April 10, 2018

JF1316: One Decade Of Investing Netted Him over 1,000 Units with Kevin Dhillon

If you don’t believe that being consistent and doing something towards your goals everyday, can pay off big in the long run, then you haven’t heard this episode. Kevin came to the states and had no investment properties here to start. He and his wife worked consistently on acquiring and managing properties. After 12 years of hard work, they own over 1,000 units all cash flowing. To hear a first hand example of what consistent work can do, hit play on this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Kevin Dhillon Real Estate Background:

  • Australian real estate investor, who has been actively investing in real estate for the past 12 years
  • He and his wife Daniella have acquired 1,015 multifamily units, totaling over $57M
  • Experience in real estate strategies of owner financing, developments, value-add projects, and syndication
  • Currently own 1,015 rentable dwellings spread between SFHs all the way to a 192 unit community
  • Based in Houston, Texas
  • Say hi to him at www.DhillonPartners.com
  • Best Ever Book: The Bible

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

With us today, Kevin Dhillon. How are you doing, Kevin?

Kevin Dhillon: Hi, Joe. Yeah, thank you for having me aboard.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Kevin – he is an Australian real estate investor who has been actively investing in real estate for the last 12 years. He’s based in Houston, Texas, and currently owns 1,500 rentable dwellings spread out between single-family homes and multifamily apartment communities. With that being said, Kevin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Kevin Dhillon: Sure. My portfolio at the moment is 1,015 units… [laughs] Not 1,500. In time we’ll get there, but at the moment, 1,015. A little bit about my background – I was actually born in Malaysia, a predominantly Muslim country, to a Chinese mother and Indian father, I grew up in Australia; I did most of my schooling there. I currently now live in the U.S. and I attend a Jewish synagogue. So I’m very lucky to be able to have all the different influences and cultures in my life. I’m very lucky in that way.

My wife, Danielle, and I – she’s usually the brains of the entire operation; I’m just the pretty face. We’ve been doing real estate now for about 12 years, and it’s been awesome. We did it for five years back in Australia, and I’ve been doing it full-time for about seven years here in the United States, between initially Miami, and now Houston.

Joe Fairless: What were you doing in Australia, versus what you’re doing in Miami and Houston?

Kevin Dhillon: I guess our approach to real estate is basically just being able to move where the deals are. I guess we are somewhat young, and at that time we didn’t have a family, although we do have a young family now… So I guess we just move to where the deals are.

We started off in Australia, because that’s where we were, and started doing single-family homes, duplexes, triplexes… Basically, residential property in Australia. Then with the financial crisis it was a good buying opportunity in the U.S., and we ended up in Miami because of a family connection, essentially, and started doing multifamily there.

Joe Fairless: What did you buy in Miami?

Kevin Dhillon: The first deal in Miami was a 27-plex. That was the first deal. It was an REO, which we bought back in 2011.

Joe Fairless: Okay. And what was your role in that transaction?

Kevin Dhillon: I was just investing my own money, so I was the purchaser, basically. With the portfolio I had in Australia – I basically refinanced all that, I came to the U.S. with about $950,000 in liquidity, and bought that and a 24-plex as well in Miami, all cash.

Joe Fairless: You bought a 27-unit and a 24-unit, in total for about how much?

Kevin Dhillon: For just a little over a million dollars… With a shortfall; I financed that using a hard money lender, actually, in Miami. They seemed like a great opportunity, so we pushed ourselves a little bit that way, and just used hard money financing to get these two deals under way.

Joe Fairless: Okay. Tell us about what the business plan was, and I would love to hear about how they went.

Kevin Dhillon: Again, we were doing single-family homes and residential property back in Australia, so my mindset was very much about buying maybe a portfolio of about 20-odd houses here in the U.S. And why we ended up in Miami was because basically I had a long lost uncle, hadn’t spoken to him in about 20 years or so, and I found that — yeah, I’ve got this long lost uncle, he’s based in Boca Raton, Florida, and he’s an investor and  a real estate broker himself. So that’s how we ended up in Miami.

