Interview with Robert Luxenberg: Going all in

PM: Hi everyone, for this new interview, we are going to continue in English with my friend and successful real estate investor Robert Luxenberg. He’s a successful investor, he built a portfolio of up to 900 units and is really active on the market right now in Montreal. He’s a friend I met many times, but more specifically in the Fiji island at a Tony Robbins seminar. So, I’ll let him introduce himself and tell us a little about where he came from and how he started.RL: I was on an NCA scholarship, in the United States, for swimming many years ago. I’m now 60 years old and when I came back to Montreal, I had some decision to make. I decide to go into real estate and I actually became an agent in the commercial department. I wanted to learn from the big boys and people with experience. At the time, they all seemed old to me because when you’re young that’s what happens.PM: Did you went from a real estate agent to a real estate investor?RL: At the time, I was also managing some properties for my father. My father owned a couple of properties and I actually helped him in growing the portfolio because he was very conservative and fearful because of some mistakes he had made in the past. So I came in and I helped him acquire more and more properties and was managing them. Here’s the thing that happened that was really strange, my father didn’t mentor me in real estate. I love him dearly and he’s the best man in the world. He knew intuitively that buying real estate was right and was the way to build wealth, but he had some bad experiences when the PQ was elected. He owned some of the nicest properties in Montreal and, when the PQ came in, he panicked and sold everything. There were some emotional issues involved with that and I fully understood it.PM: So that’s how real estate came into your life?RL: It came for my father, but the wrong way and the reason I say that is that he wasn’t teaching me how real estate could help me build wealth in my life. In fact, he would ensure that I would be wealthy and successful but he never taught me that. He used to cry poverty. It’s like he didn’t teach me what he needed to. I believe in something called unconscious competence.PM: It’s funny because last week, in Montreal, I was doing a training for the CIIQ and I was talking about the four stages of how you can become unconsciously competent.RL: Exactly, so he was unconscious when it came to his competences. In other words, his subconscious knew that real estate was the way to go and one of the best way to build wealth, but he didn’t teach me how it works, why it works and how I should look at it. So, I was an agent at the time, I’d get a commision check and be all excited. At that time, I thought that making 6 figures was being successful. I’ll never forget the day that I walked into the room and my father asked me how I was doing and how was real estate. I proudly said I had made more than 100 000$ this year, considering this was a long time ago, and he looked at me and said: “I don’t care, what did you make net?” So I thought about it and I realized that, after taxes and expenses, there was actually very little left to build wealth and build a life. It got me thinking, but at the end of the day, I didn’t have a mentor or someone to guide me or tell me what to do.« I realized that the mind must always come first. You can learn all the formulas and all the numbers but you need to change yourself. » – Robert Luxenberg PM: Your first purchase in real estate was a personal one or an apartment?RL: If you’re asking me for my first purchase, because there are two phases of my life, and I want to concentrate more on the second one. In the first one, I was finding properties, negotiating, managing and doing all the work for my father and, sadly, I got nothing out of it. I was a young guy and I realized it was going to be a problem growing with him. I wanted to grow and I made a horrible mistake of judgment at that time. I left real estate, where I was making good commissions, and got into the corporate world. For many years, I was the vice-president or senior vice-president of these various companies and I was doing really well in my portfolio. I was over delivering in the area that I was in, but here is what happen: I have nothing to show for it. I’m making a good living and I’m supposed to get stock options, there’s always some story. Somehow, someway, I got into my 40’s and I was really frustrated because something was wrong and I couldn’t figure out what it was. I wasn’t building any net worth, I didn’t have a lot of money even if I was living a decent life because I was spending most of it. It was at this point that I was so uncomfortable that I woke up in the middle of the night and I said enough. After that, I was offered an executive position to run the US operation for a company here in Montreal and, after spending the day with them, I came home this evening with an ache in my chest knowing something was wrong. My ex-wife, at the time, told me I had to think this through because it could be my body talking to me so, I thought about it, and it was exactly that. I then woke up the next morning, with three babies at home and very little money to my name, and called the CEO to tell him I wasn’t coming to work. I apologized profusely but I didn’t want to make the same mistake again.PM: Did you had a plan B at that time?RL: No plan B, I just said no. I had three kids to feed, a family to take care of and I basically said no I got to figure this out. At that point, I started reading books and going to some seminars and this made me realize that this is where the investment needs to go right now because something was wrong and I had to fix it.PM: So you had to change your mind and the way you thoughtRL: Exactly and it’s funny because you and I talk about this. There’s a lot of great books out there, but the book that hit me the hardest is actually really simple to understand and to read. It’s called Secret to the Millionaire Mind by T. Harv Eker. I read that book and went to a seminar with him and it hit me like a brick across the head. It was a blueprint issue. My blueprint for money was set low and was problematic. In other words, my thermostat was set at 100 000$ and that’s it and the problem with that number is that, when you reach it, something’s going to go wrong.PM: Now if we go back to real estate, what was the first apartment building you bought?RL: The first apartment building I bought was in Côte-des-Neiges and it wasn’t mine it was for my father. After that, I managed to buy four other buildings in that sector and then went on to build a portfolio for my father. Even if I didn’t benefit from it, those were my first