Working Capital The Real Estate Podcast

Investing in Preconstruction Condos with Hunny Gawri|EP37

Jan 20, 2021

In This Episode

Hunny Gawri, he is the Co-Founder and Managing Partner for “RE/MAX Real Estate Centre, My Investment Brokers”, has been involved with real estate investments since the age of 23. With an extensive background in preconstruction real estate investments, cash flow properties, student condos, commercial properties as well as flips & renovations – Hunny has first-hand knowledge of a wide scope of investment options through his personal experiences. The knowledge and experience he has been able to share with his clients is instrumental.

In this episode. We talked about:

  • His successful journey into real estate
  • The idea and how he started “The Hunny Pot Cannabis Co.”
  • How he successfully owned and managed multiple cellular phone & repair retail businesses for over 11 years
  • His knowledge and experience that he has been able to share with his clients 
  • How he created and grew a number of different businesses over a fast few years
  • And MUCH MORE!

 

 

Transcript

Jesse Fragale (1s):

Hey everybody. This is Jesse Fragale. Before we started this episode, I just want to say thank you so much for everybody that keeps on listening, it really is amazing to me and I can’t. Thank you enough. What would really help us out is if you enjoy the show to go over to iTunes and leave us a five star review. Also, if you have a favorite episode, what would be great is if you could share it on social media, whether that’s Facebook, Instagram, or LinkedIn, anyways, enjoy the show. Welcome to the working capital real estate podcast. My name is Jesse Fragale. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time.

Jesse Fragale (45s):

All right, you’re listening to working capital the real estate podcast. My special guest today is honey gari. He is the CEO and co-founder of my investment brokers and also the founder of the cannabis company, the honeypot honey, what’s going on?

Hunny Gawri (60s):

How’s it going, Jessie? Thanks for having me today.

Jesse Fragale (1m 3s):

Thanks for coming on. It’s it’s great to talk to you. It’s been a little while and a lot has happened over over the last a year or two, definitely with, with the world of cannabis, but also, you know, the world we’re living in 2020 and its effect on real estate. How’s everything been in the last few months for you?

Hunny Gawri (1m 21s):

Honestly, it’s been definitely a roller coaster this year, 2020, I think for everyone has been one of those unprecedented years, a lot of adapting, a lot of maneuvering to, to, you know, the, all the changes that have happened. And that goes for both industries, the real estate end, the cannabis retail side, but it’s been, you know, definitely keeping us on our toes for sure. Yeah.

Jesse Fragale (1m 50s):

So one of the reasons I want to have you on is that we have done a lot in the commercial space and the multi residential space when it comes to investing on the show, but you were actually, I think a, if not my first, one of the first investment condos I ever bought, I bought through you. So, you know, you’re kind of an expert in the pre-construction condo market and condos as an investment, I believe you also own over 20 properties as well. So I would love to get that angle and just kind of going back to my intro, the fact that you own a cannabis company, that’s, you know, a new wrinkle for those that are not Canadian or Torontonians. We had a, a bit of a lottery system. I believe they were calling it when cannabis first came into Toronto.

Jesse Fragale (2m 33s):

So I’d love to chat about that a little bit later, but let’s why don’t we take a step back and you know what I ask all the guests that come on, you know, what was your first experience into, into the real estate world as an investor in, and also as a broker?

Hunny Gawri (2m 49s):

So I, my first property, actually, I kinda, it was no thought involved. It was a, I had had some money saved up from the business I was in. I started retail cell phone store chain back in 2003 at the end of my high school, last year of high school. And so I had some money saved up and my dad was just like, you know, your uncle’s going to this condo launch. Why don’t you just go with them, check it out. So I, you know, this was 2007 and I went to this launch. It was, it was insane. It was like a frenzy it’s like people were lining up for four days. You know, my uncle had someone who was in line for two, three days and we pretty much just showed up when it was our turn to go in, went inside.

Hunny Gawri (3m 38s):

And it wasn’t like, you know, you have a, you’re spending three, four or $500,000 and it’s not like you had a choice. It was just like, give me something. It was, it was the most insane experience, but I ended up buying a one plus den condo for 270,000 back in 2007 in the park on Lake shore area. And it was, you know, just again, it was, it was 10% roughly down. So I put in about 50,000 spread out over, maybe think it was over a year. So it was very appealing from a lot of standpoints, but it was the experience itself was very little thought involved.

Hunny Gawri (4m 21s):

So after being, after going through that experience, once I was there, like, well, like that was completely okay. It’s like, I, you know, you, you put more thought into buying clothes than you do into buying the condo that, that it was having that experience kind of just put my head in a, in a different space and made me open up my eyes to an industry that I was like really intrigued by. So from 2007 to 2010, you know, it was on my radar, the car, like it’s it’s once, once you have something on your radar, you start noticing and talking about it more. You can, you can have spoken to somebody for 10 years and never talked about this topic, but now that you understand it, or you have some insight into when you went through it, you, you start talking about it.

Hunny Gawri (5m 10s):

So, you know, for the next three years, it was just talking to them, people conversing with people, their experiences. And then in 2009, one of my clients at the cell phone store, a good client of mine had gone into real estate probably a year before. And he was constantly on my case. He’s like, honey, he’s like, you should get into it. You have the personnel for you, should, you should definitely look into it. So I looked into it, got my license by the end of 2010 and, you know, Oh, I dabbled in a little bit of resale part-time leasing. Part-time just to kind of understand the scope of what options are out there. Some commercial, industrial retail, all that.

