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Show Summary
In this conversation, Key Feusner, a real estate investor, shares insights into his investment strategies, focusing on the ‘missing middle’ in real estate. He discusses the importance of property management, the golden rules of investing, and the significance of location and amenities in property value. Key emphasizes the need for a buy-and-hold strategy and the challenges of managing properties from a distance. He also highlights the importance of understanding market trends and the impact of new developments on property values.
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Investor Fuel Show Transcript:
Key Feusner (00:00)
No, I actually recommend that small mom and pop landlords like us just avoid the blue states like the plague because in Los Angeles, they’ve made it so, for example, in Los Angeles, they made it so ridiculous that it’s landlords are leaving and they increased, they made a new rule that tenants have to owe at leastthree times ⁓ the area average rent or median rent in order to be evicted.
Dylan Silver (02:08)
Hey folks, welcome back to the show. Today’s guest, Key Feusner is a real estate investor in Toronto, Canada, investing in several markets in Canada and the U.S. Welcome to the show, Key. Thanks for taking the time today.Key Feusner (02:20)
Thank you for having me.Dylan Silver (02:22)
Now, when we talk specifically about the niche of real estate investing that you’re involved in, you’re in Canada, in Toronto, but you’re not just investing up there, you’re also investing in several markets in the US as well.Key Feusner (02:36)
That’s right. I ended up specializing in what’s called the missing middle in Toronto. ⁓ I mean, I live in Toronto, but I invest in markets in ⁓ Alberta, Saskatchewan, Florida, Texas, and California. And the missing middle is basically small multifamily unit projects between say two to eight or 16 units. And so they’re justsomething a hybrid of between a single family home and a high rise. And the thing with this is that I really like this niche because you kind of have ⁓ properties that need less maintenance because you don’t have to have like a janitor cleaning the common hallways in an apartment building and you really just need someone to mow the lawn on the outside.
Dylan Silver (03:30)
Now, when we talk about this space, townhomes specifically, is the strategy generally to buy and hold these long term or is the strategy to have a five year window of period where the property is gonna appreciate and then you sell it that fiveKey Feusner (03:47)
Well, for me, I’m a buy and hold investor. So I hold forever. My first property I buy in 2012 and I ended up selling it in 2023 because of Los Angeles is very anti-landlord friendly, anti-landlord policies. And so I’m phasing out my investments in Los Angeles and moving to more landlord friendly states likeDylan Silver (04:06)
Yeah.Key Feusner (04:15)
Texas and Florida. And I plan to hold this fair.Dylan Silver (04:18)
Now,we talk specifically about investing in some of these other markets, you mentioned Texas, Florida, you’re up there in Toronto, and I know you’re in some other markets as well in Canada, how are you managing these properties from a distance? You must have either boots on the ground or I’m imagining someone who’s there assisting you.
Key Feusner (04:38)
Definitely. I have property managers in all local markets in which I have real estate. I do not want to have to deal with phone calls from a tenant and I’m more than happy to pay their fees so that they will take the call at night and I could just focus on managing my portfolio and looking for new deals andfocusing on how I could refinance deals to take money out to buy more.
real estate or save money by getting a lower interest rate. There’s always a million things you could do if you’re not actually managing your properties.
Dylan Silver (06:02)
Now, I wanna actually get a little bit granular here if we can. You mentioned refinance. When you’re doing a cash out refinance, and I’m asking this question because I’ve had someone here on the show recently who was talking a HELOC versus a cash out refinance. Have you used both? Do you have a preference for one or the other? And when is a good time to do some type of restructuring?Key Feusner (06:29)
Whenever you have equity to take out, I want to have the least amount of equity in my properties as possible for multiple reasons. for example, it lowers. I haven’t seen this, but this is the mindset that investors have is that, say, heaven forbid someone slips and falls on your property. And then they fear that the lowest hanging fruit is to go after is your house.So they’re going to sue you for your house. But it’s an unsavory option if the bank owns 80 % of your house. So that’s why you want to, plus you want to take that cash out and redeploy it so that you could grow your real estate portfolio.
