PV, Mit & Jeff
An investor asked us this on a call last week. It is one of the most important questions any unitholder should ask, because the answer reveals whether a fund is actually disciplined or just deploying capital to hit a timeline.
The deals we do not buy matter more than the ones we do. Saying no 19 times is what makes the 20th deal work.
For every building we buy, we review roughly 20. The other 19 get rejected. Sometimes quickly. Sometimes after weeks of due diligence. Here is the filter we run every deal through. Talk to us about the next closing
1. Submarket. We are open to opportunities anywhere in Ontario, but the market has to clear two tests. First, the numbers have to support forced appreciation, meaning we can reposition the asset and grow NOI through operations. Second, the local economy has to be diversified. A town that relies on a single industry like mining, or a single employer, gets filtered out. That is why our core markets today are London, Chatham, Ingersoll, Sarnia, and St. Thomas. They all pass both tests.
2. Asset Quality. Year built, construction type, unit mix, deferred maintenance. We are looking for buildings with good bones that need operational cleanup, not structural rebuilds. A 1970s walk up with solid envelope and tired finishes is our profile. A 1950s building with foundation issues is not.
3. Rent Upside. What do current tenants pay versus market? How much of that gap can we close through turnover and renovation? If the building is already at market rent with long term tenants, there is nothing for us to do. No upside, no deal.
4. Financing Math. Can the building carry its mortgage at today's rates? We do not underwrite to rate cuts. We do not underwrite to broad market rent growth either. What we do underwrite to is forced appreciation, meaning rent growth we can actually drive ourselves through unit turnover and strategic renovation. If the deal only works on a spreadsheet that assumes rates drop or the market pulls rents up for us, we pass.
5. Exit Clarity. Our exit is not a sale. It is the refinance. We turn over units, push rents to market, increase NOI, and then refinance the building to pull capital out tax efficiently. The building stays in the portfolio and keeps paying distributions. That is how we protect investor capital and keep compounding.
25 Storey Purpose Built Rental · Southwestern Ontario
$100K Minimum · Accredited / Existing FC Investors
Targeted Return: 20% to 24% Annualized
Most deals that land on our desk fail on gate 4. The seller or broker is still pricing off 2021 cap rates while the financing math assumes 2026 interest rates. That spread is where discipline gets tested. Plenty of funds buy these deals anyway because they need to deploy capital. We do not.
A smaller number fail on gate 1. We are open to expanding into new Ontario markets when the right opportunity shows up, but the pipeline in our core submarkets is deep enough right now that we do not need to stretch. When you already have access to good deals in cities where you have tenant data, comparable rents, and contractor relationships, there is no reason to underwrite into a market you do not know yet.
The deals that do clear all five gates tend to share a profile. Mid sized multi family buildings in established submarkets, priced realistically, with rent upside and a clear disposition path. That profile is boring. It is also the reason our distribution has hit on the 15th every month since inception.
Cash Flowing Apartment Buildings · Southwestern Ontario
$10K Minimum · RRSP / TFSA / RESP / LIRA Eligible
Distributions: 7% Annualized, Paid Monthly
"I have been putting money into the market for 20 years and watching it swing up and down with every news cycle. I wanted something that just worked quietly in the background. Foundation Capital gave me exactly that. The distributions hit my account every month. I barely think about it, and that is exactly the point."
Two deals on our desk right now. Both in our Southwestern Ontario submarkets. Both passed gates 1, 2, and 3. One is stuck on gate 4 because the seller is still pricing off 2021 cap rates. The other is stuck on gate 5 because the refinance math does not work at today's rates. Neither will close this week. The BoC rate decision lands April 29, one day before the FCPRET closing. We are watching both.
When an investor asks how we pick buildings, they are really asking whether we have a process or we are just making it up as we go. The filter is the answer. Five gates, applied to every deal, every time. No exceptions because of timeline pressure. No exceptions because a broker is pushing hard. Discipline is not what you do when it is easy. It is what you do when it costs you.
To your success,
PV, Mit & Jeff
P.S. If you have a question you want us to answer in a future Thursday Q&A, reply and let us know. We will keep these going as long as investors keep asking good questions. The April 30 FCPRET closing is 7 days away. Reply "interested" and we will set everything up for you.
By the Numbers
