JF1981: Rebuilding your portfolio with new develoment with Russell Westcott

Out with the old, in with the new. Investor Russell Westcott is repositioning his portfolio by selling his older properties and replacing them with new construction rental homes. Having transacted over 100 properties over the past 20 years, Russell and his business partner decided they were done being eaten alive by deferred maintenance. He also discusses some of the lessons he’s learned by surviving a couple Canadian market downturns. 

Russell Westcott Real Estate Background:

  • Veteran and full time real estate investor 
  • Built his first million-dollar real estate portfolio within his first year of taking the leap into real estate investing
  • Based in Coquitlam, British Columbia, Canada
  • Say hi to him at https://russellwestcott.com/

 

Best Ever Tweet:

“You need to invest in yourself first. Even though you might not have the money and you might not be making money-investment into the deal, you need to invest into yourself. ” – Russell Westcott


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Russell Westcott. How are you doing, Russell?

Russell Westcott: Hey, Joe. How’s it going today, my friend?

Joe Fairless: It’s going well, and looking forward to our conversation. A little bit about Russell – he is a full-time Canadian based real estate investor. He’s built his first million-dollar real estate portfolio within the first year of taking the leap into real estate investing. So, built a million-dollar real estate portfolio within the first year, we will talk about that. He’s based in British Columbia, and his website, RussellWestcott.com, is where you can go and check him out; it’s russellwestcott.com. So with that being said, Russell, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Russell Westcott: Well, thank you, Joe. I’m honored to be on your podcast and share today. Before we get into it, I just want to acknowledge you. I want to acknowledge you with the service that you’re providing for real estate investors, and congratulations, the world’s longest-running daily real estate show. I understand your event that’s upcoming is getting pretty close to being sold out, so congratulations to you for providing an amazing service out there.

Joe Fairless: I appreciate it.

Russell Westcott: Well, it’s interesting… Maybe it’s just the Canadian in me deflecting and that– I’ve often found that’s the hardest question to answer, is “Talk about yourself for a little bit, Russell.” Well, my journey is maybe a little bit longer than most people’s; maybe because I’m just a slow learner, and I just take the long route a little bit, but I joke that my journey started around the turn of the century, right around the year 2000. At that time, I had a self-inflicted Peter Pan syndrome, where I was afraid to grow up. It was a milestone birthday that hit that year in 2000, I was turning 30, and I need to grow up, I need to take financial control of my future.

I was renting a basement suite and never bought a property before in my life, had no idea where I was going to go for advice or where to go to take my business and take things to the next level. And lo and behold, the answer to me came from watching Oprah. On Oprah, around that time, I saw Robert Kiyosaki when he talked about Rich Dad, Poor Dad. That little purple book changed the direction and changed the trajectory of my life. After reading Rich Dad, Poor Dad, it changed everything on a different path that I was going down. That’s almost coming on 20 years now.

Joe Fairless: Got it. So what is your current focus now?

Russell Westcott: My current focus right now is what I’ve been doing for 20 years. I’ve built a fairly sizable portfolio. I’ve transacted over 100 properties. I’m actually in the process right now with myself and my business partner – we’re building brand new construction rental properties. So I’ve had my lesson handed to me of buying old crappy– now don’t get me wrong, I’m not saying anybody who’s buying older, junkier, crappier properties is doing it wrong. Maybe my age and advanced years, what I’ve seen, I’ve had my lessons handed to me by buying old properties with deferred maintenance; you just get eaten alive.

When you buy a property, and you hold it for 15 to 20 plus years, it’s now another 20 years older, deferred maintenance starts catching up on you, and you just get your lunch handed to you with expenses and bills. I’m now getting into actually building rental properties, like building houses with suites, building houses and garage suites, building duplexes, fourplexes, all the way up to eightplexes, and that’s what I currently hold.

Joe Fairless: So let’s talk about that. But first, within your first year, building your million dollars real estate portfolio that’s in your bio, what does that consist of?

Russell Westcott: Well, it consists mostly of townhomes. You may call them a little bit different, you may call them semis; different people call them different names. Where I’m investing, they call them townhomes, apartment-style condos. Those are the typical ones. Condo fees just slowly started creeping up and just eating me alive. When I first got started, and I put it in my bio that I built a million-dollar portfolio in my first year, I add about a million dollars in properties every year. What I’ve done now is changed my focus a little bit. But there was a time when I first got started that I bought a property a month for five years, on average. But I say that to not impress people, I say that to impress upon people that that actually was a big mistake; that I added way too many properties too fast, didn’t have the infrastructure built, didn’t have maybe the business acumen, didn’t have the support structure to do that. When you build a portfolio of 60 properties in under five years, you better have some really good support systems and people and teams surrounding you to be able to handle that, because that’s very, very big business.

Joe Fairless: Okay, so 60 properties in five years. How many of those 60 properties do you still have?

Russell Westcott: Today, I have a right around 30. I added another six last year and I’ll probably add another six to ten this year.

Joe Fairless: What property have you made the most money on?

Russell Westcott: The most money would be — probably it’s still to be determined. The new construction properties that I’m buying–

Joe Fairless: To date. Whatever deal’s gone full cycle, what deal have you made the most money on?

Russell Westcott: Well, most of the properties that I have sold, actually, I didn’t make a lot of money on. Most of the properties that I did was because I called the herd; when something’s not right, get rid of it. So the properties that I do have are ones that are performing well now. But I’m actually repositioning, I’m calling the herd, getting rid of old properties, and building brand new construction to hold for the next 15 to 20 years. Eventually, I’m repositioning my entire portfolio.

