Dream, Fear, Jump, Panic, Crash...Softly
If you already know me in who and are in the inner circle, then you know a piece of my Story.
And if you don't know me yet, allow me to fill you in on the gory details of dreaming big, taking a chance, being all in, and having every possible thing that could never negatively impact a real estate transaction happen (short of the building burning down - which honestly would have been a blessing at one point).
In Spring 2017, I was sitting at a real estate action group when a particular investment opportunity presented itself during the three minute elevator speeches. I'm sitting at the back of the room, and this particular one, my interest. The reason it did is because the year before I had purchased a duplex with two additional suites, and had began operating it for longer term stays, furnished. While it was a lot of work getting it up and running, the profits were substantial compared to offering the spaces unfurnished.
At the time, I was also feeling very unsatisfied overall in my life. I wanted more. I wanted to make it bolder statement, stretch as a human being, and grow as a businessperson – I just didn't know what exactly was looking for. But when this opportunity presented itself, I knew it was the answer.
In October 2017 I became the sole owner and operator of the $7.3 million asset in rural Pemberton BC. This was a huge undertaking in itself, but it was also a strata hotel and commercial mixed use building. Like I could not have taken on a bigger project if I tried.
If you know anything about mortgage underwriting, then you would know that strata-hotels are not favoured by lenders and especially not in secondary/sub markets. Can you help?
I began the operation as initially planned, marketing and selling each condo unit individually to owners that want to operate their own furnished accommodations. Meanwhile managing the day-to-day operations of a nightly rental business for 22 units, a poor in-place manager, and being three and a half hours away from the site which meant I had to do everything remotely.
Within the first 30 days, we had five sales and over $1.1 million sold. However the following month, we had the worst occupancy and revenue reported in a single month for the past three years. Discovering this, I completely felt sick and panicked, wondering if I had represented a bad product to my investors. At the same time, it was discovered that how myself, the seller, my lawyer and my realtor interpreted the bylaws, was different than how the village of Pemberton interpreted them.
You see I always thought, and marketed, that we could have short-term rentals and owner occupants living in the building at the same time. However, it was discovered through a one word fine print of the definition of a dwelling, that in fact that wasn't the case and I had to choose one or the other.
This time he could have not come at a worse time, because I had to make a decision. Being inexperienced and rather reactive, I thought that I needed to make a decision rather quickly. While this was true because time was money, I could've allowed myself a little bit more time to process. Here’s what was going on in my mind at the time:
It is hard to find that strata hotels in rural areas;
How am I going to manage the operations and price control the rental rates when selling to investors?
What if I am stuck in this project managing it forever? How will I be able to move on one day?
The market is so hot right now for owner occupied spaces;
There is not enough housing for Pembertonians and we are entry-level pricing.
Based on these thoughts, the fact that we just had a terrible revenue month, and financing options for potential buyers was proving challenging; I decided to collapse the sales we had and re-launch the condos as owner occupied.
Hindsight insight: had I waited another 30 days, I would've realized that the terrible income month was just a one-off, because the following month being December, we had the best month ever under my management bringing in $75,000.
The remaining of the following 23 months were a theme of adversity, overcoming challenge after challenge and grinding for every single sale we got, averaging one per month. The irony of it all is that the very thing that I feared, and self-sabotaged, was what I ended up doing (managing the units for 2 years) just without the profits I could have earned in my bank account.
Here's a summary of what took place:
Changing the use of the condo triggering GST payable;
Bringing into the laundry to the entire building after being built – $65,000. And then having only one person that wanted it;
Getting the village of Pemberton on my side to allow me to rent out the unsold inventory as nightly rentals, to pay the bills while we transition as a whole, to residential building;
The implementation of the Stress-test eliminating most of our buyers (first-time buyers);
Renovating a show suite to showcase what the units could look like, and two other suites, grossly over paying for labour, only to have the show sweet be one of the very last units to sell, and one of the renovated suites be totally gutted by the new buyer;
Learning an entire hotel management system on-the-fly, and understanding the nuances of the day-to-day operations, so that I could fire my inherited building manager;
Having the project take longer than expected and paying 8.95% on $2.4 million + 15% on $500 for an entire year - plus incur additional lender/broker fees;
Having my realtor quit;
Bed Bug Incident;
Dealing with a structural warranty issue;
Adding lockers to the building
Implementing Strata and being on Council;
Having my cleaning staff quit one day with nightly bookings still in operation;
So the fact that this was my very first experience as a developer/project manager, it means that I can only go up from here. It was one that was truly character defining, ego altering, bringing me to my knees sick to my stomach, fear mongering, confidence building, empowering, and full of pride.
And while there were very grim and dark moments, progressing one step at a time, it turns out that this venture was still profitable while retaining 6 strata lots for our own portfolio and may have changed the entire course of my business life.
That’ $1000 Celebratory Meal
Mentor, Lender & Partner David Beckow