in that same stock. I don’t want to lock in a loss and to me that just proves a point that a lot of people looking from the outside will kinda think this was a private mortgage business and short term money lending is risky but the stock market can be terrible worse than risky.
Marty: Yeah. I will be the first to say there are lots of risks involved in mutual funds, stocks and in private lending as well. There is always going to be risks and any body telling you they are selling something with no risk they are lying to you or they don’t know what they are selling. One or the other.
It’s a different risk. It’s backed with the security of the home or sometimes it’s ? that type of thing or sometimes both that type of thing. Besides the fact that is is backed it is also some body’s home normally too so there is a little bit more involved there with somebody wanting to pay their mortgage than there is with a CEO wanting to make sure the stock goes up by .4 cents. So it’s definitely a lot more emotionally involvement on the end of the borrower as well.
Jenna: For sure. What are some benefits that your investors receive when they do investment private mortgages?
Marty: There are lots of different ways it’s done around the country and even North America in that matter. I am a little different I guess to that as I deal with generally smaller mortgages. I have a bit of a niche market. A lot of my mortgages are in the $50,000.00-$60,0000.00 range. Some of the bigger players in the game as I was saying don’t even get out of the bed for less then $125,000.00. I’d be happy to do less then $125,000.00 all day long.
What that does it gives small investors a larger piece of the pie first off and it gives larger investors several different pies if they are looking to invest. It keeps you from having as they say the old adage of all your eggs in one basket. It doesn’t have that generally you split it up with different mortgages, it gives you a little less risk even if something does go bad and somebody loses their job and you have four mortgages, most likely the other three people didn’t lose their jobs as well or something to that affect.
The big benefit everyone likes and their eyes light up is the return on the investment. I like a couple of things about it personally. The return on a first mortgage is no less than 12% interest, on a second mortgage usually starts at 14%. As many of you know a second mortgages are a little bit more risky and if some thing does happen the people who have the first mortgage get paid out first then the second mortgage. If for some reason there is not quite enough money left then the second mortgage person is left out in the cold but to litigate that we don’t lend more then 75% of the value of the home. There are a couple exceptions here and there but that is a pretty general rule. That way if something happens and the house has to be liquidated in a quick fashion you can lower the price and you will sell it for 80% loan value cover all the cost and every body gets all their money back.
That being said I have fingers crossed and knocking on the table here that it hasn’t happened yet, there hasn’t been a liquidation yet. I will be and you have heard me say this before I will be the first to tell you, it is going to happen. At some point there will be a property that has to be liquidated. There is nothing that I can to do to litigate certain things like job loss, illness in the family, there is probably a couple of others as well but those are the two big ones. I hopefully are setting the people up for success so it those things do happen that they can weather the storm. But sometimes there are bigger storms then what we are prepared for.
That 12% rate is great for the investors plus there is a set up fee as well. Generally is it 1 1/2-2% of the total mortgage some where in that neighbourhood. And also if it goes a longer term then one year generally the fee is a little bit higher because these are set up to be shorter term one year investments. Sometimes they are six months, some times they are two years, a year and half what ever term fits the deal best. If I write it down on a mortgage and the investor signs it and who ever signs it it is good it doesn’t have to be a five year term like you get at a big bank it can be fifteen months or what ever.
Jenna: That is awesome. We certainly enjoyed it and what a tribute. It says a lot about you to say that you are obviously taking great care and we know you personally. We have had conversations so we know that you really do take care so that fact that you haven’t had any of your mortgages default is a big deal and like you said it’s just life you can’t win them all. It will likely happen in the future if you lend out money long enough it is just going to happen. That’s just the way the cookie crumbles.
Marty: Yes it is. I do a lot of work up front. I talk to people a lot, I look at the situation and I ask probably more questions then most people do. Sometimes a broker will day, “Do you really need to know that?” Yes I do actually. Sometimes it is a little tiny detail that can give me insight. I do a lot of the lending or at least recommend based on the character of the borrower. It’s one thing to say the person has the ability to pay it back but if they don’t feel like paying it back it doesn’t matter how much ability they have.
