Host Dan Breslin and Natalie Cloutier discuss her unique Build, Rent, Refinance, and Repeat (BRRRR 2.0) strategy for real estate investing. Leveraging her architectural technology background, Natalie Cloutier explains how she scaled a portfolio of high-quality, dense, small multi-family new builds starting with zero capital. The conversation details the practical aspects of her business, including maximizing bedrooms for higher rents and managing significant development risks, such as unexpected municipal fees. Ultimately, the discussion highlights how strategic building and densification offer a superior, capital-recycling approach compared to buying older rental stock.
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Natalie & I Discuss Build-to-Rent Development:
- BRRRR 2.0 (00:01:30-00:01:55)
- Mitigating Development Risk (00:15:18- 00:18:42)
- Tenant Vetting & Operations (00:31:38- 00:37:28)
- The Sabbatical (00:37:23- 00:24:16)
Relevant Episodes: (200+ Content Packed Interviews in Total)
- Turn Key & BRRR-Key Rentals with Ali Boone
- Multi-Family Investing in Emerging Markets with Dave Lindahl
- Selecting the BEST Passive Multi-Family Real Estate Investments with Travis Watts
- Multi Family & Multi Million Dollar New Construction with Matt Skinner
Watch the episode here
Listen to the podcast here
Build-To-Rent Development With Natalie Cloutier
Natalie Cloutier, welcome to the show. How are you?
I am great. Thank you so much for inviting me on. I’m very excited to be here.
I’m glad you came. When I saw the booking come through and do a little preliminary research. I was like, “This is an interesting one. We haven’t explored this topic and not a lot of people are doing it or talking about it.” We’re going to be talking about the build-to-rent for the folks reading. There’s a lot of institutional money doing that. That’s what I thought when I saw the topic, “It’s the institutional thing.” It’s not that. The readers will be surprised. Before we jump into that, though. One of the other interesting fun facts here. I’m recording from Chicago and you’re recording from?
Canada in Ottawa, so the capital of Canada.
I have some friends doing some development in Winnipeg now with a 30 or 40 or 50-story building or something like that with the university. I think in a partnership, it’s a cool project to watch these guys bring out of the ground.
That’s awesome. I don’t do that.
Understanding Natalie’s BRRR 2.0 Strategy
I wouldn’t be little or talk down. The things you’re doing are very interesting and they’re relevant for what we have for the audience. Let’s start with the investment philosophy. If you had to distill your investment philosophy, your strategy down to like a single sentence. What would that be?
I’ve been using the BRRRR 2.0. If your audience is familiar with the BRRRR strategy that Brenda Turner coined, the buy, renovate, refinance, and repeat or whatever. I might be missing R in there. I do the build, rent, refinance, and repeat. It’s basically the same strategy and what’s cool with it is that you can recycle capital endlessly to grow your portfolio and scale it to whatever amount of units you want to do.
How Natalie Started Out With Zero Capital
For the reader who hasn’t figured it out and didn’t do the research. Would you mind telling us the origin evolution story? Maybe use those photos on the wall behind you.
For those who are looking on YouTube, I have a couple pictures behind me of the houses we build. My mother-in-law likes to paint our projects. These are the first starter projects that we started with. What’s great with the strategy is that anybody can start. We started at nineteen years old with $0. We had no money. We had a basic entry-level salary and graduated from college. We built our own house, which is the greenhouse here. We still live in it. I’m sitting in it and we house hacked, which I didn’t know was a thing back in the day.
We added a basement apartment to help supplement the income because, as I said, we had crappy salaries starting out. We started with $0. We started by buying a basement unit condo right out of college just because that was the only thing we could afford. We bought it with the CMHC first-time buyer loan. Which for you guys in the states, it’s similar to an FHA loan. You go in with a low down payment but you get a higher interest rate in exchange. We were just excited that we were approved for a mortgage but then going in, you realize the interest rate was about 6%. Plus the condo fees were adding up.
As soon as we walked in, they were scheduled to go up. You don’t have a yard and a garage, and you’re in a basement. A few months in, we were very unhappy. My parents sat us down and they’re like, “I’m going to get you in on the little family secret.” They told us about how you can build your own house for $0 dollars down as long as you do some labor work. You get in there and you do some labor yourself to save the money. That’s what we did.
You can build your own house for $0 as long as you do some labor work yourself.
We built our house. Long story short, we got a basement apartment, lived for a fraction of the mortgage, and then we got a HELOC. We found this very cheap lot local to us. It was a problem that nobody wanted to buy but we have a background and we studied architectural technology. That’s where my husband and I met. We’re not architects but we’re like the CAS ad monkeys, if you will, or did the draftsman. We said, “With our background, maybe we can make something happen with this lot.”
We bought it with the HELOC and we built a little single-family home that we eventually converted into a duplex a couple of years down the road and we kept going. We’re like, “This could be a recipe for a business.” Eventually, after a couple years we realize, “This is investing.” This is an investment strategy. We went in blindly.
