Our guest for today is the founder and CEO of MREX and as well as a professor in real estate financial engineering at MREX College. He’s regarded as literally one of North America’s leading experts in apartment investing with over ten billion dollars in analysis, underwriting, and transactions.
Our guest is often called to stand in as a teacher, advisor, and speaker. Prior to founding MREX, he founded and sold the real estate investment banking firm. He’s also a successful multifamily real estate investor and developer specializing in heavy value-add, opportunistic, and even ground-up developments. With close to 40 apartment building acquisitions in the last 18 months.
Let’s dive right in and learn from Nikolai Ray on how to purchase real estate through the laws of finance.
[00:01 – 13:39] Opening Segment
- We introduce our guest, Nikolai Ray
- Nikolai talks about his background
- Nikolai goes over his deals
[13:40 – 20:23] Overlooking The Highest And Best Use
- Nikolai talks about a residential re-build
- Being creative and putting the work in
- Learn zoning
[20:24 – 27:44] Partnering And Creating A Joint Venture
- Starting with real estate financial engenieering
- Return on human capital
- Getting to learn and expand as an investor
[27:45 – 37:56] Do You Utilize 100% Of Your Power?
- 2 Bad Investing Tip
- #1 Learn by Doing
- #2 Establishing things on rule of thumb
[37:57 – 47:55] Closing Segment
- Final thoughts
- Approaching ideas though another profession
- Nikolai’s book recommendations:
“Well, you know, I’d rather have a smaller share, actually, of something much bigger and something where I will be the only one who has to try to think through all the decision-making processes or deal with all the problems eventually.” – Nikolai Ray
“I could probably make some more profit off of the arbitrage of, you know, the difference between building a property versus what it’s actually worth” – Nikolai Ray
“So, you know, everyone talks about leveraged real estate. Well, there’s financial leverage, but, you know, human leverage, human capital is probably the most important leverage that you could eventually learn how to master if you’re in business or real investment.” – Nikolai Ray
“Yeah. I mean, obviously, you take fewer risks so you have fewer rewards, but that’s not necessarily a bad thing if you can jump into more projects.” – Nikolai Ray
Connect with Nikolai Ray! See the links below:
Go to his LinkedIn, Facebook, and Instagram, pages to connect with Nikolai Ray. Visit his Website.
Financial Engineering with Nikolai Ray
Anthony Vicino: [00:00:15] Hello and welcome to Multifamily Investing Made Simple, the podcast, it’s all about taking the complexity out of real estate investing so that you can take action. Today, I am your host, Anthony Ticino of Invictus Capital, joined as always by my partner in crime. Dan, I don’t believe in socialized health care. Crigger that well, accurate and or did I just go into that bus?
Dan Kreuger: [00:00:35] I mean, out of context, but we are
Nikolai Ray: [00:00:42] Really in contact with our pre-episode discussion.
Dan Kreuger: [00:00:47] But there it is. Yes, I would like to tell the listeners, because they’re exactly
Anthony Vicino: [00:00:51] The listeners I always like what the heck? Because well, you got to understand for their listeners at home, like we have a guest with us today and have really fantastic one I’m going to introduce you to in just a second. But we always have a couple of minutes before we go, you know, recording and we’re talking about things. And we started to get talking about socialized health care. So Dan has some, I think, some deep, deep feelings on that subject. I’m again, I’m thrown under the bus. It’s not.
Dan Kreuger: [00:01:14] Yeah, it’s just sort of the political debate in the Commons on this one. Let’s get that right, man.
Anthony Vicino: [00:01:19] That’s going to be the most viewed episode of all time just because everybody wants to pitch in.
Nikolai Ray: [00:01:22] Everybody loves in his defense, being Canadian or living in Canada, I’ve had first-hand experience and socialized health care. That’s not all. It’s not all. You know, it’s not that it’s not like we’re in the thick of it all.
Anthony Vicino: [00:01:36] It’s cracked up to be a little gross. So maybe there would be more apt. We should get Nikolai’s opinion here. But let’s go ahead and introduce you real quick to the audience, because they’re probably listening to, like, who is that guy? He’s got a great, great, deep, like, melodious voice, which is a nice juxtaposition to me and Dan. So you’re going to be able to tell us apart pretty easily. But today we have with us on the show Mr. Nicholai Ray. Now, Nicholai is the founder and CEO of INRIX and as well as a professor in real estate financial engineering at Interex College. He’s regarded as literally one of North America’s leading experts in apartment investing with over ten billion dollars. That’s ten billion and analysis, underwriting, and transactions. He’s a leading expert in real estate financial engineering, which is a really interesting concept. We’re going to dive into a little bit on the show today. And he’s often called to stand in as a teacher, advisor, and speaker. Prior to founding Emerick’s, he founded and sold the real estate investment banking firm. He’s also a successful multifamily real estate investor and developer specializing in heavy value-add, opportunistic, and even ground-up developments. With over 30 apartment building acquisitions in the last 15 months. So we got a real heavy hitter with us here today, guys. So without further ado, Nicholai, how are you doing today, man?
Nikolai Ray: [00:02:48] I’m great. You guys are.
Dan Kreuger: [00:02:50] Antasari, glad to have you here.
Nikolai Ray: [00:02:53] Also, it’s funny how life goes by so fast that bio’s probably like maybe a month and a half, two months old and it’s already out of date. It’s already like 40 acquisitions almost. I think we’re near the 40 acquisition mark now like 17 or 18 months.