So in my mindset, I guess where I was, I was looking at a portfolio of about 20-odd houses… And going through the REO and the short sale process is just a very time-consuming and a very painful experience, because there’s so little certainty. Because you know, you’re just waiting to hear back from the banks and all that. So I think we gave ourselves a goal of buying these 20 houses in six months; three months went by and we still hadn’t closed on anything yet…

So it was my uncle actually that suggested “Why don’t you consider multifamily?” At the time, I said “What’s multifamily?” Because multifamily is an asset class which doesn’t really exist in Australia. Basically, it’s [unintelligible [00:06:09].23] so “Yeah, sure, let’s check it out.”

With the multifamily, with the first deal, the 27-plex – with that one deal, I used up half my cash, and with the second deal I used up all my cash. So I guess that’s the great thing about multifamily – the economies of scale involved… And instead of getting 20 houses, we got 51 units, and the amount of work in doing two transactions as opposed to 20, it just saved us a whole bunch of time and effort and aggravation. So that’s the story.

Joe Fairless: Were you living in Miami at the time when you bought them?

Kevin Dhillon: Kind of. So the plan was to spend six months in Miami, and six months back in Australia. We invested all our money, and then we came back to Australia, because again, that’s where my friends and family and my contacts were… And I guess we had this third-party property manager. So the idea was to spend six months in Miami and six months back in Australia. By the second or third months, when I was back in Australia, I realized we weren’t getting the results we wanted, so Danielle and I realized, look, to really make the most of our portfolio, we’ve really gotta be there and stabilize this thing properly.

And not only that… Look, Miami was a sexier place to live than Melbourne, Australia.

Joe Fairless: [laughs] Miami is sexier than most places on the face of this Earth.

Kevin Dhillon: Yeah, I know, it’s a very sexy place. So it was an easy decision… We decided to basically move to Miami full-time. We were there for about five, six years or so, with the portfolio there, and had a blast as well. We lived in Briggle, we live in Fort Lauderdale. It was a great time in my life.

Joe Fairless: Okay, I’d love to dig into the management and just your overseeing the project a lot more, because it’s really interesting… You were not in the country, you were spending six months away, six months in the country… So you’re not even from Miami or the United States, but you bought two properties. Were they both REO?

Kevin Dhillon: Yes, correct.

Joe Fairless: Okay, they were both REO… Were they both distressed?

Kevin Dhillon: Yeah, distressed — in terms of occupancy, they weren’t too bad. Both were about 90%-95% occupancy, and dare I say, about half the tenants that I inherited seven years ago are still with me… So a very low turnover. Basically, in those two communities, literally like 80% of the tenants there were all related to each other. So it’s this like family kind of enterprise going on there.

Joe Fairless: So you want them to keep having babies then…

Kevin Dhillon: Exactly, yeah. So I guess it wasn’t distressed from the occupancy point of view… More distressed, I guess, from a cap-ex point of view; the previous owner wasn’t really spending the money to upkeep the place, and also in terms of market rents, they weren’t really up to date… So just in terms of bad debt [unintelligible [00:08:39].02] the occupancy was good, we had a tenancy base that wasn’t going anywhere, so I guess there was good upside to the deals.

Joe Fairless: With the cap-ex project — first off, before I get into specifics… So you were living in Australia, you bought these two properties, pretty much around the same time?

Kevin Dhillon: Yeah, within like two months of each other.

Joe Fairless: Okay, within two months of each other… And what did you have in place initially that you changed whenever you actually lived in Miami?

Kevin Dhillon: We had a third-party property manager; they were okay. Then when I moved there, I basically got an in-house property manager, meaning I kind of started my own property management company/business. I had my own property manager and handymen that were just loyal to me; they worked for me, basically. So I guess it was in-house property management, and we went from there.

Joe Fairless: Was the property able to afford a full-time in-house property manager and a full-time handyman, or were you out of pocket some of those costs.

Kevin Dhillon: We did those numbers, and it actually worked out to be cheaper this way. Once you actually factor in the labor of repairs and maintenance, once you factored in the property manager — I guess the property management company was hiring someone else, so I guess they were charging just the management fees and [unintelligible [00:09:59].05] so it actually ended up saving my money by going in-house, basically.