Dealing With Fear, Hesitation, And Doubts In Real Estate
You’re getting ready to build the first house. You found a piece of land. Do you remember what was going through your mind as far as the fears or the hesitations as you were considering doing it? Maybe there were any because the family was like, “This is easy. We’ve done him a hundred times. No big thing.”
There’s so much fear. I remember the first day when the excavation equipment was coming on site to come and clear the land. My husband threw up in the bushes because he was so nervous. We were not confident in any way possible. When I told my husband about this, the strategy that my mom talked to me about. I was trying to convince him and we got into this huge fight because he’s like, “I’m not doing that. I’m not taking risks.” He came from a family that never took this risk.
After we did one, he was the one pressuring me to do the next ones. It’s funny how that works. There was a lot of fear and a lot of doubt, but it definitely helped that we had my parents in our corner. They had it built. They built four houses in four years before they had my sister and I, which was like 30 years or 20 years prior to this house. They had experienced but times changed.
They were nervous about it too a little bit, but they had a little built my sister’s house years before. I don’t remember how many years ago. They were helping us through it. We had that guidance, but we knew that it was something we wanted to do because we were just unhappy being in a basement condo. We wanted to do more, so we did it anyway. I’m glad we did.
It’s very interesting. The architectural background, having a mom with experience pushing you in this direction and a husband. What’s the husband’s name?
Rob.
Rob’s over there throwing up in the bushes. I bet the readers can relate. I know I certainly can, even though I’m like 1,800 deals closed and tons of construction and still, I feel not fear but certain anxiety. It’s like, we came through 2020 through 2023 with the inflation that happened, and a lot of very sophisticated investors, companies, and people who’ve been doing the business for 10 years, 15 years, 20 years, and 25 years got jammed up. Some to the point of bankruptcy from the cost overruns when lumber went from, I don’t know what the numbers were, but it was like a 10X cost on just the lumber. Let alone the labor and every other thing you’re going to need. You can’t stop halfway through.
You got to keep going.
Was there a moment in the build that was the same one? The excavator shows Rob’s up chucking in the bushes. Was there another moment where maybe halfway through and maybe it’s like being out on a rope bridge and your past appointed a return or was that it when they were like doing the excavation?
I think that was it because once you get the ball rolling and you get working, for us anyway. Especially when you’re doing the actual physical work. You just get into this work mode, survival mode, and we’re in it. You got to finish it. There’s no turning back now. You just get into that grinding and keep going. Once we had to let go over excavator. It wasn’t working well. We had to hire another one. Early on, we learned the ropes of managing trades, finding the good ones and the importance of all that. It had a stressful moment but this was many years ago already. It’s getting a little blurry. We’ve lived some scary moments since then and all of our other builds. That I can say.
The Challenges Of Mitigating Development Risks
What’s the toughest trade, maybe that you have the most problems hiring and finding or maybe just one of the toughest challenges you faced over that ten-year building cycle out of all these properties that might be like a pitfall for other people to look out for?
That’s like two separate questions. First for the trade. One of the traits that we had the most problems finding was a good plumber because plumbing is tricky. You’ve always got working components with the water and stuff. That’s the first issue like floods and leaks. I think we went through three or four, maybe five plumbers. Now, we finally have a good one, but we’re about to take a break for a year and sit on our assets for a little while. It sucks when you finally have built your team up for ten years. Plumbing was probably the trickiest one because then you have to do service calls during management and then you want to make sure that they follow through on that.
In terms of probably the hardship that we’ve lived. One of the reasons why we’re taking a break for a year, we’re going to do a little bit of soul rejuvenation after that. There’s a lot of things going across the board. Not just in Canada and Ontario, but across the board. There’s new bills in California and Wisconsin that came up to incentivize affordable housing, where anything to make affordable housing help builders cut the red tape and just make the process faster and make it more affordable for people to get in and find rentals.
In 2023, they did that. The province passed a bill, where you could add a secondary dwelling unit onto existing zoning. I’m going to make it easy to understand. For example, if you had a zoning where you were allowed to do a single-family home. You were allowed to add a basement apartment, let’s just say. Now this new bill allows you to add another apartment on top of that already allowed apartment. If you have like this project here, for the people looking. This used to be a duplex. There was no third floor.
We ripped off the roof. We set it on the front lawn. Built up a third unit, and then we put the roof back on when that bill passed into doing three. We doubled the income of that property. That was one of the things we did with that bill. The other thing we could do is if you were allowed to do a semi-detached and then you could add basement units. With this bill, you could add other units on top making it into a sixplex, which saves you the development charges. You only paid development charges on the two main dwelling units. You don’t pay them on the secondary apartments.
That was huge for us because in Ontario, the development charges are like $40,000 for the main unit. You’re spending a lot of money. It would have been in 140,000 permits on a sixplex that we instead paid a fraction of that. The problem we had or the hardship we lived in was that because this was all very new and this was the province’s goals and not the municipality’s goals. The municipality is influenced by the province, by the Upper State to follow these goals. If they don’t want to follow it, they don’t have to.