So I’ve been doing it — not to say I’m starting over, but in essence, I’m almost starting over again with my portfolio, as I built an entire portfolio, but a few of them did not turn out well; it was in a market that had to downturns in 10 years. Some of the properties I bought 12 years ago are worth less than they were today than when I bought them. So I’m just repositioning a lot of my portfolio now and building it all again from scratch.

Joe Fairless: I get it. I want to talk about the two downturns in ten years and the causes of those based on your perspective, but just to complete the circle of the question, so you have sold about 30 properties. So of those 30, which one, if any, made you the most money?

Russell Westcott: Well, interesting to note – most of the properties that made me money, I had to reinvest that back into the properties that lost money. It’s funny, it was probably about five years ago I had to sit down and I had to have a really tough conversation and a real tough look in the mirror, and I put together the good, the bad and the ugly plan. What I had to do at that time is I had to sell some good properties to pay off the downright ugly ones. Some of the bad ones are starting to be flushed through now and I’m left with a few leftovers. I’m building more– I’m left, when I say a few, I’m left with 30 places.

Joe Fairless: Yeah, 30’s a lot.

Russell Westcott: Plus, still adding more to the portfolio.

Joe Fairless: So of the ones that made money, regardless of what you did with that money, I’m just wondering, of the 30, which one made you the most money and then we’ll talk about the flip side.

Russell Westcott: The mistake I made was, I probably should have exited when I needed to, at the peak of a mark. So I had properties that I bought that skyrocketed up in value and then dropped down significantly. But I had properties that have made hundreds of thousands of dollars. I don’t have the exact number. That’s actually a very good question. I probably should go back and [unintelligible [00:08:23].20]

Joe Fairless: About how much has the one that made you the most money, how much did that make you?

Russell Westcott: I would say probably about $130,000.

Joe Fairless: Okay, got it. So $130k on the upswing, and then some of them that you sold, as you said, you’re calling the portfolio… Which one did you lose the most amount of money on?

Russell Westcott: The one I lost the most amount of money on probably was on a flip that I had gotten, and had bought it, and  I’m just trying to get the exact number… It was probably the flip it was at about nine months and it lost about 60 grand.

Joe Fairless: Okay, that’s not that bad. If you were presented a similar opportunity now, and you had to buy the property, but you could change the terms or price (within reason), what would you do differently to help mitigate that loss from taking place?

Russell Westcott: The number one thing I would do is with the money partner I was working with, I would have clearly expressed to him that if this doesn’t make money by the time we turn around and sell, we are going to then turn around and rent it. We got in with the money partner together. We got in, and the total intention was to sell it at the nine-month mark. The nine-month mark came and there was a loss in there. I had to do what we agreed to, but I would have probably positioned it upfront that we have to be prepared to hold it for more years to come if it is at a loss position.

Joe Fairless: How many years was that ago?

Russell Westcott: That was fairly recent, actually; within the last two years.

Joe Fairless: Okay. Let’s assume that you had rented it out for the last two years. Where would you be at this point with it?

Russell Westcott: It’d be getting closer. That was actually in a suburb of Vancouver where I live, where we did that. We had a very severe downturn in the last probably 18 months, where the market just fell out, the bottom fell out.

Joe Fairless: Is that the market where you said it had two downturns in ten years?

Russell Westcott: That was the Alberta marketplace.

Joe Fairless: Another market? Geez, I’m staying away from where you invest in… [laughs] I’m just kidding.

Russell Westcott: I make a joke quite often, “Hey, I’ve invested in this marketplace. Everybody stop investing now; go somewhere else.” One of my early mentors on the ground told me that sometimes we’re put on this earth to be a warning to others.

Joe Fairless: [laughs] Well, I think that’s true for everyone. There are things we can learn from everyone, that’s for sure. With the markets, two downturns in ten years for the, you said, Alberta? Alberta market?

Russell Westcott: Yeah. It was an oil-based economy.

Joe Fairless: Oil-based. Okay. So primary economic drivers were oil, so oil went down, therefore the economy goes down.

Russell Westcott: Yeah. Well, it’s a little bit more involved than that, but that is the gist of it. The first downturn was the global economic crisis back in 2008. Then the next one  – there’s a lot of policy things that have happened. There’s been a lot of– not going to get political here, but there have been some governments that have not been favorable for the energy industry, things like that have just not been favorable to energy-based economies. But the good news now is the market has been down long enough that the green shoots are coming in and it’s actually a fantastic time to get back in and buy at a very aggressive rate.

Joe Fairless: Alright. So now let’s talk about what you’re currently doing. Thank you for sharing the lessons that you’ve learned from what you’ve acquired so far. So now, you said–

Russell Westcott: Success is actually a poor teacher. So we learn more from our failures than we do from success.

Joe Fairless: So now, clearly you’re a personal development student; you follow Tony Robbins and others. Yes?

Russell Westcott: Absolutely. I did it far more back in 1992.

Joe Fairless: When you mentioned the phrase, “Impress, and impress upon,” I was like, “Tony Robbins. There he is. I know that.” Alright. So you said, “Forget that other stuff. I’m doing new development. I’m going to be building my rental properties because the maintenance expenses over the next 15 years will be minimal. And I’m going to hold these puppies.” First off, is that an accurate assessment of where you’re at now?

Russell Westcott: Absolutely, yes.

Joe Fairless: Okay. So I’m going to play devil’s advocate and just mention – I want to hear your thoughts – that okay, new development, totally agree that maintenance is low, and you’ve got a brand new property, and it’s a shiny thing for residents to flock to. On the flip side, should a downturn happen – like what happened twice in Alberta, and like what happened in Vancouver that you mentioned – then having dirt that you’ve purchased that’s not generating income prior to stabilizing it puts you in a precarious position. So what are your thoughts on mitigating that risk?