Joe Fairless: So it saved you money… And just for my own clarification, it was better financially for you to bring in two full-time people, but was the property still able to support that, or were you paying out of pocket?

Kevin Dhillon: Initially, the property was able to support one full-time person, so I had a handyman that collected rents, basically. It was not a sophisticated operation, and I guess it kind of worked for a while; we managed to fix up the property. And because everyone there was related — again, the tenant base there was very good, so once we fixed things up, the property started to cash-flow and all that, so it was good.

It’s when I started growing the portfolio that then I hired on a full property manager, and they looked after the entire portfolio.

Joe Fairless: Okay, I’m with you. What type of challenges did you come across whenever you arrived, and after you hired your handyman (who was also collecting rents) what were some other challenges that you came across?

Kevin Dhillon: Challenges in terms of…?

Joe Fairless: Portfolio. It sounds like you were — maybe ‘fortunate’ is not the right word, but it’s not typical from what I’ve seen to buy REO property and have high-quality residents, so that’s awesome… But what were some challenges that you came across?

Kevin Dhillon: You know, probably the most challenging thing dare I say was actually the management of staff. Again, prior to doing this real estate thing full-time, back in Australia, I was an employee. I was actually a property manager, can you believe that? …which was why I wasn’t afraid to bring the management in-house and manage it myself, as it were. Back in Australia I was in residential property management, and my last full-time job was a commercial property manager in [unintelligible [00:11:39].01] Melbourne, looking after warehouses, and — commercial property, basically.

Joe Fairless: And just one side-question then… You mentioned you had $950,000 in liquidity; unless property managers get paid significantly more in Australia than they do in the United States, how did you get $950,000 in liquidity?

Kevin Dhillon: You know, in my working career I’ve never earned more than $32,000/year; I’ve never been highly paid, or anything like that. It was basically through investments. I started investing in Australia in 2006, and so — I don’t know if you know anything at all about Australian real estate…

Joe Fairless: Not much.

Kevin Dhillon: Australia has had 26 years of uninterrupted economic growth. Within the past 26 years, I think that it maybe had one quarter of negative GDP growth, otherwise it’s just been one huge bull run in the Australian economy. That’s another conversation. So consequently, asset prices in Australia have just taken off… So I guess I was a great beneficiary of that. I was buying houses there at 200k, 300k. Today, the median house price in Australia is [unintelligible [00:12:38].18] $900,000.

So again, I was a great beneficiary in terms of the asset price inflation in Australia… And also, I was [unintelligible [00:12:44].20] because I was involved with one development project back in Australia, myself and two other partners. We bought an old house on a larger block of land, we demolished it and we put up four townhouses and sold them off. A lot of my liquidity came from that project as well.

Joe Fairless: Okay, thanks for the background; that’s helpful. So you were a value-add investor, plus you were able to benefit from what was transpiring with the Australian economy in general. Alright. Now, going back to the original question, challenges you came across with these two properties.

Kevin Dhillon: Probably the biggest thing, dare I say, was actually personnel, in terms of hiring the people in the business. It’s really all about the quality of the staff that you have; my first property manager that I hired – she was a really nice lady, a really great person, but she didn’t have the DNA of a property manager, if you know what I mean. She was still a little bit too nice. So I guess in terms of just upholding a standard or what I wanted in my properties, that wasn’t being met, and I guess me having been an employee as well, I guess I wanted to be the nice boss… And basically, I’d say that I kept her on for one year over when I should have fired her early.

I think the biggest issue was actually kind of managing the staff within the property management business, rather than the assets themselves. And then again, the biggest issue in business is just finding good talent, so finding a good handyman and all that kind of stuff. I think that was probably the biggest issue really, just being the boss. I think for me it was the biggest challenge.

Joe Fairless: I’m gonna ask you this question not to pour salt on the wound, but rather to help the Best Ever listeners gauge the negative consequences that could take place if they were to do something like that… So if you had kept her on one year longer than you should have, what did that cost you from a business standpoint for not firing someone when you knew you should have?