Anthony Vicino: [00:03:09] And what’s interesting, I think about you guys, if I’m you know, I’m just observing from a distance on social media, I think you guys just closed like a 10 unit or some smallish things. Right. And so you’re not like deal agnostic or you are dealing Gnostic or you’re not just going for really, really big things. Like some people are like you’re looking at like where can I make money? Whereas it makes sense.
Nikolai Ray: [00:03:28] Right. I mean, whether a property is 12 units, five units, or 250 units, it doesn’t really make a difference to me. I believe in the laws of finance and therefore I’m looking at things like, you know, opportunity cost, internal rate of return, that present value, and equity multiples. I mean, that’s really agnostic to the type of to the size of the deal. And I know a lot of people, a lot of the gurus out there, we were talking about one guru prior to this episode who we will not name, but we will certainly not name the book written by his father. But there’s another guru out there who has a helicopter who also has an airplane and who likes putting his name on everything and making it much bigger than that. He let his old hide. Let’s say that, you know, he’s you know, he’s been hitting the nail on the head for quite a long time, telling people and getting people to believe that you should never buy anything over 60 minutes, which is a total crock of shit, essentially. And I mean, if you’re a syndicator and your business is to make fees and your money is essentially made off of fees, obviously you want to, you know, do bigger properties. Right? I mean, that’s kind of the nature of the business. And, you know, I’ve worked with a lot of syndicators. Private equity firms have their offices, hedge funds, and I understand their model. Their models all fine. But I mean, to try and make, you know, you know, every day, Joe, believe that you shouldn’t buy anything under 16 units or anything under a hundred units or you should invest of that.
Nikolai Ray: [00:05:06] Therefore, you should be an LP in bigger deals if it’s just bullshit. I mean, it’s just essentially, you know, very large, transparent marketing. So, you know, I’ve worked on everything from really big, you know, 80, 100 billion-dollar acquisitions. And, you know, personally, as a real estate investor, because I always try to separate the two worlds where I’m first and foremost a real estate investment professional. I’m an entrepreneur and I’m also a real estate investor now by real estate investments. Personally, I’m not raising any outside capital. I have a couple of buddies and family and friends, but it knows very small stuff. It’s mostly borrowed money, you know, and we’re buying mostly stuff that is between four and four and six units. Now, obviously, we do have heavy value add. We’re redeveloping properties. You know, I might buy an I recently bought a four-unit property, but we’re knocking down to build the 12 units. So we’re doing stuff like that. We built we bought a small warehouse we knocked out. Now we’re going to build 42 units on that. So, you know, I don’t think the size of the deal is necessarily the most important thing. I think is there money to be made? You have the core competencies to take on that deal and generate value. And if so, well, you know, who really cares what side, what size the deal is?
Dan Kreuger: [00:06:32] Yeah, and I’ll cut a double down on that logic because I think there’s an argument to be made that there’s there might even be more or even bigger arbitrage opportunities in some of the smaller deals because the competition that’s looking at those deals isn’t going to be quite as sophisticated as the other guys are going to be looking at two hundred fifty unit property at that level. You’re dealing with all sophisticated investors, whereas if you’re looking at a 15 unit or a 10 unit, it may be you enclose quite sophisticated against three or four other just little guys who are just getting started or mom and pops that don’t necessarily see all the angles and all the levers that could be pulled. So I’d argue that it’s probably easier to make bigger returns on some of the smaller deals, which just not quite as scalable. I think that’s really the downside for sure.
Nikolai Ray: [00:07:17] And we were talking about books earlier. That brings me to a really great book called The Blue Ocean Strategy, where essentially what you’re doing is that you’re trying to find blue oceans. And, you know, the red ocean is kind of where everyone is because there’s blood in the water. There are sharks eating everything up. Well, if you’re not a big shark or a really strong predator, maybe you should go somewhere else. And I think even if you are a really big shark, it’s a smart business decision to say, hey, I’m going to go and find a blue ocean where, you know. I don’t have to compete against all those other sharks and, you know, I think the under 100 unit, especially under 50 unit properties, as you said, a lot less sophisticated investors, a lot fewer people running after those properties. So if you can be sophisticated or become more sophisticated through education, well, then you won’t be having to compete against all the big boys, the big girls, because they don’t want to think that there are two things that have really made the 50 plus or 100 unit plus properties. You know a very, very tight market is a quantitative easing deal that started in 08. And since then we’ve had QE two and even QE three. Essentially, that has put a lot of money into the markets. And that money has a trickle-down effect because, you know, if you’re printing tons of money into these banks and into these corporations and these private equity firms and hedge funds and all of that, they also all these institutional organizations change the way that they allocated assets after 08, where they went from allocating maybe seven to 10 percent of their portfolio to alternative assets.
Nikolai Ray: [00:09:01] And real estate is an alternative asset. They’ve all now bump that up to like 15, 20 percent. So when you’re talking about scale and billions and trillions of dollars, think of billions of dollars in one hedge fund or one private equity firm that is essentially now doubling the amount of money to put into real estate. They’ll do that 10 times a thousand times 100. And then add on to that the returns that they’re making, which are, you know, 15 to 20 percent or even 10 percent. Well, that means that every you know, every seven to 10 years they’re doubling their money. So you’ve doubled the money of double the money of billions of dollars of money. So that’s already after deals. And we haven’t doubled or quadrupled the number of apartment buildings that exist that have been built. Right. And so that that has a trickle-down effect where everyone’s running after all these deals. And then add that on to the fact that 2012, the Jobs Act, which essentially made syndication of thing in the real estate space, will know everyone and their grandmother is a syndicator. Right. And every one of their ads, their brother law has, you know, thousands of units or what is it? They say assets under management.