Jenna: Right. It’s interesting because you are dealing with alternative mortgages and
Alternative situations that it’s a lot of people coming that may not be approved by a traditional bank so you have to at it from a different lens for sure.
Marty: I think the reason why I had no deals go bad is because I look at every deal as it is going to go bad and work backwards from that. I do a lot of what if questions to the brokers when they reach out to me, to the clients when they are asking for money. Ok what happens if, what happens if? A lot of times I will talk the person into borrowing a little less then what they wanted because they were looking at doing this and that and you know you can do that for 5% why would you want to borrow money for 12%? That doesn’t make a lot of sense.
I get people borrowing money to pay off their student loans. Student loans yes they are long term and you are paying forever but the interest rates are usually quite reasonable. So we paying them off for 12% doesn’t make much sense to the borrower.
When I explain that to them they are like hmmm yeah that makes sense. A lot of people don’t look at that when they come to borrow money. They don’t look at what they are paying off they just want it gone. Ok that’s great if it is gone but it isn’t gone it’s just moved some where else so moving it some where else and paying a higher interest rate is not a good idea.
Jenna: No, not if you an avoid it, it’s not good math. What are some situations that you see real estate investors wanting to borrow for private mortgages for their deals?
Marty: There are a few different scenarios. One of the buzz phrases that we are hearing a lot about is the BRR, buyer rehab rent it and repeat. That has become a definite positive in my field especially if you are some body who has a track record and has a couple of properties already. You know as a real estate investor after a while the bank likes you a little less and a little less because banks don’t like complicated.
They don’t like things that aren’t in a little tiny box all wrapped up. I don’t have any boxes. That is one of the things that attracted me to this business. When I was in the bank I had a check list of things to follow. Those things had to be followed and had to be followed to the letter. Where as I look go ok if say if I just move this over here and move that over there this works perfectly but I was never allowed to do that. That is one thing that I really like about what I do. I can fit the loan or mortgage for the scenario that it is being borrowed for. So for rentals that is a great one.
I have also done a few flips. I am in the process of doing a flip right now actually.
I am really careful with flips. Every body wants to buy their property and have me finance the entire renovations which works out fine if it a decent size property with a small renovation or an average size renovations I have some people buying smaller properties, ripping them to the studs and expecting three times what is actually worth right now. Well that is really good for the borrower but not nearly as good for me and the lenders. I really mitigate that risk and make sure very similar to what the bank does with a new build I do draws. The first thing you normally want to do is fix the roof to make it air tight go give me a quote for the roof or if you are doing the work yourself give me a good idea of what it is going to cost I will release an x amount of dollars and when those things are done then I will release the next draw and the next draw. That way I protect my investor in particular that they don’t own a property for $50,000.000 that is currently worth $27,000.00. If the guy decides to leave town with an empty shell that is not so good for the lender so I make sure that money stays in the lawyers trust account as long as it needs to.
Jenna: It is interesting. I know after doing a flip last summer with Greg and the joint investment partners you just don’t know. You hope it’s going to sell but what if it doesn’t sell. They have to have a good plan B a good exit strategy and you to trust that they know what they are doing. There is that too they are good at managing the project and that they have a good plan.
Marty: For sure and that is where I get in to that what if asking again. What if it doesn’t sell in 12 months like you are expecting or 6 months or what ever it is. Having done a flip yourself you know very few parts of the flip or the flip itself comes in on time first off and when some one tells me 6 months I tell them at least 9 normally. If they tell me a year I tell them a year and a half. I lend the money based on that so that there is no way confusion at the end of 12 month and it is no where done and there is no possible sale for awhile that there is not a problem with the investor either. I prepare everybody for the long term scenario.
The best part about the money that we lend out is that it is interest only and it is an open mortgage. That way if we lend it for 18 months and they finish it early and they find a buyer for it in 15 months fantastic. There is not penalty for getting out of it early. It benefits them actually to do faster work and get done and get it moved on rather then dilly dally last minute and saying well I am paying for this anyways and that happens in the banking world for sure. Hey you have three weeks left to finish 80% of your house good luck. But in this case people are usually, usually getting out of things a little bit earlier. I have a couple of really good brokers when they are refinancing sometimes they hold them as well and rent them and refinance comes into play and I have some real good brokers who will refinance them and get them into a credit union or something like that and in the area that will look a little more favorably at a new rental.
