"We have our in-house construction company, our in house property management company, snow removal, grass cutting, you name it, it's all under one roof, essentially giving that potential joint venture partner or client the ‘Costco effect.'” — Adrian Pannozzo
When Executive Properties Capital, owns 70 homes and 350 units! The vision that Adrian for Executive Properties Capital was to create the real estate version of "The Costco Effect” and in today's episode you'll hear how he has brought that goal to life. We also discuss what Adrian's journey in the real estate investment space has looked like to date, including the challenges that he has faced, and the exciting future that lies ahead. Adrian and his team have BRRRR down to a science, and anyone interested in the real estate industry will learn a huge amount from this conversation!
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[00:00:42] NS: Welcome back to Sync or Swim. I'm your host Nicolina Savelli. And on this podcast, I chat with rental housing industry experts to learn how you can reach more renters, sign more leases and maximize the value of your assets. Today, I have Adrian Pannozzo, founder of executive properties capital, who went from police officer to real estate entrepreneur. Thank you so much for joining me today, Adrian.
[00:01:06] AP: Hey, awesome. Thank you for having me. It's great to be here.
[00:01:09] NS: Well, you've got a pretty compelling story, given your background in policing and then diving into the wonderful world of real estate. I've done a little bit of research, a little background and found out that after 21 years, you were able to leave the force before your retirement, or planned retirement and commit full time to real estate. That was just after your first 10 years of investing. Obviously, that's a tremendous accomplishment. Can you share just a little bit about how you got started in real estate investing and some of the key moves kind of you made to set your investments up for success?
[00:01:45] AP: Yeah, for sure. I started investing while I was a police officer. I probably had about 15 years on the force at that time. And my mindset, and what I wanted to achieve at that time was, I was thinking, Okay. When I put in my 30 years as a police officer, I want to be able to retire but still have some income coming in from the rent, maybe one or two rental properties.” So essentially, I could live the same lifestyle, as not being on a pension. My thought process was, okay, buy one or two rentals, retire after my 30 years and compensate my income with the rental properties. Long story short, I didn't make 30 years on the force. I only lasted 21 years, which I'm still proud of. was a great career. I loved every second of it, so to speak.
But those two rental properties that I bought that kick-started my career and investment properties, essentially after a decade, turned into just shy of 70 homes now that we own and equivalent to about 350 units that we own predominantly across the GTA, but for the most part in the City of Hamilton. Obviously, those investments are a joint venture partnership with other like-minded investors. Ultimately, they allowed me to retire early, so I have to stay on the force for my 30 years per se. Financially, I was able to leave and retire early. As they say, start living life on my terms.
[00:03:31] NS: Would you say it was those first few investments – what made you say, "You know what, this is really taking off for us, like this is working”? Was it getting those partners involved or was it just seeing the growth of you just making the right moves out the gate and seeing those kinds of takeoffs really quickly without needing to do too much, too much additional work on your behalf?
[00:03:56] AP: Right. You know what? I think it was a bit of both. Like the first couple we bought, they were duplexes. It really wasn't that hard, one, to find good tenants. Two, to keep management of those two, three initial properties. We started to be comfortable with the tenants, with essentially running a business and then building a bit of a reputation and name for ourselves. Ultimately, segueing into more of a joint venture partnership. We really didn't start to scale our portfolio until we started to partner with like-minded investors, one. And two, obviously, incorporating partnerships with the BRRRR strategy really made things take off.
I want to say in 2016, 2017, and that's when I left the force in 2017 and essentially, even though I was retired, I never stopped working, but it really doesn't feel like work. It's been a lot of work, but fun work, different kinds of work. Like I said, I make my own schedule. I live life on my terms. It's obviously providing financial freedom, because not a lot of people would leave a stable career like police, where you have the benefits, the pension, the guaranteed income to be essentially self-employed and carry on the investing.
Yeah, to answer your question, 2017 through the power of the BRRRR and joint venture partnerships, we took it probably from 30 units, say 40 units to now 350 units is really where the maximum growth happened within the last five-ish years.
