Randy has made a lot of money with his condominium investing strategy. More importantly, he’s made his investors a lot of money as well. Joe always tells us to buy for cash flow NOT appreciation. Randy does the exact opposite and will even have negative cash flow until he sells and makes a huge chunk of money because of the appreciation that happened during the hold. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Randy Ramadhin Real Estate Background:
- Top Real Estate Broker for 18yrs, a Mortgage Broker for 14yrs and recently a commercial property appraiser
- Published a book by Wiley Canada called “Investing in Condominiums: Strategies, Tips and Expert Advice.”
- Grew up in triplex painting apartments/ meeting with tenants, at 10yrs old helped uncles deliver flyers to homes and apartments
- Based in Toronto, Canada
- Say hi to him at email@example.com & http://condoinvest.ca/
- Best Ever Book: Money Master the Game by Tony Robbins
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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, Randy Ramadhin. How are you doing, Randy?
Randy Ramadhin: I am awesome. It’s an honor to be here, Joe. I’m a long-time listening fan.
Joe Fairless: Sweet. Well, I’m glad to hear that, and looking forward to having our conversation. A little bit about Randy – he is a top real estate broker; he’s been a broker for 18 years. He’s based in Toronto, Canada. He’s been a mortgage broker for 14 years, and recently is a commercial property appraiser. He published a book by Wiley Canada called “Investing in Condominiums: Strategies, Tips and Expert Advice”, so clearly we’re gonna be getting into that
With that being said, Randy, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Randy Ramadhin: Absolutely, Joe. As you just pointed out, I’m heavily involved in real estate, I’m passionate about it, and my objective is to work with my clients and my investors and help them make more money. I think part of that also includes increasing my personal wealth as well. I’m really looking forward to sharing on the interview today some of the things that I’ve done and some of the lessons that I’ve learned.
Joe Fairless: Well, let’s talk about what you’ve done to increase your personal wealth. Where should we start?
Randy Ramadhin: Well, in 2006 I bought my first apartment building, condo-converted it, and that was my first big investment, personally. It was a joint venture, and it ended up being one of my best deals ever. Mind you, I had learned a lot of lessons, I had to go through a lot of trials and tribulations; the market went down soon after we had closed, and it was a little bit complicated to hold and manage it as my first investment deal… But that was one of my biggest deals that I had ever done, and I learned so much. Mind you, with my client roster — I’ve helped a lot of clients as well buy a lot of properties across the GTA. GTA is the Greater Toronto Area.
Joe Fairless: With that apartment building, first off, how many units was it?
Randy Ramadhin: 31 units.
Joe Fairless: A 31-unit apartment building, and lo an behold, the market went down after you closed, which is the exact opposite of what I think you want when you’re doing a condo conversion… So tell us about that.
Randy Ramadhin: That was interesting, because at that time the market was really strong. I don’t know if you’re familiar with the greater Toronto area and my real estate market, but I’ve been in the industry license for 18 years, and we’ve had a bull market consistently for 18 years, but when [unintelligible [00:03:20].05] market crash in late 2008, early 2008, that had directly affected the real estate market where I bought this property, which was in the Niagara Falls area; Niagara Falls is opposed to Buffalo, the U.S. border. When that happened, there was an immediate impact in the local area.
John Deere was a major employer in that part of town, and they closed down their factory. Also, because of the border there was a lot of movement of goods with trucking – that slowed down as well, because the U.S. economy was consuming so much less in terms of goods… There was an immediate impact in the area, so we’re gonna say values overall dropped.
However, the advantage of buying a rental building that had tenants in it is that these tenants were paying their rent; the rents didn’t change, they were always there. We never had issues with vacancy. We had one of the few apartment buildings in that town, and the first condominium converted building in that town. So we had the rental revenue, but prices had dropped.
Joe Fairless: So you had your tenants in there paying you rent, and then you waited till later to do the conversion when the economy picked up?