Jenna: The funniest thing that Greg and I kinda looked at last summer when we finally did the project and we put a rush on to get it done as soon we possibly could and then we realized two that real estate investors who also run real estate businesses that we have zero patience. Like why hasn’t it sold in 24 hours? We have no patience and it was really funny. Thankfully it turned out well but that is so interesting. How would investors, say we have an investor listening and they would like to dip their toes in and maybe do an investment with you. Can you walk through how they would get started and getting their money set up to invest?
Marty: The first thing to do is obviously contact me. I am available 24/7 and my phone is always about a foot less away from me. That is basically my office where my phone and laptop are.
Once that happens I talk to people and I kind of did earlier I talk to them about the risk. This is not a piece of cake. This is not something where you just sit back. After you get it invested I am going to do 90-95% of the work probably. There may be a couple of key decisions along the way but generally you know it’s kind of what I call set it, forget it until it is almost time to renew or pay out.
Once they get a hold of me I will talk to them about how the business works. Where there money is located like is it in an RRSP or something registered or is it cash. If it is cash the scenario from there is a lot quicker. It is pretty easy to deal with cash still. What happens after that after the investor decides that yes I want to dip my toes in this. I will get them on my list, I have a list of investors an basically just rotate. As soon as some body is paid out they go back on the list and you know as you have gone through that process a few times. Occasionally it works out perfectly. You have almost the exact amount of money for the new one I am looking at, that is perfect. It doesn’t always happen that way as you also know some times it’s part of a new deal or half of it or something like that. Sometimes it’s a bit more for a new deal and we will look for two new deals. Once that happens I will go over a new scenario. I don’t tell anybody the clients name or tell them exactly address of the property for privacy reasons, coming from the bank privacy was drilled in my head for many years and keep adhering to that. I will give them the area that it is in. I will give them the scenario as the person works in x industry, here is their credit. That type of thing not their credit report but their credit score and how long they need it for. What happened and why do they need this money.
If it’s are a real estate investor that is pretty easy scenario. The bank doesn’t doesn’t want to lend them any more based on this is their 9th house something like that. If it is someone borrowing to pay off bills that is always my first question to the broker, What happened? Why do they need money? Brokers just give me numbers a lot of times. Not the ones I deal with on a regular basis because they know if they answer that questions it’s the first one that I am going to ask but some times they will just send me numbers and say hey they want to borrow x amount of dollars for this amount of time blah, blah, blah. OK so why do they need it. I through all of that and then I pass it along to the investors so that they can make an informed decision whether this is some x scenario they want.
The numbers are one thing and the numbers have to make sense. Just because the numbers make sense does not mean that the deal makes sense. I go through that and if it is a registered product RRSPs, RESPs, TSA etc. I personally deal with Olympia Trust out in Calgary for all mine and I think all my investors do. It is not mandatory by any means but I know them very well now because I have been going to them since I started the business. Their customer service is exceptional like everyone else they make mistakes here and there, they fix them. I make mistakes, you make mistakes. I judge customer service not by making mistakes but by what you do when you make a mistake, That way you know what you are dealing with and they have been doing an exceptional job out there. It is not mandatory to B2B bank is another one who does it in Canada. There is only a half dozen or so, I know there are a few more that do it at all.
The bank seems to consider this competition, it’s totally not competition because I am doing something that they won’t do to start with and in some cases I am actually saving their mortgage by paying of their other bills. It’s actually a complimentary product. Down the road I expect that every bank will follow if the government allows them to will give themself a public lending arm. I know the Credit Union has bought a private lender themselves, one of the credit unions. They see the benefits and they say we got this scenario it doesn’t fit our guidelines but it does fit the guidelines of this company. I suspect that some day down the road it will be a little bit more, I won’t call it acceptable but widely known and widely used which I think is good for the industry as a whole as long as it is done reasonably.