[00:05:49] NS: Wow. Yeah. We'll talk about the BRRRR, kind of how you guys are doing that on your side. But first, I do want to talk about just you mentioned the Hamilton market. That's where you started. I am a proud Hamiltonian. I was born and raised there. I just want to talk about this market a bit and what you've seen happen over the last 10 years, and really the last few years. Where were your initial investments and where are you kind of seeing growth in that market? How are you kind of looking for new opportunities, because Hamilton has exploded recently, and things are becoming a little less affordable for a lot of people. Investors like yourself, how are you finding those new opportunities?
[00:06:31] AP: So yeah, I've seen tremendous growth. I bought my first rental property in Hamilton 11 years ago, and it was a triplex. I still have it, triplex, turnkey, fully renovated for 310,000, 11 years ago.
[00:06:49] NS: Which is not even – that's not cheap. That's still –
[00:06:52] AP: At the end, that was decent money for Hamilton and for what we were getting. I still have – for example, I still have that property today and it's probably worth bare minimum, 750, 770.
[00:07:07] NS: Listed, and then you could probably sell it for over a mil. But yeah –
[00:07:12] AP: Right now, God knows what you could sell it for, right? Yeah, probably close to a male anyway. But because the market, as you said, is crazy right now. I've seen the market pretty much double in the last 10 years, especially the last few years, it continues, almost month to month, semiannually, like incredible, incredible growth. Prices as of late are through the roof and it's predominantly because inventory is so low, right? Like there is not a lot out there right now. If you're a seller and you wanted to sell something, I would say there's probably no better time. If you want to just unload and cash in, there's probably no better time than now, given where the market is today. And touching a little bit on rents, I think rents have really, really gone up a lot as well. When I started in Hamilton 11 years ago, a two bedroom was probably give or take $1100, $1200 a month. Now, we're teeter-tottering. Our two bedrooms are $1600 a month. There's been some pretty, pretty significant growth in the rental market as well.
[00:08:26] NS: Which I feel is almost conservatively priced, like I feel like you're pricing it in a very conservative way, versus some of the things that I've seen come out in rental listings $2,500 for one bedroom in Hamilton. People are – you can't help but comment on where you're getting this price from, where are you getting these rental rates set from. But the thing is that they can set it at that, because there's such a low inventory in the market.
Now, obviously, in secondary markets, they're almost like hitting that Toronto rental rate. Like it's getting very close to some of the rentals in Toronto. My friends who live there are paying $2,500, and then I've got friends in Hamilton who are paying the exact same thing, and they've got more space. It's like, how are you kind of ensuring that your renters are getting the best value and not feeling they're being taken advantage of. Obviously, you've purchased your properties a little bit earlier on, you're probably not covering a mortgage of $800,000 per property. You don't have to raise the rents incredibly high. But what are you doing to kind of make sure that people are seeing the value and sticking around?
[00:09:41] AP: When we're taking on new properties, we're still buying properties right now still, but a lot of our most if not all of our properties, we kind of go overboard or a little more on the higher end to give the people the value they need, the tenants the value they need. Like you know you, we're putting in quartz countertops, stainless steel appliances, the nice vinyl flooring, porcelain tiles. We're really dressing them up. To give that tenant that peace of mind that they're getting something they're paying for, as opposed to something that's rundown, and really, really dated and whatnot, and still asking for $1,800 a month for a two-bedroom that's 40 years old. We really go above and beyond, in my opinion, with the way we're finishing our units and the quality that we're presenting to the tenants to keep them happy.
[00:10:37] NS: Which is probably benefited you in the last few years as people have migrated from the Toronto GTA area and come into secondary markets looking for that high quality, new finishes and those are what they're looking for. That's what they're getting when they're seeing it in the city and so they want the same kind of atmosphere, and elements and finishes that they would get there. Where I find that a lot of Toronto Hamilton rentals maybe haven't gone through those renovations. There's not that many on the market that are really putting a lot of high-end finishings to them, because they really haven't had to, or just the landlords aren't coming this way. It's good to know that that's what you're doing and making sure that people are paying for valuable, valuable fixtures, and furnishings and things like that, and making sure it's done right. Which I'm sure means that people are staying, because they don't want to move out of your properties because that's the best they're going to get.