Russell Westcott: So here’s how I mitigated that risk. I actually only buy the finished product. I do not own the dirt. I’m a business partner and I will go out, identify land positions, and then we have a group of builders that will actually go out and build it for us. We do not buy in spec, we actually only buy based upon properties that we have. When I close on it, there’s actually a host on it. When I own it, there’s actually a tenant in place on the property, fully done, purpose-built rental property.

Joe Fairless: Wow, okay. Just so I’m understanding it correctly, you identify the land positions, meaning you go and you say, “I’d like a house here, please.” Then you speak to your builder and he or she goes and builds it. They put up all of their own money, they put all their resources in it. You have no money, nothing tying you to purchasing that. Then once it’s built, then the builder comes to you and says, “Okay, you said you wanted that. So now you may buy it from me at x price,” and then you buy it.

Russell Westcott: That’s very close.

Joe Fairless: There has to be a catch. I knew there is a catch, because I knew it didn’t quite work that way. That’s why I wanted to summarize it.

Russell Westcott: Very close. So my business partner and I – he will go out, he lives in the area, I live in Vancouver. My job is to get on stages and talk and bring people and excite people and bring investors to the opportunity. I will go find an investor that might want to buy a property through me, or just go buy it on their own. Then my business partner goes out, finds a good subdivision, finds the right spot with good parking, everything; they have the right floor plan for tenants. Then the investor who’s buying it, whether it’s myself or the person that I bring to it, will write an offer. They’ll put down a deposit anywhere between 5% and 10% deposit. They’ll also qualify for a mortgage. Then when they have a purchase contract, the builder then has the confidence and they’ll go build the property then. Then the investor will then close on it, say, six to nine months later.

Joe Fairless: Got it. Okay, so the investor and builder are the ones who have the risk in that. The investor has 5% to 10% deposit and the builder has their time and perhaps supplies.

Russell Westcott: But with the investor, the risk is mitigated because the money sits in a realtors’ trust account. If the builder does not build it or does not fulfill upon it, the investor can get their money back because it’s sitting with a realtor. There are laws governing deposits sitting with realtors.

Joe Fairless: Cool. So assuming that there’s not a major market crash, then a lot of the risk is mitigated in that scenario.

Russell Westcott: Yep.

Joe Fairless: Okay.

Russell Westcott: The builders don’t want to bite off more than they can chew, too. Most of the builders are actually just using land positions they already have put deposits on.

Joe Fairless: Sure, right. Of course.

Russell Westcott: Right now, in the market I’m buying in, to buy a brand new construction property is not much more money than actually buying a house off the MLS. Usually, people say, “Well, with new properties, you’re paying a premium.” In the market I’m in, new construction properties cash-flow, and they’re not that much of a premium. That’s why I’m doing this.

Joe Fairless: What market are you in?

Russell Westcott: It’s in a northern city of Alberta.

Joe Fairless: Edmonton Oilers.

Russell Westcott: You betcha.

Joe Fairless: So you’ve been all over Canada. You’re all over… [laughs] It’s like, pick your Canadian reference point in this conversation. I gotta look at a map afterwards to see your travels of real estate ventures.

Russell Westcott: Well, I actually grew up in Saskatchewan, so…

Joe Fairless: Okay, there we go. I want you to mention as many Canadian places as possible during this 30-minute conversation.

Russell Westcott: Yes. And I may drop a couple A’s and I might apologize a couple times, too.  I should have my Tim Hortons’ coffee with me here, too.

Joe Fairless: [laughs] So Edmonton is where you’re buying. What’s the purchase price on average of new construction?

Russell Westcott: Well, depending on the model and finishing and stuff, anywhere between 400k to 525k for a suited house model, all the way up to, say, 1.6 million for an eightplex.

Joe Fairless: An eightplex, okay. For easy math, we’ll start with the $525,000 property. What’s that renting for?

Russell Westcott: Well, I’ll give you my last two suited houses I bought, where in essence there’s 920k, essentially for a fourplex. That’s rented for 75k grand a year.

Joe Fairless: Okay. $75,000 a year divided by 12 is $6,250. Then what did you say the purchase price was? 900k?

Russell Westcott: All-in, that includes all taxes, that includes all landscaping, that’s a completed turnkey  property.

Joe Fairless: Okay. So people talk about the 1% or 2% rule. This is 0.67 of a percent. But it’s a new construction. Have you heard of the 1% rule?

Russell Westcott: Yeah, absolutely.

Joe Fairless: Okay, cool. So it’s under, but your take on it, which is very logical, is that it’s new construction, so you have less maintenance headaches.

Russell Westcott: Well, let’s put it this way… I have not had a phone call for these properties yet. As a matter of fact, they’re under warranty for the next two, five, ten. There’s a warranty on it. The maintenance hassles are a lot less. The difference in tenant profile is completely different, too. Like, getting people that are making a $100,000/year incomes. One of the other units is — there’s a police officer, an [unintelligible [00:18:05].20] officer, and his family. It’s a completely different tenant profile that you’re getting. It removes a lot of the maintenance and a lot of the management hassles as well.

Joe Fairless: Then when you scale up in units for the eightplex, is that a similar ratio?

Russell Westcott: It’s a little bit better.

Joe Fairless: A little bit better. Okay, that makes sense.

Russell Westcott: Yeah. On an eightplex, I don’t have my numbers in front of me, but it’s significantly better on an eightplex where potentially you’re getting, depending on the mix, you’re getting $1,800 per unit on the up; you’re getting almost $12,500.

Joe Fairless: Okay. So you did the annual amount?

Russell Westcott: No, that’s for a month.

Joe Fairless: Twelve five, $1,250 a month, per unit?