Jenna: Exactly. I think and we certainly have had good luck with Olympia Trust in the past so I think they seem to be a good one. We never had an issue with them. It is surprising to me as I never really thought about it that the other big banks don’t play into that game, so they aren’t allowed. Is that what you are saying?
Marty: I believe that I the case as they use to, sorry I didn’t mean to cut you off. When I first started I was opening an account with TD to do it. TD self directed did it and as I was in the process of starting my company they called me and said “Oh we no longer do private lending.” Oh ok, I have an empty TD account that has never had a penny in it, they just never closed it but it is still there. That is when I sought out other companies and knew a couple of people in the industry so they pointed me to Olympia and that has been a really good choice.
Jenna: That is so great. How has your business faired during the COVID pandemic?
Marty: That is a very interesting question and I know that in particular the Halifax real estate market as you know has still kept plugging away as strong and in some aspects stronger during COVID. My business has been the same. I am currently probably the busiest I have ever been and I will be totally honest I was expecting a lot of terrible deals just because people were bailing on their current mortgages, that type of thing. I haven’t got any more of those then I ever do. Occasionally I get some that are yeah no this doesn’t work at all but as we kind of discussed before we started recording here the witness test will be a few months down the road probably to see how people have weathered the storm.
The business has been really really strong. I think people are looking for with the current dips in the markets. The market has had great days and it has had much less great days over the year or so and if you are able to go through that volatility and it doesn’t bother you, you are a strong person first off because even the people who says it doesn’t bother them they are the people looking at it constantly. Don’t get me wrong I know the ins and out of mutual funds and stock market and stuff. I have worked in the industry myself even when I see mine going down most of me is saying that’s all right no problem I am not using it right away but the rest of me is saying dear God come back up. Jenna: Exactly. Marty: You have to be a very strong person to just close your eyes and walk the other way when you see your funds tanking but the good news about the mortgage part is that yeah there are missed payments here and there, there is no question about that but first the first thing I do when a missed payment happens, if it happens to an investor I don’t get the investor to contact the
Borrower I get the investor to contact me. I go to the borrower and ask them what happened? Honestly, probably 3/4 of them is I thought I put my money in on time but I put it in 2 hours after the bank machine closed, something like that.
Those are probably at least half if not 3/4. Generally they are honest mistakes sometimes I will get a notification from the borrower and it will say listen I am not able to make my payment and I will say”you should have called me five days ago”. If they do generally the investors are pretty good at saying yeah don’t worry about it hold the payment off for a couple of days so they don’t bounce it. If I don’t get enough notification I can’t do that. I do my best to do it and that is why I tell my borrowers keep the lines of communication open. If I contact you, you answer the questions because if it is a one off thing great, if it is a continued problem I will work on it with them as well. It is something that doesn’t do anyone any good that I want my money now or else well then you have a property that you have to liquidate and that generally is not the point of these investments.
Everybody has to be prepared for that to happen. But myself and the investors generally don’t want to do it either. If it is an empty property or rental, hmm ok that is a little bit more palatable but if it somebodies home, you know last resort is to foreclose for sure. There is a lot of massaging you can do before that, there is a lot of hey listen how about you missed two payments how about we chuck an extra $100.00 biweekly or something like that for the next little while until it is caught up. It doesn’t help anybody to say I want the payment again and I want it tomorrow as you know renting places that is not always possible either.
Jenna: I was just thinking about the similarities between what you go through with your borrowers and tenants, it is similar. We will work with people when they have and I know you have said in the past too you care about that there are some reasons like if somebody got sick and you run into financial difficulty because of that, well that is a good reason to do that. Or you lose your job well these things happen. It’s all about communication and nobody wants to be chasing people for money and being chased for money is just awkward so if that can be avoided then that is the thing that you want to do.
Marty: No question. I do this to make money. It’s my job, it’s my living, same as you do what you do and everyone else does what they do for a living. We do it so that we can pay the bills. The other reason that I do it and it is a close second is I really like helping people and educating them as well. Most of these people are in financial difficulty because they didn’t understand what they were doing or they were flat out given bad financial advice. It happens all the time, sadly.
