Living Your Life on Your Terms with Tom Karadza of Rock Star Real Estate
Tom Karadza and his brother Nick are experts in Real Estate investing in Canada. They have authored several books on real estate investing and they help their clients invest all over the golden horseshoe. In this episode Andrew la Fleur sat down with Tom to talk about his experience as a real estate investor and what holds many people back from investing in real estate.
Tom Karadza Interview Highlights
0:25 What to Expect in this Episode
2:30 What is Tom Karadza & Rock Star Real Estate
2:45 How did Tom Get Into Real Estate?
3:53 Tom’s First Investment Property
6:40 The Lessons Tom Learned from His First Property?
8:40 What Types of Property is Tom Buying Now?
10:10 How Does Rock Star Real Estate Help Investors?
13:03 The Transition from Corporate World to Entrepreneurship
15:15 What’s It Like Working With Family?
16:17 Why Do So Many People Talk Real Estate But Still Remain Hesitant Before Taking Action?
18:18 Where is the Real Estate Market Today and Where Is It Going?
25:35 Looking for “Quick Money”?
27:25 How to Reach Tom and Rock Star Real Estate?
Tom Karadza Interview Transcript
Hi and welcome back to the show. On today’s show, I’m very excited to be interviewing Tom Karadza. Tom and his brother Nick Karadza are the co-founders of Rock Star Real Estate Brokerage out in Oakville and Tom and Nick help their clients to invest in real estate all around the globe in horseshoe. I talk to Tom today in this interview about his history and how he got started in real estate. It’s an interesting story. He was frustrated in his career and he started investing in real estate over that frustration, ended up being very successful and good at it and turned it into a full time career, left his corporate world job and now him and his brother Nick, they help other investors to follow their dreams and as they like to put it, “Live life on their terms thought real estate investing.”
We talked about his first deal and the lessons he learned from that, talked about common mistakes and things that first time investors sometimes fall into. We talked about why so many people think and talk about investing in real estate sometimes for years and years and years but they never actually take that first step and buy that first property. We talked about why that is and how people can overcome that. We talked about the real estate in general and interest rates, where they are likely to be headed. It seems it will always be a popular topic and Tom has a great take on the subject of interest rates so we talked about that. For all the show notes on this episode, links to Rock Star Real Estate and more information about what those guys are doing there in Oakville, you can go to truecondos.com/rockstar and get all the links there. Without further delay, let’s get to the interview here with Tom Karadza.
Andrew la Fleur: It’s my pleasure to welcome to the show Tom Karadza. Tom is the co-founder, along with his brother Nick of Rock Star Real Estate. Tom, welcome to the show.
Tom Karadza: Andrew, I am pumped to be here.
Andrew la Fleur: Great. Very excited to be here too. We’re sitting here in your Oakville offices. Why don’t you tell everybody where that is if they want to come and find you.
Tom Karadza: Sure. We’re right across from the Oakville GO train station on Trafalgar and the QEW, is the big intersection.
Andrew la Fleur: Awesome. Why don’t we start? How did you get started in real estate? What’s your journey into this world?
Tom Karadza: Wow, I didn’t know we were going that far back. It’s a great question. I think I read, it might have been, Rich Dad Poor Dad? If I really had to nail it down to a book, it might have been Rich Dad Poor Dad and then we took some of these real estate conferences. You know the ones that roll into town and teach you how to be a millionaire overnight? We spent money on some of those conferences. We did not become a millionaire overnight but we learned this idea of real estate and then Nick, at the age of 21, flipped his first property. After one of these courses that we took, he went out and just decided he wanted to flip a property so he bought a 2-bedroom home in Mississauga which we now know, never buy a 2-bedroom home because they don’t sell very nice.
In the suburbs, 2-bedroom is not the way to go and he made me dig up the side of the house with him because it had a water leak and he didn’t have money to hire a water proofing company so we hand-dug it, whole bed, got my father involved. He flipped that and I was 26 at the time and I bought a student rental property by McMaster University. I think it was the book and some conferences and we began naively into this world of real estate.