Russell Westcott: No, a total, all eight, $12,500.

Joe Fairless: Okay, because it’s about $1,800 a unit?

Russell Westcott: They come in stacks; there’s an up and down. So it’s 16 up, 9 down.

Joe Fairless: Okay. So how much per unit, on average, rent per month for an eight-unit?

Russell Westcott: $2,500 per stack of four. $2,500 times four. Then there are utilities on top of that. So the way it’s built is essentially– it’s a stacked townhome and there’s four of them put together.

Joe Fairless: Okay. So there’s an eightplex, so there are eight different families. There could be eight different families living there. Is that accurate or not?

Russell Westcott: That’s correct. It could be 16 up, 9 down.

Joe Fairless: 16 up, 9 down for an eightplex?

Russell Westcott: No, there’s four. There’s a stack of four. So think four townhomes all stuck together.

Joe Fairless: Okay, got it. [inaudible at [00:19:41]:05] Okay, so eight total dwellings if it’s an eightplex, right?

Russell Westcott: So I guess this would be the best way – four of them at $1,600 and four of them at $900.

Joe Fairless: Got it. Okay, so four are at $1,600 rent a month and then four of them at $900.

Russell Westcott: Correct. Then there are utilities, there’s parking there, there are things on top of that as well.

Joe Fairless: Fair enough. Okay, I understand. I apologize for being dense on that, but I understand now. So let’s just go with the best-case scenario. If it’s $1,600, and I’m paying about $200,000 for it, instead of 0.67%, it’s 0.8%.

Russell Westcott: Yep.

Joe Fairless: So it’s inching up closer to the 1% in the $1,600 case, and the other one would be obviously lower than that.

Russell Westcott: Then where we’re doing these and building these, that might be different across jurisdictions. But some of the investors that are getting in with residential financing on these, instead of going the commercial route, are able to get actually a residential mortgage with full discount CMA, those kinds of things as well, as opposed to the commercial route.

Joe Fairless: Okay. Yeah, I imagine it’s going to be a lower down payment and lower interest rate and longer amortization.

Russell Westcott: No fees as well.

Joe Fairless: Oh, beautiful. If they buy the whole eightplex, they can get that type of loan?

Russell Westcott: On one title. If you buy one title, you can get one mortgage.

Joe Fairless: Wonderful. For the whole eightplex?

Russell Westcott: Correct. And really cool exit strategies; you now have the ability to potentially subdivide it into four separate titles.

Joe Fairless: There you go. Then you can sell them off piece by piece.

Russell Westcott: Yes. Buy by the yard, sell by the foot.

Joe Fairless: Okay, that’s not the first time you said that. I’m kidding with you. Cool. Well, when you take a look at your experience as a real estate investor, what is your best real estate investing advice ever?

Russell Westcott: The best advice was someone who gave it to me very early, and the best advice was, “Money is required to buy real estate, but it doesn’t have to be your money.” That came to me very early and thank goodness it came to me very early, because I had no money to buy real estate. I had to learn the process of how to raise capital from other people in order to move forward and keep building this portfolio. So I built my entire portfolio raising capital from other people. I’ve written books on it, I’ve taught people, I’ve trained… I’ve done the majority of my real estate investing in other people’s capital and helping other people.

Joe Fairless: You’ve just come across a 20-year old, and she asks you how she can get started in real estate. In particular, she wants to learn how to partner up with people and use their money, not hers, because she doesn’t have money. What is your advice to her?

Russell Westcott: The best advice I would give her would be you need to invest in yourself first. Even though you might not have the money and you might not be making money investment into the deal, you need to invest into yourself. I was in the exact same boat and then I would just share my story; truly, when I got in, I had no money. I could qualify for a mortgage, but I had no down payment. So what I did was I got involved with a network.

I networked, I trained, I got a coach, I got mentored, and I kept sharing with everybody that I talked to what I was doing, and the action I was taking, and the properties I was dealing with, and things that I was learning. And all these people that had the capital saw that I was willing to invest in myself and that I was willing to do the work. Then eventually, I was getting my hands dirty, and eventually, they trusted me to do the work for them, and they were putting up their money into the deal after that.

Joe Fairless: What program did you go with to find a coach?

Russell Westcott: Through a company up in Canada called the Real Estate Investment Network. I actually ended up being their vice-president for the better part of 13 years as well.

Joe Fairless: So I was going to ask, would you recommend — but you’re a fan. So yes, you’d recommend it.

Russell Westcott: Yeah, 100%. But here’s the thing – things have changed so much, and you would know this too, Joe; things have changed so much. Meetups – there are so many amazing meetups in the real estate space. Every local community and market almost has something. The main thing I would just say is, just show up, get out there, start hanging out with those like-minded people, and you’ll be amazed at what can happen.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?

Russell Westcott: You betcha, brother.

Joe Fairless: Alright. Let’s do it. First, a quick word from our Best Ever partners.

Break: [00:23:59]:08] to [00:24:59]:02]

Joe Fairless: Alright, what’s the best ever deal you’ve done?

Russell Westcott: Best ever deal– interestingly probably, it was my first one. I know sometimes people obviously say their first one, but the first one was the one that I got in the game. I will be honest, I did everything wrong, I made all the mistakes, I struggled along. Actually, the tenants in the basement suite passed away on the property and I sold it within probably a year of buying it. I did the entire cycle of buying and selling it within one year, and I lost money on it. I lost about 500 bucks. I sat there and I’d go, “You know what, if I just do one thing better the next time, I think I can make this work,” and I didn’t quit. That was the main thing, was it got me in the game. It started — even though I did a lot of things wrong, I didn’t quit, and that was probably the best deal I ever did.