Randy Ramadhin: Well, the intention when we had first purchased the building was to sell 95% of the building to investors and have a rental pool [unintelligible [00:04:38].01] ended up such that I got engaged, got married during the transaction, and on my honeymoon I got an e-mail from my lawyer saying “You are now the owner of 15 condos.” I thought that was phenomenal.
We came back from our honeymoon, my wife and I, and we have 15 condos in a building of 31, 16 investors, and there we were. Soon after, the market showed a lot of signs of slowing down, but I quickly had to get into the mindset of not just owning one or two properties, but 15 of them, and all the issues that had to go along with not only our units, but managing a rental pool, and a new property manager, with 16 novice investors, and the reach that they had in terms of financing and managing.
That was a very interesting experience, working as someone that created an investment deal.
Joe Fairless: Wow. So I wanna make sure I understand what you just said. So you had a 31-unit building, and you bought it, and then after closing, you opened it up for investors to invest in it, and then you ended up owning 15 units? Help me with that, just high-level again.
Randy Ramadhin: Okay, so let’s get into the specifics. So what this was technically – my partner and I had purchased a building that was 25 years old, and the owner of it had already gone to the city and gotten condominium approval on the building. So it had condominium title status, but it didn’t have the individual deeds; it didn’t become stratified an official condominium, with condominium by-laws and regulations and rules.
So when we purchased it, we worked with our lawyer, we created all those things that create a condominium – the reserve fund, condominium by-laws and so on. It already had a declaration attached to that title, but that was really the actual condominium. So we were doing a simultaneous close. We had purchased this building, me and my partner, all 31 condos basically (this one building) and we were gonna close from the vendor 31 individual mortgages and 31 individual deeds with (the intention was) 31 individual people. So this was the ultimate flip, and it ended up that we had 16 individual mortgages and deeds with other people, and we 14-15 of them.
Joe Fairless: So you bought the 31 units; the owner had gotten the approval but hadn’t done the individual deeds, so you then closed on all of them… And where does the grouping of 15 and 16 come into play?
Randy Ramadhin: Okay, so we had 31 individual deeds, and my intention was we had about 25 individual investors waiting to close —
Joe Fairless: Investors meaning people who don’t live there but want to invest in deal with you?
Randy Ramadhin: Absolutely, because this apartment building already had tenants living in each of the apartments, paying their rents, so they were buying it as a passive investment play. They were small investors and they were gonna buy their first investment condominium (or their second or third) as part of their portfolio, and this was gonna be another one of their individual investments.
Joe Fairless: Got it. So you kept 15 and then you partnered with or sold off 16 of them.
Randy Ramadhin: Correct. And we created with the property management company a pool, which further complicated things, as we found out… And now I’ve learned that pools don’t work, where you’re pooling revenue and pooling expenses. They’re very complicated structures, and now I’ve learned to not do pooling, after talking to a lot of experts in the condominium conversion space. Pooling is extremely complicated, and… Just don’t do them.
Joe Fairless: With those 15, why didn’t you keep all 31, or why didn’t you just sell all 31?
Randy Ramadhin: I would say this was the ultimate zero down investment. The equity that we had created from the conversion we used to close on our 15.
Joe Fairless: That’s what I was thinking, okay.
Randy Ramadhin: So you can imagine a guy – I was 30 years old at the time when I bought the building, I had my first house, I had been working with a number of clients who were buying individual single-family duplexes and triplexes, and my first investment personally (beyond my personal residence) was an apartment building for 1.6 million dollars, at the age of 30 years old [unintelligible [00:08:52].21] that I see the opportunity to bring to the table the half a million dollars in equity to close it with a bank and own all the deeds.
My partner and I – he coached me on this thing… He said, “Listen, Randy, let’s convert it and let’s turn this 1.6 million dollar building to 2.5 million dollars, and let’s use the equity to actually close on your under units and get some cashflow at the end of this.” So I’m expecting when I come back from my honeymoon from Italy to be $300,000-$400,000 in the bank. Lo and behold, buyers backed out. I had to use the equity; we actually closed on the units, but we had no money left. It was all in the units. So it was quite an interesting experience. And we were negative cashflowing too on top this, so it was very interesting… I learned a lot.
