July 23, 2018

JF1420: Affordable Senior Housing Done The Right Way with Darren Voros

Darren is an expert in his field and has built a tremendous company and investing strategy. He was doing smaller group homes before he saw the big need for senior housing. Along with senior housing, Darren also has development deals in process. You’ll hear informative tips for a couple of different strategies in this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Darren Voros Real Estate Background:

  • Co-Founder of CareHaus Properties Inc
  • Focused on creating investment opportunities around a growing demographic of people needing fully accessible, barrier-free, and technologically ‘smart’ rental options
  • Through strategic and innovative partnerships with builders, developers, and healthcare professionals, they bring something truly unique to investors
  • Say hi to him at http://www.carehaus.ca/
  • Based in Toronto, CA
  • Best Ever Book: Think and Grow Rich

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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, Darren Voros. How are you doing, Darren?

Darren Voros: I’m doing great, Joe. Great to be on the show.

Joe Fairless: I am glad to hear it, and welcome, and I’m happy you’re on the show. A little bit about Darren – he is the co-founder of CareHaus Properties Inc. They do affordable senior housing. They are focused on creating investment opportunities around the growing demographic of seniors who need fully-accessible, barrier-free and technologically smart rental options. He’s based in Toronto, Canada. With that being said, Darren, will you give the Best Ever listeners a little bit more about your background and your current focus?

Darren Voros: Yeah, I started in real estate back in 2002. I spent 2001 in Japan, I worked over at the Universal Studios on Osaka, Japan. I came back from that year over there and I had a little bit of money saved, and I didn’t know what to do exactly with that money, but I knew I wanted to buy a piece of property… So I ended up going back to my hometown, which is Red Deer, Alberta, and I bought my first house.

Basically, from there, I kind of got the idea that real estate investment was something that I was interested in, as I saw that property value grow, and I had tenants in that property… Essentially, I was able to add other properties to my portfolio over the next couple years, and that kind of snowballed into getting into a little bit more sophisticated investing, I would say. I really started to focus a lot more on the numbers versus my first efforts, which were more trial and error.

As I got into real estate investing, I realized that it was something that I was really passionate about, so over the last couple years it’s been my full-time job, and I’m working on my portfolio. Now I’ve branched into some other large-scale opportunities, like the one we just talked about where we’re looking at seniors housing and some unique opportunities.

Joe Fairless: So what type of senior housing projects has your company invested in already?

Darren Voros: Well, we’re actually just on the verge of doing our first couple of deals. We have a property we have under contract, which is  a not-yet-built 51-unit residential complex. We have a land development deal that we are under contract with.

We do have some other small-scale single opportunity properties, essentially… We’ve got a property that we don’t do seniors housing out of, but we work with a healthcare company though and we do a group home out of a single-family dwelling just North of Toronto.

We purchased the property and re-leased it back to the healthcare company, and they run a group home out of it, and they have three individuals in there that have autism and they have a full staff that lives in the house 24/7 with them.

That was kind of the model that we started with, and then we started to branch into some of the larger-scale opportunities that we’re working on now. We’re more focused on seniors than developmental disabilities.

Joe Fairless: So the group home model where you leased it back to the healthcare company evolved into what you have under contract now? Is that correct?

Darren Voros: Yeah, not that we don’t wanna do more of those properties, but we really saw a significant need in the seniors’ market, and we wanted to do that on a little bit larger scale, so that’s why we started looking at how we can get into some bigger buildings and some large-scale developments.

Joe Fairless: You mentioned you have a 51-unit residential complex under contract?

Darren Voros: That’s right, yeah. That’s not yet built. That will be a fully 100% accessible barrier-free building. It’s a standard 3,5 story walk-up with 51 residential units and 3,000 square feet of commercial space.

Joe Fairless: It’s not yet built – so are you developing it?

Darren Voros: Yeah, we are. We have come to an agreement to purchase the land, and the land is permit-ready, essentially. The building is ready to go, ready to construct. We have our construction team in place ready to build in the fall of this year.

Joe Fairless: And why the fall of this year, versus today?

Darren Voros: That’s just to get our financing in order, to get our investors settled, that type of thing. We basically have until the end of August to remove conditions on the project, and then essentially we would have another 30 days beyond that to have the bank financing put in place, and then we would start construction in September/October.

Joe Fairless: Okay, cool. So you agreed to terms with the owner of the raw land, and now you’re in the process of obtaining debt financing with a lender and equity financing with private investors.