Dylan Silver (07:15)
Yeah, now when we talk specifically about you know town homes, are you finding these deals on market? Do you have a realtor there that you work with or is this something that you’re you know very much like reviewing deals and underwriting deals on a daily or weekly basis?Key Feusner (07:32)
I’m mainly looking for turnkey real estate providers. And the last property I bought was from a company called ⁓ Build to Rent. And they specialize in ⁓ selling properties to investors that are basically brand new construction and already have like an in-house management. ⁓They also can connect you with financing. And so it’s like a basically a one-stop shop for investing. And you just choose what market you want to go into and which properties you want to invest in. if they have a range of single family homes and ⁓ small fourplexes, and some of them have a little bit larger.
Dylan Silver (08:28)
Now, are you buying these properties typically unoccupied or will they ever have a tenant in them? Tenant in place.Key Feusner (08:35)
done both andThere’s pros and cons to everything. Like for example, if I’m really picky about who I want to place in my property, so I have like this criteria for tenants of what kind of profiles they must have. Like for instance, they must have 700 credits for no history of eviction or debts ⁓ and they must make at least three times the income. Whereas like if I bought properties that were
that had existing tenants and those have been hit or miss. Like sometimes those people ⁓ have a really bad end up vacating the property without, ⁓ without paying. I had a guy midnight move in the middle of the night and, I pursued him through collections and I’ve had other people who, when I took over, like they defaulted right away.
Dylan Silver (09:33)
Yeah, that’s a difficult thing to encounter when you are inheriting tenants. I do wanna pivot a bit here. I know that you actually have some slides ⁓ based on your investment strategy that’s been working for you. If you wanna go ahead and share that.Key Feusner (09:49)
Yes.So I have what I call the golden rules of real estate investing. And golden is spelled with two Ds. And every letter stands for something to look for when you’re investing. the first
is the G. G stands for growth. And it could be any type of growth. It could be population growth, which actually goes hand in hand with economic growth and job growth.
And so here I have a slide of the fastest growing cities in America, led by Austin, Raleigh, North Carolina, Orlando, Florida, South Carolina, Charleston, South Carolina, Houston, Texas. So if you are anywhere in these, I suggest like, this is a good starting point if you don’t have any idea of where to invest.
And I do a lot of research on ⁓ demographic research, just like reading news and ⁓ about population growth and where are ⁓ companies investing. And for instance, the biggest driver of growth right now is AI. So in ⁓ Alberta, they’re building new AI data centers in Alberta. And it makes sense to build it there because that’s where the cheapest land is versus Ontario.
And so here I have a chart, a list of the cities that have ⁓ the fastest growing AI investment hubs. on it in the US, you have Seattle, New York, Washington, DC, Boston, and Atlanta. And I was really surprised by Atlanta.
Dylan Silver (12:04)
I wanna pausethere. I do have a question that came to mind looking at this. As I’m looking at this, these are, I’m looking at Seattle, New York City, Boston, right? These are major, major metros, not necessarily the most known to be landlord friendly. What’s your take on investing in those markets? Would you personally be looking at investing in the greater sprawl, the urban sprawl of New York, of Seattle, of Boston, of Atlanta?
Key Feusner (12:34)
No, I actually recommend that small mom and pop landlords like us just avoid the blue states like the plague because in Los Angeles, they’ve made it so, for example, in Los Angeles, they made it so ridiculous that it’s landlords are leaving and they increased, they made a new rule that tenants have to owe at leastthree times ⁓ the area average rent or median rent in order to be evicted.
And you can’t even file for eviction if they’re like one month rent late or two months. They have to be three months rent late now. And you’re never going to see that if somebody is going to live there for three months for free. And then it takes you another month to get a court hearing. And then it takes you another two months for the sheriff to lock them out.
Dylan Silver (13:11)
Yeah.Key Feusner (13:33)
So in markets like that, tenants know how to play the game. And so they are, there’s all kinds of professional tenants just milking the system and taking advantage of landlords because they know that they will, landlords will just opt for giving them a huge cash for keys payout just so that they can leave right away versus having to deal with them living there for five months and going through the legal process, if not longer. And I’ve had to do that with one,woman during COVID. I’m so grateful, but she asked for $5,000. She said that she could leave in 30 days, and it was a typo. She said she was going to leave in three days. And then she’s like, I said, how much will it take for you to leave in three days? She’s like, $6,000. OK, done. I paid it. She had me buy the balls. Like, what am I going to do? She was making my life hell.