They’re the ones missing out on these development charges. If you’re going in to build a sixplex that they would have otherwise had like $140,000 of income from that permit. Now, they’re only getting $60,000. They’re not very happy about it. What happened was because we were the first ones in applying for a sixplex in the area. They let it go with the pre-consultation. They were all okay with it, but then when it came time to release the permit, they had some time to do some internal policy changes. They decided to charge us the full amount. We were very unhappy about that because that skewed our numbers completely.
The price from the start, the numbers from the start didn’t make sense. We had a long battle with the city. We got lawyers involved. We got the province’s ministry and the leader of the city involved. Anyways, we had to fight it out and they kept saying, “No, we don’t care.” Eventually, we went for an appeal in front of the city council and that’s where we won. We won our case and we got credited at least $40,000 back which was better than nothing.
That took a toll on us because it was unexpected. It’s something that your audience could maybe learn from. You have to make sure that you’ve got all of these initial consultations with the municipalities in writing, in Black and White, that you are allowed to do this and that means something until you get your permit. There can be a significant amount of time between the time that you do your initial consultations and your studies to the time that you’re ready to pick up your permit. Sorry, that was a long story, but I feel like it’s worth mentioning.
Make sure to make initial consultations with municipalities in writing when securing real estate deals.
We love stories like this, Natalie. I appreciate the granular detail here. It’s extremely relevant and it highlights the development risk. In a moment, we’re going to take a look at some of the projects. For anyone reading, it’s probably worth going and checking out the video to see the quality of the new construction. It fills in the rest of the story.
It probably also justifies the aggravation and the risk to have this quality class A asset when it’s all said and done. Even if you had to overpay for it by $100,000. If you asked for a 5 or 10 years from now, that is going to be a superior product with higher rental rates than the existing stuff you could have bought that’s 30, 40, 50, or 70 in some of the areas where we invest 100 to 150 years old.
You get a class A tenant from the start, too, which is great.
For the new construction.
That’s what I mean. Sorry.
We ran into that. We have a development project. We’re going to go in for like 7 or 8 units and get that approved. We have a developer who’s going to take the project from us assuming the approvals come. The neighborhood filed with the historic society to try to get it labeled as a historic house so that we couldn’t tear that down. Historic society is like, “This person uses this as a weapon. It’s a pretty common tactic or technique. We don’t see any historical value here.”
My fingers are crossed. Maybe by the time this is live, we’ve gotten our good news and we’re at least one more step into the entitlement process toward getting it done. These are the things that you run into on a development. It’s very common for a $40,000 or $50,000 or six-figure unexpected expense before you even get your permits and that’s where the risk comes in. There’s a certain amount of value that a developer can bring to the market. When they bring a lot that’s entitled and has a permit issued and it’s basically what we call shovel-ready in the industry. It’s a separate topic for another day.
At the same time, it’s worth mentioning because there is risk involved. If you do your due diligence correctly and you go in with the right conditions before even going solid on your offer. You can mitigate that risk. There’s always a way, but especially when you’re doing larger development, then it gets riskier because there’s more studies involved. There’s more contingencies you have to plan for. If you stick to small multifamily, there’s a way to make it a lot less risky.
If you do your due diligence in real estate correctly and set the right conditions before even going solid on your offer, you can manage and mitigate development risks.
The Price Tag You Should Be Preparing For
What’s the price tag on that? We’re doing some large 100-lot subdivisions and our price tag is about $200,000 to $300,000 at least. Sometimes $400,000 in soft costs, meaning the engineering, the architecture to figure out if we’re going to get the answer from the municipality of, “Yes, you can build,” and we have a project or not. What is that line item for you? You have a lot. You’re going to build 2, 3, or 4 units there, and you’re in due diligence on your contract. Before you lose your earnest money and you got to perform, you have to pay how much to get the answer, whether or not it’s a project you can go forward with?
First of all, that’s why we don’t do development the way that you were explaining it, like the 100 lot development. We don’t do that, especially because of that. It’s very high risk. You need a lot of capital. You need to fund it for a long time. We don’t do it because of that. We stick to infill projects, where the lot and the services are there. Basically, you take property in an urban area. You’ll tear down a house maybe, and then you’ll rebuild and take advantage of the zoning loopholes where you can identify a little bit more than just a single-family home.
Let’s say before you even lift your conditions on your offer and you go firm on your offer. You probably only need a couple thousand because you just need to do maybe a soil test. The conditions that I usually tell people to do is to do a soil test. Make sure your soil makes sense and you’re ready if you need a bigger foundation or whatever to support that soil. You need a pre-consultation with the municipality to make sure that they are in favor of the project you want to do. You want to be clear and upfront with them and you need your financing conditions.
For the financing, you might need to hire a designer to get at least a preliminary done. You don’t have to have the full set of plans done, but you want to make sure that what you want to build fits on the lot. If you want to do a sixplex, fourplex or a triplex, you want to make sure that it fits within that fill project, that lot. You might have to pay a couple of thousand for that initial design or probably not. It’s probably just a few dollars.