Joe Fairless: So you’ve got 15–
Randy Ramadhin: I’ve got 15 negative cashflow condominiums. [laughs]
Joe Fairless: So then what?
Randy Ramadhin: Okay, so after that experience I decided to go in further. A really good buddy of mine bought 100 houses in Prince Albert, Saskatchewan. Saskatchewan is another province in Canada, for the Americans here… And Prince Albert is an interesting town; he bought about 100 houses, and he said “Randy, I’ve got a great commercial building for you, I want you to buy it.”
I saw the numbers, I looked at the market and I said “This is an awesome opportunity.” It had an easyhome furniture rental company in there, let’s go and buy it. He had contracted it at 180k. By the time I closed on it six months later, we got it appraised by a [unintelligible [00:10:14].25] appraiser for $320,000. I bought that building zero down. So I’d become a zero down specialist for not using my own money and closing on deals.
It was interesting, the only thing — because it was a small town, we had to use private money, and which now I’ve learned private money is extremely expensive and it can completely drown you in a deal. It was 18% money from a multibillionaire out of Vancouver, and I remember after the first year — oh, by the way, we had a tenant paying rent in there on one-year renewables; they had been there for about ten years, and they said “Don’t worry about it, we’re gonna be there for a long time to come.” A couple of months after I’d closed on the building, they said “See you later.”
So I had a commercial building downtown Prince Albert, it was about 6,000 square feet, completely vacant, with private money at 18%, and I couldn’t find a tenant in sight. It ended up being about a year before I told the brokers “Sell it, please! Get me out of this deal!” That was an interesting experience… I’ve learned a lot from bad deals; I’ve learned from my mistakes and I can pass it on to others.
Joe Fairless: Yeah, that’s very helpful, I love this. Just going back to the 15 negative cashflowing condos… What did you end up doing with that?
Randy Ramadhin: Actually, believe it or not – I’ve been owning them for more than 10 years now. Those condominiums have ended up being the best investment I’ve had. The reason is they were negative, they were small, never had much equity, and being an active broker deal maker, I had no means or a desire to really sell them, so I just kept them. As I kept them over 10 years now, the mortgage is amortized, I’ve paid down maybe 20% of the mortgages; the real estate values have bounced back to more than what we had initially bought them…
Now, mind you, I’ve sold maybe about five of them. Now I have about 50k to 80k of equity in each single one of them, and I’m refinancing them slowly and pulling out cash to put into more deals.
Joe Fairless: That’s outstanding. Over those 10 years, how much was it costing you out of pocket a month to keep those 15 afloat?
Randy Ramadhin: Well, this is interesting, because I had learned through that experience the benefit of negative cashflow. You’re gonna tell me, “What do you mean, benefit of negative cashflow?”
Joe Fairless: Taxes.
Randy Ramadhin: Absolutely! I am a six-figure income earner in the real estate broker business, and in Canada we can’t earn income in corporations as real estate brokers in Ontario; we have to earn them as T4 income, which is basically employed income. So we can only deduct basic expenses, we can’t defer taxes. I was paying maybe 50k, 60, 70k in taxes if I didn’t have losses, so I learned the strategy of buying negative cashflow properties. I had an average $100-$200 per condominium negative cashflow, and that’s when I learned the power of negative cashflow, and that was part of my new investment strategy over the last six, seven years, where I’ve helped my investors make millions.
Joe Fairless: I was with you until the very last sentence… [laughter] Yeah, please continue.
Randy Ramadhin: So up until 2011 – I published my book in 2011 called “Investing in Condominiums: Strategies, Tips and Expert Advice for the Canadian Real Estate Investor.” It should be known, my co-author and I are the first and only nationally published authors of Tribune Heritage in Canada on the topic of real estate, so we’re very proud of that book. Our publisher (Wiley) is the largest textbook publisher in the world. We got interviewed by Kevin O’Leary, I don’t know if you know him…
Joe Fairless: Certainly, yeah.