Andrew la Fleur: Let’s go back and talk about, specifically, your first property. Your first foray into the market a little bit. Where was it? How much did it cost? What did the numbers look like? Was it a flip? Was it a buy and hold?
Tom Karadza: First one for me was a student rental right outside McMaster. We bought it for $250,000 which we’re now convinced we overpaid for it because the gentleman we bought it from, he bought it in the 1970s for 21,000. He never paid off his mortgage. He just made interest-only payments on this property. We bought it in, I guess it would be late ’90s or the year 2000, somewhere around there. 250,000, it’s 7 bedrooms, we rented it out to students and we made a huge mistake because, although the numbers on the property made a cash flow positive really nicely, the state of the property inside was so decrepit that we had to spend about $20,000 that we had to scrape together from everywhere to make the bathrooms safe. It had electrical cords hanging from the ceilings, going right next to the shower. It was just a disaster.
It was a lesson to us and never look at a property just by the numbers. You actually do need to look at the property itself. It matters. That was the first one, 250,000 and it was like a big deal for us and I freaked out. I remember, cutting the grass and having tenants look at me through the windows and being petrified that, you know, “Do I have to go speak to my tenants?”
Andrew la Fleur: Am I doing this right?
Tom Karadza: Am I doing this right, yeah. Why are they looking at me? We were scared and didn’t really have a clue.
Andrew la Fleur: What happened with that property? Still own it?
Tom Karadza: Still own it, yeah. We don’t like …
Andrew la Fleur: Oh, you still own it, wow.
Tom Karadza: Still own it. We don’t like selling properties.
Andrew la Fleur: Great. We definitely share that in common. I always tell my clients to buy and hold is the best way to generate wealth. You start flipping properties, you can make a few dollars here and there but if you want to generate wealth, you got to buy and hold.
Tom Karadza: I think that advice is so good because flipping is income, holding properties is wealth. It’s the way we break it down and a lot of my friends, my personal friends over the years, have always said, “The real estate bubble’s about to burst.” I’ve learned through our family. Our family has a longer history in real estate. Our parents were flipping properties in the late ’80s and we lost a lot of money in 1990 in Toronto, so, we’ve seen the bad times in real estate.
I always tell everyone, “I’m not trying to time the market. I don’t know if it’s going to burst tomorrow. I want to survive.” I want to survive so that when the bubble does burst, I’m still standing because I know what goes up must come down and I just need to survive through those periods and that’s where the big money is made. I’m not trying to time some magical crystal ball market.
Andrew la Fleur: Right. What were the big lessons you learned from that first property? Seems like everybody I’ve talked to, that first property, when you get into the investment game, you mentioned a little bit earlier, you always make some mistakes. You always have some screw ups that you never do again. You mentioned, never buy a property just based on the numbers but what else did you learn from that, particularly? I guess it was pretty good because you held on to it. You’re still holding it today so it must be, fundamentally, a pretty good property still.
Tom Karadza: Yeah. I think we learned, looking back at that property after comparing it to other purchases, that when a property generates more income than the expenses on it, or at least breaks even, it’s a really easy thing to hang on to. After that property, we looked at other properties that didn’t pay for themselves and that first property taught us that if a property produces more income than the expenses on it, it leaves you in a really nice position because if you have repairs and maintenance, you can afford them.
That made our investing life difficult because it’s hard to find properties in all markets that pay for themselves. I think that’s the biggest lesson and to have systems. We had tenants calling us at all times of the day, initially and we realized, we had to create systems around how we dealt with tenants and how we filled vacancies. Otherwise, our lives were going to be a miserable mess with real estate.
Andrew la Fleur: Yeah because you jumped right into a 7-bedroom property. You went from having no tenants and no experience to having 7 tenants overnight …
Tom Karadza: With parents.
Andrew la Fleur: And 7 other tenants are parents. That’s a huge jump to make.
Tom Karadza: My brother was 21 and I was 26, so, yeah, it was a big jump, looking back. It was a little crazy but it’s like anything, you throw yourself in and you survive through it. We’d have to learn those lessons either at that age or later. Looking back, I’m so happy we …
Andrew la Fleur: What do you buy in these days? Personally, what do you focus on? What types of property? Are you still big on student rental type properties? Do you still buy those types of properties? Are you looking at different types?