Anthony Vicino: [00:10:21] Assets under management. Yeah, hundreds I three thousand and three thousand units. But I only I’ve raised fifty thousand.
Nikolai Ray: [00:10:28] It’s a bit laughable in some cases, but anyhow, I’m not there to judge. You know, as Tupac said, only God can judge me. So I’m not there to be judging people. But what it has done is it has created obviously a very unbalanced effect with regards to, you know, to the supply chain of apartment buildings. So I think that if you do a bit of what you’re doing or could learn how to do it or what to do it, there’s definitely a blue ocean strategy to apply in smaller, smaller properties. I’d say, you know, I’d say under one hundred units under 50 and even under twenty-four is another kind of market where there’s a lot of inefficiencies. Right.
Anthony Vicino: [00:11:11] Honestly, it’s like the majority of where we play is in that sub 50 range between 10 and 50, because it’s not as competitive. There’s more of that supply in our area. And once you understand what those properties need, you can really you can do great things with them. But people often they’re like they’re too proud to bend down to pick them up. They’re like, oh, no, no, I don’t get out of bed for less than 200 units. It’s like, OK, well, I mean, generating a great return.
Nikolai Ray: [00:11:36] So exactly the same as being a good real estate investor. This goes right in. You know, to be a good investor, you have to put your ego aside. Right. That’s the first thing you know. You have to have some ability to put that ego aside. I think social media is a very bad thing for that because it has now turned everyone into this kind of chess club, you know, try to show everyone how great you are and how big you are. So, everyone is kind of in that game for bigger is better, which is simply not true. Bigger is not better. Well, not not in the real estate investment case. So I think you have to put your ego aside and not fall into that trap of always wanting bigger and more units. From what I understand, that you can win. You know, use a baseball analogy. You can be an all-star Hall of Famer and win championships hitting singles, doubles, and not always just go for grand slams and home runs. Right. Cal Ripken Jr. was not the home run king and arguably had as great a career as a certain home run. Kings like Sammy Sosa and Mark McGuire or or or Barry Bonds and in fact, maybe a less tarnished. An asterisk next to his name. Yeah, exactly. No asterisk next to his name. So I think that’s something to keep in mind that, you know, real estate investing is a marathon. You can’t be in this game for five years or 10 years. You always have to kind of have a twenty-five-year mindset. Fifty to twenty-five to thirty-year mindset, I believe. And if that’s the case, well, then I think there’s there’s a much more sustainable career in, you know, also hitting singles and doubles and triples. And you sometimes try to walk the base and, you know, the smaller stuff is kind of like that. Really.
Anthony Vicino: [00:13:25] Yeah, that’s and that’s Dan and me. We talk about this all the time is that we don’t care if all we ever hit are singles. As long as we never strikeout, as long as we never strike out, we’re unbeatable for sure.
Nikolai Ray: [00:13:35] I’ll hit singles every day of the week. In fact, last week I pretty much did.
Anthony Vicino: [00:13:40] So that that kind of brings me to another question before you’re talking about, you know, that that quad that you’re going to tear down and I think build like a 10 or 12 unit. And then I remember you had a warehouse such about last year, tore that down. You’re going to build like a 40 unit there. And one of the things that really stands out to me is that you have an eye for what’s the highest and best use for this plot. It’s not just about what’s there. It’s about having the vision for what could be there. And so in your experience, what are some of the areas that people are overlooking and saying, like, I can’t add value here, there’s nothing to be done where you would come in and go? I can make something of this.
Nikolai Ray: [00:14:15] I think I think people forget that you know, it’s a building so you can actually build and rebuild as well. So I think, you know, everyone’s looking at like, oh, that’s a seven-unit. Oh, it’s too expensive. The cap rates too low. The rents are already pretty high. OK, that’s fine. I get that. But like, what’s the zoning on that property? You know you go to the zoning, you go to the city or the town or the municipality wherever you are. And you’re like, oh, wow, that’s you know, there’s an eighty. You can essentially have eighteen units on that piece of land, obviously. Then there are other things to look at, like, you know, how how much can you actually build? Like what’s the occupation of the piece of land that you can actually, you know, use. But I mean, that’s one of the first things that I think people actually overlook is that’s one of the first things I look at is, number one, every property I’m looking at, what’s the actual zoning on that that that law versus what’s built on it? That’s why I look at houses and I don’t believe in single-family. How single-family housing investments like I would never do that. But I look at houses because I’m like, OK, where can I find the houses in areas where the zoning is eight to 12 units like so. So I like to look at the zoning laws of the cities I’ve invested in because the first that’s the first thing I do essentially is I look where is where’s the zoning? The highest.