For us, we do the designs in-house because we started architecture. I do the designs myself. It’s just that soil test of $350 that we pay for and that’s it. It depends on what project you want to do, how big you want to go and what you need for your conditions. If you’re doing something bigger than a sixplex, then it usually falls into commercial lending. You might need environmental studies. That’s a different ballgame, too. You might still be able to stay conditional on your offer until you can at least raise like phase one of that environmental study. That might be a few more thousand dollars, but we’ve never had to do that yet. We try to stick to small multifamily because the numbers just work.
In the US, the limit would be four. Five units up in the US is commercial financing. Four and under fits the owner-occupant far easier.
It’s the same thing here. It’s just that when you go for six or more, you’re still commercial lending but that’s when the lender might ask for environmental studies. As a fiveplex or sixplex, you might still not need them yet. It just depends on the lender and their specific requirements for the number of units you’re doing.
A Deeper Look At Natalie’s Real Estate Projects
We would hit that with five units. You would fall into that book. Let’s take a look at some of these projects. We’ll treat this like a case study. This is what I thought was cool. It’s the Instagram page. Nice brick facade. We’re looking at a duplex.
It’s a triplex that we just finished building.
You have a two-door entry on the front.
One, you have to go down a couple steps on the side of the building and that gets you into the basement walkout.
It’s a great-looking building.
Those are like larger three-bedroom and three-bath units. We have a four-bedroom in that triplex. Our biggest unit yet.
A four-bedroom?
A four-bedroom and three-bath at the top unit.
What does it cost to build this? It’s Canadian dollars, but we could do the calculation.
This one, we did with a joint venture partner. It was our first time with the joint venture. We’re doing a sixplex with him as well. There’s more cash involved because we’re making sure that all the duties and responsibilities are separate. He takes care of money management. We take care of the actual construction. We’re paying ourselves a rate for each of those. We’re at about $750,000, I have to say. I don’t know the numbers. What is that in America, probably about $550,000?
That’s great.
That’s pretty good. It is valued at about a million.
Is that based on cashflow typically on an appraisal or comparable sales?
They’ll do all three approaches on your appraisal. They’ll take the cost approach. The income approach and the comparison approach, and then they’ll give you a fair market value with those through approaches. It depends on how much weight they want to put on each. In my book that I wrote, I talked about and explained the appraisal process in detail. It’s about the same in the states. The process is very similar for new construction because I spoke to a couple of people in the states. They’ll just take a general amount based on those three approaches.
In the City of Philadelphia, we have an office just outside of Philadelphia. A lot of the audience are from that region, but they’ve had a pro development support, I guess, subsidy. When you build a new building there, you get a ten-year tax abatement. It didn’t matter if it was in the higher-end area, the lower-end area, etc. The lots are small. We’re talking like a 600 square foot lot or 750 square foot lot. Tiny lots, but you could buy them very cheap in areas that were lower income, build a six-unit building as long as it was a corner lot, and then do like public housing. Get an income-based appraisal because there were no six flat comparable sales to get all their cash back out.
His strategy, the guy I know who was doing this, was not to sell any of them. Only keep recycling to cash the same way that you did. I love this build, particularly. A lot of long-term readers probably have heard me say this before, but it’s all about beds and bass when you’re buying a rental property. It’s like, if you’re going to house hack, go out, get the most bedrooms and most bass that you can because you’re going to come in.
The ability to rent to a family as opposed to a one single person or a couple, if this was a one-bedroom, one-bath unit or three-bedroom and three-bath. Now, you maybe got two or three roommates, if you want to accept that, who can afford a higher rent. Maybe you have a family or a couple and two or three children who will probably make that a home and stick around a lot longer than someone who’s a little more transient in the one-bedroom unit.
Over time, the higher rent as it increases and inflation occurs. It just turns out to be a much bigger number that moves the needle. For me, how much dollar and rent can I get for each roof, each unit? The maintenance costs there, if I had have ten units to make that certain rent versus maybe three units to make the same rent. Now, I only have maintenance calls on three units and not ten. I love the three-bed strategy. You put like a classic A product out there that just has no competition.
That’s the goal. A lot of people will stick to two bedrooms because it is easier to manage a tenant that way. When we’re talking Airbnb’s or short-term rentals, then that’s where people maximize bedrooms, typically. For long-term rentals, a lot of the local builders here will stick to two bedrooms also because sometimes that’s what fits the most on a lot. When I’m designing the space, I try to maximize it as much as I can because, as you said, it gives you a broader shot at the market.
It’s less competition. It’s cool that you’re the designer. You’re the one who sat down and made these decisions.
I designed the whole footprint and the outside and all that. I have a lot of fun with it. That’s the part I like doing the most. This one is a six plex that we did. This is the one we had the whole fun with the city council where they owed us $40,000. This one is a sixplex and I loved it. This one is more of an inner rural area. We had to do a septic field for that one. A little bit lower rents, but still three bedrooms and one bath.
What is the rent there?
These are $1965 and we include the internet for $40. It’s more like $1,925 and then for $40 more, they get the internet included. We just put the Elon Musk dish at the top there.
It’s literally that rural?