Hunny Gawri (5m 51s):

And then while, but my, my true interest was in the pre-construction side. And in 2010, from 2010 to 2013, it was all part time, 2013, middle or end. I transitioned full time. And that’s when my partner, Michael and I started my investment brokers. And, and, you know, since then we’ve been pretty much doing about 400 transactions a year, you know, start off a little bit slower, like two 50, 300 bucks in the last three years consistently. We’ve been over 400 transactions.

Jesse Fragale (6m 29s):

Yeah. That’s, that’s incredible. And just to take a step back for those that don’t, don’t really know about the pre-construction marketer or know about it, but just not into detail, how has that evolved over the last 10 to 15 years when you started investing? And maybe you could just outline how the pre-construction process works from the investor’s point of view and, and ultimately you as a, as a broker and facilitator of the deal.

Hunny Gawri (6m 56s):

Yeah. So the way that, I guess there’s a, there’s a couple of countries, or not even countries, I’d say cities that this exists. It’s very interesting because you have some people when they hear about this, they’re just like, wow, that’s crazy. You’re buying, you’re buying a condo off, just looking at a piece of paper. It’s, it’s, it’s completely the opposite of any normal ma you know, anyone who is not accustomed to it. They’d be like, you guys are out of your mind, but the culture here in, in Toronto and Vancouver, and there’s, I guess there’s some cities in the States like Miami it’s there and it exists in Dubai as well.

Hunny Gawri (7m 44s):

So, so the way it works is you have four builders, you have three, three layers, call it, you have the builder, you have the listing brokerage, and then you have the realtors. So the builders, they work with listing brokerages. These are listing brokers that don’t, they’re not, they’re not your typical Remax or century 21 or old age. They specialize in the sales and marketing of pre-construction properties. So there’s probably about 10 specialized brokerages in the, in the greater Toronto area. If you’re a builder building, whether you’re building low rise or whether you’re building high rise, you’re going to give you like probably 95 or 90% of the builders will give their contract to these 10 companies.

Hunny Gawri (8m 29s):

So they’re these listing brokerages are the second layer. They deal with the builders and they deal with the realtors. So the realtor is being the third layer, the ones that specialize in pre-construction like ourselves, our job is to make sure that we have a relationship with these 10 listing brokerages to make sure that when they get a contract with a builder, they’re calling us first. And by calling us first people, you know, the term platinum access, the term VIP is all thrown around there. But what that means is that before it goes to the public, before the sales opportunity goes to the public, it goes to a select group of brokers. Now that select group, depending, you know, on the launch and depending on the product, depending on how the market is, could be as small as, you know, two or three of us to as big as a hundred of us, right?

Hunny Gawri (9m 21s):

And each project is different. So once you, once we’ve gotten, you know, we’ve been told which projects are coming out in the next three, four months, we do our advertising, whether it’s through our database or whether it’s through our other marketing channels online and, you know, advertising, whether it’s on the radio, we do our advertising. We talk to potential whether it’s Mo majority investors, but there’s, depending on the products, there’s a lot of end users as well. Again, the culture over the last 10 years has grown where, you know, people before it was predominantly investors now, you know, people can preplan for three, four years in advance for a property that they’re going to be moving into or want to move into right.

Hunny Gawri (10m 8s):

Or move up into. So, yeah, so right now, like it, it’s, it’s, you know, you’re pre, you’re buying a property. When we started advertising people, contact us, we launched the project launches and w the, the lineup system doesn’t exist anymore. It’s, it’s, you know, evolved from that over the last couple of years, but it is still very, very competitive.

Jesse Fragale (10m 34s):

It’s sort of the era in terms of the lineup system, for those that don’t know if you could just explain the, the system that kind of existed prior to this.

Hunny Gawri (10m 42s):

Yeah. So prior to this, I mean, the listing brokerages dilemma was, you know, there’s 300 units or 400 units in a building, but the interest is over, you know, 500 people or a thousand people. So how do we make it fair to everybody to have an equal opportunity to purchase a property? So what they would do is the normal, like, you know, the old school way first come first serve. And when you are first come first serve, all it takes is somebody to start the line. Now, when you have brokers involved, you have the public involved, you know, it all, it takes us out one person to start. That’s the catalyst. And just like anything else, whether it’s, you know, PlayStation five or any of the, any of the, you know, even concert tickets, if it existed back before Ticketmaster and whatnot, it’s, it’s just, all it takes is that one person to start the line.

Hunny Gawri (11m 36s):

So back in the day in 2010, or even from 2000, you know, eight, nine, 10, even though the market was a little bit slower in 2008 years, it was very, very temporary. There was still lineups, right? And then slowly, slowly, they, you know, the, the system evolved and evolved to worksheets or involved. It evolved to, you know, working with a small group of brokers that have supported the builder in the past, or supporting supportive listing brokerage in the past. So it’s kind of evolved. And our job as experts in the, in the industry is to kind of facilitate between the listing brokerage or the builder and the purchasers, and you know, what makes our job harder?

Hunny Gawri (12m 24s):

His, that there’s no one launch that’s the same. It’s always different, right? And the rules are so different depending on when you contact us, whether it’s, you know, three weeks before the launch, or whether it’s during the launch or whether it’s two weeks after the launch, we’re in different stages. And it changes every hour, right?