Nikolai Ray: [00:15:36] So like, for example, I’m investing in a university town called Cherrybrook, which is just an hour south of Montreal. There are two universities and two colleges in that town. That’s about 250000 people. The first thing I did was obviously look at the macroeconomics of the town and the demographics and the economic forecast for the next 20 years. But then once I did that, I would look at what’s the zoning looks like here? And looking at the downtown area. It was like, oh, well, everything zoned 12 to 18 units in this kind of small area downtown. And then I looked at the map and I was like, wow, everything here. Houses and duplexes, quads essentially. So there’s so much arbitrage potential and no one’s kind of looking at this. So it’s all just kind of sitting there waiting for someone like me to buy it up and essentially redevelop it. So I think that’s you know, people are always talking about how there are no deals on MLS or, you know, all the brokers keep their good deals for their clients. Well, you know, I love brokers. I think brokers are very useful people in this industry. But, you know, there is way more stuff out there than what’s just on the MLS or brokers’ hands. And there are so many deals that brokers even are selling that they don’t even know that their deals, so many residential brokers are selling houses or duplexes or Lexus or Quad’s don’t have the faintest idea of what actually could be built out of those properties.
Dan Kreuger: [00:17:07] Yeah, I think a lot of people just don’t really want to put the work in. They want to have a really good deal handed to them on a silver platter. And, you know, to your point about the redevelopment aspect there, that’s something that we’ve been looking into a lot more recently this year. We’ve been looking at some development opportunities, and it was really surprising to me to see exactly how many units you could fit on just one or two single-family plots for sure. We’re looking at taking to single-family plots right next to each other and cram in about 40 some units on there. So that’s that starts to make a lot of sense really quick. If you’re even if you just buy them at full market value, I mean, that makes a decent amount of sense because your
Nikolai Ray: [00:17:43] Cost basis I mean, just essentially just drops to practically nothing like, you know, if you buy a. Let’s say you buy a house like I’m looking at a house right now and are talking about, you know, I’m going to pay maybe 200000 dollars for the house, it’s probably worth like one like the ladies so happy. But, you know, I can probably build 12 units on that. So, you know,
Dan Kreuger: [00:18:06] What’s that going to be worth? I mean.
Nikolai Ray: [00:18:07] Right, exactly. Well, the light or the light of that area, and that’s where the arbitrage is really interesting is if I can put 12 units of that on that piece of land, think of it this way. 12 units in that area, like a piece of land, if you can find a piece of land that area essentially to build private building stuff, it’s mostly trading at about 35000 a unit. Right. So if you take your calculator out really quickly, this is pretty simple math for anyone who’s listening right now. If I could build 12 units times thirty-five thousand dollars, that’s four hundred twenty thousand dollars. That’s essentially what that lab is worth. If I could get a project accepted for 12 units. Even if I’m overpaying for that house, which is two hundred thousand seven hundred ten, let’s say it costs so so I’m at a four hundred twenty thousand dollar value of land for 12 units. I take that 20 thousand dollars house off, that’s 220, you know, that there are some various fees to maybe knock that down and get the permits everything. So let’s shave off, let’s say, another sixty thousand dollars.
Nikolai Ray: [00:19:23] Right. So I essentially created one hundred sixty thousand dollars of net worth. You know, just because I did that deal, I don’t even have to build that. I could go sell that to a builder if I want right now if I could build one that I could probably make some more profit off of the arbitrage of, you know, the difference between building a property versus what it’s actually worth. There’s you know, there’s some meat on the bone there. So that’s just two ways right thereof, you know, you could probably create, you know, three hundred fifty thousand dollars of the net worth of that one single deal, which is nothing crazy, really do that. And I’d do that ten times next 20 years. That’s, you know, that’s about three and a half to four billion dollars of net worth that you’ve created out of thin air. Not even counting the eventual cash flow of those properties or the increase in value of those properties over time. That’s real estate is complex, but it’s also simple when you start to understand the different levers that you need to deploy. Mm-hmm.
Anthony Vicino: [00:20:24] Yeah. And this is one of the things that’s so fascinating to me about real estate and investing, in general, is that a lot of the time a deal does not really look like a deal when you first see it. Like when you yeah, you have to have the vision and be able to come at it from a tangential angle, because if you don’t, everybody is going to see the same thing. And if everybody sees the same thing, it’s no longer a deal. Right. It’s just going to get bid up. And that’s a problem. I think a lot of people have is you have to go into these properties and they’re going to have some problems. Maybe it’s not going to look like much, but you have to have the vision and the capacity to execute that vision. And that brings me to my next point then, is, you know, you have some capacity here of like seeing the opportunity, but then you also have the ability to go and execute that from a development standpoint. And that’s no small feat. You know, like execution is the game. So where did you build those skills and where would you recommend, like a new investor trying to get into development or more opportunistic heavy value add deals? Where would you recommend they start? Because you can you can get really burned real quick on the development side, if you don’t know what you’re doing. Right.
Nikolai Ray: [00:21:26] I think there are two aspects to that. Obviously, the first one will be the whole, you know, what I call the real estate financial engineering aspect. So real estate, financial engineering is essentially the overall arching subject matter that, you know, you can park everything underneath. So analysis, underwriting statistics. So all those types of things kind of go under the fall under the tree of real estate, financial engineering. That’s something that you can get educated on, right. Like you could go to university, you can come to Emmerich’s college. Will will eventually be offering that knowledge base in English probably by the end of the year because we’ve already had a lot of people come through it in French Canada. And the other aspect obviously is the whole construction side of things and zoning and all that. You know, the simplest way. That’s essentially what I did because I’m not very visual and I’m not a fan of construction. I found a business partner who was a general contractor who was an engineer by trade as well. And we partner essentially created a joint venture where, you know, I don’t have to take care of the construction. I mean, I oversee, you know, the more financial and administrative aspects of it, the strategic aspects of it. But the actual implementation of the actual construction or reconstruction of properties is under his responsibility. So I think that’s probably the simplest way where you can be great at everything anyway. So, you know, everyone talks about leveraged real estate. Well, there’s financial leverage, but, you know, Shubin leverage, human capital is probably the most important leverage that you could eventually learn how to master if you’re in business or real investment.
