When the opportunity to buy a piece of land presented itself, AJ took his first step into the world of developing. It was his first development and he was successful with it, profiting about $1.4 million over a 5 year span. Hear exactly how the deal came about, how he was able to envision the sub-division on the land, getting the planning commission to agree to re-zone, and why he decided to also become a new home builder for the development. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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AJ Hazzi Real Estate Background:
-Founder & Associate Broker at The Vantage West Realty Kelowna
-Portfolio includes development property, resort property, rentals, fix and flips and cash flow properties
-The #1 recommended Kelowna real estate agency by Barbara Corcoran
-Winner of the Kelowna Chamber of commerce Young Entrepreneur of the Year award
-Based in British Columbia, Canada
-Say hi to him at www.vantagewestrealty.com/
-Best Ever Book: Millionaire Real Estate Investor
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, author of Rich Dad, Poor Dad, Emmitt Smith (he plays football and he does development), and many others. With us today, AJ Hazzi. How are you doing, AJ?
AJ Hazzi: I’m doing fantastic, thanks.
Joe Fairless: Nice to have you on the show. A little bit about AJ – well, we’ve got the winner of the Kelowna Chamber of Commerce Young Entrepreneur of the Year award. He is the founder and associate broker at the Vantage West Realty Kelowna. His portfolio development property, resort property, rentals, fix and flips and cash flow properties. He’s based in British Columbia, Canada. With that being said, AJ, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
AJ Hazzi: You’ve got it. Well, I got into the business when I was 19 years old and I became a real estate agent shortly thereafter. This was just going into that boom that we had from 2002 all the way up into 2008. I caught the bug early and was just really feeling that I had found the right business for myself, because I hadn’t experienced any downturns yet, so I was collecting real estate as fast as I could get my hands on it, doing a lot of flips to try to build up my capital.
By 2007, I had about 15 doors and was doing pretty good; then, obviously, the downturn happened and [unintelligible [00:02:21].13] a couple knocks, but weathered the storm pretty good because the bulk of my portfolio was all cashflow stuff. Like I said, I still have my real estate company here, a property management company, and since then I’ve been doing a lot of development stuff, buying some multifamily apartment buildings, that kind of thing.
Joe Fairless: What is your project right now that you’re focused on?
AJ Hazzi: I’ve got a few different projects. We’ve got a small lot subdivision, 13 modern green-built homes near the city center; we’ve also got 14 villas at the golf course [unintelligible [00:02:50].26] and I’ve got some projects downtown, some work/live lofts that we’re building, 10 units down on South Pandosy Village.
Joe Fairless: Why the evolution from buying existing properties to buying dirt and then building the properties?
AJ Hazzi: It wasn’t necessarily that I switched. I still purchase regular residential property. I’m just all about trying to add value anywhere we can add value, and there were certain pockets and certain opportunities that came to me that warranted a good, hard look, and at this stage in my career the access to the capital needed to do these types of things is there, and that’s why we’ve gone that route. But the bread and butter stuff, the multifamily, the duplexes, the houses – all those things are still a focus.
Joe Fairless: It’s one thing to want to add value by identifying an opportunity to build, it’s another to actually execute on it. How did you find the team members to surround yourself with since you hadn’t done it previously?
AJ Hazzi: You just hit the nail on the head there; you need a team, 100%. You can’t do it all. A gentleman that I know worked at a consulting firm, and these guys helped developers put together plans specifically, all the way through project management. So my first project there would be a small lot subdivision. I was foolish enough to think I could project-manage it myself, and I had these guys do the engineering side of it and the consulting side, and then I project-managed it. I would never do that again. I always wanna do a project manager… Give up the 8% and let somebody else do it.
Joe Fairless: What were some specific lessons learned when you did the project management of it? And what development was it?