Tom Karadza: Yeah. I’ll tell you what’s going on with me personally. Right now, I just sold a student rental by York University that I’ve owned for 10 years. It’s been very well. I did that. I owned one with my brother in law, so, we’re partners on that one and for various reasons, we decided that we wanted to sell that one and the last one Nick and I purchased was here in Oakville. It was a duplex which just pays for itself. There’s no cash flow on the property at all. We don’t really care because we love the area we’re buying in. As long as it pays for itself, we’re going to hold it.
It’s on a big lot, so, we might knock it down and build one day. We might just operate it as a long term rental that pay for itself but for beginners that we’re helping, we try to get them in a property that they’re comfortable with, so, if they’re in Toronto and they just want a condo, we’ll try to give them the best condo that we can find for them or if they’re looking for a single family home, we’ll try to get them a price point that works when they rent it our, that they can cover their cost. Sometimes, we do with other people, what we don’t do ourselves. We’re not trying to maximize cash flow anymore, we’re trying to consolidate some of our stuff and buy them in places where we want them to be.
Andrew la Fleur: Let’s talk about your company, Rock Star Real Estate. How do you help investors today? What’s your core mission?
Tom Karadza: When we started, we felt, after you bought the property from a realtor, you got a handshake that said real estate never goes down, you’ll be fine and we never saw them again. We wanted to be the guys who and we’re probably like yourself and the way you treat people, we wanted to be the guys who would never go away. Say, “You know what, we will teach you how to find a tenant. If you have any problems with your tenant, you can call us. If you need us to go to the landlord, tenant board with you, and stand by your side, we will. If you need contractors, whatever you need, we will not leave your side because the easy part is buying the property. The hard part is surviving in real estate long enough to make money. We want to be there that when you need the panic phone call, when you’re thinking, ‘Sell’ we want to take the call that says, ‘Hey Andrew, just calm down, we’re going to go through this together. Here’s what you need to do.'”
That’s why we started it. We couldn’t find any other people and there’s more of us now that all think the same. I mean, people like yourself but we couldn’t find people who were doing that and we thought maybe we can offer some value. That’s the idea. We want to help people through their real estate, if they’ve decided real estate’s right for them, we want to be by their side through the whole journey.
Andrew la Fleur: That really makes what you guys are building, something very unique compared to traditional real estate brokerage or compared to traditional real estate agents. You’re really doing something unique that nobody else is doing.
Tom Karadza: Yeah, it is. You’re right. I used to deny it and say no but it is. We’ve been lucky. We have great people we work with and it’s fun to see the industry evolve too because I was just mentioning about yourself. There’s more of us thinking the same way and it’s really cool but it is pretty unique. Most brokerages aren’t built with this mindset. You’re right.
Andrew la Fleur: For you, what’s the best part about being an entrepreneur, having your own company and being an investor?
Tom Karadza: The best part is time freedom. I was in the corporate world in software sales at a couple of companies here in Toronto and I always felt that I was stuck in traffic and I couldn’t control my own time and it was frustrating to me. I think I had read Rich Dad Poor Dad by that point and I just thought, this is not right. I don’t have freedom and if I map out the next 15 or 20 years of my life, I didn’t like where I was headed so the best part about being an entrepreneur is I now have time freedom. I can go to my daughter’s, she wants me to go to her talent show next week. For the last 4 summers, Nick and I bought a condo in Croatia on the Adriatic Coast. We go there for a month every summer. We’re leaving again this year in a couple weeks, so, time freedom, it’s priceless to me.
Andrew la Fleur: Talk about that transition where you went from the corporate world to being an entrepreneur. When did you hit that tipping point where you made that jump? What was it that triggered you to take that step further because you were an investor, you had properties, you were doing your thing in the real estate market and then at some point you said, “Okay, I’m going to go into this full time and try to make a business out of this.”
Tom Karadza: I think it compounded itself from about 10 years of reading books like Think and Grow Rich and listening to Tony Robbins’ Personal Power and I always just had his swirling in the back of my head that my future wasn’t going to be a corporate 9-5 and I didn’t know what it would be but the actual event was a sales VP who tore me apart in front of the other regional sales managers for missing my forecast 1 month and I came home that night, I went to …
Andrew la Fleur: Were you in sales then?