Dan Kreuger: [00:23:08] I think that’s something that a lot of newer people really struggle with, especially those who are entrepreneurial because it’s so hard to take yourself out of the driver’s seat for and own the fact that I need to be able to do this thing to get to where I want to be. And maybe I’m not the one in the seat for that particular aspect of it. I think that’s a really tough sell to entrepreneurs. It’s something I know I struggled with. And Anthony probably has as well. As, you know, I haven’t actually seen it in person. But, you know, just owning the fact that in order to do this thing that I want to do, maybe instead of myself trying to learn all the things, maybe I should be looking at who I can partner with, who I can bring on as a consultant, or who I can hire as an employee to get me there. Absolutely. For sure.
Anthony Vicino: [00:23:50] You know, in our whole approach, it’s funny because right now in twenty, twenty-one hour, one of our goals is to do a development deal. It’s not like our bread and butter, but when Dan and I talked about this is like we’re not going to go do a thing that we know nothing about. So it’s going to be our ability to find the right partnership where somebody already has the capabilities, the capacity, and experience. Yeah. And so and we found that. And so now it’s like perfect. We don’t need to go learn the ropes now. We just bring our strengths to the table.
Nikolai Ray: [00:24:16] And that’s and you will learn that that way though. Yeah, exactly. That’s what makes it interesting. And, you know, a lot of people, a lot of students especially that I go in our courses asked me, well, why don’t I just hire a general contractor? Well, you could, but if you really want to learn and expand as an investor, you won’t you won’t do that by hiring just a general contractor. Secondly, the one thing you learn about construction, you know, I have quite an experience of this now. And also in the tech world, when you’re building technology, the one thing that you learned, anything that has to do with engineering in the tech world or in the construction world is nothing ever goes to plan like ever, you know, it’s always going to be longer and more expensive. Get chards. Are really cool, like in university and had meetings, but that’s not how the world works. So having a general contractor, especially if it becomes an important part of your business, who has skin in the game, is such a valuable thing, you know, work versus just a general contractor who was just essentially, you know, just got the contract to build your property or redevelop your property. You know, it’s a world apart. And I prefer I prefer leaving more on the table personally having a smaller piece of the pie.
Nikolai Ray: [00:25:41] But I want that person to have skin in the game. And I think that’s an important thing to understand. I think that’s kind of where we circle back to what I was talking about earlier with regards to ego. I think that’s where a lot of entrepreneurs also have trouble with is the ego of I want to control everything. Number one. Number two, I want to have the biggest share possible of this. Well, you know, I’d rather have a smaller share, actually, of something much bigger and something where I will be the only one who has to try to think through all the decision-making processes or deal with all the problems eventually. I think as you grow as an entrepreneur, I mean, if you’re an active real estate investor, let’s get this straight. You’re an entrepreneur much more so than a stock market investment because an apartment building is essentially a small business. Right. So I think as you grow as an entrepreneur, you start to realize, hey, it is fun to have other people to be able to leave it. Are they not always have to assume all the responsibilities of decisions and risks? Yeah. I mean, obviously, you take fewer risks so you have fewer rewards, but that’s not necessarily a bad thing if you can jump into more projects.
Anthony Vicino: [00:26:51] It’s hard to put any kind of value on this, but just having a partner that, you know is also going to lose sleep at night. Oh, for sure. And the same things that you’re going to lose sleep on, it makes it makes a whole world of difference knowing you’re not in the foxhole by yourself, just knowing somebody else is in there with you.
Nikolai Ray: [00:27:09] It’s priceless, especially if it’s the right person, especially if you have a really good partner there. That that is that is priceless.
Anthony Vicino: [00:27:16] Mm-hmm. There’s an I can’t remember where I read it. I don’t remember the guy’s name, but he’s this big Chinese businessman who’s done tons and tons and tons of deals. And he was in an interview and ask him, like, why? Why does everybody want to work with you? Like, why you? Because everybody comes to him to do deals. And he’s like, it’s because I give them fifty-one percent. He’s like, I don’t I don’t care about that extra one or two percent. He’s like I give them fifty-one, I’ll take forty-nine and they all come to me for sure.
Nikolai Ray: [00:27:43] I love it.
Dan Kreuger: [00:27:45] So I got to ask before we were flying through here, this is an amazing conversation, but I got to make sure we get our bad investing tip of the weekend here. And I know I know you’re chock full of Nicholai,
Nikolai Ray: [00:27:57] But I don’t know if I
Dan Kreuger: [00:28:00] Think you’ve already touched on a couple as well.
Nikolai Ray: [00:28:02] I don’t know if I can choose what I’ll put two out there. So the first one is to learn by doing. I think that’s the stupidest thing I’ve ever heard in investigate. Obviously, I might be biased because I’m a teacher. I teach real estate investing. But I think that’s just the most stupid thing I’ve ever heard is to learn by doing. You don’t learn by doing. You need to learn the basics and learn theoretically things and do them. And when you marionberry the two, that’s how you learn by doing. If you don’t have the core basic knowledge that you need to do something, all you’re going to do is do the wrong thing and you will learn how to do the right thing. You’ll learn that you did the wrong thing and what not to do that again. But that doesn’t necessarily open you the path to doing the right thing. I think that’s a big mistake. And if you can, you know, not have to go through easy mistakes, they could have just, you know, avoid by learning the basics of the core principles of a certain knowledge base. And I think that’s very important.
