How to Create Wealth Through Real Estate Even in Turbulent Times

Andrew la Fleur: Okay, it’s my pleasure to welcome back to the show, returning guest Riz Dhanji. Riz is the vice president of sales in marketing at Canderel. Riz, welcome back to the show.

Riz Dhanji: Thank you, Andrew, for having me on here.

Andrew la Fleur: Riz, I know people can go back and listen to the interview that we did in the past, but if you could just go ahead and just introduce yourself a little bit, tell us who you are and what you do exactly, and how you got started in the real estate industry.

Riz Dhanji: Yeah, my name is Riz Dhanji. I’m VP of sales and marketing for Canderel Residential. Canderel’s been around … We just celebrated our 40 years anniversary last year. We’re involved in all facets of real estate from commercial to retail to office and to residential. We’ve been building in the residential space in Toronto starting back in 1998, and so far we’ve built close to 6,000 condos just in the GTA. Then we’ve got projects across Canada from Montreal and working on stuff in Ottawa and Vancouver. I’ve been involved with the company since, boy, I think it goes back to 2002, so it’s been great. We’ve been doing some amazing projects across the city and across the country.

I got started in real estate when I was quite young, probably 24, and worked in Hong Kong. I speak Mandarin, so that’s helped me when I went to learn Mandarin in China. I worked in Hong Kong for approximately 4 or 5 years for a big [rural 00:01:52] project marketing company. I came back to Canada in 1996, 1997, and then I’ve been here ever since. I’ve got a long career and a lot of knowledge and a lot of heartache, but it’s been exciting. I love the industry, and I love working with people like you who have a great depth of knowledge in the real estate market, and I just see it continuing to go strong in Toronto.

Andrew la Fleur: That’s great. That’s great, yeah, Riz, love chatting with you as well. I know you’re very passionate about real estate, very passionate about investing in real estate, and you’re a big investor yourself, as well. I didn’t know you spoke Mandarin.

Riz Dhanji: I do. Actually, in 1994, I believe, I went … I studied a little bit of Mandarin in university. I graduated from business. Then I went to the Beijing Language Institute in 1994. That’s when China wasn’t as prosperous as it was today and learned Mandarin for a year. Was pretty good. My Mandarin isn’t that great anymore, but I actually told someone I’m going to try and get a tutor to get that back again, but it’s been good.

Andrew la Fleur: Yeah, well definitely in real estate, a great language to hold onto and to keep that up. Can you give us a little taste? Can you say, “Real estate is a good investment”?

Riz Dhanji: I don’t know what the word “real estate” is. [crosstalk 00:03:21]-

Andrew la Fleur: Not to put you on the spot, or-

Riz Dhanji: I’ll go and say, “[Mandarin 00:03:24].” That basically means, “My name is Riz, and I studied in Beijing, and I speak a little bit of Mandarin.”

Andrew la Fleur: Nice, very good. A man of many talents. I love it.

Riz Dhanji: Great.

Andrew la Fleur: Riz, let me ask you a question. How many people do you know besides insiders that have gotten rich by investing in the stock market?

Riz Dhanji: Nobody. It was actually [crosstalk 00:04:01]-

Andrew la Fleur: Me neither. We have that in common.

Riz Dhanji: I actually have a very … You know, a few days ago, I was with a friend of mine. I won’t say where he works, but he’s a huge private equity guy. He is involved in some major transactions across the world. I asked him, I said, “So where are you putting your money?” He said, “Pretty much I don’t put my money into the stock market.” He puts his money in deals that he works on and real estate. Even guys in the industry are not even investing in the market, so they’re not getting wealthy there. I don’t think anyone is making money in the stock market. I think there’s a lot of … I think we’ve grown as a society to know that we get RRSPs, and we get TFSAs and all this kind of stuff, and we’re supposed to put our money in the market, and it’s supposed to grow at 4-6% each year, and we just watch our money grow.

We’ve seen the 2008 financial crisis, how many people got wiped out for their retirement funds. We’ve seen recently as of even today when the market’s down 300 points, I think we were down 11% and the TSX down in 2015, that unless you are diversified outside of stocks, I just don’t think there’s wealth-building in the stock market alone. I just can’t see it. I don’t think that anyone that I know that’s even in the market … There’s some very smart guys that I know … are invested heavily in the stock market.