Jesse Fragale (12m 44s):

When you, so for an example, if you have a launch, you have, from what you’ve said is a builder as 500 units, they have the listing brokerage that is specifically that does pre-construction listing work. So say they have 500 units. Now, they, they, I think the term would be allocations where they they’ll give little allocations. Like you said, potentially to one or two brokerages like yours or multiple brokerages. Now, from the investor’s point of view, they, you know, you get an email from honey, you know, I’m on your distribution list. I’ll get that email. There’s a development it’s in Miami, or it’s in Vancouver. You click that link.

Jesse Fragale (13m 24s):

I get contacted to you. And then you basically say, okay, Jess, I’ve got 50 out of 50 allocations from the builder. We got five left. And is that the point where the investor is going to come in and say, Hey, like, this is what I’m looking for. What do you have left? Is, is that the typical process when it’s already launched

Hunny Gawri (13m 45s):

Typically? So, so that is call it. That’s like one style of a launch, like where they give us allocations. And typically like, especially the way the market’s been in the last four years, even, you know, getting 50 allocations before the launch really, really rare. They’ve, you know, it’s a lot of trial and error over time. Seeing what works, seeing how the market is. A lot of times what happens is whether they give us a floor or two floors, you get, we get a good, if they give us one or two floors that give us a good mix of units, we get the studios of one bedrooms. One plus stands, two bedrooms and three bedrooms. But what typically happens is they’ll give you three or four or five units on.

Hunny Gawri (14m 28s):

And then, and the reason why a lot of builders are straying away from this is because we have buyers people interested, but they might not be interested in that specific model. And depending on how the building is, if it’s a typical building with the unit units, whether it’s on the third floor, all the way up to the 30th floor, all being the same. And in the same, all the whole units will be the same or all four units will be the same. And those type of buildings, allocations are more favorable, but buildings where, you know, there’s unique designs and every single layout, every single unit is a different model. And those ones that becomes a little bit harder to do allocations. So to answer your question, the way that it would work, I’d say majority of the time it’s going to be when someone contacts us, whether it’s before the launch or after the launch, but as long as the information has been released, you know, pricing and floor plans have been released.

Hunny Gawri (15m 24s):

Typically what we do is we co we get a worksheet. So we send information to our clients and, or potential buyers, and they fill in a worksheet on the worksheet. It’s more of a reservation request form. What are you interested in which models are you interested in? What restrictions do you have, whether it’s floor numbers or, or you want to be higher, middle or lower in the building. Once you’ve submitted that reservation requests, we’ll be able to submit that to the builder and try to get the unit that you’re looking for. Right. And again, depending on where we are in launch and the relationship that we have with that specific listing brokerage and builder, that that will kind of dictate, you know, us getting you the unit or you, you being able to purchase in that problem, in that project.

Jesse Fragale (16m 13s):

That’s cool. So you talked a little bit before about how, you know, 10 years ago, maybe a little bit longer, it was predominantly investors that were buying these units and then people, you know, whether it’s they saw that other people were doing it, or they just got more savvy and, and, and took the risk. So to speak quotations of being part of a pre-construction watch. I’m curious today on average, what do you see as the actual purchasers downstream? Is it 80% investors? The 90%? What’s the split typically, like,

Hunny Gawri (16m 43s):

I think, I mean, I can speak for our client base. It’s probably about 80 per it is 80% investor. And then we’ll get, because we started this year, especially we started in a lot more low rise and then the low rise side, we get a lot more to low rise meeting, detached homes, semi-detached and channels where we get a lot more and users. Yeah. Right

Jesse Fragale (17m 10s):

Now what, when it comes from the developer’s point of view, like, I think there’s this misconception out there that, you know, if you’ve never bought a pre-construction condo, that the down payment is going directly to the builder and they’re being utilized, talk a little bit about the structure of, you know, let’s talk about the deposit structure. And first of all, maybe even touch on why condo pre-construction is appealing to some people that don’t have all the capital right now, but it’s kind of a, a forced savings plan.

Hunny Gawri (17m 36s):

Yeah. So one of the biggest appeals of, of pre-construction is the fact that you do not have to close a property or get a mortgage right now. You know, again, we, we talked to all different types of investors and there’s, there’s so many different, you can say categories in real estate, but within pre-construction the most appealing part about it is that, like you said, it’s for saving. So let’s say a purchase price of $500,000. There’s a 20% deposit that’s going to be required, but it’s spread out over a year, year and a half during COVID developers have gotten a lot more creative and lenient on the deposit structure.

Hunny Gawri (18m 19s):

So it’s spread out from now to closing time, right? In increments of every six months or, you know, 5% per year for four years type of thing. So it becomes very, very attractive to anyone who has capital coming in or, or, you know, not, not everyone has the ability to, you know, save up 20% or a hundred thousand dollars in a year. So being able to save up a hundred thousand dollars over two years or three years, and it helps a lot more, right? So it becomes appealing from that side. A lot of other, other types of investors that we get are even if you have the a hundred thousand right now, and you’re able to buy a property right now, but you also know that in the next in year two or year three from now, or two years from now, three years from now, you will continuously have a hundred thousand or, you know, whatever amount that you have available to save.

Hunny Gawri (19m 12s):

You can buy two, three properties without having to close any of them. And you’ll be able to see appreciation over that time as well. So if you have a hundred thousand dollars, you put, you know, 50,000 into one property, you put 50,000 to another property, knowing that you’ll have another a hundred thousand coming next year, you put it into you pretty much are pre-planning to be able to buy three or four properties over the same amount of time. All right.