Randy Ramadhin: He has a TV show in Canada called Lang & O’Leary, which is a hard-nosed business television show, and Kevin – I don’t know if you’ve watched him…
Joe Fairless: Mr. Wonderful.
Randy Ramadhin: He’s hard-nosed, he goes after every– Mr. Wonderful will literally cut you down on television and tell you how stupid you are. So when we found out that we have a TV interview with him two weeks before Christmas, I started to panic; I had four weeks to get prepared… I was really worried; I was afraid Kevin was gonna make me look like an idiot on national television. So I started doing some research, and lo and behold, at the end of the interview Mr. Wonderful told us “Wow, I guess I don’t see anything wrong with the Toronto condominium market”, and people were shocked.
Soon after, I’d like to say, I was part of the change and the awareness of Kevin O’Leary in real estate. He formed a mortgage brokerage company, he started speaking on the real estate investment circuit and started to have an affinity towards real estate, believe it or not.
Joe Fairless: You mentioned the benefit of negative cashflow, and then you said “helping others make millions.” Are those two separate statements that got merged together?
Randy Ramadhin: No. Actually, up until April 2017 negative cashflow in new appreciating property had been my major investment strategy to help me and my investors make millions. So my strategy was I had a particular ability to find new properties and condominiums that were doing really well and growing, but then I also found freehold properties in the surrounding, outlying areas of the GTA. Obviously, Toronto is a busy urban core with so much development and real estate prices are skyrocketing; prices for condominiums doubled by 2016, since 2011, by the time I had written my book… And it didn’t make sense to buy (from an investor’s point of view) condominiums, so what else makes money? Well, there was an expanding suburban development growth, masterplanning communities… So I started looking at freehold investments, buying pre-construction freehold townhomes and detaches from masterplan builders in the surrounding outlying areas. The returns ended up being phenomenal.
Joe Fairless: Returns – but you said it was negative cashflow… So the returns when you sell are phenomenal?
Randy Ramadhin: Absolutely. Because typically, when you’re buying newer property in nicer neighborhoods, we’re getting executive tenants – there’s very little management; the growth is there, but the cashflows aren’t there, because we’re buying everything in on the price. You can go for cheap and get cashflow and get a whole bunch of headaches and things that are broken and fix it up, or you can buy new, where there’s nothing to fix for the next five years, with a nurse renting from you, or a high-income individual, but it’s negative cashflow ($200, $300, $400/month). But as you hold it every year, it’s growing by 20k, 30k, 40k/year.
So a typical scenario is I would buy a townhome — I bought a townhome in Niagara Falls for 230k preconstruction. By the time we closed on it, it was worth about 320k. We put the tenants in it, $1,600/month, it costs us about $1,200/month, so we were making about $300-$400/month, and now we have it on the market right now for 380k. All we did to buy it was $15,000 with the contract when we bought it three years ago, and we closed on it with 20% of their initial purchase price, which was 230k – that’s 46k – minus the initial deposit of 15k, so only about 30k more into the deal, and we’re gonna be pulling out of the deal $200,000. I did those in abundance over the last five years and made millions.
Joe Fairless: So the type and personality and individual for that situation would be 1) someone who’s got the money to float the property over those periods of time; 2) the market must appreciate in value, and if you’re willing to wait until the appreciation is realized, assuming that it does happen, then you can make a large chunk of money if and when that does take place.
Randy Ramadhin: Well-said, Joe. You got it.
Joe Fairless: Sweet. Alright, what is your best real estate investing advice ever? I’m gonna laugh if you say “Buy negative cashflow properties.” [laughter]
Randy Ramadhin: My best real estate investing advice ever is don’t invest for return on investment.
Joe Fairless: You basically said it. [laughs]
Randy Ramadhin: I basically said “Invest for lifestyle, and overall financial objectives to be achieved.” Overall, which they include not just money. There’s a lifestyle choice here when you buy investment property.