Kevin Dhillon: Yeah… Look, just from the metrics of it, right? For one of the properties our gross potential income was just under $400,000; it was about $380,000. We got a new property manager and got her to do a market survey to see where the rents were at that time, and from them, the recommendations in terms of cap-ex, like where we could improve the property to get higher rents. Within about a year of this property manager coming on board, our gross potential income went from $380,000 to about $460,000. So that’s quantifying it that way.

Joe Fairless: Wow.

Kevin Dhillon: But I guess to qualify it, it was just a lot more easier night sleeps with this new property manager, and a lot more money saved in terms of gas, in terms of me needing to drive to the properties and see what’s going on… So really the biggest problem with any business is just getting the right talent in both a quantifiable and qualifiable way. Everything was better with someone that had the proper talent to look after your assets.

Joe Fairless: So that’s gross potential income, a difference of 80k… Let’s just assume 20% expenses, that’s 40k to the NOI… And what’s the cap rate? Probably like four, or something?

Kevin Dhillon: Yeah.

Joe Fairless: That’s a million dollars right there.

Kevin Dhillon: That’s a million dollars, exactly.

Joe Fairless: I didn’t mean to make it so clean, but there you go, that’s a million dollars worth of value.

Kevin Dhillon: And you know, Joe, we haven’t actually got — I had all this stuff prepared about the best real estate investing advice ever… I guess I’m telling you about my story, but this wasn’t the meat of what I wanted to go through, but–

Joe Fairless: You never know where a conversation goes… I just kind of dig into wherever makes most sense.

Kevin Dhillon: Yeah, that’s totally cool. But I’m thinking that I’ve realized — I guess my biggest expense, dare I say not just in real estate, but in life, is actually opportunity cost. It’s the things that I don’t do or don’t do in a timely way – that’s my biggest expense, really. So that was one of the lessons I learned – one of the expenses I had that gave me this lesson, that I guess my biggest expense really is opportunity cost.

Joe Fairless: Absolutely, and that’s the one million dollars in value right there.

Kevin Dhillon: Just as a little aside, Joe… I love real estate; I think investing in American commercial property is the greatest asset class or investing opportunity on this entire planet. My wife and I were lucky to be able to live in America, live in Australia, live in Malaysia… We could live anywhere, and I really hand on my heart fully believe investing in American commercial real estate is the greatest investing opportunity on this planet.

However, in terms of opportunity cost, I came to America with $950,000 in investable liquidity back in February 2011… About two weeks ago, I decided to just have a look at what would have happened if I invested all that money into Bitcoin, back in February 2011, and — Joe, do you wanna hear this?

Joe Fairless: It’s gonna be more; whether or not you can actually get the money back out, that’s another thing… But it’s gonna be more.

Kevin Dhillon: Yeah, exactly. And my risk profile is such that I wouldn’t have invested the entire thing into Bitcoin. But let’s just say I would have become Australia’s second-richest man. It’s not realistic, it’s not something I would have done, but really, I guess the lesson is — often, I think our biggest expense really is opportunity cost.

Joe Fairless: You know, if you had also taken that $950,000 and just taken one dollar of that and done the Powerball drawing for February 3rd and did numbers 15, 23, 27, 48, 53 and 06, with the Power Play you would have won 165 million dollars. [laughter] That’s what I like in Bitcoin too, but I’m sure there are Best Ever listeners who disagree with me.

Kevin Dhillon: I completely agree, I wouldn’t touch Bitcoin. I guess just the lesson [unintelligible [00:17:45].12] is just opportunity cost. So I completely agree with that, yeah.

Joe Fairless: What is your best real estate investing advice ever?

Kevin Dhillon: I heard this at an Aussie real estate seminar back when I was stating the journey 12-13 years ago, and it was said by an Australia developer called [unintelligible [00:18:03].09] He’s not even really an educator or a teacher, he was just a private developer and he was just invited to speak… So he asked the audience “What business are you in?” Most people said, “We’re in the real estate business.” And he said, “No, I don’t believe that you are. The real business that you’re in is that we’re all in the finance business.” So I guess from that my mindset is being “I’m not so much in the real estate business. Really, my core business is finance.”