AJ Hazzi: The subdivision I did up on modern way. One of the things that stands out to me was in negotiating the contract for the underground services. In the proforma they did for me they had sort of given me a number, which was 100k, for putting in the shallow utilities and the deep underground utilities. So me not knowing how it all works, I didn’t negotiate that contract well. I called somebody that I knew, I had them come out, and then in the end there were all these types of loose ends as to who is paying for what in terms of materials and rental of equipment that was needed, all the contingencies… We ran into everything – rock and water and all the things that you can run into, and there were no contingencies built into the contract, of course, because everything was fairly loose, because I didn’t really know how to write an MCD contract at the time. That’s why you hire a project manager.
Joe Fairless: In my mind that’s half experience, but the other half is having an attorney who has experience with those types of contracts and makes the clauses are in there.
AJ Hazzi: For sure. And you can get some boilerplate agreements for sure, and you can hire an attorney to go through it, but I don’t think anything is gonna replace the know-how of somebody who’s managed successfully multiple projects from beginning to completion. That’s invaluable.
Joe Fairless: Let’s hone in on one of these developments. Which one do you wanna pick?
AJ Hazzi: Let’s stay with the one we’re talking about.
Joe Fairless: Okay, what’s the size of it?
AJ Hazzi: 13 lots. It was a three-acre piece that I rezoned and carved into 13 50×120 lots, and we went through and not only created the lots and built the street, but we pioneered Kelowna’s first green street, which was kind of a different thing… There’s no curbs and gutters; we use these little bioswales… It’s a very funky street. But now we’ve actually went and became a new homebuilder as well, and we’re building right through to the end product.
I’ve hung on a little longer to this project that I had initially intended to – I was just gonna sell lots – and then when I saw where the market was going I thought “Why not become a new homebuilder as well and just build the end product?”
Joe Fairless: Okay, so let’s start from the first time that you had the idea to buy the piece of land, the three acres… It wasn’t zoned what it currently is zoned, because you said you went to rezoning; what was it that attracted you to this lot and what was it zoned for when you purchased it?
AJ Hazzi: It was currently zoned agriculturally. There was a house on the property that was totally dilapidated. It was brought to me by a friend of mine, actually. She mentioned that her grandparents had passed on and they were gonna look to settle the estate, and she came to me and asked me if I wanted to sell it on her behalf. They also told me that there was another realtor that was offering them an amount for the property and I essentially said “Yeah, I think I’d be interested in doing something with you guys on this”, and then I called my friend who was the consultant, and him and I signed a sheet of paper, we stood there at the lot, drew where the road would go, and pasted off and figured out whether or not this thing could be curbed into 13 lots. Then we went down to the city and we said “This is what we’re thinking about doing”, and brought in the planning department into the picture at this point, and they all said “Yeah, we’d support that”, and away we went.
Joe Fairless: What’s the key to get support with the planning department on a rezoning?
AJ Hazzi: You wanna understand what their goals and initiatives are and give them something that meets their goals. You can look at the official community plan of any place and you can look at what the initiatives they’re trying to achieve — if they’re trying to densify an area… You wanna go with the grain with the OCT, in my opinion. There are people who wanna reinvent the wheel… My opinion is to find parcels of land and give the city what they wanna see there in the future.
Joe Fairless: And they were looking to make it more dense, correct?
AJ Hazzi: They wanted to increase their tax base in certain areas. That area was future zoned for regular residential homes, so we were just sort of accelerating that. They’re getting frontage improvements and development cost charges… There’s a lot of benefits to the city when development happens, so provided you’re not asking for something that’s outside of their plan, you can usually gain support fairly quick.
Joe Fairless: Did you two go to them and say “We’d like these 13 lots?” or were there more or less initially?
AJ Hazzi: No, we got exactly what we were after?
Joe Fairless: And why did you have 13 lots, 50×120 versus two lots or 26 lots?