Jesse Fragale (19m 39s):

And the deposit structures, at least from the Canadian context. And I think it’s the same in different States where you have, you have an organization that, and on would be the organization for Canada, where you’re not losing that deposit. I, that it’s insured up to a certain amount. Do you know what that figure is for, for us know,

Hunny Gawri (19m 58s):

I gotta, I gotta Polish up on the updated numbers, but in general, we are actually protected in a couple with a couple layers. One is the conduit, the economy maps. And in that, the way you’re protected is that the deposit that you’re given here, you’re giving is going into the builder’s lawyer’s trust account. So it’s not going directly to the builder with low-rise properties that goes directly to the builder. So, you know, there’s a, there’s one layer, one less layer, but with condos, you have the condominium mat, but then also you have Terry on, which is that it’s a third party company, but it’s still run by the government at the end of the day.

Hunny Gawri (20m 42s):

It’s a crown corporation, I believe. Right. And they, they sure that developers get insurance that covers the amount of the deposits or whatever, at least the minimum requirement that Terryana has. I know it’s changed in, I think it was in 2018. It changed. I got, I gotta see what that number is. It used to be very, very low. It was like $25,000 or whatnot. And that was, again, it was relevant. It was that it was relevant in 20, in 2006, seven, eight, when, you know, deposits were 10% in purchase prices were 250,000. So now that in the recent years, now that per purchase prices have gone to, you know, 400, 500, 600, 700,000 and up, they’ve kind of adapted and, and evolve that updated it.

Hunny Gawri (21m 35s):

Yeah,

Jesse Fragale (21m 35s):

No, that’s, that’s true. And it’s, it’s interesting too, to see how the, the pre-construction market has expanded into the investment market from the student rentals. So we’ve talked about student rentals on the show before, and, you know, prior to, I don’t know, five or 10 years ago, the student rentals, weren’t really a market for pre-construction condos and that’s really changed. And maybe you could talk a little bit about that and talk a little bit about the incentives that, that these companies offer when it comes to management and rent guarantees.

Hunny Gawri (22m 7s):

So with, with the student pre-construction student rental market, it’s from the research that we’ve done when we first heard about it. And the first it was actually, I think my third property that I purchased, it was back in 20 2011 when I bought my first student rental a pre-construction property. And that’s when I was just like, wow, this is, this is amazing. You have those a three bedroom unit right beside the university for, I think it was $350,000. It had a guaranteed rent. So that was one of the incentives. And when you do the math, it actually broke even. So pretty much someone else was paying off this property for you.

Hunny Gawri (22m 47s):

All you’re doing is putting down your down payment. And the property management was included for the first year, but when we were doing our math, we factored in the property management and it’s still covered its cost. Now what what’s like when we were doing our research, this type of problem, this type of you can say investment property existed in UK, in the UK, in Australia. So it was just new to kind of our market here, right. But it’s always, it’s been around for a prolonged time. And I guess the developers that that’s, you know, started this, they did see that and, and the, the market made sense over here for, for that type of product.

Hunny Gawri (23m 31s):

So a lot of developers, as we’ve, as we’ve sold a lot of these types of projects, it is one of the asset types that we specialize in, or the pre-construction niches that we specialize in, which is pre-construction or purpose-built student, but in the pre-construction stage, it’s, it is a very attractive, we do get a lot of inquiries about it, but the, the, the downside of it, you can say is that there’s less appreciation. That happens. Right. So we do, it is a lot more call it, explaining that we do do just to make sure that everyone, you know, is, is they understand what’s actually happening or what, what they’re actually purchasing.

Hunny Gawri (24m 18s):

Because the last thing we want to do is, you know, they’re thinking that it’s, it operates like a regular condom that you’re purchasing in terms of appreciation. And you’re getting a rental guarantee and you’re getting property management. It’s like the ultimate ultimate product. But, you know, there is, there is some fine print that you, you do need to understand. And even once, once people understand that, then it either it opens up like the, either even more attracted to it, because they’re like, yes, it’s the most conservative. I’m good. I I’m very conservative. I’m okay with, you know, very, you know, inflation based appreciation rather than, you know, going for appreciation that you’ll see on the, on the residential condo side.

Jesse Fragale (24m 58s):

Yeah. And it’s, it’s kind of funny talking now in 2020 where we’re like, you know, unless there’s a global pandemic and people aren’t going to universities or colleges, but yeah, I think, I think that was, you know, back in the day when I started investing, I started investing in, in old-school kind of student rentals, which were like hundred year old homes that were packed with students. And one of the big issues there was you had students that were a little harder on the, on the asset than a normal person would be. And one of the things that when I bought a few student condos that that solved for was that issue, right? You’re, you’re in a condo now where it’s, you know, it’s very hard to, I mean, you can do it. Any person can do it, but it’s really hard to damage things in a, in a condo and have a huge bill.

Jesse Fragale (25m 40s):

So that expense ratio was lower. And in addition, just like you’re saying here, we had those rental guarantees, which I can only imagine that the reason that development companies do this is that those a free that maybe one year of free management, I would imagine that the majority of the, of the investors ended up agreeing to them to continue management. Would that, is that fair to say?

Hunny Gawri (26m 4s):

Yeah, I’d say at least 90%, at least 90%.

