Table of Contents - Build to Rent Communities, A New Trend with Michael Kharlab
Dave Debeau [00:00:09] Hey, everyone, this is David Debeau with another episode of the Property Profits Real Estate podcast and today, all the way from beautiful Toronto, Ontario. We've got Michael Khaleb. How are you doing today, Michael?
Michael Kharlab [00:00:22] Amazing. Thank you for having me.
Dave Debeau [00:00:24] My pleasure. So Michael has a very interesting and accomplished real estate entrepreneur. He's been investing in real estate for about 10 years now. He's done a variety of different things all the way from rent to own to duplex conversions. And now he's into some very, very cool stuff. Development type deals with a twist both in the United States as well as in Canada. So, Michael, really looking forward to finding out a little bit more about your unique twist on real estate investing these days. But to start with, what was it that got you involved in real estate in the first place?
Michael Kharlab [00:01:04] OK, so I come from the corporate world, spent about 20 years in it. And about in January 2007, I got a very unpleasant call from the human resources when they were shown the door and the company was optimizing 10 percent of workforce. So at that time, I figured out I needed some supplementary income for myself and I started looking at different opportunities. Real estate came to my life in 2010. A friend of mine came from Montreal and said that he bought a condo in Miami and that was right after the crash of 2008 09. And I know it was bad, but I didn't know it was that bad. So I look at the prices. And a month after I was on the plane to Florida and my friend and I just bought the first condo, then we bought another one and we never looked back. So that was my beginning. So I was looking for something. Just real estate came to my life. I guess that was meant to be. Yeah.
Dave Debeau [00:02:00] So tell me a little bit about your friend. Kind of gave you the basic education, but then you got a lot more formal education about real estate investing as well. Tell us a little bit about your your journey from those first couple of condos. How did things progress after that?
Michael Kharlab [00:02:15] Yeah, so we've done we bought two condos and couldn't do anything else for almost two years because nobody was given mortgages in Canada or us, but then they started giving mortgages in us. The prices went up and we pulled a little bit of money out of that. We partnered up with other guys and we bought a triplex. And then my brother invited me to a preview of a course will set investment course. Fisher, Robert Kiyosaki, the famous part of the reason for that. So I came to the previous class and it was I was just hooked. So I took the classes of what was called today legacy education, the strategies I've never heard of. So I took the classes. I took a mentorship package to mentor somebody, to just not teaching you a theory, just shows you what needs to be done. Explain to me what I need to do in the real estate. And it just took off. Yeah, I guess I never look back.
Dave Debeau [00:03:07] So, OK, so what did you start doing? Because you've done a lot of different things. So got those condos and what were the next. You got the triplex then. What did that progress into.
Michael Kharlab [00:03:18] Yeah. So my mentor told me, Michael, listen, there's something special about you, your engineer on one side, but you can talk normal. Engineers cannot explain themselves. So it's all listen, there's two sets of people. And in real estate there are people with money. They're looking for deals and are people who have deals just have no idea how to market them. So what don't you broker? So what I've done, I found some people with in legacy, people very successful. And I said, well, I'm going to work with you. Let's expand your business. And I start gradually bringing investors to our partnerships. But me doing it from your point of view and also learning to do it on my own. So I started doing rentals in the beginning and started learning about investing in mortgages, and then we went into the place conversion. So I progressed from strategy to strategy. But I've done about probably in that partnership about 15 Brenton's. That was the beginning of it.
Dave Debeau [00:04:15] All right. And duplex conversions. When you say that, are you talking about taking a single family home and adding a suite to it
Michael Kharlab [00:04:22] was a very important right. Yes, but very important. What is a legal suite? Because many, many people legal. Yeah. Many people convert basements, put tenants and God forbid something happens, you know, you could do so. We were working just north of Ontario, the city of Baric. Yeah. Working with the city, getting permits. So basically, you take a single home and you create two two suites. You put the tenants to incomes. And just it was a good strategy for the time being.
Dave Debeau [00:04:55] All right. So that was how you got your start. Now you're into something kind of did well, quite different. So tell us a little bit about your new strategy that you're focusing on primarily in the States.