AJ Hazzi: It really just comes down to — two lots, the proforma wouldn’t have worked… At the time, we were thinking “Okay, $150,000 a lot (this is going back five years now; they’re over 200k), 13 lots – that’s 1.8 million”, and we figured it was gonna cost about a million too to develop it, and we just sort of did the rough math and figured out what we could pay for the land and still make a decent margin. So two lots wouldn’t have done it, and 13 was the maximum that we would have gotten based on the minimum parcel sizes, so we just went for the max… But it was still inside their by-laws and their rules.
Joe Fairless: The minimum parcel sizes according to that county or that municipality…
AJ Hazzi: Yeah, we were taking them to R1, and we looked at the minimum parcel size for R1 and figured out once you take away the road how many lots you can get.
Joe Fairless: As far as taking away the road, that’s where your buddy was coming into play, right? Because that would be a tough thing for me to pencil in…
AJ Hazzi: Yeah, we’re staring at this thing – it’s covered in trees, there’s a mound in the middle… We were looking at it and he’s picturing the mound gone and the trees gone, and he was telling me “Okay, we’re gonna have this S-bend road that’s gonna go in, it’s gonna have a cul-de-sac right up at the top, right towards that tree off in the distance…” He’s seeing it, because he’s done this before [unintelligible [00:09:46].17] I said “Okay, that sounds good.”
On a piece of a paper, when you draw it, like 300 feet wide by 1,000 feet deep, and I go “Okay, so I’m gonna have about a 700 foot deep road; okay, that’s about seven-tenths of my piece of paper…” You know, you can kind of pencil it out and you can visualize it if you’re looking at a two-dimensional piece of paper, but when you’re standing on the lot – having one of these guys that’s got the experience, who can look at something and say “Okay, this is how it’ll look after we’re bringing these big machines through…”
Joe Fairless: With not having done it before, how do you have a checks and balances between you two to make sure that what he’s saying is accurate? Because everyone makes mistakes.
AJ Hazzi: For sure, and there were mistakes made. The amount of fill that we brought in initially was based on some calculations that he had done, and in the end I ended up having to truck a whole bunch of that fill out… It was a huge trucking cost because the calculations were not exact, but it’s never gonna be perfect; it’s development, you don’t know what you’re gonna run into, but somebody with a good track record, someone that you trust, that’s not going anywhere, they’re not fly-by-night…
I put a lot of faith into the engineering, and in the end it worked out great… But were there some missteps along the way? 100%. Luckily, a good market… We absorbed them.
Joe Fairless: You said you did the first green street in that area… What made you think of doing that and what were the additional steps that needed to be taken in order to pioneer that?
AJ Hazzi: Initially we were trying to figure out how to create a way to get the cost of the road down, and there were some projects in Victoria that had done these curbless, gutterless roads that were narrower, so less asphalt, no curb and sidewalk for it either… So if you’re doing these plantings and these little bioswales — your landscape material is more, but it also added a nice aesthetic, because the properties all appeared to be 15 feet deeper and had these really nice landscape berms in front versus having curb and sidewalk… It’s kind of like a zero edge road.
I saw pictures of it, it’s gorgeous, plus it’s also less expensive to produce, so we said “Okay, we’ve gotta get the city on-site for this.” So we went down and we started talking to different council members and different people from planning and just explained our idea and asked if they would support it. Many were in favor, and when we had enough of them on-site, we decided to put it in front of council and go for it.
Joe Fairless: Do you have pictures of that on your website?
AJ Hazzi: Not on my website, but I can send you a photo.
Joe Fairless: Okay. I’ll give you an e-mail address later after we get done, and then we’ll post that in the show notes link so the Best Ever listeners can check that out.
And then the last question and then we’ll move on because our time is limited – the numbers, that little detail… How much did you acquire it for, what was the all-in price and where are you at now?