Jesse Fragale (26m 8s):

So, honey, I wanted to talk a little bit about the, just the market in general. Like we talk about these areas, whether it’s San Francisco, LA New York, Vancouver, Toronto, where these are extremely hot markets. And, you know, we say we bought this property for this much. It appreciated over this amount of years. And the reality is there’s just a lot of investors that can invest into these markets. And I’ve always seen pre-construction condos as a potential wedge into, into a very expensive market. But, and this is the, this is the question as things have gotten more expensive, even the ability to cash flow on pre-construction, you know, is getting tighter and tighter.

Jesse Fragale (26m 48s):

So like, what is your recommendation for people that are trying to get into market as expensive as save Vancouver or Toronto through the through pre-construction and where do you see the, this market going?

Hunny Gawri (26m 59s):

So it’s, I guess there’s multi-facets to this question, like th this is a question I could probably talk now we’re on, but let me try to keep it short on as much as with as much information. So it’s important to understand kind of where we are as a metropolitan city, right. We have, you know, the, the, the cities that you’ve named there are mature cities and Toronto, I can speak to for Toronto, mainly that we’re we’re, you know, if back in 2010, we were a baby, right. As, as we’ve gone through, I’d say 2017 or not even 27, 2018, 2019 is when we’ve probably evolved to like a teenager, a teenager.

Hunny Gawri (27m 45s):

Right. But, you know, cities like New York, LA San Francisco, Boston, and even there, they’re very, very mature. They’ve, you know, they’re 20 years ahead of us, you can say in some cases, right? So by looking at this, it’s by our, what I’m trying to get at with this is that if we talked in 2010, it would be a different conversation. We talked in 2015, 16, 17, it was a different conversation. And now being in 2020, it’s a completely different conversation. So if you’re, if you understand kind of looking at these other cities that we just named, the mature cities of where they are, we can kind of get a glimpse of where Toronto will eventually be.

Hunny Gawri (28m 30s):

Right. And now, knowing that it’s, what type of property do you want to have in your portfolio? Do you want to have, you know, a property in downtown Toronto before, even though right now it’s negative cashflow, but as rents, you know, pre COVID, if we look at what the numbers were and still they were climbing, and they will eventually climb, understanding that and knowing where it’s going to be, you know, being able to purchase something today, even if it’s a one bedroom at 700,000, which sounds absurd, but for some markets, at least, if we look at the mature cities, you know, a million dollars for one bedroom is it’s reasonable, it happened, it exists.

Hunny Gawri (29m 14s):

And, you know, when you, when you purchase something that a million dollars in the mature markets, you’re not buying it for, you know, building sorry for cash flow at all. It doesn’t make sense anymore unless you’re putting, you know, 60, 70% down. So we’re, where are, where are we are as a market today is that you can still purchase for 20% down, you know, based on future potential appreciation, also future rental appreciation and still be okay, I’d say over the next seven, eight years. Right? But that time mine will get lower, smaller, and smaller if the more you as you move out of Toronto.

Hunny Gawri (29m 58s):

So if you move into Mississauga, for example, which is a suburb outside of, out of Toronto, or if you go towards the East towards Pickering, you’ll see that you have, you have a low, less of a timeline to be able to start cash flowing or breaking even than cash flowing as tight. And it goes on, right? So my advice for anyone looking for properties today in the pre-construction market, if you’re building a portfolio and you want, you want downtown, you want a property downtown, and you, and the pre-construction is the way that works for you, whether it’s through because of the deposit structure.

Hunny Gawri (30m 43s):

Sure. Or whether it’s because you’re not ready for a mortgage right now, purchasing now, it’s still okay. Because the way that things are going, as much as everyone’s saying that, Oh, property values, can they keep going up? Kind of keep going up, conviction it, the inputs that make the prices go up is what’s important to understand. So understanding where we are metropolitan city is one thing. So knowing that we’re a teenager stuff growth, then we have to look at how, how desirable of a city is Toronto. And we look at the immigration numbers that we have coming in, and now with the new projected numbers that they’re looking to bring in it, it’s, you know, bringing in over 300,000 people to the GTL loan, potentially you, you know, that’s a huge number.

Hunny Gawri (31m 32s):

Let’s just even say 150,000 people cool per year that doesn’t translate to needing 150,000 units a year, but it does translate to needing about 40,000 new homes or condos a year in the GTA, just to meet the new demand that we have forget about the existing demand of people moving out of their homes, or, you know, people splitting up or, you know, meeting that new, needing a place to live. Right? So when we factor that and, and then we factor in the fact that our city, the way it’s designed or our area, the way it’s designed is you have the green belt. So the green belt on to the North of us call it. So that’s an area that’s protected. You cannot build on, it’s not actually green.

Hunny Gawri (32m 12s):

And just, you can’t, you can’t build on it. It’s not a belt and it’s not green. So it wraps around our, our, you know, core area, the greater Toronto area, and to the South, you have the Lake. So when you have it, the Lake and you have the Greenbelt to the North Lake on South Greenville to the North, everything in the middle is like an Island, right? So you, when you run out of space on the Island, what happens, no prices go up. You should have to start building up. So all factors, when you look at immigration, you look at even international students is a huge, huge play over here. There’s a lot of international students. And then you look at the green belt, you look at the fact that how desirable of a city we are, we’re not even mature yet.