Michael Kharlab [00:05:07] Yeah, so. In Iran, 2016, the process in GTA Toronto area went up by almost 30 percent and they went up fast and they went down even faster in the spring of twenty seventeen when the government stepped in to change the mortgage rules. So it was hard to do any deals in Toronto or Toronto. So we started looking into different possibilities and opportunities for areas now I've never left. The United States still have properties in Florida, so we started looking into different markets and I tried to access water, but I couldn't disclose deals. And then Arizona came to us or some developer looking for help. So I was in Arizona in 2014. Again, couldn't establish anything, but this time was right. So we went to Arizona in summer of twenty seventeen but partnered up with the developer. We did a small deal in the beginning and then we started doing more deals. Our name became more famous in Arizona and developers are coming to us. So we partnering with a variety of developers locally, boots on the ground because we're in Toronto and that works well. So those developers typically need money because the banks in the US as well in Canada do not lend as much as they used to. And now they're open to opportunities bringing investors. They used to work with own funds prior to the crash of 2008, and many of them lost a lot. So now they want to be risk averse and the big investors. So this is where we can come with our group of investors. We become partners in deals and we bring our expertize to the deal as well. So that's what we've been doing. This done several development projects. We also bought an office building in downtown Phenix. That's a conversion. And then into what it was an old office building. Just the idea that we wanted to be along with our one of our partners used to own it. One of the very popular trends today is something called coworking. Right? Leaving. Yeah, we create shared office space and that building. And that's going to be probably for small companies that come just to work and also for medical purposes of medical offices. That's that's what it's meant to do.
Dave Debeau [00:07:23] Now, do you say cool living as well? So are you going to have some support in there, too?
Michael Kharlab [00:07:27] It's mainly for students. So that same office. Yeah. So if the city allows us and we're trying to get that, there are many students in downtown Phenix today and they need a place to live. So we were trying to convert some of the floors of the building to smaller rooms for students to share.
Dave Debeau [00:07:46] So kind of like mini suites or chat rooms.
Michael Kharlab [00:07:49] Yeah, Cheryl's with, let's say, one bathroom for every three rooms. Right. And a kitchen. Yes, that's that's the idea.
Dave Debeau [00:07:59] Interesting. OK, so let's take a look at the development deals because we're talking a little bit off camera about that. Very, very interesting. And you call these bills to rent communities.
Michael Kharlab [00:08:11] If I got bill for rent. Yes. Well, for rent communities.
Dave Debeau [00:08:14] Explain that to us because I was kind of a new concept for me to hear about that.
Michael Kharlab [00:08:19] Well, that's good to know something I could share with you. Yeah. So it happens in a nice place right now is that many people decided not to buy anymore and they actually switched. They got too many millennials. So they saw parents losing a lot of money during the crash of 2008. And in some cases, parents own the mortgages are higher today than what the property is worth. Yeah. So you know what? We we don't want to buy renting. And it's not nothing new for the United States because there's always apartments that were built. But the new trend that's that's happening now is that developers coming in, building communities, it's called gated communities, and they've done it for many, many years with normally for buyers. Right. Normally it would come there is a community with the security guard and you've got ten homes or single family homes within that community. So the concept now is to do that for renters. And there are people call them premium renters. It's approximately 10 percent of the rental population of United States that OK, paying more than one the nice living space. And they want a swimming pool the way gym, and they want something new. So it's brand new community dedicated to renters and it just lives and it's gated. So you just cannot walk in and it works magically. The numbers are amazing as well. Done, done with smaller scale projects and now we're looking into larger communities.
Dave Debeau [00:09:53] So, Michael, tell me give me an example of what kind of. So it's a town home or a smaller home. What kind of square footage are we talking about? And what are you typically charging for rent for these kind of properties compared to a traditional. Rental home down a few blocks away.
Michael Kharlab [00:10:12] Yeah, so that's a typical visitor, one or two bedroom. OK, so one bedroom probably would be, let's say eleven hundred dollars and two bedroom would be between 15 to 18 plus the I. I've seen it. This was a plan on doing a little too smart homes. So you get a security system and cable and everything else. So there's additional charge for that. So we're looking at surpassingly two thousand dollars for a small Providian home, which is very nice.
Dave Debeau [00:10:40] And what would that rent for down the street in a typical rental,
Michael Kharlab [00:10:44] let's say, what would charge 20 percent premium to that 20 percent?
Dave Debeau [00:10:49] So you guys go in, you work with the developer, you guys bring your capital, you bring your expertize to the deal and you build these communities, then what do you do? Do you hold on to the long term or do you sell them? And who do you sell them to?