Tom Karadza: Yeah. I started in tech support and I moved over into sales.
Andrew la Fleur: You didn’t make your target.
Tom Karadza: Yeah. That’s right, didn’t make my target and the reason I didn’t make my target that month is because I had done really well the month before to help out the company, so, I missed my target this month. I felt like I was helping the company with what I was doing and I got ripped apart, didn’t think it was right, came home that night, told my wife I need to quit. We have this real estate license that I got, let’s try and do something with it. I had a 4 month old daughter, a 4 year old son, a mortgage and my wife at home who wasn’t working. Everybody said I was crazy but that did it. I just knew. About 7 months later, I quit.
Andrew la Fleur: Wow. It’s been a pretty good decision, I guess.
Tom Karadza: It’s worked out, yeah, but I think it was the marketing knowledge. It was the idea, understanding how to get the phone to ring or to get people to call us and do, “Want to do business with us?” That really was the saving grace.
Andrew la Fleur: Yeah. You’ve been a student of real estate investing but you’ve also been a big time student of marketing and that’s really been the key driver in your success in running a business. You work with your brother and you just introduced me to your mother as well, who’s in the office here. What’s it like working with family? Any tips or advice fro people who are in business with their family?
Tom Karadza: Nick and I argue everyday but the nice thing about arguing with you brother, if there’s a nice thing is that we trust each other implicitly and often, after we argue, we forget about what we argued and there’s no grudges held, so, we just let it be and we move on. I think it’s the trust. Our mom does a lot of the administrative deal work here and working with family, it’s a lot of trust and we get to be in all this together. My wife also works here. Nick’s wife does some work on the side for us, so, it’s just nice that the family gets to do this together. I think family businesses are cool but I guess I’m biased.
Andrew la Fleur: That’s great. That’s awesome. Why do you think so many people want to come to real estate investing? They think about it, they talk about it, they read the books, they go to the seminars. So many people, they don’t take that next step. They don’t ever take action. They don’t ever buy that property. It’s something that they’re thinking about for a long time. There seems to be something holding a lot of people back. In your experience working with investors for many years, what do you think that is and how can people get over that hump or who want to make that first purchase?
Tom Karadza: This might sound too harsh but we’ve given this a lot of thought over the years and generally, people in that state are too comfortable. They have everything they need. They don’t have enough fire or reason to go out of their comfort zone and in Canada, it’s very easy to get comfortable. It’s very easy in Canada. I have relatives who still live in Croatia and they don’t have jobs. They don’t have good incomes and here, it’s not too hard to make an easy income and be comfortable and when you’re comfortable, nothing’s going to happen. I quit my job because I was pissed. I’m not sure if you want me to share it like that or not but I was frustrated.
I’ve learned over the years that you can leverage frustration and almost your anger to get stuff done and you need to get to that state sometimes to push yourself out of your comfort zone. Otherwise, you’ll just coast along and they’ll talk about something for 10 and 20 years. Look for something to make you angry enough and it’s maybe mapping out your financial future 20 years. Scare yourself to the point that forces you to take action today. People are too comfortable, generally, I think.
Andrew la Fleur: I totally agree. I think another thing a lot of people use, whether it’s valid or not is the excuse of the market and their uncle told them that the market is going to crash or their mom said that, “Don’t buy real estate, it’s a bad idea” or the headline in the newspaper said the sky is going to fall. What’s your take on the market? Just in general, in terms of the GTA where your expertise is. Where do you see the real estate market today and where do you see the real estate market going? What are you watching in the market right now?
Tom Karadza: We try to break it out into levels, a big global level, interest rates are too low. It’s causing asset prices to increase rather rapidly in some areas that they shouldn’t be. However, in Toronto, we feel we’re very fortunate that we have a population that has good, average income levels and we have an obscenely high population growth rate. Because we have people coming in here from all over the world, like when you visit my relatives in Croatia, it’s all Croatians who live there. When you come to Toronto and you look around the room, at any room, any restaurant, any shop, whatever store you’re in, it’s people from all over the world.