Yes, exactly. Bell services stop right before this building. This is something that was a hiccup that we learned only after during the build. We thought we weren’t going to get internet access at this building and we were freaking. We’re like, “People need the internet more than the water these days. What are we going to do?” Bell was like, “It’s there. It’s just that, to get it, it stops right before your driveway. To get it to you, it’ll be like $30,000.” We’re like, “Screw you, Bell.” We got Starlink instead and we got a tech guy to wire the units. We put one dish on the roof, and it feeds all six units.
This is from April 28th, the picture that we’re looking at. Do you have six tenants now living in this building?
I do.
Have you had any complaints about the Wi-Fi?
There was one day that they said it was a little slow but I think it’s because it was like a Sunday. Everybody was using it. It just happened. Our tech guy said, “If everybody’s at home using it at once,” which is usually rare. Most people are out and about. Not all six or there at once. We have people doing night shifts and stuff. It doesn’t always happen that way but it only happened once. We had one complaint once from one tenant. I didn’t hear from the other five.
They probably did deal with it. We live in a condo building. There’s 450 units in our building. It’s like a city, but the internet is often slow and that’s why I was wondering. Maybe I’ll have to get a Starlink dish and put it on the balcony railing out here or something.
We love it. My husband’s parents have a cottage. Very rural. It’s like a nomad’s land. They don’t even pay taxes. It’s in the middle of the woods and they never had internet for their 50 years of owning that cottage. Now, they finally got to the Starlink dish and they’re all excited. They’re texting us from the cottage.
How Natalie’s Strategy Evolved For The Past Several Years
Very cool. A couple of things here, class A tenants. We talked about the investment philosophy, the buy-to-rent, and all that. Has that evolved at all? It sounds like you guys just build to rent right from the very beginning. I’m curious if there’s any evolution around your strategy in the way that you invest over the past years.
We grew our business. We grew our team. When we started, my husband and I were doing work around the clock. We started with a forward focus and we were strapping lumber on top of the focus on the roof and that thing. We were working 40 to 50 hours a week and then working nights and weekends on our builds. We didn’t have much starting off as a couple. Eventually, now we have a full-grown business.
There were some hiccups obviously with COVID, the high prices, the lumber skyrocketing and the interest rates skyrocketing. We just always stuck to our core value of staying under leverage. That’s the most important thing that you can do. It’s to remain under leverage throughout your journey because when crap like this happens like interest rates skyrocketing, COVID and all that nonsense. We kept our heads above water. We had positive cash flow in each of our properties. There’s not one.
For a lot of Americans, they don’t know this but in Canada, we have to renew our interest rate every 3 to 5 years. You can lock your rate for a year, 2 years, 3 years, or 4 years, but never more than five. Some lenders will do ten but I’ve never lived that. You guys are very lucky that you can lock in a rate for 25-30 years. That blows my mind. The first time I heard that, I was like, “What?” We don’t do that. There’s a lot of renewal rates in 2023 when the interest rates were spiking or had spiked.
People were going from 3% rates to 6%. A lot of people were cashflow negative and barely holding on to their investment properties. There’s a lot of sales, too. We managed to stay afloat in all of them. We had a little less cash flow for a few of them. When we finished a build, we tried to stay within the 70% loan to racial value. A lot of builders will try to maximize the loan so that they can pull out as much cash as possible.
We usually try to stay moderate with that and we’ll pull out maybe $40,000 or $50,000 if we can. Sometimes less than that and then we recycle that into the next project. We make sure that we’re below 80% as much as possible. We didn’t change our perception that much of the build-to-rent. The industry changes around us but because we stuck to being more risk averted or mitigating that risk. It helped us a lot. I don’t know if that answers your question, though. Is that what you were asking?
That’s spot-on. How does it evolve? Maybe you did it by default in the beginning, but there is a temptation for investors to milk the cash cow and go to the bank to take the money out. I watched a lot of people go belly up in 2007, ‘08, ‘09, ‘10, and ‘11 and that was the strategy. I remember this one guy. He said, “I had a closing.” We went out to dinner and it was a nice restaurant. He’s popping champagne and everything. I said, “Tell me about the closing. We did this and this. We did a refinance and got $90,000.” I’m like, “This is not a celebration. You didn’t make a profit. It’s not sold in the books here. You owe that $90,000.”
You have to make sure you can pay that back with high rents and interest rates.
Dealing With Tenant Vetting And Operations
Being on the lower leverage side is a critical and important piece. Class A tenants, was it a deliberate choice? Did it happen by accident? Maybe some advice on people who are dealing with class C and maybe highlighting a few of the differences if you wouldn’t mind.
I luckily do not have a lot of experience with class C. I’m very happy about that. I can’t compare the two. I’ve had some tenants that gave us problems. I have a list of those but that just came with experience of not vetting correctly. In the beginning, sometimes we’re just nervous building our first properties. The first person who came up and it was ready to rent. We would do like the soft check, but we’re like, “They’re just ready to rent. We know we’ll be able to cover the mortgage. We’re good. Let’s do it.” We had issues with those tenants specifically, but that was in the first few years.