purchase. Now, if I focus on my second phase, that’s when I met a gentleman to whom I had sold buildings as an agent. I was the one that brought him into real estate the same way you’re doing for a lot of people. I went to him just to tell him what was happening and ask him what he thought about it. He told me: “This is easy, you have to work for yourself. Stop working for other people because you depend on them for your success.” Number two, he told me to go back into real estate and start buying because I was one of the best agents in the city. The moment he said that I looked at him and said I got it you want to partner with me. He thought about it and then we got started. This was at the age of 47 so just over 13 years ago. After that, we both went on a rampage of seminars. We realized that the mind must always come first. You can learn all the formulas and all the numbers but you need to change yourself.PM: That’s so important because people need to realize that it’s more than numbers. People are stuck in the numbers but you need to change yourself first. It’s the basic and after that, you’re going to be able to grow your business.RL: I’m actually writing a book right now and, what you just said, is the key to my book. I am writing the book for my teenage children. The book is called Mind, Money and Wealth: What they don’t teach you in school.PM: We’re going to finish the interview with the book you’re writing. I remember we went to many seminars together and also, in 2012, I went to Tony Robbins Business Mastery with your partner and it totally changed my business at that time. So I agree with you, seminars are really valuable.RL: I think seminars are more than good. In fact, I would suggest that the most successful people out there are the one going to seminars and reading books constantly. This is not just to become successful, this is life and a lifelong journey of growth. Not just for the mind, I wasn’t going to fix my mind and the landscape for growth. It didn’t matter how smart I was or what was the formula, I had to fix my mind first and I did. As we went on to work on our mind and business in all those seminars, our business took off. We bought our first property in 2006. It actually took quite a while before we bought our first property as partners because we had set our parameters on what we wanted even if we had other opportunities. Our first one was 47 units in Lachine. Afterward, even though we were changing our blueprints, our awareness was small and our abilities were still at first building. After about a year, we went back to the bank and asked them to pull out an extra 40 000$ to renovate the building. The next day, after we sent the numbers, the guy called us and said to us he could redo the whole mortgage and give us 600 000$. At first, my partner and I looked at each other and didn’t get it. We were blown away. Afterward, we went to the notary and got a heck for 300 000$ each. At that moment, this was the big wake up call of why we got into real estate.« There’s value in every building, you just have to find what that value is. One of the parameters we look at is the price per unit, I’ve always felt that this was the measure that would dictate the juice in the building. » – Robert LuxenbergPM: So the first building was a good one to create equity right away.RL: Yes and we didn’t put a lot of cash down. As you know, there are a million ways to finance a building. this was our first and it catapulted our business forward.PM: What’s the most important aspect you’re looking for before making a purchase?RL: It’s actually a great question because I meet a lot of real estate investors and all they seem to look at is cap rate. In fact, some of the big boys out there are only looking at it and I don’t get it to be honest. There’s value in every building, you just have to find what that value is. One of the parameters we look at is the overall return on investment. Another one is the price per unit, I’ve always felt that this was the measure that would dictate the juice in the building.PM: Absolutely because people are underestimating the price per unit because it’s a simpler way to calculate. At the same time, when you look at units of the same density, the cost per unit will give you the potential of it. If you buy in an area where the price per unit is below the average, you already know there’s room for improvement because it can only go up. On the other hand, by buying a building with units above the average, you’ll have more work to do to maintain them at this price.RL: It’s unfortunate because so many people out there underestimate the value of knowing what your price per unit is. I’ll even take it a little bit further because here we talk about price per unit, but in the United States, they take it to price per foot. One of my friend, who’s in the students’ residences business, only looks at the price per foot. I think that’s something that will really come our way. It’s more sophisticated. Let’s say you buy a building whose 100 000$ per unit and the units are gigantic then your price per foot is cheap. You can also buy a building who is 100 000$ per unit but with small units so your price per foot will be more expensive. We don’t really hear about this in Montreal. So we do look at price per unit, but I’d say be careful with cap rate. You can buy at a set cap rate but if the revenues are already at an optimum level, you won’t be able to go anywhere.PM: This can be a trap because sometimes you’re going to be allured by the 6% cap rate when it’s currently 5% on the market, but all the juice has been taken off the building so you won’t be able to improve it. In fact, you’ll need to work really hard just to maintain the net revenue you have right now.RL: I think all investors should take a step back and think that through. We bought a building a year ago and, when it was brought to us it was around 4.5% cap rate. this was not a high-end location and most of the people presented with this property skipped it right away because they saw that the cap was lower than the average in this sector. But, when we took a closer look at it, we were talking about 87 000$ per unit for good size units and the rent was about 625$ with heating and electricity included. When we looked at the average rent, we knew there was juice. Forget about cap rate, this right there was the key for me that told me there was potential. We ended up buying the property and our first move was to redo the furnace completely. There was three of them in each of the two buildings and we replaced them with brand new furnaces. We thought we were going to save around 30 000$, so 600 000$ based on a 5% cap rate. We ended up saving 70 000$ our first year so that’s 1,4 million dollars on