Andrew la Fleur: Yeah, yeah, it’s very telling when you talk about … I’ve got so many stories like that too, and some of my clients are Bay Street guys that are working on this big deals and that are selling investments of various types in the market. Where are they putting their own money? It’s so telling that they’re not willing to put their own hard-earned cash into the thing that they are selling. Major red flag. It’s a good point to bring up as well for any real estate investors listening. Something that I always recommend is, whatever real estate you’re investing in, whether it’s condos or houses or anything, you want to make sure you’re investing with somebody who’s in it with you as well. Like I said, one of the reasons I like to chat with you and bring you on the show is you are not only selling condos and real estate across Canada, but you’re personally invested in a lot of the projects that you’re selling, as well.

Same with me, I’m buying in a lot of the projects that my clients are purchasing as well. It just speaks so much to the product class and the asset class itself, to the people that are selling it. Are they buying it themselves?

Riz Dhanji: Actually, it’s a funny story. You know, I buy into every single project that we do, but I’ve never really … You know, I’ve kept it, and I’ve just sort of sold my real estate as it goes along. Then I had a conversation with you, and I don’t think you will remember this, but it was a number of years ago, and you told me how many condominiums you have and that you’re renting and you’re getting this rental … this income in. I started to think, I said, “You know? Why don’t I try that? Why don’t I actually go out, and the units that I have, I’m just going to rent them out now?” I’ve actually done really well, so thank you for the advice that you gave me.

I know I have about approximately 3 or 4 condominiums right now that I’ve got rented in the city, and it’s doing really well, and I actually look at it. On a cash-on-cash return, I’m getting double digits, whereas I don’t think I could … I think I lost in 2015 double digits in the stock market if not more. It’s telling of a story of how real estate if purchased well and good locations, good builder, you can really make a good return for a number of years. You can decide to hold the asset as long as possible, because I think that’s a good strategy for people to look at doing.

Andrew la Fleur: Absolutely, yeah, I appreciate the kind words there. I didn’t realize that, yeah, that I had somewhat of an effect on you personally. That’s great to hear. What do you think is going on, like taking a step back … We’re here in mid-January 2016. As you alluded to, the stock markets are really just tanking all over the world. I don’t know if you’re looking at it closely or necessarily, but what is your take on the global economic situation right now and sort of what is happening here?

Riz Dhanji: I think in general, basically, China isn’t doing as well as everyone predicted that they were doing. When their economy starts to sneeze, I think everyone feels the effect of it. I think Canada especially because of the oil market and what’s going on with the oil prices right now. I think that’s having a huge impact on Canada in general. The Canadian dollar going down to what, 68 cents, today … It’s going to cause a problem because I think inflationary pressure on everything that we have is going to be increasing more. I think the US economy isn’t doing as well as people thought that they were, although I was down there recently, and it’s just … I don’t think about the housing market, but in general, I see that it is picking up, and it’s going to be doing okay, but I think in Canada in general, I think we’re going to struggle for a while.

I think the oil market’s really going to affect us. Real estate will not, in that sense, because I don’t think interest rates are going to go up in the next 4-5 years. I just can’t see it increasing at all. In fact, I think that one of the moves for the Bank of Canada will be to reduce interest rates again. Bond yields have fallen to some of their lowest levels in history, recently as of today. I think that the move is going to be that rates are going to stay as they are or fall a little bit more.

Banks are actually very aggressive on mortgages right now. I talk to some of the biggest guys in the industry, and they’re very aggressive on mortgages, and they want to get that market [encaptured 00:10:16] as much as possible. They’re going to be cutting rates with those good clients that they have to be able to maintain that relationship going forward. I think the economy in general … I don’t think Ontario will be suffering as much, but I think it’s going to be a tough time, but I just don’t see real estate getting affected very much for the next few years. In fact, I think it’s an opportunity to continue to buy in there. I just don’t think there’s enough product in Toronto right now that’s on the resale market that’s going to be able to satisfy the demand that’s out there.

Andrew la Fleur: Yeah, what do you think about the Canadian dollar specifically? I’d like to hear your take on it, just somebody’s who’s involved with the sale of thousands of condos, and you deal with some over-seas buyers. What do you think the effect of the low Canadian dollar, and it just keeps getting lower and lower?

Riz Dhanji: I think that Canada’s on sale over-seas. I think what’s happening … I have gotten more interest in the past week and a half for condominiums that we have in [inaudible 00:11:21] for about $3.8-4 million range than I’ve had in the past 6-8 months. In fact, I think that luxury units that we have in Aura are going to probably all be gone by the next few months. Basically, everyone over-seas, if you’re a US citizen, you’re from Dubai, you’re from mainland, you’re from around the world, you’ve got a 40% discount to buy real estate in Canada. This is a once in a lifetime opportunity. It was like in 2009, 2010 when the Canadian dollar was at par if not more, and real estate prices were depressed in the US. Today, you’re looking at real estate prices have come back to where they were in pre-crisis levels, but people have made 30-40% returns just on the currency exchange.