Joe Fairless: What’s the best ever way you’d like to give back?

Russell Westcott: The best way I like to give back is actually just teaching and sharing and coaching and consulting. I jump on to podcasts all the time, I do Facebook live all the time. I host multiple Facebook groups. I write books, I teach, I share. I’m a firm believer in the quote by — and I’m probably gonna mess up the quote a little bit, but it’s a John F. Kennedy quote, “To whom much is given, much is expected.” And I’ve been so blessed over the years and in order to be a blessing to others, I need to share everything that I’ve learned. I’ve had so many amazing mentors in my life, and I’m actually in a point that I’m giving back to the real estate investor community of mistakes I’ve made.

Some people will not talk about their mistakes, that it’s only just unicorns and butterflies and sunshine and roses and everything’s wonderful. Not everybody will actually share the struggle and share the downturn and share the mistakes that you made. I actually celebrate them, and I actually am sharing all these lessons I’ve learned through almost 20 years. I share this with the real estate investing community, to encourage them and inspire them to keep moving forward.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Russell Westcott: My website is the hub of all things. That’s just russellwestcott.com.

Joe Fairless: How’d you come up with that website name?

Russell Westcott: I think my mom did. [laughter]

Joe Fairless: Russell, I really enjoyed our conversation. As you said, celebrating mistakes and talking about that, but then also talking about your success and your focus now, and why you’re focusing on it, with new development and the structure that you have with the individuals or the parties involved. I really enjoyed our conversation. I hope you have a best ever day and we’ll talk to you again soon.

Russell Westcott: Right on. Thanks, Joe.

JF1824: Doing 18 Deals In 18 Months with Dave Dubeau

Many new real estate investors, and even seasoned ones, would love to do 18 deals in 18 months. We’ll hear how Dave was able to do exactly that in this episode. We’ll also hear how Dave helps other investors raise capital.  If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Start with your sphere of influence” – Dave Dubeau

 

Dave Dubeau Real Estate Background:

  • Real estate investor, best selling author and a trainer and consultant
  • Began his real estate investing career in 2003 doing 18 deals in 18 months
  • Has done rent-to-own deals and now invests in apartment buildings
  • Helps real estate entrepreneurs grow their portfolios
  • Based in British Columbia, Canada
  • Say hi to him at https://davedubeau.com
  • Best Ever Book: Dream 100 Book by Dana Derricks

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? 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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Dave Dubeau. How are you doing, Dave?

Dave Dubeau: I’m doing awesome, Joe. Thanks for  having me on the podcast.

Joe Fairless: Yes, my pleasure, and looking forward to our conversation. A little bit about Dave – he’s a real estate investor, he’s an author, a trainer and consultant. He began his real estate career in 2003, doing 18 deals in 18 months. He has done rent-to-own deals, and now invests in apartment buildings. He is based in British Columbia, Canada.

With that being said, Dave, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dave Dubeau: Yeah, so my background is I’ve been self-employed since early 20s. Marketing is my main interest, so I’m a marketer first and a real estate investor second. I got into real estate investing after living overseas for about 14 years. So I kind of started from scratch, and got into the creative, wonky, no-money/low-money down type deals. Those were those 18 deals in 18 months… Which might sound kind of impressive, but if I had understood the power of using other people’s money, I would have been a lot further ahead.

Fast-forward a few years, I got into rent-to-own kind of deals, focusing on what I call tenant-first properties. I had some pretty good success with that, until the market kind of turned around. Then most recently, starting about 2013, I started focusing more on multifamily properties.

My main thing, Joe, in addition to real estate investing, is helping mom and pop real estate investors attract money partners, attract investors, and raise capital. That’s really what it’s all about.

Joe Fairless: Okay. Let’s talk about 2013 and on. You said you’ve been focused on multifamily properties. What have you purchased?

Dave Dubeau: Well, right now the biggest deal is two buildings, actually, outside of Ottawa, Ontario, and I also have three sixplexes myself as well.

Joe Fairless: Okay. That 54-unit – are you the only partner on that deal?

Dave Dubeau: No, I’ve got joint venture partners on those deals. On all of the deals.

Joe Fairless: Okay, cool. Let’s talk about it. When did you buy the 54-unit?

Dave Dubeau: That was in 2013.

Joe Fairless: And what was the purchase price?

Dave Dubeau: The purchase price was 4.9 million.

Joe Fairless: Alright. And what’s the business plan, and can you talk to us a little bit about how much you are investing into that business plan, and how that’s gone?

Dave Dubeau: The investing plan is we’re actually looking at divesting ourselves of that property right now. The local market in that area has appreciated more than we thought it would, and it looks like it’s a pretty good time to divest… So we’re in the process of that.

We have a  buyer on board that we’re just in the process of seeing if he can get qualified for financing for that property… So yeah, basically we’re looking at getting out of that one.

Joe Fairless: Okay. So what are you selling it for?

Dave Dubeau: I believe we’re gonna be selling that for 6.5 I believe is what we’re gonna be getting for that.

Joe Fairless: Okay, and then what was your role in this whole deal?

Dave Dubeau: What I do, Joe, is I partner up with people that are smarter than I am, and better at dealing with the tenants and the toilets, and all that kind of stuff. I take an equity position in the properties and I help raise capital to buy the deals.

Joe Fairless: Okay. How much equity was raised for this purchase?

Dave Dubeau: That was approximately $800,000.

Joe Fairless: And when you bring capital and partner up with people, what is the equity ownership that you typically receive for doing so?

Dave Dubeau: Well, it depends on the size of the deal. For that one it was 15%. For other deals – it really depends on the size and how many partners I bring on board.