AJ Hazzi: We paid 630k for the property back in 2012, and it cost us about 1.3 million dollars to develop it (some cost overruns over the initial thought process), and then we sold the land component for 2.6, so we’re up to 200k per lot now in the land component… So we got 2.6, which was better than our initial proforma. And then on each of the homes we are at a 10% of build cost to the developer as well; we’re building homes in the 600k-800k range for the most part, so there’s a 60k-80k edge for each property as well.
Joe Fairless: Very cool. So you sold the land for 2.6. All-in you’re at about 2 million to get to that point, and then for every house you’re making about 60k-70k… Ish.
AJ Hazzi: Yeah. I think the total profit on the project is about 1.4.
Joe Fairless: Over about five years?
AJ Hazzi: Yeah, it’s been a five-year project.
Joe Fairless: Got it. What is your best real estate investing advice ever?
AJ Hazzi: Best real estate investing advice ever is to — actually, I looked at the question and there’s sort of three answers to this. Number one, you get what you negotiate. Don’t be afraid to ask for terms other than price. It’s not always about the price. Sometimes you can get very favorable terms. I’ve gotten myself into so many deals that I had no business getting into because I didn’t have the cash, but I gave the person the money and I got the terms that I wanted.
Number two, don’t do what everyone else is doing. Don’t follow the crowd. What everyone’s doing is usually the wrong thing.
Number three, you can protect yourself by always buying for cashflow. All the mistakes that I made were always based on speculating, versus investing in cashflow-producing properties.
So I have multiple things…
Joe Fairless: No, it’s great. One follow-up question on that, and then we’ll go into the Lightning Round. you said you can get better terms and you get what you negotiate… You said you got into deals where you didn’t have any reason to be in the deal, but you just got the right terms. What would be an example of that?
AJ Hazzi: Sure, there’s one recently. We have a commercial property in a very high traffic area here in Kelowna, and the price they wanted for the property was a little rich and it had been sitting on the market for a period of time… I did some investigating, found that these guys owned it nearly for cash and was able to strike up a win/win deal where they vendor-financed the lion’s share of the down payment required to buy this property. My total cash outlay should have been half of a million and it ended up being 150k. I was able to get into a property for essentially 7%-8% down, versus having to put 35%, which is what you would typically have to do on a property like this.
That deal, for example – it’s going to be a great holding property. We’re eventually gonna move our business and our office there, and it would have been too cash-intensive at the time for us had we not negotiated the terms… But most people would never think to ask that, so it’s out on the market for days.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
AJ Hazzi: Let’s do it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [[00:15:27].22] to [[00:16:29].15]
Joe Fairless: Best ever book you’ve read?
AJ Hazzi: The Millionaire Real Estate Investor.
Joe Fairless: Best ever deal you’ve done that you haven’t mentioned?
AJ Hazzi: 18-unit apartment building. Bought it for 1.6, put 300k into it, refinanced it for 2.7, got all of our money back plus 200k, and the thing cashflows 10k/month.
Joe Fairless: A mistake that you’ve made on a transaction?
AJ Hazzi: Speculating on condominiums in pre-sales at the end of the market. Lost 300k on two units. Never speculate, that’s the bottom line.
Joe Fairless: What’s the best ever way you like to give back?
AJ Hazzi: I like local charities, local causes, supporting local sports teams… That kind of thing.
Joe Fairless: And how can the Best Ever listeners get in touch with you or your company?
AJ Hazzi: Send me an e-mail: email@example.com.
Joe Fairless: AJ, thanks for being on the show. Thanks for talking through the anatomy of a ground-up development deal, the challenges… 13-lot, three-acre piece that was rezoned, and your whole process that you went from start to finish, with the numbers, as well as your best ever advice, a 1-2-3 punch: you get what you negotiate, don’t follow the crowd and protect yourself by always buying for cashflow; never, never speculate.
AJ, thanks for being on the show. I hope you have a Best Ever day, and we’ll talk to you soon.
AJ Hazzi: It’s been my pleasure! Thanks, Joe!