The biggest piece of advice I can give people and I tell this to everybody now when I’m doing coaching calls or whatever. I tell them to make sure you take the emotions out of the equation at all times. There is no room for that in business. You have to be backed up by data and numbers. When you’re vetting someone, like if you can’t find a good tenant that passes all of your criteria. You’re better off keeping the place empty for a month or two until you find that right person, especially in Ontario. Where it’s impossible to get rid of a bad tenant. The tenant board is not on your side.
If you cannot find a good tenant for your property who passes your criteria, you are better off keeping the place empty for a month or two.
You want to make sure that you’re not getting tenants where they’ll cause you issues because I’ve lived it and it’s not fun. Vetting as much as possible. Calling references is probably more important than just checking documents. Calling references and asking the tough questions and speaking on the phone with them. Not just getting a letter because anybody can type up a letter. You want to catch the person in their life. If you can do that, if you can vet someone and then create systems.
The biggest piece that I should say and I probably should be keeping some of this from my book. The biggest thing that I tell people is don’t give your phone number for day-to-day communication. That is for emergencies only. Even that, if the house is on fire, they call 911. If there’s a toilet clogged, they should still be able to send you an email. They should know what’s your processes in place. They have to shut up the water. Wait for a plumber to come. Call an emergency plumber or something like that. There’s always a way to go around keeping it systematized and keeping your sanity if you will.
On the calling references, are these past landlords or personal friends? Maybe you have a specific interesting question that you asked and a specific answer that then led you to take a pass on that tenant.
I have my list of questions. I have a lot of documents that I share through my books. If people want to check that out, I don’t want to make it like a sales pitch but it’s just that all of the resources are there. I share all of my templates that I created and I got from other people, too. There’s a list of further questions in there. I don’t know if there’s like a trick question. What I’ll do is I’ll ask for their photo ID.
I want an interesting one. I want gossip. I don’t want strategies and tactics. I want, “I can’t believe this lady answered that way about this tenant. This tenant is insane. We’re not taking this person.”
There’s a video on my Instagram that went viral when I shared that. I had like five million views. What happened with this guy is I caught him in a lie. He was applying and he had put a bunch of references and I called these references. I called them first and I just asked them, “Is this person a good person?” I would ask them to confirm the address where he rented and the amount. They weren’t sure and they acted like they had a lot of tenants and they couldn’t remember on top of their head. That’s usually a yellow flag for me to dig deeper.
I had my realtor license back then, which I don’t have anymore. I don’t have time for it but I would check through the realtor database. I would check with the address that he’d given me and the name of the owner in one match. I called those people back after checking and I asked them more specific questions and I said, “The owner of this property is listed as Tom and Jerry. Who is this?” They would be like, “It’s because I’m more of a friend,” and then they got caught in the lie.
I realized that these references were not legit references. There’s something in his pay stub even. There was some stuff written in pencil. I don’t know if he had highlighted some stuff out like white out and then he wrote on top. It was just a big red flag. I told him, “I’m so sorry, but you have not been accepted.”
No kidding. I love that underwriting technique there to verify the address and owner. I don’t know about Canada, but in the States, in most counties, you can go in and see the owner as public information. You can see who owns property. Even if it were held in an LLC, you can. A lot of the states, not all of them, go see who some of the managing members were there. I love calling the past landlord. What was the address? What was the rent? It gives you this little signal that you can then go check on. For me, if it doesn’t match up unless I want that tenant badly. I’m probably not needing a whole hell of a lot more evidence. It’s like I got that bad gut feeling like it’s a pass.
With experience, you can. As you said, you have that feeling. You get to know what you’re looking for and you get some similar cases where you can compare. You’re like, “This sounds like this case. I don’t want to.” You have a bad feeling and you just don’t touch it. I don’t want family or friends as references because that means nothing to me. It’s got to be a professional type of reference. I usually ask two references per applicant. One from a past landlord. If you’ve rented more than once in the past five years then I want all of those references. I want to speak to each landlord for at least the last five years. Plus, an employer. A minimum of two references per person.
Taking A Sabbatical To Prioritize Family Life
What’s next? I know what’s next, a little bit of what we were just talking about. A lot of readers may be on the front end and collect a few rentals. You have this goal of getting to a certain number of rentals and maybe having some level of freedom in life. From our previous conversation, I know that was a little bit of why you have been with Rob building these assets. What’s going to happen in the next 6 to 12 months or maybe even the next five years for you, Natalie?
We didn’t have a specific goal, but we knew that we wanted to build as much cash flow and equity from the least amount of properties or units as possible. We don’t want to have to manage a huge portfolio. It’s all about replacing that income and having a freedom lifestyle. We started from zero. Now, our portfolio consists of about 40 units, which is $13 million of value. We’re very happy with that. This past year with the city and the lawyers and all that whole fight for the $40,000. We needed a break. We realized too that the strategy with everything that’s going on in the municipality, revamping their policies and other upping the development charges by 83%, which is insane.