Dylan Silver (14:29)
What do you do?Yeah, let’s get you out of here faster. You know, that’s one of these situations and you mentioned it, right?
when you have these processes that can drag on for so long, I’ve actually spoken to ⁓ an attorney in Seattle who is talking about, yes, you do have increased rents in some of these areas, but you potentially also have to be prepared for this property to have a squatter in it for a year, maybe longer, right? And so, yes, you do have higher rents, but you also have this risk of…
⁓ default and then someone staying in your property without paying while you’re waiting for the legal process to pan out.
Key Feusner (15:51)
Yes. So continuing on with my presentation here, the next the next letter in golden is oh, and I look for neighborhoods in which there’s a ratio of owners to renters of 75 % to 25%. So the logic here is that you want to have a neighborhood in which there’s more owners than renters because owners havevested interest in maintaining their properties and ⁓ driving up the property values. Whereas renters just kind of see their neighborhood and their house as like a consumer product, then they just really don’t care about like throwing trash on the lawn or ⁓ doing anything to improve it. Like, whereas say, for example, in my neighborhood in Los Angeles, the local residents fought really long and hard
do have the neighborhood converted into a historic preservation overlay zone. And that really drove up property values because that limits what kind of developments could take place in that neighborhood and how people can modify their homes. And so that just makes it more desirable for people to want to live there. And so you have faster appreciation that way.
Dylan Silver (17:14)
Yeah, absolutely. I think those historic districts are great and whenever they happen, it seems to really have a cultural impact too.Key Feusner (17:23)
Yes, and then the L stands for location, location, location. So I do an in-depth dive into the natural disaster risk of an area, especially you have to do this given the hurricanes in Florida and the wildfires in California. Florida is a great state to invest because there’s a lot of population growth, but I don’t want to deal with having todeal with hurricane risk, even if you have a brand new construction that is hurricane proof, like with, you know, the new cinder block walls and hurricane proof windows and everything like that. It’s that if the, it’s an hurricane prone area and you will have higher ⁓ insurance prices throughout that entire area because they have to offset spread the costs of the insurance for everyone. And same with the wildfires.
in California. Insurance rates have gone up across the board in California, even in areas that are not near wildfires, just because they have to spread the risk. And I even had trouble finding insurance for one of my properties that’s in the middle of the city, because the insurance companies now are ⁓ limiting how many people
how many homes they’ll invest in an area so that they can control their risk. Yeah. And so I also look at crime maps like ⁓ on areavibes.com because I don’t want to deal with break-ins or having people move out all the time because of their fear of crime. And this is something I failed to do when I bought my first property. I bought it because it was brand new construction. And then I had
Dylan Silver (18:54)
risk.Bam.
Key Feusner (19:17)
when people moved out, I had a hard time filling the vacancy and I was like, what is going on here? And then I talked to some people and she’s like, my God, you wanna get out of this place? And I learned that it had the second highest murder rate in LA County. And it’s like, no wonder nobody wanted to live there. They don’t wanna get stabbed going to the grocery store.Dylan Silver (19:39)
Yeah, that’ll drive people out. You’re right.Key Feusner (19:42)
Yes, and another thing is just keep in mind scary areas attract scary people. So you’re going to get all kinds of ⁓ Let’s just say not your ⁓ You know not the lululemon hot yoga mom who’s raising two bilingual kids and has a tech executive husband and so another ⁓ Location risk is that you want low ⁓Dylan Silver (20:07)
Yeah, it’s a different vibe.Key Feusner (20:12)
risk of government interference and you want a very landlord friendly state. Like in Texas, you know, they will just go through the protocols and they even expect that, ⁓ you know, everybody to pay rent. Whereas like in California, you know, they’re actually hiring, they’re making it so that tenants get free legal ⁓ services for being evicted. It’s like, what is…How hard is it for somebody to decide whether you should get to stay there? Are you paying rent or not? It’s kind of really simple. Why would a landlord want to kick anybody out unless they’re not paying rent? unless they’re doing something illegal, we don’t want to have to find another tenant.
Dylan Silver (20:50)
or not.Right?