We get about 105,000 new people into the greater Toronto area every year. That is a lot. That means if you and I have been here for 5 years in Toronto, half a million more people have come here. That creates an obscenely high amount of demand for property. Match relatively good income, we can argue all day long about the middle class and if there’s good jobs, but relatively good income, population growth and we’re getting new highways, 407 extensions, GO train stops going throughout Toronto, we can all complain about the traffic and stuff but we’re getting some of that and it’s creating all this wonderful opportunities for investors.
If I had to pick a spot in North America right now, to be a real estate investor, I think it’s a very easy decision to be a Canadian. I was born in Toronto, to be proud of where I’m from and I get to invest. We do it around the golden horseshoe but this is a, relatively speaking, great spot. We’re less interested about timing any sort of market to get to the new shove of the market and more concerned with, “Are we going to buy a property that we can own for the next 10 years, no matter what happens to the market?” Can we own this thing, based on the numbers we’re crunching? If the market goes up 50% or down 50% tomorrow, are we still happy with it? If the answer’s yes, with population growth and income levels where they are, let’s get busy.
Andrew la Fleur: What makes you answer yes to that question? Is it just, “Does the property cash flow” or is there more to it?
Tom Karadza: A little bit more. Our father was flipping high end real estate in ’89, ’90 period and got caught really badly on a property that was $750,000, 25 years ago. It went down $300,000 in about 4 months, value, approximately. We’re guessing because we didn’t sell it. We had to rent it out and when we rented it out, we were losing money every month. We realized that even if you get a high end home that can carry its own cost, when times go rough, it might not be a good investment, so, starter homes, like entry level condos or entry level starter homes, in good times or bad times, people always need a place to live.
If we can buy a starter home, it’s always the most liquid and the most in-demand piece of the Canadian market. It might be very boring but it’s going to be easiest to survive with over long periods of time. We look more at that category of property and then try crunching numbers on this condo in this area versus that condo and these condo fees versus those condo fees or this single family home versus that single family home and that kind of thing.
Andrew la Fleur: Right, that’s great. What about interest rates? I know you talk a lot about interest rates on your newsletters and videos and it seems to be a big topic you’re very interested in. What everybody will tell you is something to the effect of, “Well, when interest rates go up next year or whenever it is.”
Tom Karadza: Always next year.
Andrew la Fleur: It’s always next year. The whole market’s going to crash because, “I’ll just wait when they raise interest rates” back to whatever levels they think they should go back to then the whole thing’s going to fall apart. What do you say about interest rates?
Tom Karadza: I think that conversation comes from people who remember the late 1970s and interest rates did go up and it crashed things back then and then they remember the early ’90s when interest rates went up and it crashed things back then but I think you need to have these conversations in the context of where we are as a world right now. Governments of the world have too much debt. This is my humble opinion, if they were to raise rates, they won’t be able to afford the debt that they’re carrying. I’m trying to simplify a lot of stuff really quickly here but I don’t understand how they’re capable of raising rates without causing massive disruption to their economies.
Because of that, I don’t think they’re going to raise rates. I don’t think they’re going to raise rates in the short term. I don’t think they’re going to raise in the long term. We might get a quarter point move, force your optics that it looks good, but any meaningful interest rate raise, I don’t think it’s going to happen but I need to prepare that it may happen. I buy good homes in good areas, nice starter homes that pay for themselves and let the cards fall where they may. The person having that conversation is trying to time the market and I just think it’s not an effective conversation to have. You don’t make money. I have one friend who’s been telling me the market has been overpriced since 1998. He’s still waiting.
Andrew la Fleur: 1998 was a great year to buy.
Tom Karadza: It was the best year to buy.
Andrew la Fleur: ’97 was okay, 98 was perfect. Ever since then, it’s just been …
Tom Karadza: … horrible.
Andrew la Fleur: … horrible, I guess.
Tom Karadza: I’m not sure I’m answering your question but I just think my personal opinion with no crystal ball magic is that if they’re going up, they’re not going up much and they’re going to go up slow but I don’t think they’re even going to go up at all. If anything, I think we should prepare for a world that could go down further. We’ve been saying that since 2010, so, we really haven’t changed our tune too much.