Hunny Gawri (32m 57s):

There’s so many reasons for it to continue going up and going in the direction that it’s going right before. Right.

Jesse Fragale (33m 8s):

And it’s, I mean, you’re touching on a bunch of things here that I think for me, it took a long time to appreciate, or actually get sophisticated enough to, as an investor to think about like the supply dynamics, the population growth dynamics, job growth. These are things that they’re, you know, they’re, they’re not hard to model when you understand what you’re looking for, but there are a lot of aspects. You know, immigration is just one example for cities in the States and Canada, or anywhere really that have an influx of immigration. I mean, that is a direct impact on real estate values and usually it’s asset appreciation. So I think there’s always that, you know, cautiousness about for me, cashflow is King, but cashflow is queen.

Jesse Fragale (33m 50s):

And, you know, for, you know, for me, at least at this time, and in my investing philosophy or, or time I look for a lot of cashflow invest cashflow positive investments, but I don’t completely neglect the fact that there is forced appreciation. And there’s also appreciation that is forced by these outside factors that you can make a business case for it, but don’t, you know, don’t get over your skis about, so, I mean, w you know, like you said, we could talk about this for a few hours that I do want to carve out a little bit of time to talk about, you know, an amazing thing that happened to you. I don’t even know now if it’s been two years, but yeah. Talk to talk a little bit about how you got into cannabis and yeah.

Jesse Fragale (34m 33s):

How that all kicked off for you.

Hunny Gawri (34m 34s):

It was, yeah. It’s been like, Janet goes January 11th, 2019 is when, officially I could say I, I entered into the cannabis industry. It was when the lottery was announced, the names of the lottery were announced. So just the way I I’d say the way that the industry was set up, we’ll just maybe talk about that quickly. And then we’ll talk about how I got into it. So originally when legalize legalization was announced for October, October of 2018, we, you know, the, the, I guess the city had a, or each province had their own way of kind of rolling it out right now, the government that was in place prior to the provincial government that was in place in 2018 or prior to 2018 had one structure.

Hunny Gawri (35m 31s):

And then when the government changed it, that whole system got changed. Right. So that kind of led to where we, how it ended up rolling out. And every province being able to roll out the way they want it to kind of only let peoples be able to speculate how it’s going to be. So they looked at well, how did VC do? And how did you know, or whatever. So everyone was just kind of like, well, you know, if Alberta did it this way, will, you know, Ontario do it this way. So it was all speculation and that’s all people could really go off of. So what started happening is when, you know, when the liberals originally said that they were going to, it was going to be all controlled by the government, by the provincial government.

Hunny Gawri (36m 16s):

And it was going to be just like we have the LCB or liquor stores are all controlled by the provincial government. They were saying originally that the cannabis stores were also going to be controlled by the provincial government. Now, when the conservatives came in and they said, no, we’re gonna let the small businesses and small business owners, you know, pretty much get into the, the retail side of it. And we will be, we will be the distributors of the wholesalers of it right now. There was a caveat there also, you know, the they’re also competing technically, but only on online with online presence, but at the same time, ultimately they are the, the wholesaler. And when this change over happened, because Alberta had already announced how they were going to be doing there’s a lot of people over here, it started going and tying up properties, right.

Hunny Gawri (37m 10s):

Without knowing how it’s going to be rolled out. Now, again, that’s all a few people can do with speculate. So come December of 2018, sorry, December of 20, 2018, the government comes out and they announced that, you know what, we are going to be doing a lottery system. So we’re only, and we’re only going to be announcing 25 names that can open up retail stores out. It’ll be April 1st. So once that news hit the market, like, you know, I can only imagine what people who had signed releases, you know, thinking that it was going to be an open market.

Hunny Gawri (37m 49s):

How, how, like, how they felt like, you know, we, I was not looking at cannabis at that time, not to be, I want to be part of a space, but I didn’t know in what capacity it was, it was more going to be reactive rather than proactive, just to see where, how I could fit in.

Jesse Fragale (38m 7s):

And for those, for those listening to those people that, you know, when you say they were tying up properties in anticipation of this, the way that it would be rolled out in its respective province, they were like, okay, I’m going to get a facility, a, lease, a retail lease. And then we’ll figure out if there’s a licensing system, I’ll do that after. So what you’re getting at is all these people. And I was on the other side of transactions as a broker on this, where they would give sometimes as much as when we were repping the tenant, we advise a hundred percent against this, but some of them would put deposits that were a nonrefundable. So that happens. And then, and then, yeah. So go ahead. You were saying that the lottery comes out or the announce,

Hunny Gawri (38m 46s):

So the announcement in December comes out that they’re going to be doing the lottery and you can apply for the lottery in December or near the end of December. I think it was. And they were going to make their announcement of who the names were in January, January 11th. So, you know, I was with my, with a couple friends and we were just talking about it and everyone’s like, yeah, we’re gonna, we’re all gonna put our names in and whatnot. And, you know, we did. And January 11th, I remember I was on my, I was in an Uber ride home from the office, just working. And I get a call from Oregon. I get a screenshot from one of my friends and he’s like with my name circled.

Hunny Gawri (39m 27s):

And I was like, you know, what, what is this? I call him right away. And he’s like, honey, he’s like, you want, and I’m like, what do you mean? And then I call, I call someone else. I’m like, it is this guy good at Photoshop? Because this is real right now. Right. What does this actually mean? So I get home, I start getting bombarded with calls. And again, like it was that’s when it really hit me that this is a really good opportunity. I mean, it’s, it’s the best opportunity that could ask for, to get into the space at a time when, you know, there’s only going to be 25 people. And I ended up winning in the region of Toronto, which was, which was out of the six regions.