It was already $40,000. Now it’s going to be like $80,000 or whatever for a single-family home. We decided we’re going to sit back. We’re going to relax. We’re going to see what’s happening too with tariffs and everything across our border. We’re going to see what’s happening there, too. We just needed a break and some soul rejuvenation. We have a full-time staff now. We have three people full-time. They know we’re going to be letting them go after this sixplex that we’re building now is done. They’re going to take temporary contracts somewhere else.
Hopefully, we’ll be able to take them back in 6 to 12 months and maybe build up the business again. Maybe do something different. We don’t know. My husband has a bit of anxiety with that idea of not knowing what we’re going to do next. We always had another project lined up. For me, I’m excited. It’s going to project us. What do we want to do? How can we improve our health, our lifestyle, our relationship, our marriage, our relationship as parents, and with her kids?
I want to travel. I want to just chill and bask in the assets that we’ve built in the past years. It’s exciting that we get to do that and we get to pick what’s next. I don’t even know what’s in five years. For the past years, I would have told you we want to get to this amount of cash flow and equity. Now I don’t know and I love it. I love not knowing. We’re going to go with the flow and see what happens.
I hate the five-year question.
I do, too.
I will continue to ask it because it feels like the thing that a lot of people want to know the answer to. When people ask me, it’s the same thing. It’s like, “I’m going to focus now.” I’m focused on managing the team that I have built and managing our deal flow. I have no idea where we’ll be in five years. Not just gray and gold, X, Y, Z income, or what have you. Regarding the sabbatical that you and your family are taking. That’s very cool.
I have quite a few friends in the commercial real estate space who have backgrounds similar to yours and mine. They built up this momentum and got to this place where a level of freedom is an option for them. The one buddy that I’m thinking of now is pictures from the Grand Tetons. He bought an RV and he put Starlink on the roof of that, which is why I know the name of Starlink. He’s driving across the country and out in Yellowstone Park. This is 6 to 9 months, this road trip and there’s at least 6 to 9 months coming soon and he’s not the only one.
Good for him. That’s the life I want to do, too. My kid just started school. We finally have the freedom but now he doesn’t. We’re stuck in that jam of what we’re going to do but we bought a cottage about an hour and a half that we Airbnb out. We used love for ourselves, too. We go there very often on weekends and stuff. We’re going to be taking them out of school for several weeks no matter what. I don’t care. It’s just kindergarten. We’re going to be traveling.
One of the tips I’d picked up from them, because we’re considering that aspect of the family again. I have a grown daughter. I’m remarried and we’re considering children again. It’s a very serious plan. God willing that will come to fruition, but we look at the education options. We went to school at a place for nine months a year. That’s how my wife and I both did it. We took a glance at some homeschooling options.
What that led us to was that there’s quite a few of these apps that are probably more effective than teachers can be at teaching them those specific how-to-read, or what the mathematics are or whatever the case is, if the kid is able to sit there and pay attention to that. I haven’t landed on one or the other. I’m probably still 90% in the camp of like physical school and how I did it because that’s just how it’s done. I am open to the possibility that maybe there’s a better way coming down the pike here.
There’s a whole shift happening in the states. A lot of people are going towards homeschooling and it’s very interesting. It’s a very interesting option if you have the patience as a parent to follow through with it, which I do not.
I can talk all this crap now. It’s a different story.
You’d have to live it to know if you can do it.
There is that freedom for the 6 to 8 hours when the kids go to school, so another form of freedom.
Yes, it’s time for yourself.
Writing “Build-To-Rent Strategy” And Other Book Recommendations
I have a final question I ask all my guests, but before we get to that point. I normally ask for book recommendations and I’m going to have you talk about your own. If there’s any others that were impactful and you feel like me or the readers feel free to mention them but don’t feel obligated to throw a couple titles out. Would you mind elaborating on the build to rent strategy?
I just finished writing it. I’m still in my soft launch thing where I’m just collecting reviews. It’s 50% off, if you want to get a copy. It’s the time. It depends on when this is launched. It’s going to go up in mid-October. It’s called The Build-to-Rent Strategy: A Guide to a Successful Rental Property Construction. It helps people understand the basics. It can help anybody who’s never done it before just how to even build your own house and how to house hack. I’ve got numbers in there. I’ve got links to templates for budgets and stuff. Understand the math behind it, the construction draws and how the math works if you need to get a private lender to help you get started for a commercial property or whatever.
There’s a lot of details. I also have a lot of whole chapters dedicated to DIY landlords. It helps the small scale investors. It can be a larger-scale investor who has always done renovations and now they want to look into construction. It can help with that. Another book that I would recommend in Canada, but I think this book helps in the States, too, because it’s very broad. It’s called the Secrets of the Canadian Real Estate Cycle.
We talked about staying under leveraged and that’s one of the concepts that I took from that book when I read it. I read it just before COVID. I was happy I read it because I had my mindset at how to mitigate the portfolio and how to make sure that we were going to live through it. I read it a second time when rates started to go up again. It’s a good book to read. It applies to any. It’s the real estate cycle in general. Even though it has the word Canadian in it, it applies to Americans as well.