Darren Voros: Exactly, yeah.

Joe Fairless: And have you done ground-up development before?

Darren Voros: Not on this scale. I’m building a purpose-built triplex right now, but nothing of this — and that I’m personally building it; I’m a contractor as well. So I’m not gonna go and build the 51-unit by myself, that’s for sure.

Joe Fairless: So how did you put a team in place, where you’re in the process of raising money and also securing debt, so that you qualify in the eyes of the lenders and the private investors?

Darren Voros: Yeah, I’ve gone through a network of investors here in Canada (it’s called Keyspire), and essentially we will put this opportunity out to the Keyspire network, who are all real estate investors themselves. We’ll raise the funds through the network, and we can then go to the bank, essentially; they’ll have to offer guarantees of the loan, but essentially that’s what the bank’s looking for in terms of getting financing in place.

Joe Fairless: So that network is very valuable, clearly, if you can just go to them and they fund… I imagine if the most you’ve been a general partner on will be this triplex, and to your words, nothing of this scale of a 51-unit, they’re gonna want other team members who do have that track record. First off, is that a correct assumption?

Darren Voros: Absolutely. That’s correct, yeah.

Joe Fairless: So who did you bring in who has that experience and how do you partner with them?

Darren Voros: We have some people in our network that have some significant experience in this type of investing, and essentially, the opportunity I think kind of speaks for itself. People are excited about seniors housing and the opportunity that it has over the long-term.

We’ve got some high net worth individuals who have significant track records, significant portfolios behind them, that will put up those guarantees that the bank is looking for in order to feel secure in lending on this type of project.

Joe Fairless: And how do roles and responsibilities get divvied up among the general partners?

Darren Voros: My business partner Carolina and I – we will be the general partners on this transaction, and then the investors will come in as limited partners.

Joe Fairless: What’s your business partner’s name?

Darren Voros: Carolina.

Joe Fairless: And does Carolina have the development experience?

Darren Voros: No, she doesn’t have development experience on the scale of this. We do have an advisor that’s been working with us who’s been a great coach to us, and he’s been in development for 32 years.

Joe Fairless: Got it. And is that advisor on the general partnership side?

Darren Voros: He’s actually a partner on a couple of the other opportunities that I was speaking about. We’ve got a land development opportunity that he’s actually taking a lead on, and CareHaus is coming in at the sort of financing arm, under his company. So we’ll work with our investment network, he’ll be the lead on it, and that one is a 60-unit ground-oriented seniors development; think of it like a community-style living… Actually, an old repurposed school. We purchased the school and ten acres of land surrounding the school.

The school will serve as the essential hub for residents around the area, so it’ll have a restaurant, a pharmacy, some clinical space… And then the 60 units will be surrounding on the 10 acres of land; they’ll all be ground-oriented, single-story units, about 500-600 square feet per unit, and all will be barrier-free and 100% accessible.

Joe Fairless: That’s incredible. You’ve got a lot of projects going on, this is pretty exciting!

Darren Voros: It’s a busy time.

Joe Fairless: I bet! Just so I’m understanding correctly… So the 51-unit – you and Carolina are general partners; you have other individuals in your network who will be signing on the loan, but they will not be general partners, but they have that experience… So basically, you and Carolina are the only GPs, everyone else LPs, which includes the high net worth individuals who are signing on the loan and guaranteeing the loan – they’re still limited partners. Is that correct?

Darren Voros: That’s correct.

Joe Fairless: So I guess the comfort level from an experience standpoint comes from the individuals who have done this before – they are signing on the loan, so you’re telling your limited partners, “Hey, we haven’t done this size of project before, but so-and-so has”, and they are so confident in it that they are signing on the loan?

Darren Voros: Yeah, and I’ll put up a personal guarantee as well, and so will Carolina. We will have equity in the project, and that will help with the lending criteria. But yeah, what you’ve just mentioned is exactly how it’s kind of going down.

We’re still in contact with the bank on a regular basis, and they’re sort of feeling us out, we’re feeling them out, so they may ask to switch up the structure a little bit… We may end up going with a shareholders agreement, something like that. It really depends on how they wanna see this moving forward.

Joe Fairless: And what compensation is typical for compensating a high net worth individual who has that experience to sign on the loan?

Darren Voros: What we’ve offered is a 70% equity share. So 70% equity, 70% cashflow of the investment.

Joe Fairless: For not putting their own money in the deal, but rather just signing on the loan?