Joe Fairless: And was the $800,000 all of the equity required to close the transaction?

Dave Dubeau: It was, yes.

Joe Fairless: Okay. And $800,000 divided by 4.9… That’s only 16% of the purchase price. That surprises me that it’s so low. Was it owner financing?

Dave Dubeau: It wasn’t, actually. It was just very good financing at the time. The active partner that I’m partnered up with in that deal has a pretty significant portfolio and a very good relationship with the lender that we used.

Joe Fairless: Okay, so it was a local lender… What was the business plan for that deal?

Dave Dubeau: The business plan was to hold on to it for five years and then refinance, and ideally pull out a good chunk of the investors’ initial investment, and then keep holding on to it. However, after reevaluating the property, it looks like it’s probably a better idea to divest, because the price is right, plus we’re looking at some probable capital improvements that have to happen over the next few years, so we’ve decided as a group we’d rather sell.

Joe Fairless: Sure, okay. Yeah, sell before you have to invest in those cap-ex projects.

Dave Dubeau: Yeah. We already had to replace an elevator, and that was pricey.

Joe Fairless: Okay… How much was that?

Dave Dubeau: I think that was $120,000.

Joe Fairless: $120,000 to replace an elevator.

Dave Dubeau: I believe so, yes.

Joe Fairless: Dang… Okay.

Dave Dubeau: Everything’s a little more expensive up here.

Joe Fairless: [laughs] Right. Well, in terms of the business plan, just so I’m understanding it, did you all do anything to the properties, to the units? Any renovations, any cap ex projects, starting out?

Dave Dubeau: Nothing big. These properties were in pretty good shape. They were more 55+ focused for the tenant profile, so… No, they were in good shape. We did have to replace one boiler, as well as the elevator, which we already knew about ahead of time, so that was already contemplated… Other than that it’s been just the normal stuff.

Joe Fairless: Okay, cool. And then you mentioned — did I hear you say three fourplexes?

Dave Dubeau: Sixplexes, yeah.

Joe Fairless: Three sixplexes.

Dave Dubeau: Yeah. These are interesting. These are in a different area of Canada, kind of a slightly different business model. These properties we’re focusing on furnished rentals. Short-term rentals – not Airbnb short-term rentals, but 3 to 6-month type situations. It’s almost like an aparthotel concept. In order to crank up the cashflow on these properties, we actually rent out the properties by the room.

Joe Fairless: Okay. And you say “we”, so you mentioned you have business partners on all your deals…

Dave Dubeau: I have. Again, the smarter guy that’s actually running the business – that’s my partner. He’s got a lot of experience with that, as well as a pretty significant portfolio focused almost exclusively on the whole medium term furnished rental.

Joe Fairless: Okay. And did you buy these three sixplexes all at once?

Dave Dubeau: No, one of these sixplexes I’ve had in my portfolio for quite some time. The other two – he actually got kind of a  bulk deal direct with the seller; the seller had built these when times were good. Times went bad pretty quickly after he built them, so he’d been sitting on these properties, underperforming… So we were able to get in with owner-financing. Not complete owner-financing, but definitely some vendor take-back to make the deal work a lot better. No realtors involved, just drumming up business himself.

Joe Fairless: Sure. With the purchase of these three sixplexes, you have a business partner; is the equity to purchase the properties – I know you said some were owner financing, but was the equity required your money, or did you bring it from other partners?

Dave Dubeau: A bit of both. I had put some of my own money into one of these properties and brought on investor partners for the others.

Joe Fairless: And how do you structure that?

Dave Dubeau: Well, we structure this as a joint venture, and it depends on how much equity is brought in by the individual investor. I believe the minimum is a 10% equity stake in the property, and moving up from there depending on how much they put in.

Joe Fairless: So it sounds like one sixplex came first, and then you closed on these other transactions, correct?

Dave Dubeau: Actually, he got into both of these sixplexes with hard money lenders, and is now replacing those funds with investor partners.

Joe Fairless: Okay, but in terms of the sequence of when you purchased these properties, how did that flow?

Dave Dubeau: It flowed that it was — I believe he bought two of them at one time, and then within the next six months or so he bought the other two.

Joe Fairless: And where does the 54-unit fit on that timeline?

Dave Dubeau: It doesn’t. That’s a completely different deal, completely different partner.

Joe Fairless: Right, but I’m just talking about your portfolio; so when on your timeline of purchasing property was the 54-unit compared to these three sixplexes?

Dave Dubeau: This was a couple years prior.

Joe Fairless: Okay. So the 54-unit came first?

Dave Dubeau: That’s for sure, yes.

Joe Fairless: Oh, cool. Okay. So was that $800,000 the first time you’d raised capital for a deal?

Dave Dubeau: No, I was raising capital when I was doing rent-to-own deals, from 2010 to 2012 or so, and then transitioned into the multifamily property.

Joe Fairless: Cool. The $800,000, looking at the investors who invested in that property, how much did the investor who invested the most invest?

Dave Dubeau: I believe it was 350k or 400k.

Joe Fairless: And how did you come across meeting that particular investor? Obviously, I’m not looking for any names or anything, but just trying to learn how you met them.

Dave Dubeau: Yeah, well I’ve been in the marketing and in the education business for some time, so this particular investor – I’d known her for quite some time; she’d been following me… Kind of like what you do with your podcast, I had done different things with paid membership programs, different kinds of things like that. I do a pretty good job of staying in touch with people that are on my contact list… So over time she just was watching what I was doing, and when I made this opportunity available, she reached out and she was very interested.

Joe Fairless: Okay, so it was just through marketing efforts; you weren’t able to pinpoint exactly which one, but just the holistic approach of marketing, and she was on some list of yours that when you sent out this opportunity to the list, she replied.