[00:11:33] AP: They're done up, they're clean, they're new, they're modern. Yeah. Like I said, all the bells and whistles are there for sure.
[00:11:42] NS: How are you managing the properties? I know you have your own – you've got your own property management company. How are you going about that? Do you have them in-house? Do you have property managers in-house?
[00:11:51] AP: It's all in-house. Yes.
[00:11:52] NS: Yeah, okay.
[00:11:53] AP: It's all in-house and we have a full property management company that covers everything from leasing, all the way to 24/7 coverage after hours for tenant, emergencies, whatever the case may be. It's all managed in-house. When I first started, and I was still a police officer, I did it all on my own. As I continued to grow, and ultimately continue to build a portfolio on units, and units and units, we then decided, "Hey! It just makes more sense to keep it in-house.” We started our property management company as a result of that, essentially the focus, the vision was, I wanted to create like a Costco, where you come in the front door. You don't have to go to seven grocery stores to go shopping, you go to Costco and you can pretty much get almost everything there. That was my mindset too where you come in our front door. Obviously, I'm a licensed realtor, as well. But above and beyond that, and I think more importantly, is the experience I bring to the table as an investor.
We have our in-house construction company, we have our in-house property management company, snow removal, grass cutting, you name it. It's all under one roof, essentially, giving that potential partner, joint venture partner client, the Costco effect as you –
[00:13:14] NS: Right. Makes sense. Yeah, that makes sense. Perfect. During COVID or maybe even outside of COVID, have you ever experienced any tenant delinquency? If so, how have you kind of handled that? Because I know that was a big concern at the beginning of COVID, that there would be some issues there.
[00:13:33] AP: We experienced very, very, very – I think we're at a 1% delinquency out of all of our units, and it was legit. Some of our young professionals are in the industry of restaurants, or gyms. They're personal trainers and whatnot. And legitimately, they lost their job there and had some issues, so on and so forth, even though it was served or whatnot. But yeah, they had difficulty, which was legitimate, and we worked with them and put them on a payment plan to keep them up to par, so to speak. People that just flat out don't want to pay and stop paying, we don't really have – you haven't had any damage. If it was, it was really legitimately affected because of COVID.
[00:14:22] NS: Okay, good, yeah. That's good to hear. I think that that has been the consensus. I think there was a lot of doom and gloom at first that the things were just going to fall apart and no one was going to be able to pay. But by the sounds of it, it teetered around like – on the worst end of it was like 5%, but for the most part, it was around 2% for most buildings, most landlords. It's good to hear that the smaller landlords also saw the same kind of effect as well, because that was the big concern that the smaller landlords that had maybe three properties, or four properties that they would be in a little bit of a pickle with having one tenant default. So yeah.
Now, let's talk about your system for real estate investing. Buy, renovate, and refinance. Can you walk me through kind of a typical deal? What are the red flags that this one isn't for me? Or on the flip side, this is the right deal, this is going to make me money. Can you kind of walk me through that?
[00:16:02] AP: Yeah, for sure. Every step of the BRRRR strategy is super important. You want to get the buy right. You want to get the renovated piece right, and stick to a budget and make sure you have the right contractors in place on so forth. The refinance. Some rent before refinance, it really doesn't matter. But I say, buy, renovate, refinance. Which bank are you using and how solid are your numbers as far as, "Hey! You projected this property was going to come in at this value.” Have you worked with these appraisers before? These are things that are important because one appraiser to the next appraiser could be at $40,000, $50,000, $60,000 spread, and it's happened to us, and I've been there and have that experience.
Then obviously, the rent portion, are you going to be able to get the rents you're forecasting when this project started with all the improvements you made. Every step of the BRRRR is super important, because the goal of the BRRRR as you know, you want to be all out or very close to being all out. We want to extract all of that capital, the 20% down payment, the renovations, the caring costs, the closing costs, every nickel ideally. If not, close to every nickel. We want to extract through the power of that refinance by forcing that appreciation through the home. Getting every step right, and having your numbers solid is so important to the very, very last step, to the back end, to getting that capital out. We've probably taken part in our whole career over 50 BRRRRs of joint venture partners. Not to sound pompous or all, but we have it down to a science, essentially. We are very, very, very confident when we project our numbers, and it's all as investors, as you know, it's all about the numbers, right? So, yeah.