Nikolai Ray: [00:29:07] The second thing is just establishing things based on the rule of thumb. How many times have I heard people talk about, oh, well, you know, the exit caption, I expand the exit capretto apartment buildings by, you know, five basis points per year of holding it? OK, based on what? Well, you know, based on being conservative. OK, how are you being conservative, though, and then you get into that whole discussion, discussion with people and you realize that people are just basing stuff off a rule of thumb without actually thinking of how that rule of thumb was was was was initially thought through or established. And I think that’s a big, big mistake. So rules of thumb in real estate are very dangerous. I always like to use the aphorism of the six-foot man who drowned in the lake that was on average, five feet deep. That’s the greatest way to understand how dangerous rules of thumb are. Mm-hmm. And learning by doing is the best way to learn to get pretty much nowhere to be bankrupt. And essentially, as we said earlier, strike out.
Dan Kreuger: [00:30:16] Yeah, yeah. I think learning by doing, you know, in the investing space, that really means losing money. And if you listen to Warren Buffett and what he says he’s got, you know, his rules of investing. The first two are don’t lose money. So right there, you’re breaking Warren rules, and then
Nikolai Ray: [00:30:30] Time we always forget about it.
Dan Kreuger: [00:30:32] Yes, that’s the best.
Nikolai Ray: [00:30:34] The value of money is one of the most basic concepts in finance. We don’t have unlimited time to achieve our goals in real estate investing. So why wouldn’t you take a course or learn from someone who can, you know, help you go faster or get there faster? It would have taken you two years to learn by doing. Why not? Why not pay someone to teach you how to do that within a week or two weeks or a month or two years after that?
Dan Kreuger: [00:31:06] It’s hugely valuable if you’re making 20, 30, 40 percent a year. You know, getting those extra years back is is huge, makes a huge difference in what the rules of thumb thing. I think I’ve got kind of the same group of people and I look at their underwriting. I would say that rules of thumb, in my opinion, they’re fine for like a back of the napkin thing. If you just want to wrap your head around something like five
Nikolai Ray: [00:31:25] For three hours and still
Dan Kreuger: [00:31:27] Use it for that, and then we actually get into your underwriting. I’ve had this conversation with a lot of newer guys as well. They keep asking me, like, how do you get all these numbers for your operating expense budget? And it’s like, well, you know, look at all the poor, all the assets we have in our portfolio. And I look at the data I’ve got from this deal, and that’s where I got these numbers. It’s not based on this percentage of income or that or, you know, X number of dollars per unit. It’s based on the assets that we have and the historically on this one. And it’s very often very unique to each asset, especially when you’re looking at some older properties. Those expenses can really have some pretty wide swings between the different properties will operate very differently. So I agree with that. One hundred percent. Absolutely.
Anthony Vicino: [00:32:07] I really like to learn by doing a concept that is bad investing advice here, because, you know, money isn’t really the currency that matters. Time is the only currency that matters. And money is just a tool for buying back your time and a lot of money and a lot of instances. People, look at the dollar and say, well, I’m going to say this dollar amount and do this thing. And we know that we can accelerate our learning and make fewer mistakes by educating ourselves with coaches or with programs, you know, like and learning the ropes before we dive in. But another interesting aspect of this is, you know, you’re an athlete as well. And so I’m sure that you’ve had coaches or you’ve coached kids who have learned bad habits just by doing they go and they learn. They just they’re out there playing. And that’s fine. Like great like go play and learn how to shoot a hockey puck or shoot a basketball and throw a baseball. But at a certain point, once that habit becomes very ingrained, it becomes really difficult to break. And if you want to build up to that next level, you have to break down those habits, reform those mechanics, and then start building at the same thing with investing. If you start from the beginning with learning bad habits because you’re just like you just dove in, you started doing the thing like, well, this work, this didn’t get me killed. So I just keep doing that thing without understanding why it didn’t get you killed. Like, well, that’s going to work until it doesn’t and then they get in trouble.
Nikolai Ray: [00:33:25] That is an extraordinary point. And see it and see that the back here, that’s actually from the Vancouver Olympics in 2010. Lookalike who was who is the greatest biathlete of Olympic history wore that at the Olympic Games. I actually took care of him, his whole professional, his whole Olympic career. We went to the Olympics three times together. I was chief of human performance. I was in charge of all of those biomechanics, nutrition, sports psychology. And when I started working with GP, he was coming out of the Junior World Championships and he was becoming a senior and they pegged him at maybe hitting, you know. Top 60 in the Olympics, eventually worldwide. He was a five foot seven Canadian competing against six foot three Norwegians and Germans with all this financing and funding, whereas the Canadian Olympic athletes in that sport don’t have much financing. Because everything goes towards hockey and a couple of other sports. So what I did with my specialty was biomechanics prior to real estate, I studied biomechanics. I was a professional ice hockey player as well. And so what I did with him and with a lot of athletes is essential, you know, this is a great parallel with real state wrestling because we were saying that bigger is not necessarily better in athletics. Everyone talks about bigger, faster, stronger. There was a big documentary on that with regards to steroid use and all that. But when I look at a guy like JPI said, OK, look, but my theory of the way I worked with biomechanics was that.