I think that’s what’s happening in Canada, and I see a huge amount of over-seas investment appetite for Canada, Toronto in general, and I can see that going along for the next year or so.

Andrew la Fleur: Yeah, yeah. I think it’s going to be a huge driver, especially in the condo market. The condo market’s so attractive to people over-seas, just such a great asset to own, and a simple asset to manage. Like you said, right now, it’s a 40, 45% discount, and the discount is actually growing every day. Yeah, I think we’re going to see a lot of activity and interest from … I see a lot of Canadians as well, Canadians who are working around the world and who are earning a currency that’s not Canadian dollars. I’m seeing a lot of Canadians who are regaining interest in real estate back home. So many economies around the world are in so much turmoil, and Canada still is a relative safe haven from that perspective. I think a lot of that money’s returning back home, you could say.

Riz Dhanji: The fact is, there’s a lot of people that are in … Some of the guys that I know that are on the private equity side, they get paid in US dollars and have bought real estate recently in Toronto. They see that they’ve got a 40% discount. They’re like, “I’m going to buy something else.” They’re calling me to say, “You know, I want to invest in your next project,” and stuff like that, and, “Can you get it done quickly because I want to move my money.” It’s such a great deal right now. You’re right, a lot of Canadians from all around the world that are getting paid in US dollars or other currencies are looking at putting their money back into Canada. It’s only going to get better. Toronto’s just an exciting city. We just got rated as one of the top safest cities in the world.

I think the New York Times came out with a publication that say the 15 top places to go see, and Toronto was number 7 on there. You know, it’s getting a lot of notoriety. A lot of people are coming into the city. A lot of them from all around the world, and I think it’s going to only grow as we grow the city itself.

Andrew la Fleur: Yeah, absolutely. I talk about it time and time and time again, but people constantly ask me, you know, “What’s going on with this condo market? How can it keep going up?” So much of it just comes down to we are a growing city, and people just keep coming to Toronto. We need to keep building more and more housing. It’s a basic supply and demand. If prices keep going up, which they are, then it’s a clear indication that we are not building enough housing. We’re just not keeping up.

Riz Dhanji: No, we’re not. I know that every year I probably get the question, and you probably get it about 50 times that, like you said, “Is the real estate market … What’s happening in the condo market? We’re building so many condos.” We’re actually not. We’re actually below what the immigration policy is for Canada. I think the immigration policy is actually going to get better now that the liberal government is in place. I think you’re going to see a lot more immigration that’s coming in, so I think a lot more investment is going to be coming into the city. I think it’s going to get even tighter as we go along. The issue that everyone doesn’t understand is that land is very scarce downtown in Toronto. It’s next to impossible, or it’s at prices that are astronomical today.

Andrew la Fleur: Yeah, well, you’ve been in the market for a while, so give … I hear that a lot. We hear that a lot, but what does it mean? I mean, give us some perspective. You’ve been in the market for a while, so compare today with 10 years ago? How has the market and landscape changed?

Riz Dhanji: Yeah, I’ll give you an example. I mean, when we did Aura, I mean, you were buying land at that time at between $40 and $50 a density foot. If you want to buy a piece of land anywhere on Yon Coastal Aura today, you’re looking at between $150-$200 a density foot. That’s a double to 3-times increase in less than 10 years. I mean, it’s unbelievable to me. That’s what’s happening.

On top of that, your construction costs have gone up considerably. The development charges have gone up about 3 times as well. When you add everything together, it is so difficult to make anything make sense today, and prices are going to start to increase because developers just have higher costs of construction and land and soft costs that are there. There’s just no turning back the clock on land prices and what’s going on because there’s such a big appetite. People from all around the world, not only us, locals, that are buying land, but you’ve got people from Saudi Arabia, and you’ve got people from China that are buying land in the core as well because they see the growth potential that’s happening in the city. They have demand in their own countries for people to move to Toronto, so it’s a very competitive industry, and it’s very difficult, and there’s not that many sites to be honest with you. There’s very few sites that are available that are developable.