Michael Kharlab [00:11:06] Yeah, on this side and we're talking about a hundred plus units. You're talking about large companies going in. So let's say take an insurance company, for example. If you ever wonder what's happened with the and with the premium insurance premium you pay every month, what do they do with us? So normally they would invest in something which is very, very low risk. And they also say pay five, six percent on the money they invested. But they're not in the development business, the business of having your money secured, but making some money out of it. So the large companies who are not into development finance, real estate investment trusts. As I mentioned, the insurance companies, this is typical buyers and they're looking for deals like that on the big scale. So they wouldn't look normally a deal. So ten million dollars
Dave Debeau [00:11:58] right now, a value you've been focusing on smaller communities. Yes. Have you been holding on to them or who have you been selling those communities to?
Michael Kharlab [00:12:08] So we were part of two projects that were salt. And because of the size of those projects that were sold to private investors and one was just shy of eight million dollars and another one was a little more than four. So those type of deals are too small for insurance companies for the funds. So those were sold to private investors?
Dave Debeau [00:12:29] Yeah, well, I mean, it's a beautiful, beautiful set up right there. You're the investor who buys it, is buying a turnkey business that's already set up. It's brand new. It's got premium tenants, is getting premium rents. They're probably paying a premium price for it, but they're OK with it because fewer headaches,
Michael Kharlab [00:12:48] typically tenants, low maintenance renewals. So nothing breaks. Yeah, it's warranty for the first month.
Dave Debeau [00:12:55] So just out of curiosity, Michael, how did you start? So it sounds like you're bringing investors and capital to the table. How did you start and what do you do to get your investor partners on board? What do you what do you guys up to for attracting investors?
Michael Kharlab [00:13:12] So my neach, I call it's business professionals. I come from the IT world where I spent, as I mentioned, 20 years, and these are very intelligent people, people making very good money. And the problem in engineering is that people get their they work crazy hours. It's high paced environments. Sometimes people need to work on weekends and the same software world, they implement something and then they break something that used to work before. So it's a lot typically after age of forty five, not for everyone, but on average, they want to start thinking about getting out. Now, it's not easy to get out when you make a very solid living. So they want to start investing and they need some help. And this is where we come in. So this is the news. This is this is the people I've been working with. So I go I meet with them. I explain what we do and break it down. So what's really interesting is the options, the strategies. And for them, it's very convenient because they don't need to do anything and they don't need to deal with it. They don't need to take the mortgage so that this investment amount they need to put in and pretty much everything else is done for them. So that's what I've been doing for the past several years.
Dave Debeau [00:14:30] So are you focusing primarily on accredited investors or are these folks just successful professionals? Are you kind of meeting them through networking or referrals? What what works best for you for meeting these kind of folks?
Michael Kharlab [00:14:45] Yeah, for me, it's it's been the referrals to this point of time with marketing to the cold market, it to be very careful and compliance. I don't need to tell you that I cannot advertise. So it's people that work with us have been messing with us and they introduce us to people. And there's a process we go through. Obviously, we qualify, make sure people are knowing what they're doing and that's within the last money. That's best for sure.
Dave Debeau [00:15:14] Makes sense. Michael, this has been a lot of fun. Time flies when we're talking about interesting stuff. But I want to thank you very much for sharing what for me is a pretty new concept, this old Delta wrench concept around community. That's very, very cool. I'm actually going to be going down to Phenix in the next couple of weeks. If I have time, I might swing by and take a look at what one of these projects looks like.
Michael Kharlab [00:15:40] If if you're open to that, I'll be I'll be there in two weeks. Oh, that sounds good.
Dave Debeau [00:15:46] If people want to find out more about you, Michael, what's the best thing for them to do?
Michael Kharlab [00:15:50] Well, there's nothing. So No. One, people can visit our website, which is WWC, FP Group that's here. And the second one is if people are in Toronto area, we're also establishing an investment club. That's education only if we just educate people our way of giving back and school in the inner circle. So just go on Facebook type investors in their circle and ask to join our group.
Dave Debeau [00:16:16] Awesome, Michael, thank you very much. It's been a pleasure chatting with you today. Thank you. Thank you so much. All right, everybody, take care. We'll see you on the next episode. Bye bye. Well, thanks very much for checking out the property profits podcast and you like what we're doing here. Please head on over to iTunes, subscribe read us and leave us to review it. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom. Take care.