People tell me oh I did this and I’m like oh ok. Why did you do that? Oh the person at xy finance company told me to do that. Oh great, ok here is what we are going to do now. That is a big part of it. I really do like helping people out. I don’t want it to seem like I am all just outerism but when you can somebody probably I have had favorite deals over the years. One of them was a guy who called me in the middle of December who’s house was going up in the newspaper the next week and was going to foreclose the 5th of January. I went to his house and we sat down and talked. He had illnesses on both ends of his family. One of his parents and his son were ill at the same time and he was looking after them all. Jenna: Awful.
Marty: I sat down at his kitchen table and we chatted for an hour or and hour and a half probably and after I said “you know what? I am committed to doing this but I have to find the right investor for it. I am committed to doing this. He looked at me and said “well I have a question?” I said yeah he said, “should I put up the Christmas tree or should I be packing?” He stabbed me in the heart a little bit I will admit it. I told him put up the Christmas tree, take a picture of it and send it to me which he did. One year later his mortgage was moved to a bank. He called me and thanked me and thanked the investors as well and it gives you the good feelings for sure. I can’t do deals just because somebody is a great person but it helps. It helps.
Jenna: It helps. My gosh to save somebody from how difficult is it when you are taking care of two generations of people who are sick and you are in financial hardship right at Christmas. It’s like wow yeah. It’ a good story. I like it. So Marty, Where is your happy place:
Marty: My happy place. Well you know I am a bit of a golfer. Not a good one but a frequent one. I do love going down to Florida the Orlando area either with the family or with the guys golfing. I have been there quite a few times and if they get less then 4 thousand people a day getting COVID I may go back some time but.
Jenna: That would be nice. I should have thought that for you, golfing. Yup that’s a good one for sure.
Marty: This summer probably the happy place would have to be somewhere definitely in Nova Scotia but hopefully maybe Cape Breton or somewhere like that. Jenna: Very nice. Yes Cape Breton is so beautiful. And where can our listeners go to to find out more about you?
Marty: I do have a website, it is www.phoenixfinancialinc.net it is a long one. Also they can contact me through my email as well email@example.com that is the best one to get me at. I am always available even if it is just questions I don’t mind. I love what I do. It’s a huge part of my day. It’s not just my day, it’s my weekend whatever I don’t mind answering questions. They are no bad questions unless you ask me the same one five times, I may not pick up after that. I am happy to help people with just ideas as well. I am happy to say, “you know what, that probably is not going to work. Maybe try something else or here’s some suggestions”. I don’t mind that at all and I don’t mind people bouncing ideas off me.
Jenna: Awesome. Well thank you so much Marty, it ha been a pleasure.
Marty: Well thanks Jenna. It has been a pleasure as well and listen I want to congratulate you on your success you have had with your property management and with this endeavor as well. Since I have known you, you have changed your career a little bit well a lot since I have known you and congratulations.
Jenna: Thank you Marty, that means a lot. Thank you. Bye
Thanks for listening to Your Happy Place Podcast. Please subscribe to our podcast and leave us a review so that we can get our podcast out to more listeners. If you would like to contact us please send an email to firstname.lastname@example.org
- Episode 1 Podcast with Jenna Ross
- Episode 2 Podcast with Greg and Amanda on Real Estate Investing
- Episode 3 Podcast with Tony LeBlanc from Doorpreneur
- Episode 4 – Scott Gannon from MGM Wealth
- Episode 5 – Daniel St-Jean discusses “Rent to Owns”
- Episode 6 – Jordan Hipson on Vacation Rentals
- Episode 7 Podcast with Landlord by Design Mike Currie
- Episode 8 – Real Estate Investor Juleanna Freeman
- Episode 9 – Pilot Dimitri Neonakis and his Uplifting flights!
- Episode 10 – Real Estate Investor Mike Burgess
- Episode 11 – Interview with Sunil Tulsiani
- Episode 12 – Let’s talk private financing with Marty Crouse
- Episode 13 – Investor Sean Kearney shares his journey with us