Hunny Gawri (40m 8s):

I mean, in hindsight now that we know how the other regions are operating, I mean, it didn’t matter relieve as long as you get a good location, all the regions were pretty decent. There was, there was those good locations in all the regions, but yeah, so that was the beginning of it. But the, the, there was, you know, restrictions and, and there was tight timelines. So January 11th found out, had to open a store by April 1st. Now, no lease in place. No, you know, not only not, no lease in place, but the getting leases was really hard because remember during 2018, everyone was tying up these spaces with one year prepaid rent in place, and everyone was holding out.

Hunny Gawri (40m 51s):

Because again, no one knew how the next six months were going to be. Is the government going to open it up to everybody? Or is it going to be a year or two years later? So people were still holding onto leases.

Jesse Fragale (41m 2s):

There was all that speculation at the time. And I remember people were calling us off the hook. They’re like, even after the announcements. And they said, okay, it’s only going to go to these operators in these regions. We were getting calls saying, Hey, could I type this property? They’re still trying to play an arbitrage thing where, Oh, maybe I’ll tie it up. And then that person will have to partner with me. And there was all these kind of, I remember legal implications of that at the time.

Hunny Gawri (41m 25s):

Yeah. There, there was a lot of restrictions on that that made it kind of hard to navigate. But again like that two and a half months to find a space, build out a space, set up a store. It like, it was like, even looking back right now, it was like a blur. And we were in zombie.

Jesse Fragale (41m 43s):

Yeah. Because it never happens like that, that type timeline it’s, we’re going to do it in two or three months. And then it turns out to be five.

Hunny Gawri (41m 50s):

Yeah, exactly. It’s, it’s normally, like if you get getting into, you know, business takes a lot more planning generally, right. But with all the variables that were in place and this one with the timelines that we had, again, it was all about putting a good team in place. Once we, once we were able to do that. And we w and again, the variables that would normally be there for regular opening up a regular business, it was a little bit different here because, because of the accelerated timeline, all the vendors were also open to working with us on those accelerated timelines. Cause they, for them to, it would be a gateway into a brand new industry.

Hunny Gawri (42m 31s):

So if they were a part of a batch of first stores, that whether it was the banks, whether it was the, you know, the fixturing companies, whether it was the contractors as the security alarm companies, everyone was really willing to help and they did. Right. So, so it kind of worked out in that sense, for sure. But, you know, getting into a business with, with finding a good location was still, was still formed. Cause as much as it’s as much as it’s sorry, I’m losing my train of thought here.

Jesse Fragale (43m 5s):

No worries. We can cut it out if, if you need to edit this out, give me one second. Yeah.

Hunny Gawri (43m 15s):

My dog out of the way here. Yeah. Okay. I don’t know where we were, but

Jesse Fragale (43m 21s):

Sorry. We were just saying, opening it up the point, like people that different contractors that were kind of going through that process.

Hunny Gawri (43m 29s):

Yeah. So, so all, all the, all the vendors were overlooking rarely, really, really helpful and finding a location was, was the key. But the locations that we were looking at it wasn’t just to, to see if they’re going to be good, because any location that you open up in the first 25 being one of the first 25 would be good. We know sure.

Jesse Fragale (43m 50s):

Monopoly.

Hunny Gawri (43m 51s):

Exactly. Yeah. But now if they open it up and it becomes two, 300, 500 a thousand stores, which is where we’re heading into that market, now we’re at 300 stores now, would this location still be good? Is what the question was. Right.

Jesse Fragale (44m 6s):

So I’m curious, first of all, just to take a step back when you saw your name, it was hilarious. Cause I saw I was in a boardroom, we’re doing a morning meeting and I saw your name and I’m just like, all right, man. Like the chances of another guy being named honey gari is probably pretty low. So I think I texted you, which I, I knew I was probably one of many that, that did, what I’m curious about is did we know? And we, I did, did people know at the time that it was something that might get expanded out to more people, but the reason I ask is from my vantage point, not being in the industry, just being in the real estate space, I, I thought the feeling was that, no, like it’s going to be just these 25 people.

Jesse Fragale (44m 48s):

They, they really hit the lottery. Huge. Like, were you guys aware that it was potentially going to roll out the way it eventually did with the, with the political change?

Hunny Gawri (44m 59s):

You know what? They were very, very, they weren’t as open, but there was no indication. And then the reason was because they didn’t even know, like they genuinely didn’t know it was, it was literally a day by day decision that was being made. It’s like, okay, well, is there a supply issue? Cause originally the reason why they want to limit to 25 was they were scared that there was a supply issue. Right. Do we have enough product if, if we were to open up 500 stores right now, right? Yeah. And so it was, it was a balancing act from so many different aspects, obviously politically there’s, there’s the political side of it. But aside from that, just as an industry, being a new industry, even though they, they gave the licenses to the licensed producers to grow product prior to, you know, legalization event so that there wouldn’t be enough product.