I just think it’s the supply’s going to get constrained as you go along. The planning process is taking a lot longer, and the construction process is taking a lot longer, so it’s only going to be tighter conditions as we progress in the future. I recommend to people that if they’re looking at diversifying away from like a stock market or something is to get into the real estate market now before it only gets worse in the years to come.

Andrew la Fleur: With all the stuff we’ve talked about, I mean, there’s so much evidence to say that the market is going to continue to grow. We know that the market’s growing right now, but it’s going to continue. Why do you think there are still so many people that are hesitant or that are scared to get into the real estate market, to … Let’s talk specifically about buying a pre-construction condo, and what advice would you give somebody like that?

Riz Dhanji: Yeah, I mean, for some people, it’s a new form of asset to be able to buy. Urbanation just came out with their rental report today, and I believe it’s up … I think 2015 was the highest number of rental condominiums in history.

Andrew la Fleur: Yep, that’s right.

Riz Dhanji: Then in Toronto, and that they can see rate is somewhere around 1.1%, so all those people who were saying, “Oh my God, we’ve got so many condominiums that are coming up, and we’re never going to be able to absorb it, and people are not going to be able to rent it out,” well, the past 2 years were probably the highest number of completed units in Toronto’s history closer to 16-18,000 per year, and everything’s been absorbed. I mean, they were saying somewhere around close to 35% of pre-construction condos that just got completed were fully leased as of complex.

Those are huge numbers. It shows that the … When we started building in 2010 and 2011, and there was a lot of product that we were selling, and at completing, they’re being absorbed, and the market’s doing well on it. For people who are looking at buying in and coming in as an investment, you know, I think that builder reputation is an important factor, that’s on their location of where you’re buying, how the building is unique, the amenities that are there, and close to transit is huge. As soon as you’re close to transit, you know that the opportunities get even better [inaudible 00:20:27].

In fact, I think something one of my agents in Montreal said, that they sent me something from the Montreal Real Estate Board that said as you’re closer to the subway stations, increase of value is almost 40-50% versus condominiums that are outside of that. I think those are key factors for people to look at when they’re investing, but every year that you decide that this is not the right year and this is the year that the market is going to crash is another year that you will not get into the market. I’ve seen so many of my own friends that I’ve told them from 2010 and 2011 when they were saying that the market is just too high, it’s got to come down, who didn’t get into the real estate market are now priced out of the market. It’s just not going to get … I just don’t think it’s going to go lower, and I just don’t think that … I think people are going to be disappointed when they see the next year when it goes up even more.

Andrew la Fleur: Yeah, absolutely. Yeah, that was great to bring up the Urbanation thing. I’ll include a link to that in the show notes for this episode for everyone listening. Another thing that I notice on that and something that I’ve talked about a lot as well … You alluded to it, but just the fact that the number of condos rented out in the GTA has doubled, doubled over the last 5 years. Like, it is just staggering how big the rental condo market has become, how fast it is growing, and yet, like you said, this was supposed to be when the prices were going to fall and when everything was going to fall apart. “We have too many condos coming!” Well, quite the opposite actually. Prices continue to go up on the sales side, and on the rental side, rental prices continue to go up.

Again, it’s just basic supply and demand. The facts are there on the page. There’s nothing to argue. When prices keep going up, we clearly still are in a shortage situation.

Riz Dhanji: Yeah. You know, Andrew, the one interesting thing that … My father-in-law is not a sophisticated in general, but for the past 15-20 years, he’s been buying real estate and renting it out, and he buys in every one of my projects. I actually just started deterring him in the beginning because he was buying 2, 3 units, and I just said, “You know, you’re crazy. I don’t know what you think you’re going to do. Renting units doesn’t make any sense. I’ve been in this market for so long. It doesn’t make any sense to me.” He’s accumulated close to 15 apartments now. He’s at the retirement age, and he’s paid off probably 50% of them. The rest of them are probably close to being paid off.

His rental income alone is incredibly high. It’s unbelievable that he’s going to retire on an income that he never has to worry about because his units are spinning off great rental income for him. I think the story is that you don’t have to be the smartest guy. It’s trying to get in on the first investment that you’re doing and keep building upon that. If you continue to do that, over the years, I think it’s a good source of retirement income and financial planning for the future, where a lot of people don’t realize it or don’t think about it because they’re so used to the stock market, and we can see what’s happening, as we talked about.

Andrew la Fleur: Yeah, that’s great, great advice. Riz, why don’t you touch on, sort of as we’re at the beginning of 2016, why don’t you touch on sort of the highlights for you and for Canderel from 2015 and then looking forward, 2016? I know you’ve got some very exciting stuff coming up. I don’t know how much you can share about that, but whatever you can share about what’s ahead for 2016.