A third book is the Denzel event 10X book. I liked it because as a mom entrepreneur with a young baby and we were growing the business with getting full-time people. We were growing in terms of doing three builds in one year. It helped me manage my time and have focus days, buffer days and relaxed days. I like that book for that. If there’s anybody else out there who wants to start an investment business and/or young parents, that book can help manage your time.
It is a business, whether you’re going to buy rentals or build rentals or flip houses. It’s a business.
As soon as you have one rental. It’s a business.
That’s right. How much is the build trench strategy when it’s going to be full priced?
I don’t know about the conversion in the US. In Canada, it’s going to be aimed at $24.99. It’s still cheaper for you guys. It might be under $20. We might have to bring up the price so that you guys pay $25.
The value proposition of books. This is why I asked about books on every episode. For $25, how many hours did it take you to put this together?
It took me two years.
Could you imagine paying someone to sit down or even phone calls? Am I going to have like 150 phone calls to extract this?
It’s so hard to just even get somebody to review the book. I’m like, “It’ll take you 60 seconds. Write a two-liner. Say that it helped you or whatever.” It’s hard to just do that but I understand too. The issue is that there’s so much noise out there these days. You go on Instagram and there’s just ads that pop up. Everybody’s trying to sell something. You get to a point where you’re overloaded with information. It’s hard to pick which one is worth your $25. I understand people. I get it.
There is so much noise out there these days, especially online. Everybody is trying to sell something, to the point that your brain is overloaded with information.
I would even suggest the book. I’m going to guess, but is the soundproofing technique reading?
I talked about it. I have a video on Instagram that I posted a few months ago, but it’s there. I break all that down. I talked about managing construction, the soundproofing composition that we use and a few different alternatives and the different building systems building that.
Anyone who’s going to build like the design and the details and design. You cannot just pass that to the architect. You have to understand why these design decisions are important, why you need them and where to pay for the money.
As a designer who designs rental properties, I put in a chapter about that too. Where if you’re going in like, “It’s easy for me because I design and I know what I want.” For other people who have to communicate that to a designer, they have to make sure that they give them clear instructions, so that they can follow and do it the way I’m thinking.
I can’t wait to order the book. You’ve got me excited. Is there anywhere else that readers can go? Contact information, website or something of that nature.
I have my website, TheNewBuildCouple.com. I’m also on Instagram at @TheNewBuildCouple. I also have a Facebook but I never go on Facebook. It’s not updated. There’s not a big following there. Most of my stuff is on Instagram. If you go on my website, there’s the links to both books, US link and Canadian link. You can send me a message through that website, too. I’m very responsive.
Getting The Right Support From Your Parents
My final question. What is the kindest thing anyone has done for you, Natalie?
I saw that and I read another episode before. I was like, “I don’t know what to say to that.” Do people always have an answer for that question? I can’t think of one thing, one specific thing. I can think of a bunch of little things. Honestly, I don’t know what to say. I might have to pass that question. I need to come back to that question. Give me time.
Fair enough. That’s good. It’s good when people are looking out for us and we certainly have had some of these moments along the way. I know I have.
What’s the kindest thing someone’s ever done for you?
It would have to be mom and dad. I know it sounds like an answer or an easy go-to. Especially my dad when I was first starting the business. He had this vision for real estate and paid for these seminars. Part of why I harped on the value of the book is I didn’t find books of that nature. We paid like $5,000. $10,000 or $15,000 for something called Millionaire University.
We got around a bunch of people. This was before podcast, YouTube and that thing in 2006. My dad was like an HVAC guy. He just retired. It’s not like he had money and put that on a credit card. He didn’t have the money to pay off. He took that advance and he pushed. I’m like, “We can’t afford this. We’re done.” He said, “You’re going.” He pushed me and paid for me to do it and he took a backseat. That was a cool moment that certainly helped us bring board my career in real estate.
I probably go with a similar answer of how I just always had the support of my parents. It wouldn’t be one specific act. They’re my people, so I get that.
Episode Wrap-Up And Closing Words
Natalie, it’s a great topic. Very interesting and cool portfolio that you build. I’m happy that you wrote a book and I’m looking forward to checking it out. I appreciate you coming on the show.
I appreciate you having me and talking about all the stuff. Let’s do it again sometime.
Important Links
- Natalie Cloutier on Instagram
- The Build-to-Rent Strategy: A Guide to a Successful Rental Property Construction
- Secrets of the Canadian Real Estate Cycle
- 10X
- The New Build Couple
Relevant Episodes: (200+ Content Packed Interviews in Total)
- Turn Key & BRRR-Key Rentals with Ali Boone
- Multi-Family Investing in Emerging Markets with Dave Lindahl
- Selecting the BEST Passive Multi-Family Real Estate Investments with Travis Watts
- Multi Family & Multi Million Dollar New Construction with Matt Skinner
About Natalie Cloutier
Natalie Cloutier is a Canadian real estate investor specializing in BRRRR 2.0 (Build, Rent, Refinance, and Repeat) for small multi-family properties. She leverages her architectural background to design and construct dense, high-quality rental assets. She successfully scaled her business from a zero-capital start by continually recycling equity.