Key Feusner (21:04)
So then I look at demographics. That’s the first D and I want the highest performing schools. So check out the schools in the area on greatschools.org and I want the highest area median income versus the state or the city. And you can also find that on areavibes.com. it’s just goes hand in hand is that higher quality tenants have higher incomes.And then you want to look at the demand and supply in an area and look at where are they building the most housing and where do they have the most housing starts? Because developers do intensive research on where they want to build because that’s where they’re going to make the most money. And it’s also where there’s lower vacancy rates and ⁓ where they see a lot of population growth and
Dylan Silver (21:59)
Yeah.Key Feusner (22:03)
⁓ and job growth. And it’s also very neighborhood specific too. Like for example, downtown Los Angeles has gone to seed and it’s because property values there are probably like down 50 % from their high because there’s a multitude of things happening there. One, Los Angeles has an ever ever growing ⁓ homeless problem and it’s just getting worse and worse because of theirhorrible landlord tenant policies. And then at the same time, you had ⁓ tons of new construction in downtown Los Angeles. So there is like a massive onslaught of supply. And what’s horrible is that the massive onslaught of supply is in luxury units. And so it’s basically unaffordable to most people. And they’re only targeting this niche upper class tenant.
Dylan Silver (22:55)
Yeah.Key Feusner (23:02)
But the unfortunate part of that is that upper-class tenants like your lawyers and accountants who worked in downtown Los Angeles don’t have to work in downtown Los Angeles anymore because after COVID, there was a trend toward ⁓ working from home or working remotely. And so that’s why downtown LA has a 30 % vacancy rate in commercial properties.a very, very
unfortunate ⁓ storm of storm of variables colliding there.
Dylan Silver (23:39)
Yeah, everything that you couldhave that would that could go wrong, you know, would that can be challenging. And I know specifically in multifamily, you mentioned California, Texas as well, Texas as well. You had so much multifamily development.
that’s impacting all these developers who, know, especially if they took out variable rate debt to where their mortgage premiums on these loans could double in many cases. It’s not exactly been the easiest five years to be a developer in Texas.
Key Feusner (24:13)
Right.So then the E in GOLDEN stands for easy access to amenities. You want to be in neighborhoods that are close to schools, grocery stores, restaurants, hospitals, and universities. Universities have a steady supply of demand from students and hospitals have very high quality workers because those jobs are very recession proof. There’s always a shortage of ⁓ doctors and nurses.
You want to be close to airports because people want to be close to ⁓ Places where they could travel easily out of and my ultimate tripwire for determining whether a neighborhood is good is The presence of a Starbucks and a Whole Foods and this is kind of like a chicken or the egg thing like the Starbucks drive up the property value in a neighborhood or do they do
such good research that they know which ones are the up and coming ⁓ neighborhoods.
You almost can’t go wrong with Starbucks and Whole Foods.
Dylan Silver (25:28)
How do feel about pickleballcourts? I feel like a high-end pickleball court is now a harbinger of good things.
Key Feusner (25:36)
Geez, I haven’t thought about that. I don’t play pickle. I mean, I football a few times, but I don’t know. That would be something to investigate.Dylan Silver (25:43)
I’ve seen a little bit of that.Yeah.
Key Feusner (25:48)
And finally, the N is new developments. So you want to look for, ⁓ be abreast of like what is being built in and around your, ⁓ these neighborhoods. Like for instance, the development of the new stadium in downtown Los Angeles really drove up the prices of real estate in Inglewood and ⁓ the development of the, of, ⁓the Grove in Los Angeles drove up the property values in that neighborhood because it just makes it a very desirable place to live because you could easily walk to the mall. especially in Los Angeles, driving is just horrible. anything that is pedestrian friendly in Los Angeles would also ⁓ be a good bet. And people want to live close to transit lines and subway stations so that they can increasingly ⁓ not
driving traffic.
Dylan Silver (26:48)
Yeah, no question. You have the slide up right now talking about the World Cup, right? That’s going to be ⁓ a very interesting… ⁓time really for everybody in California. And then for investors who are capitalizing on that, if you’ve got a short-term rental during that time period, it’ll be very, very interesting to see how that works out. We are coming up on time here though, Key. If folks are
in reaching out to you, what’s the best way for them to get in contact with you?
Key Feusner (27:21)
You can email me, key, K-E-Y, at keyfeusner.com. That’s K-E-Y, F-E-U-S-N-E-R.com.Dylan Silver (27:31)
Key, thank you so much for coming on the show. Thanks for taking the time today.Key Feusner (27:35)
Thank you for having me.