Dave Dubeau: Yeah. And the way I do is I really wanna focus on people that I’ve got a pre-existing – either personal or business – relationship with. This person had already done business with me on something different.

Joe Fairless: Okay. So you’ve got the 54-unit, you’ve got the three sixplexes – what’s something that’s gone wrong?

Dave Dubeau: What’s something that’s gone wrong… One of these sixplexes is not part of that portfolio with that partner. So the one that’s gone wrong has been a property that was inherited – one sixplex that’s part of my portfolio – and just long-distance management hassles… Having the challenges of inheriting a property, and the emotional luggage that comes along with promises made on deathbeds to my father that left us the property. So dealing with my brother on this, dealing with my father’s dying wishes about the property… All this kind of stuff has made a pretty messy and not a great investment.

Joe Fairless: What advice would you give someone who comes across a similar scenario that you had?

Dave Dubeau: Like the inheritance type thing?

Joe Fairless: Yeah…

Dave Dubeau: I think you’ve gotta look at it more objectively and try and take the emotion out of it. Because again, that’s what’s really been the hang-up – trying to follow our father’s dying wishes. But basically – long story short – it’s driving the value of the property down and making it more difficult to sell once we do sell.

Bottom line, he made us promise to keep his buddy on board as the property manager until he wanted to move on or he kicked off. And we kind of thought that was gonna happen sooner rather than later [unintelligible [00:14:02].15] so he just keeps holding on and holding on… [laughter]

Joe Fairless: Oh, man… Yeah, that’s a tough one. What are you gonna do?

Dave Dubeau: We’re going to basically bribe him to move out and sell the property with owner financing. We’re gonna give him a free place to stay for a while, and then bribe him to move on.

Joe Fairless: That sounds like a very fair solution.

Dave Dubeau: Yeah. It’s only taken about nine years to… [laughter]

Joe Fairless: Oh, my…

Dave Dubeau: But it’s all good. It’s part of the learning process. But it gets back to not letting the emotions override logic, I guess would be the short way to put that.

Joe Fairless: What project are you most proud of?

Dave Dubeau: You know what – this 54-unit deal I’m pretty proud of, because our investors are super-happy; it’s been a completely handsfree investment for them. My partner on the deal is doing just an amazing job on it… And actually, it’s one of those situations where you’re very easily able to underpromise and overdeliver. We’ve blown the projections off the roof with what we were telling our investors they’d be getting. It looks like they’re gonna probably be getting at least (by the time the smoke clears) about 50% more than they expected.

Joe Fairless: You purchased that six years ago… How come you haven’t been purchasing more since then?

Dave Dubeau: Well, that’s a good question. My main focus has been more on the marketing side of things, and I’ve just really decided to kick things back into gear. The partner I was partnered with on that is getting to the age where he’s starting to divest and sell off, and to be perfectly frank, my whole goal, Joe, was to partner up with other people that are actively doing this, and not be the active partner myself. I’ve found one of my clients, one of my students who is very successful at what he’s doing, and just within the last year (actually within the last six months) I’ve partnered up with him. Since then, we’ve purchased these two sixplexes… So I’m kicking it back into gear right now.

Joe Fairless: And when you are structuring partnerships and when you’re bringing capital to transactions, what type of tips would you give someone who hasn’t done it already?

Dave Dubeau: As far as finding investors, or structuring the deal?

Joe Fairless: As far as finding investors.

Dave Dubeau: That’s a good question, Joe. My typical people that I’m helping are mom and pops that are just starting to look for investors, looking to work with other people’s money. They’ve hit the wall when it comes to their own cash or credit… And what I always suggest is start with your sphere of influence. Start with the people who you already have that pre-existing relationship with. They know you, they like you, they may or may not trust you with their money yet, but at least we’ve got our foot in the door. Does that make sense?

Joe Fairless: Yup.

Dave Dubeau: Especially up here in Canada, we’ve got these things called securities commissions – the trade commission down in the States – and you have to be very careful about who you’re raising capital from, especially if you’re doing smaller deals and you’re not jumping through all the regulatory hoops. Always start with the folks that you have a pre-existing relationship with.

And then what I do a little bit differently, Joe, is I encourage people to reach out to me instead of me chasing after them. In other words, I apply marketing to finding investors and raising capital, and I try to avoid at all costs the so-called “common sense” advice of dialing for dollars, or turning every conversation into a real estate conversation, or being just that person that’s always networking and schmoozing. What I’d rather do is create curiosity, get people to reach out to me, put up their hand and say “Hey, you know what – I’m interested. Tell me more about the deal”, and then that conversation just makes things so much simpler.

Joe Fairless: What are some tips to  having investors who you’re looking to potentially partner up with reach out to you, versus you reach out to them?

Dave Dubeau: Well, the first tip is to avoid the biggest dumbass mistake I made when I first started this, which was just kind of blasting everybody cold with  a version of “Hey, it’s Dave. I’ve got a great deal, are you interested?” That really didn’t go over well, and in 20/20 hindsight  I see why it didn’t.

What I think you really need to do is you need to break the ice with people on a non-business topic first, and then start talking business after that. What I suggest, Joe, is people warm up their contacts; first of all, I highly recommend that you target in on a couple hundred people. Create a list of prospective investors, and then focus all of your attention on them. I always encourage people, let’s come up with a list of 100, 150, 200 people that you have a pre-existing relationship with, then start things off by having a warmup, or breaking the ice with them. There’s a couple different ways you can do that, Joe. One is we send out a quick little email which is kind of a catch-up email; saying something like “This is Dave. Chances are it’s been a while since we’ve been in touch. I thought I’d try something different and just reach out to  you, let you know what I’ve been up to”, and then just do kind of a brief synopsis of what you and the family have been up to for the last 3-5 years. Then at the end of the email you say “Well, that’s what I’ve been doing… But how about you? Please hit Reply, let me know what you’re doing. I’d really love to hear back from you.”