Nikolai Ray: [00:35:01] Everyone’s focusing on adding strength and power to athletes, right? But what if you are so inefficient in the way that you move and the way that these motor patterns have been registered in your nervous system and through your brain and everything, and you’re essentially your central nervous system through automation. What if you’re not transferring 100 percent of the power, the strength into power? And think of it like a car. You can add a thousand horsepower onto a Honda Civic. It’s not going to go anywhere. You know, it’s not going to be it’s not going to be as fast as a Godi or Koenigsegg because the transmission will be able to put the power to the ground. The sharks are not strong enough. The is not sort of the frame of the car. And so what’s actually probably going to happen is that it’s going to be a slower civic than a regular civic because it’s going to break down. Same thing for an athlete. So what we did is we essentially worked on redeveloping motor programs the way that they’re registered with the nervous system and forget about adding strength and power. I always said you already have enough strength and power to tell how to learn, how to use it properly, and get it to the ground more efficiently. Its same thing where essentially the Vancouver Olympics finished sixth at Sochi 2014, was actually waiting until he broke his ski on the last lap. So this is a kid who was not supposed to be higher than the top 60.
Nikolai Ray: [00:36:35] Just because we all didn’t is essentially rewire the way his body was working. And it’s the same thing that investigators learn by doing. Like you said. Well, the battle the really dangerous thing behind that is no one had to waste a whole lot of time, probably lose a whole lot of money, and you probably don’t have that much time to lose. And if you don’t lose too much and you don’t go bankrupt, well, you will. As you said, have learned things that you probably shouldn’t learn. And it’s called survivorship bias in economics. And that’s a really hard thing to unlearn. So I travel all the time and energy and money that you’ve wasted, you’re probably a waste way more because it’s going to be so hard for you to unlearn that. And you might actually you might not actually ever alert it because you’re survivor bias just keeps on the confirmation bias just doesn’t. You’ll have to like in the last 10, 15 years, the market has been so it’s been such a great bull market that why would you have to unlearn it and you might not have to unlearn it until it’s too late or you’ve wasted five, 10 or 15 years. You know, investors say, well, I’ve been generating 20 percent year on year returns for the last 10 years. Yeah, so has the market. So you’re not generating an alpha, you’re just essentially performing to the same level of the market. When the market does tank, then you’ll be in trouble.
Anthony Vicino: [00:37:57] Yeah, it’s like this, just because it’s work doesn’t mean it’s right, though. Well, absolutely no, that’s an awesome point I love. I didn’t realize that you had a history with biomechanics and applying that concept, but it’s I think it’s one of the best conversation pieces I’ve had on this podcast in a while because you just have such a diverse background that you’re pulling these nodes from. So it’s very interesting.
Nikolai Ray: [00:38:26] I think I think there’s so much to do that’s actually probably another important thing is to not fall into the trap of hyper-specialized specialization is very important. But having a diverse background is also a very big check that I see. A lot of people kind of hesitated to get into the real investment world because they didn’t do a degree in finance or work as an investment analyst at a Goldman Sachs or whatnot or some, you know, some big real estate investment firm. But, you know, the first essentially six years of my career were in high-performance athletics. Well, but even the first 10 years and that has not stopped me from allowed myself to surpass a lot of the great real investment, real estate investment people out there, because I’ve come in with a whole different angle and you don’t look at all these, these or these people have always just been on real estate investing. They don’t have any other ways to look at things. And then they kind of followed that sheep and herd mentality. Whereas when you’re coming from a different background, sometimes it’s very easy. In fact, it’s kind of a disingenuous advantage where you’re coming from another background. You’re like looking at what everyone’s looking like. Why are you all doing this like this? You know you realize that everyone just doing it because that’s how everyone’s always done it, right? So you don’t have that bias and it helps you to even be better and perform much better.
Anthony Vicino: [00:39:55] Yeah. This is a really interesting point that’s going to bring the conversation almost entirely full circle is if you look at like what is the most important skill in modern society in our current modern economic situation and its creativity, not creativity, as in your ability to paint a picture or play beautiful music. Creativity as I define it is the ability to take two or more disparate pieces of information and combine it in new novel, functional ways. And so to do that, you have to have a multivariate base of knowledge. And when you have that, you’re able to combine things in ways that others can’t see. In the way, this comes full cycle is when you’re talking about looking at a quarter of a warehouse and not just seeing what’s there, but seeing what could be there. That’s an act of creativity that when you have that wide base, you can see it in ways that others can’t and
Nikolai Ray: [00:40:42] That allows for integration and synergies and essentially having a holistic knowledge base. That doesn’t mean you can’t specialize. I mean, I’d highly specialized in financial engineering, but contrary to Quad’s pure quants who just studied finance. I mean, yeah, I mean, they can probably beat me to hell in our python and various programming languages. It’s like pure up in pure real estate finance or pure financial engineering. I’m much more of a generalist compared to a very deep-level Quads. But they’ll never understand the world of real estate investing and entrepreneurship as I can. And therefore what they’re doing is great. They’ll always end up working for a guy like me because, you know, they can’t really apply that to the real world. They’re great in labs and great and Excel spreadsheets and behind a computer. But when it comes to building actual investment companies and doing actual projects, well, they’ll always just be working for people like us. You know, it’s like it’s kind of like I remember maybe ten years back, I was going to I’d signed up to do my mind to get my CFA to become a chartered financial analyst at. I got all the books and they were all I ordered all the books for the exam. It’s a pretty heavy process to become a CFA.