Darren Voros: Yeah. They will have some capital in the transaction as well.

Joe Fairless: But that would be in addition to… So they have capital in the transaction, that’s one thing, and then separately, they’re signing on the loan and adding that experience and personal guarantee, so that’s added value… So for that added value, they receive the additional 70%?

Darren Voros: That’s right, yeah.

Joe Fairless: Cool. And I ask this question because a lot of listeners are looking to scale up, and it’s really fascinating what you are doing for how you’re able to scale and get these projects under contract, and structuring the deal while you’re bringing others along with you… So what the compensation is would be very helpful for a lot of people.

Darren Voros: Absolutely. It’s been a big learning curve for me, too. Like I said, this is something that’s been new, this style of investing, for sure… So there’s been a lot of time and effort going back and forth with investors, with the lenders, to really understand the structure.

Joe Fairless: The mentor that you mentioned, who’s got 30+ years of development experience, how did you get introduced to that person?

Darren Voros: We were doing some research in Ottawa, and in Ottawa they allow coach homes, or laneway housing, essentially; in Ontario they are really pushing urbanization. They wanna be able to have more municipalities adding [unintelligible [00:12:01].27] and coach houses and laneway housing to increase density, essentially… So they’ve allowed coach homes in Ottawa, and we were doing some research, we were looking at buying a property and adding a coach home into the back. That’s a secondary unit, basically, on the property, 500-600 square feet – it’s a completely separate living unit – and we reached out to him because he builds these exclusively, and we started talking about this opportunity and he started telling us about some of the projects that he’s working on, and with the seniors idea in mind, and him talking about this fully-accessible unit that could be [unintelligible [00:12:36].10] and turned into an eightplex, something like that, with common walls. That was sort of how the conversation started, and it just evolved into the partnership that we have now.

Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Darren Voros: I think it’s to just get out there and do your first transaction? I think I was really hesitant when I  started in real estate to pull the trigger, and I can’t imagine my life if I hadn’t have done that. I think it’s easy to sit on the sidelines and look at what’s possible, but I think it’s really important to just get into the real estate game and watch that portfolio grow over years and years… It has been a very beneficial thing for me.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Darren Voros: Let’s do it!

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:13:25].13] to [00:14:25].16]

Joe Fairless: Best ever book you’ve read?

Darren Voros: Think and Grow Rich.

Joe Fairless: What’s the best ever deal you’ve done that we have not talked about already?

Darren Voros: Probably my principal residence that I live in in Toronto. I bought this house – it was a single-family dwelling; I set it up as three legal apartments.  I bought it for 395k 11 years ago, I put 300k into it, and turned it into a legal triplex, added a third story, and it’s now worth about 1.6 million dollars.

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

Darren Voros: I had a property under contract about a year ago, and I knew it was a great deal; I own a property right around the corner… And I just started second-guessing it, whether I wanted to add this property to my portfolio.

We had negotiated a great deal, we got the sellers down probably what we felt was about $20,000 under market value, and at the last minute we just decided that it wasn’t what we were sort of looking for in terms of a property and transaction.

We walked away, and the next day they had two offers in a bidding war; it went for 25k over what we had secured it for, and I was sort of kicking myself for not moving forward on it.

Joe Fairless: If presented a similar situation, what things would you look for in the future that would change your approach for the next deal?

Darren Voros: I think just in real estate the numbers never lie; when you see a good deal on paper and you know — especially in that scenario, I knew that neighborhood, I knew the type of tenant profile that I was gonna be looking at… I think that it was just a matter of moving forward and trusting your gut instincts, because that’s really what I was sort of second-guessing.

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

Darren Voros: I like to teach as much as I can. I travel across the country speaking to investors… But I also love to work with rescue organizations that help foster pets. We have a rescue dog that I got about a year and a half ago, and any time I can give back to that organization… It’s been such a great experience for me, and I always tell people if they can adopt and not shop; it’s a great way to do it.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on and get in touch with you?

Darren Voros: Our website, carehaus.ca, or they can e-mail me at darren@carehaus.ca, or they can call me at 416-540-6645.

Joe Fairless: Darren, thank you so much for being on the show, talking about the evolution of your business and how you are bringing in partners to take it to another level, and how you’re showing alignment of interests in the guarantees, as well as putting your own money in the deal, and how you’re structuring that with investors. I really appreciate that.

I hope you have a best ever day, and we’ll talk to you soon.

Darren Voros: Thanks, Joe.

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