Hunny Gawri (45m 52s):

It still wasn’t enough producers at that time or in, because it’s all done in crop cycles. It wasn’t always, they weren’t sure where the crops going to be. They had to get inspected by health Canada, where they’re going to be enough for the like enough product. There was, there’s so many variables that were up in the air. So I think the stance that the conservative government took was to let’s just roll out with what we know we can handle for sure. And then let’s see how it goes. And we were, we were literally, we didn’t even know if we were allowed to open a second store. We just, you know, we’re told that or we assume that because we already have the experience, it just would be naturally easier for the government to allow us to do it.

Jesse Fragale (46m 32s):

Yeah, for sure. And it’s a, you know, it’s probably kind of exposing my, my bias or my priors, but I, you know, leave it to the government to, to come up with just an inane type of lottery system solving for the fact that the supply comes from the government. You know what I mean? Like if you had opened it up to just a more, I don’t know if it would be in Dubai or just a more free market, you know, suppliers would figure out just like we do with every other crop, but definitely a pretty amazing time for the industry. And also in real estate, especially on the retail front, again, something I think we could talk about for hours, but I’m want to be mindful of your time.

Jesse Fragale (47m 12s):

So honey, we normally do four questions that we ask every guest. So if you’re cool, I’m going to start firing them at you. If you could recommend one book, whether it’s in business or real estate, what would be that book?

Hunny Gawri (47m 29s):

So one book that had a profound effect on my business life, it’s more business related. It’s called the entrepreneur rollercoaster by Darren Hardy. And that was, it was definitely, it’s more of a mindset book. And I think that was a big game changer for me, for sure.

Jesse Fragale (47m 50s):

Okay. Number two, what’s something, you know, now you wish you knew when you started out

Hunny Gawri (47m 58s):

A lot more than knowledge I have on call it land development, land assembly, and I’m on the development side of things. I wish I had looked into much earlier in life or earlier in my real estate career. Just again, the opportunities on that, in that spectrum of real estate is, is insane.

Jesse Fragale (48m 21s):

Yeah. I say the same thing, but I’m like, I didn’t have any money back then.

Hunny Gawri (48m 25s):

Oh, see, that’s the, that’s the thing I always like, I, what I learned is is it the opportunity that you need to secure or is it the money and the money will follow the opportunity, right? Yeah. So yeah, no, definitely. Yeah.

Jesse Fragale (48m 38s):

Yeah. That’s a good point. And a third one here, just your, your view on mentorship and how, how, if at all, mentorship has played a part in your, your career.

Hunny Gawri (48m 51s):

I wouldn’t say I have a one, one exact mentor or one individual mentor, but again, Darren Hardy, he has it, it’s all about mindset. And I remember it was a conference in, it was a real estate Remax conference in Vegas and he was one of the keynotes ending off the conference and showed up me and my Vernon showed up 15 minutes late to the, to the, to the keynote. And the stuff that he talked about in that last 25 minutes was just like completely changed. Our world, flipped our world upside down. And it was, again, it was all mindset. It was, you know, just bring a different perspective to something we already knew, but just looking at it from a different lens.

Hunny Gawri (49m 35s):

So, you know, I, if anyone, I can call a mentor or someone that I follow as a mentor, I don’t know him, but it would be Darren Hardy, but also just, you know, peers in our industry. We learn a lot from each other people who’ve been in the industry long enough, you know, for, for 20 years now. Like I would consider a lot of the mentors as well.

Jesse Fragale (49m 58s):

Yeah. And, and that’s you hear that time and time again and like most industries, but I feel like real estate, especially is one of those, a trial by fire industry. So it takes 20, 25 years to get a lot of knowledge that you then get as a young guy in the industry. Hopefully if you, if you listen, last one, my favorite and our nice, just a lob shot, first car make and model.

Hunny Gawri (50m 26s):

Well, it was, it was a Mitsubishi Lancer, Mitsubishi Lancer, 2004 yellow, one

Jesse Fragale (50m 34s):

Yellow, Canary yellow. I mean, I assume it wasn’t an Evo. You, you weren’t, you were in, in the, the sports edition for the first car.

Hunny Gawri (50m 43s):

No, no, it was, yeah, it was, it was just, you know, honestly from, it was a lease and it was my first, first car. And I, after that, I was like, you know, after that one car and being able to buy it on my own and then go through the whole process, I feel like that’s when I grew into adulthood.

Jesse Fragale (51m 5s):

Yeah, man. It’s, it’s so funny when you, you hear people talk about that. It’s a, it’s a fun question, but you just hear people, whatever, whichever car that was, it, it, it represented freedom, no matter how, how shitty it was honey, for those that want to get in touch with you, whether it is kind of on the investment side or, or just people that want to know more about the pre-construction process, what’s the best, the best route.

Hunny Gawri (51m 30s):

So two views. One is our website, which is mine, investment brokers with an s.com and emailing me, that’s usually the best way to get in touch with me is through my email, which is my first name, H U N N Y. Honey, at my investing brokers.com.

Jesse Fragale (51m 51s):

My guest today has been honey gallery, honey, thanks so much for coming on working capital. Thank you for having me Jesse favor, listening to the working capital podcast. My goal is to help individuals break into real estate investing as well as educate experience investors. If you enjoyed the show, please share with a friend subscribe and give us a rating on iTunes. It really helps us. If you have any questions, want to learn more or likely to cover a specific topic on the show. Please reach out to me via instagram@jforgalsorheadtowwwdotjesseforgalley.com.

Jesse Fragale (52m 32s):

My name is Jessica galley, and I’ll see you back here for the next episode of the working capital real estate podcast.