You send that out, and then as soon as people start replying to you, make sure you have a little bit of back and forth with them. Three or four days after that, I highly recommend that people send out a second version of that, but this time a little video message… Just because video is so much more personal. So they click on the link, they watch your video, they see you, they hear you, they see your expression, and again, the call-to-action is for them to reply to the email and just catch up. And then you catch up with them.

Then the third message is what I call your transition message, which is now where you give them the heads up that you’re gonna start changing the conversation, talking a little bit more about what you’re up to with real estate, and then inviting them to reach out for more information if they’d like to find out more. Does that make sense?

Joe Fairless: It does make sense. With the initial email, has there ever been complaints about it being disingenuous, because they kind of see through that you’re randomly reaching out to them after 3-5 years, or you haven’t really sent an email like that ever before, and then they see that you have that transitioning message where you talk more about the real estate stuff?

Dave Dubeau: Not very much, and I haven’t figured out a better way to do it. I’ll give you an example of what the transition — because the transition message is really important. So I’d say something like “Hey, it’s David. It’s been really good reconnecting with you over the last week or so. Moving ahead, I wanna do a better job of staying in touch with you, and letting you know what I’m up to with real estate investing. It’s something that I’ve been doing really well with; I think it’s the best way for regular people like you and I to get a really good, solid return on our money, backed by a tangible asset that’s real property. And then who knows, maybe sometime in the future you might even wanna partner with me and share in the profits on a deal. But if you’re not interested in real estate, that’s okay too. You can always click on the Unsubscribe button at the bottom of any of my emails. You’ll be taken off my list immediately, no hard feelings. In the meantime, if you haven’t had a chance, please get back to me and I’d love to catch up.”

And then we send that out. So we do give them the heads up, and we let them know that we’re gonna be switching gears. A lot of people are freaked out that 80% of the folks who get the email are gonna opt out… And what we’ve found, Joe, is actually very few people opt out. Once in a while you might get somebody who’s a little bit snitty, but not very often. It is very rare.

Joe Fairless: Sure. What type of email service do you use to send these emails out?

Dave Dubeau: I recommend one called GetResponse. There’s lots of them out there; MailChimp, GetReponse, Constant Contact… These are all email autoresponder systems.

Joe Fairless: And why do you like GetResponse?

Dave Dubeau: I like GetResponse just because they’ve got good customer service. A lot of people like to go with the MailChimp, because it’s free, but you get what you pay for. GetResponse I’ve found works pretty well, and the deliverability is good, too.

Joe Fairless: Based on your experience as a real estate investor, what’s your best real estate investing advice ever?

Dave Dubeau: Focus is the best advice ever. Focus on exactly what kind of real estate investor you wanna do and where you wanna do it. Invest in training or coaching or mentoring to get the education; it’s either that, or work for somebody for free. Don’t try and figure this stuff out on your own. It’s such a waste of time. So get the education, get the training that you need, and then if you’re nervous about it, partner up with somebody who’s doing what you wanna do, and partner with them on a deal or two before you jump in with your own two feet.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Dave Dubeau: Let’s give it a shot!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:23:11].01] to [00:23:50].29]

Joe Fairless: Best ever book you’ve recently read?

Dave Dubeau: The Dream 100 Book. Dana Derricks.

Joe Fairless: What’s the best ever deal you’ve done?

Dave Dubeau: I’d say probably that 54-unit apartment building.

Joe Fairless: What’s a mistake you’ve made on a transaction, that we haven’t talked about already?

Dave Dubeau: A mistake I’ve made on a transaction… That’d be kind of like the worst deal ever, because it probably goes hand in hand.

Joe Fairless: Sure.

Dave Dubeau: Yeah… Worst deal ever was a rent-to-own deal I did years ago, where the whole strategy was a big flawed. I was basically buying houses for people and then turning around and rent-to-owning it to them over the next 2-3 years. Well, I got the absolute worst tenant buyer into a house because I’d heard about some tricky strategy to help them get the money they needed for the deposit. So the worst mistake ever was not making sure that the person had skin in the game. It turned into a disaster. I had to evict them… $18,000 worth of damages done to the property… I sat on it for like six months before I could get it turned around. And then the market went down too, so I had to rent it out for another 5-6 years before I could actually sell it. So… That one sucked. [laughter]

Joe Fairless: What’s the best ever way you like to give back to the community?

Dave Dubeau: You know, I’ve done some stuff with local homeless folks, and I’ve done a lttle bit of work overseas with some organizations in Nicaragua… But that’s a good question, Joe, and a good kick in the butt that I need to do more.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Dave Dubeau: Well, if they’re interested in attracting investors and raising capital for their deals, InvestorAttractionBook.com. They can get a free eBook version of my Money Partner Formula book, which goes through the whole five-step process.

Joe Fairless: Dave, thank you so much for being on the show, talking about the 54-unit, how you got the equity for it, the business plan, the $120,000 elevator, and the sixplexes, as well as the joint venture structure that you used to purchase the sixplexes. I really enjoyed our conversation.

I hope you have a best ever day, and we’ll talk to you again soon.

Dave Dubeau: Thanks a lot, Joe. Likewise.

Best Real Estate Investing Advice Ever Show Podcast

JF1114: How To Do A Successful Land Development Deal with AJ Hazzi

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!

Best Ever Tweet:

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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TRANSCRIPTION

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: info@ajhazzi.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!

Joe Fairless