Riz Dhanji: Yeah, so 2015 was a great year for us. We sold out of our YC Condos project, which you were heavily involved in. It won project of the year for that project, and it was really exciting on Young Street. That was 635 units that we sold out in just over a year. We closed close to 1,400 condominium units in 2 buildings. That’s just DNA3 and our Aura project, which were big highlights for us.

We also launched a big project that we did in Montreal, which is our second phase of our [Tour des Canadiens 00:25:02] project, which went well above expectations on the sales figures, and we’re continuing on with that into 2016 and more projects come along there.

I think 2016, we’re working on something really exciting downtown that I can’t share any more details right now but will be doing shortly. I think a lot of your viewers and a lot of your clients will be excited about. We’ve got another couple of projects that we’re working on in Toronto, not only in downtown, but in certain areas that are quite exciting as well but close to subway lines, that we’ll be bringing on in the new year. I think that 2016’s going to be a great year. It’s also been a challenging year, as discussed, because it’s hard to find as many projects as we’d like to do because of the economics, but I think what we have planned, it’s going to be very exciting for us going forward.

Andrew la Fleur: Great, great, well looking forward to hearing more details, especially any time Riz Dhanji and downtown condo project are in the same sentence, you know it’s going to be something good and something exciting, so, yeah, looking forward to that one, especially. Yeah, and you mentioned Aura and DNA3, 2 great buildings closing last year in 2015. Funny enough, I own a unit, as you know, in DNA3, one of my rental units. Just today, just minutes ago actually, I just got a letter from the condo board, condo corporation there, and it’s great news. They just were doing the budget for the next year, and they just indicated that there will be a 0% increase in the condo fees there.

Riz Dhanji: That’s good news for me because I have a unit.

Andrew la Fleur: Yeah. You didn’t get that?

Riz Dhanji: [crosstalk 00:26:51] that letter yet.

Andrew la Fleur: You haven’t seen that. Yeah, yeah, good. Yeah, again, yeah, again, I think that speaks to … A lot of people have these fears of maintenance fees as well, and a lot of this stuff is just irrational how people are afraid of investing in condos, but for whatever reason people believe that maintenance fees are just destined to soar and to go up by a huge amounts, and, “Oh, there goes all your profits,” and this kind of thing. Again, I think it speaks to the fact of buying from a quality developer who knows how to build a building, who knows how to set up a good management in place for that building to get it on the right foot, and here we are now after the first year of that condo, and we’re seeing no increase at all in the maintenance fees, which is great news.

Riz Dhanji: That’s great. Well, that’s great. It’s good news to hear. I haven’t even heard that yet, so I’m excited because I have a unit there as well. I think that building’s going to turn out really great, and I just think that … I think in general that the market is going to do well, and I think for your viewers, those who have been hesitant for the past couple of years to get in, I just don’t think that there’s anything that we see that’s going to stop this increase … maybe not at the level that we’ve seen over the past few years, but it’s going to continually to go up, and I think if you’re looking at an investment strategy away from the traditional stock market, which we know is not doing great, we definitely need to speak to you because there’s some great opportunities going to be coming out, and it’s only going to be a great percentage for them to put into their retirement basket that will only add to the future.

Andrew la Fleur: Awesome. Great. Riz, anything else you want to touch on or add to this conversation that we’ve had today?

Riz Dhanji: No, I think this is great, and I think I appreciate you calling me, Andrew, and I know that we talked about this before the year end. I vented to you about how bad my stocks have been doing, so-

Andrew la Fleur: Yeah, absolutely.

Riz Dhanji: Thanks for listening to my loud voice on that, but I think it goes to show that … I listen to you a lot, and I watch what you do, and I read your blogs and everything that you do. You’re a model of smart investing, and I think what you’ve done over the past number of years investing in real estate and been steady and not panic is going to … is a model for your clients to be able to continue in the future. Kudos to you for what you’ve done in the past and continue to do in the future.

Andrew la Fleur: Well, very kind words. Thank you so much, Riz, and appreciate your insights again here on the podcast. Hopefully, like I said, we’ll hear from you again soon when you’ve got more information to tell us about your projects in 2016.

Riz Dhanji: Sounds great. Absolutely.

Andrew la Fleur: Great, we’ll talk to you next time.

Riz Dhanji: Thanks, Andrew.

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