Joe Fairless: What’s the average net worth of your client?
Randy Ramadhin: Half a million to a million.
Joe Fairless: Okay. I was thinking it would be more than that. Alright, we’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Randy Ramadhin: Sure.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Randy Ramadhin: MONEY Master The Game by Tony Robbins.
Joe Fairless: I love Tony. Tony would definitely disagree with you, by the way. Come on, MONEY Master The Game…? [laughs] There’s no way he would–
Randy Ramadhin: [laughs] How I read into Tony’s interpretation of my strategy is consistently investing on a monthly basis towards an end objective, you will reach your goal… And believe it or not, amortized mortgages are the perfect investment vehicle. It doesn’t matter what the net cashflow return is; you’re chipping away that mortgage over 25 years – it’s paid off. So the more mortgages you get, the more closer you get to Tony Robbins’ strategy of buying consistently weighted returns, consistently investing whatever stock it is, on a monthly basis.
Joe Fairless: As long as you’ve got that money to float and the market appreciates.
Randy Ramadhin: Absolutely, which is why my strategy has changed as of late… Because believe it or not, in 2017 Toronto started to decline, so I’m back to the drawing board on my strategy.
Joe Fairless: Best ever deal you’ve done that we haven’t talked about?
Randy Ramadhin: Best ever deal I’ve done that I haven’t talked about… I actually spoke about it – it was the condo conversion. That was THE best deal.
Joe Fairless: Alright, we’ll go with that. That’s fine. What’s a mistake you’ve made on a transaction that we haven’t talked about?
Randy Ramadhin: I’ve lost a deal on a joint venture, $50,000 deposit, and it was because we had used a broker that unscrupulously waived the condition on behalf of us as the buyers, and I wasn’t directly involved in that conversation. That was very bad.
Joe Fairless: When that happens – anything you can do about it?
Randy Ramadhin: Well, I’ve learned now as a real estate broker if I’m not the lead broker with the transaction discussing things with the other broker on the other side, I’m not part of that JV. I’m no longer the silent guy in the back; either I’m in control of the transaction, or I’m not. That’s my lesson.
Joe Fairless: Best ever way you like to give back?
Randy Ramadhin: Best ever way I love to give back is Robert Kiyosaki’s Cashflow Game. Cashflow 101. I hold these cashflow games in local community centers and local colleges, and teach young people – and even older people – about wealth and wealth creation and money management.
Joe Fairless: And how can the Best Ever listeners get in touch with you, Randy?
Randy Ramadhin: You ca e-mail me directly at Randy@CondoInvest.ca.
Joe Fairless: Excellent. Well, Randy, thank you! A very lively conversation. I personally was entertained and enjoyed hearing about your approach. I don’t do that approach, but it’s worked out for you and others, so there you go – there’s different paths for different types of people, and different risk tolerances, and different needs. And taxes are our number one expense. That’s something that we tend to forget.
Absolutely, the way we create the most wealth is usually by mitigating the taxes on what we pay on the income, and so many of us – I’ve been guilty of this in the past – focus on maximizing the income stream of a certain property, but in reality if we’re only doing that and not minimizing the taxes that we pay, then we’re not being as effective as we could.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Randy Ramadhin: Awesome, Joe. And just to add to that, if I could add one last thing…
Joe Fairless: Yeah, please.
Randy Ramadhin: If you’re wondering how Toronto can become the condominium capital of the world, and all these condominiums, and they stopped being positive cashflow since 2011 (7 years ago they stopped being positive cashflow), who’s buying all these negative cashflow preconstruction brand new condos? Believe it or not, it’s all these high net worth doctors and lawyers and so on that are looking for negative cashflow strategies as an additional tax deferral strategy to what they’re currently doing.
Joe Fairless: Thanks a lot, Randy. Talk to you soon, my friend.
Randy Ramadhin: Thank you, Joe.