Joe Fairless: Interesting. I’ve heard that question before, but I’ve never heard that answer. Sometimes I’ve heard the answer of “We’re in the marketing business” or “We’re in the solutions business”, or “We’re in the relationship business”, but I’ve never heard “We’re in the finance business.” So when you take that finance business approach, what impact does that have on your business?

Kevin Dhillon: I’ve realized the more financially sophisticated I’ve become, the bigger and I guess the better quality of deals I’ve been able to do. What do I mean by that – my very first deal… I got into real estate in kind of an accidental sort of way, in that I needed to buy a house in order to marry my wife. So I decided “Look, I’m gonna go buy a house.” That was my goal. “I’ve gotta buy a house.” So what I do is I go to a bank and I say “I want to buy a house, what can I do?” and they said “You need a tax return. If you wanna take out a residential loan and buy a house, basically we need a tax return”, and they don’t need really anything else. Because I guess banks know that for most owner occupiers looking to buy houses, the height of their financial sophistication in terms of financial statements is really just the tax returns, because you’re forced to have one.

So me, I was a student at a time, so even just [unintelligible [00:19:41].21] I guess when I moved to commercial real estate and started investing in multifamily, all of a sudden they start asking for balance sheets, and profit and loss statements, and I guess I learned that with commercial financing, they actually care very little about the tax returns. They just wanna see a statement of assets, liabilities, income and expenses – that’s what they care about. So I guess having that financial sophistication where I can produce these documents very easily – it’s allowed me to go do these bigger commercial type deals.

So we did that for a while in Miami, and then I guess when some Aussie investors heard about what I was doing in Miami, they approached me, wanting to invest with me, and I guess that’s what has led me to syndication today, and raising equity. And I guess when you’re raising equity, it’s about being able to keep track of the way money is spent, it’s about being able to account the assets and liabilities… But I guess with raising equity it’s also about more abstract things – it’s about track records, it’s about the service, it’s about your business plan… But I guess if you could kind of boil it all down, I guess with raising equity it’s really all about trust.

So as I’ve become more financially sophisticated, it’s allowed me to do bigger and bigger deals. Really, the heart of this business is finance.

Joe Fairless: I love it. Thank you for walking us through that. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Kevin Dhillon: Yeah, sure. Go ahead.

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

Break: [00:21:07].07] to [00:21:37].06]

Joe Fairless: Best ever book you’ve read?

Kevin Dhillon: The Bible.

Joe Fairless: Best ever deal you’ve done that wasn’t your first and wasn’t your last?

Kevin Dhillon: Probably a 51-unit deal in Lake Worth, Florida… From a financial return point of view, I guess, because we’ve refinanced and got an infinite return for my investors and myself, and also in terms of just turning around a community. It was full of drug dealers and prostitutes, and now it’s just something that’s much more family-friendly.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Kevin Dhillon: Probably that same deal… I guess purchasing it with not enough cap-ex budgeted in.

Joe Fairless: What did you do to resolve that?

Kevin Dhillon: We decided to wait for the money to come in through cashflow.

Joe Fairless: Best ever way you like to give back?

Kevin Dhillon: I really do believe that the business itself is my main way of giving back in terms of just turning around communities, but I’m certainly very much involved with my synagogue as well, and I enjoy mentoring people in that place.

Joe Fairless: And how can the Best Ever listeners get in touch with you?

Kevin Dhillon: Probably our website would be best – www.dhillonpartners.com.

Joe Fairless: Kevin, thank you for being on the show and talking to us about how you got started in the U.S. in Miami, and the lessons that you learned are applicable to any market, and applicable to any investor who is focused on value-add deals… Or quite frankly, any businessperson in general, because one of the lessons is your biggest expense is the opportunity cost, where it was one year later for firing the property manager, and that was a million dollars worth of value that you were then able to capitalize on or realize, once you did the market survey and did a couple things to enhance the gross potential income… As well as just your overall approach with the management side of things and how you handled the handyman who collected rent initially, and then you evolved from there.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Kevin Dhillon: Thank you, Joe.

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