Nikolai Ray: [00:41:58] It’s very difficult to get all this I would like to screw this like I’m not going to go through all of this mostly useless knowledge because HCFA is mostly, though it’s more like kind of stock market stuff and portfolio management. I’ve already pretty deep in the real say feel I’m going to go through all this, and if I need to hire a CFA, I’ll hire one if I need to hire a client. That’s why, you know, for financial engineering, I’m probably one of the worst people in financial engineering when it comes to advanced programming because out of efficiency, I just determined that. Why would I put my energy into this? I’ll just hire a bunch of dudes who are actuaries and real deep Quad’s to do all the modeling for me and all the planning and programming for me. But my level of integration and knowledge and vast knowledge of financial engineering is equal to not many people because I understand. The very deep level of it as a but I can also attach it to a whole bunch of other stuff that other people that feel that they just can’t do that because they just spent most of their lives essentially programming and doing statistics of the bath. Mm-hmm.
Anthony Vicino: [00:43:09] Yeah, I think the integration and the practitioner ship of being able to actually apply and execute, that’s the bit that makes the game. It’s and it’s hard to quantify that. So we’re getting to the top of the hour here, Nikolais. We want to be respectful of your time. You mentioned earlier the Blue Ocean strategy. So that’s one book. But you already gave us too bad investing tips. So I’m expecting a second book recommendation out of, you know, the second book.
Dan Kreuger: [00:43:30] Real quick before you go there. Who’s the author and strategy if you haven’t? If not, we’ll throw it on the show next.
Nikolai Ray: [00:43:38] But I don’t I heard of you all before.
Anthony Vicino: [00:43:42] Ok, I can’t I can’t read it. Kim Multiforme.
Nikolai Ray: [00:43:45] Yeah, that sounds about right. You guys all right?
Dan Kreuger: [00:43:49] Yeah, because that was not on my radar until you just mentioned it.
Nikolai Ray: [00:43:52] Really. Oh, that’s a great book. It’s on the list now. Yeah. It’s such an easy thing to fly. It just, you know, look at that. You’re going to think about, you know, look at it from a different angle or somewhere else. The US as Canadians has a very popular saying that Wayne Gretzky actually was quoted saying it was don’t go to where the puck is, go to where the puck is going. And I think that that ties itself quite well to the blue ocean strategy. That also ties into what the athlete was talking about creativity. And I like to think a lot about vision. And I think visualization is investors a very important thing, especially, you know, the more you’re a contrarian, the more you get paid. But being a contrarian view, having a vision where people don’t see something you do, you have to be able to, you know, to toe to double down on that vision. I think for another good book for me, The Untethered Soul, a lot of podcasts. I always talk about this book, The Untethered Soul is really a great book that I like to come back to.
Nikolai Ray: [00:44:57] It was written by an entrepreneur who I believe sold his tech company to one of the tech giants. Whether it was Dell or Microsoft, I can remember for probably a couple of billion dollars or something like that, like way back where the billion dollars was actually a lot of money that he got wrongfully accused of fraud. I believe, because of one of his business partners. It actually ended up taking like four years to defend himself. He almost went to jail for quite a long time. And through that got really bad I think it was a really bad cancer, almost dying and almost lost everything. So he wrote this book on essential spirituality, coming back to very key things. And I think for an entrepreneur, it an investor, it’s important to try to ground yourself, whatever your faith is. I mean, there are many different faiths out there, but I think it’s a very great book on just personal developments and, you know, kind of bring yourself back to the essence of being that’s fantastic.
Dan Kreuger: [00:45:56] Those are two amazing non-Robert Kiyosaki books. I appreciate the recommendation. Yeah. Yeah.
Anthony Vicino: [00:46:02] And I don’t think we’ve had anybody recommend those two books before. Blue Ocean is fantastic. Another book similar in theme is Peter Thiel. Zero to one. Yeah, no,
Nikolai Ray: [00:46:13] We’re much more technical, I think, and more kind of tech-based, whereas in literature is probably a bit more generalist
Anthony Vicino: [00:46:19] Abroad. Yeah.
Nikolai Ray: [00:46:20] Broader.
Anthony Vicino: [00:46:21] Yeah, for sure. Well, Nicholai, this has been a fantastic episode. Seriously, someone has been one of my favorites. We touched on so many different cool aspects of real estate investing and just life in general, and I feel like we could keep going indefinitely. But we want to be respectful of your time. So before we let you out of here, where can people get a hold of you? Where can they find more if they want to learn from you?
Nikolai Ray: [00:46:41] I’m quite present on Facebook and Linked In and Instagram. Other than that, I’d say on the and college’s YouTube channel more and more we’re producing English content. And so a lot of people have been asking me for quite a while. So we’re doing that. We’re looking we have plans also to launch our courses in English because we’ve had, you know, almost 5000 real investors come through our doors and French the last five years or so. So those are probably the easiest ways to get a hold of me or follow me or interact with me.
Anthony Vicino: [00:47:12] I love it. All right. So that’s going to do it for us here at multifamily investing. Made simple for you guys and gals that are at home on the treadmill or in your car driving to work. We want to say a big massive thank you, as always, for joining us. And I’ll see
[00:47:24] You are next week. Says.