[00:18:06] NS: So obviously, since you're renovating, a number of properties, not everyone has the means to be able to say, "Yes, I can take that work on. I've got the right people for that. How have you found the right contacts along the way? How have you kind of aligned with the right people, and have you ever had to let a contractor go for not doing the work that you were projecting?
[00:18:32] AP: Yeah. So yes, I got several contractors. Everybody has a bad story about a contractor, right? It's just the way the world works. But then, we brought in our own in-house construction company. And again, back to the Costco effect. We now control that and we have people that work strictly for us. Having that is peace of mind, not only for me, but it's also peace of mind for my joint venture partners, because we're not going on Kijiji just hiring a fly by night kind of contractor that's going to show up, not show up, take our money, this, this, that, the other. We're hiring people that work strictly for us, and we can control budgets, timeline, so on and so forth. That's how we do that.
[00:19:18] NS: Yeah, that makes sense. Now, I'll just pivot a little bit on that conversation. Obviously, we've talked about the price of real estate the last two to five years. People who have over 200 doors under their belt, maybe it's not too difficult to continue investing in major markets and feeling confident about the deal size. Do you think we're going to see things plateau over the next year? I mean, no one really knows. No one has a crystal ball. If so, has that influenced where you're investing or looking to invest in the future?
[00:19:50] AP: I think it will plateau, I think. Again, not having [inaudible 00:19:54]. I think it will plateau. We still make the numbers work in the GTA, like we don't have to go out of the GTA. We still make the numbers work here in Hamilton, and we're very successful here in the GTA. Our major market centers are Hamilton, Niagara, and St. Catharines. Brantford, our market centers that we're expanding to and will play in sort of speak. But quite frankly, I can still, we can still make the numbers work very, very well here in Hamilton. Even though purchase prices are obviously higher than they were last year or two years ago, above and beyond that though, refinance values go up as well, so it's all kind of relative.
[00:20:41] NS: Yep. As long as you you've got the equity there, then why not? Yeah.
[00:20:46] AP: Yeah. We can still make the numbers work here.
[00:20:50] NS: Now, let's talk about leasing and property management. With as many doors as you have comes a lot of maintenance and responsibility, and cost of labor, finding laborers. As you mentioned, it's all in-house. How do you go about maintaining your properties regularly and keeping on budget? I know that there's been a labor shortage, so has that been an issue for you guys at all, kind of making sure that people are there, and ready to go and not overextending your costs of labor?
[00:21:18] AP: For our construction in our BRRRRs, it's been a challenge to bring on, like we're busy and we're trying to bring on more and more carpenters and help to keep up with the influx. That's been a challenge during COVID. A lot of people were taking advantage of [inaudible 00:21:34] and didn't really want to work. Then just having challenging bringing on good, quality tradesmen in our construction has been a bit of a challenge. I mean, we got a great team. We're always looking to expand, but it's just been a challenge. The construction industries, it's so busy right now. It's like everybody's involved in some kind of renovation.
[00:21:56] NS: Right. Then that's a common conversation that I'm having with the majority.
[00:22:00] AP: Property management though, no. We have our in-house staff, and they've been great and loyal. So no, we don't have any – we haven't experienced any issues with respect to that and shortage of help on that. It's more on the renovation side when we're involved in the BRRRRs. To bring on extra help has been somewhat a challenge.
[00:22:19] NS: Totally, yeah. But that seems to be a trend throughout the majority of developers that I've spoken to, it's just the construction is the hardest thing. It makes sense, people were delayed for about close to a year in starting projects, and then everything kind of started back up at the same time. And yeah, it makes sense trying to try to find the right people for those jobs. Like you said, you can't just pick anybody. You got to make sure that you trust the people that you're working with on those renovations. Kind of have to make sure that the right people with the credentials that you want to work with to make sure it's done right or else you have to do it all over again, which is just a waste of money. Do you have any big projects on the horizon or any deals that you're kind of hoping to do or looking forward to doing in the next –
[00:23:08] AP: Yeah. We just went for an off-market deal that we bought 13 townhouses.