Andrew la Fleur: That’s what I tell people as well. Everyone’s saying it’s going to happen. It’s been 5 years already with interest rates basically unchanged. It could easily be another 5 years of the same thing and if it is, then, what are you doing today to take advantage of that?
Tom Karadza: Exactly. We look at the data going back, Bank of Canada from 1933-1952, I believe, held rates flat for 20 years. I don’t know why no one brings this up. Hey held rates flat for 20 years so are we in 5 years in, that’s another 20 year flat move and are you positioning yourself to take advantage of that? I think the last framework of whatever economic collapse happened, can’t always determine what’s going to happen on the next upcoming one. You need to have a bigger picture to have these conversations.
Andrew la Fleur: I totally agree. I think low interest rates are here to stay for a very long time. One other thing I always tell people is, “Look, if interest rates go up, it’s because the economy is doing better.”
Tom Karadza: Yeah, good point.
Andrew la Fleur: It’s because more jobs are being created and incomes are rising. That’s a good thing and that means that your asset values are going to go up and your income is going to go up as well. The point is, you’re either going to get into the market or you’re not.
Tom Karadza: Yeah. You need to change the conversation. It’s got to be more than about timing the market, right?
Andrew la Fleur: Absolutely. Tom, you’ve been asked a lot of questions, probably from other people about real estate investing everyday. Is there a question that nobody has ever asked you about your business or about what you do or about investing in real estate but that you wished that somebody would ask you, that more people would ask you? What would that question be?
Tom Karadza: I don’t know. That’s a really good question. I don’t know what the question would be. I think sometimes, people who get into real estate may be looking to make a quick buck by flipping a property or making some quick money and I think if someone had asked me, “How do you look at your properties or your business or your life?” The stuff that has served us best has always been offering long-term value, making long-term relationships with our tenants, making long-term decisions on the property, investing to fix up a property when maybe we didn’t want to but it was the right long-term thing for that property.
In our business, treating people like we want to be friends for the long-term, has always been the best way to treat people. I think, when you think for the long-term with your properties, your life, your business, it always ends up serving you best and I think many people don’t think that way. They look for the quick buck. They have the bill, they need to pay tomorrow and try to make some quick money. That always seems to backfire. Whenever we’ve thought that way, it’s backfired on us. We just learned the long view, the long-term thinking always serves you best. I’m not sure I’m answering what you’re asking.
Andrew la Fleur: Great advice, great way to put it. Tom, if we want to learn more about Rock Star Real Estate or get in contact with you, what’s the best way for people to do that?
Tom Karadza: Sure. I guess, just 2 sites: rockstarbrokerage.com is our main brokerage website and rockstarinnercirclce.com is where we do a lot of fun blog posts and videos and have a little bit more fun on that site, so, rockstarbrokerage.com or rockstarinnercirclce.com.
Andrew la Fleur: Great. We’ll definitely include a link to those in the show notes for the episode. Tom, thank you very much for your time today, really appreciate it and hopefully we can have you on again on the show soon.
Tom Karadza: Awesome Andrew. Thank you so much.
Andrew la Fleur: Okay, there you have it. That was my interview with Tom Karadza from Rock Star Real Estate. I hope you enjoyed that. It was great to sit down and chat with him. He’s a very positive guy, very high energy guy and really running a fantastic business helping a lot of people out of their Oakville offices all across the golden horseshoe in real estate investing. It was great to st down with Tom and to meet his brother Nick as well. Once again, for all the show notes on this episode and to learn more about what they are doing there in Rock Star Real Estate and to even get a free copy of Tom and Nick’s latest book, you can go over to truecondos.com/rockstar and you can download a copy right away.
Thank you once again for listening to the show. I appreciate all of your positive comments and reviews and feedback on the show. Very grateful for everyone’s support for this podcast as we’re coming up on the 1 year mark. We’re pretty much right at the 1 year mark of doing this podcast, so, thank you very much for sticking with me and supporting this show and sharing episodes with your family and friends. I really appreciate it. Until next week, I hope you have a great week and we’ll talk to you soon.