one move. This right here is the magic of real estate.PM: Because you’re able to get out of the cap rate and the spreadsheet and see what you’re able to do with the building, you can work on raising the rents in the next couple of years.RL: There are now people moving out so we’re now realizing that the juice we thought was there is actually much bigger. Instead of getting 795$ for a 4 ½, we’re getting 895$ so we found juice that we didn’t even know was there.PM: When you bought it, how did you finance it?RL: It’s a very good question because for the first few buildings that we bought we were ultra conservative because we came from an interest rate environment where the interest rate was 8 to 15%. So, when we saw low-interest rates, we jumped on it and locked it in. In insight, ten years would come and go and it was still worth it but the rates never went up. It shocked us because we were certain they would go up again. So, if we had just gone year to year, or every to year, we would have made millions more. But, I know today they are going up so we have to be careful. In answer to your question, we took three years conventional because we figure it would take us three years or less to get it to a point where we would either sell it or refinance it for a big profit. We needed time to do that so we got the owner to carry a bounce of sale for us. Each deal is different, that’s what we did for this one.« People underestimate the importance of doing financing properly. In fact, you need to have a short, midterm and long-term goals with that building and then hatch it with proper financing. » – Robert LuxenbergPM: Now, in all the deals you made throughout your life, what’s the deal or if you’d start over the thing you would do differently?RL: That’s a really tough question to be honest because you go in with all the best intentions, usually do a lot of good moves and then there are a few bad moves that you might make. I’d say that my number one regret in terms of mistakes was actually not the building itself. It was financing. I think people underestimate the importance of doing financing properly. In fact, you need to have a short, midterm and long-term goals with that building and then hatch it with proper financing. So, I think the biggest we made was in regards to the financing. We did the maths one day and we gave away a couple million dollars in fees that we could have kept for ourselves.PM: Right now, we’re at the end of August and the difference between a 5 and 10 years is about 40 points so it’s worthwhile to think about it if you’re planning to keep the building on the long term.RL: To me that’s the biggest recommendation I can pass on: Buy and never sell.PM: To go back, you said to refinance more and be more sophisticated in your financing structure.RL: Yes and be more aggressive in raising rents. That’s just a difference of opinion, but I think you have to go in there aggressively and raise the rents according to market as best as you can. I’m not saying doing something illegal, immoral or unethical, but I think we could have been more aggressive. I’m thinking of one property in particular where we could have gone in there and raised the rents an extra 100$ because we had full control in that case. It was a student residence.PM: Was it your first purchase of a students residence because not everyone is willing into that type of business?RL: At the end of the day, I actually find it easier to manage my students’ residences than regular apartments buildings. In this particular deal, there were also specific parameters and rules that were in our favor and they gave us the power to raise the rent the way we wanted. By the way, this was my favorite property. I think it’s a good recommendation for any investor. Go in there and think like your tenant and what they are looking for.PM: I did an interview with Éric Desroches and he had that same kind of thinking and, so far, he’s been very successful and very centered on what he’s giving back to the people. Of course, it’s a business but if you can create something good for the tenants it’s a plus.RL: Focus on something important, something I like to call the big why and the money will come after that. With the students, when we started thinking like them, it was privacy, a place to hang out so we did a lot of things we knew they wanted, but we also thought about the secondary market: their parents. So we’ve put in 90 security cameras, we made it very secure and the bottom line is that we catered to their needs and were able to create incredible value and demand. We bought this property for just over 5 million and, within 9 years, sold it back for over 15 million. We could have done better if we would have been more aggressive, but we were not planning on selling it so we weren’t being as aggressive as we could have been.PM: Do you have a building that you’re the proudest of?RL: I would say that was the one if we’re talking about the portfolio because we were able to bring a lot of our experience into making changes in that building. We made changes everywhere so we earned our money so I’m very proud of that. I’m also very proud of the one I’m working on right now.PM: For someone who is just starting in real estate, what advice would you give them?RL: Very important, you need to understand that your mind is going to drive you towards your wealth and the amount of wealth you build so you need to get your mind in order. The mind is something that takes work and understanding because all the real estate knowledge you can learn in a few courses or talking with other experienced people. the other thing is that too many people are ready and aim but never fire. Execution is the key to success in life.PM: To finish, you’re currently writing a book can you explain a little bit what it is?RL: It’s my third book actually and the book is called A Legacy to my Children: Mind, Money and Wealth What they don’t teach in school. I came to this realization one day while I was interviewing a few kids from Cegep. I asked them if they knew what compounding was and not one of these really smart kids knew what it was. That’s when I realized there was a missing piece because at the end of the day there are three fundamentals things they don’t teach in school: how to use the mind, how to use and understand money and wealth building. So I decided to put all that in writing.PM: Thank you, Robert, for your time it’s really appreciated. For people who want to know a little bit more about Robert, the CIIQ will start English meeting in October and in November, Robert is going to be the speaker and talk about his story. the video interview is available on our facebook page and our website: Patrice Ménard Multi – Logements or patricemenard.com