May 2, 2022
With inflation soaring all over the globe, how do you find opportunities and continue to scale?
REC Canada is the country’s biggest investment-focused realtor group with three-quarters of a billion in sales and 800 transactions a year, and in this episode, we sit down with their President and Co-Founder Simeon Papailias.
Simeon brings his expertise to the show and dives deep into investing in a high-value market, correlating the US and Canadian markets, and building a massive portfolio with his power team.
[00:01 - 04:24] The Empire That Food Built
- Simeon talks about being in the hospitality industry and what made him interested in real estate
- Relationships are the recipes for success
- Growing roughly $750 million dollars in sales
- How are they doing it?
[04:25 - 17:48] Expert Advice You Should Know
- The growth is not going to slow down
- Pay close attention to micro-markets
- There are no asset classes to avoid
- Here’s an opportunity US investors should look at
- Change is constant in finance
- Surround yourself with trusted professionals
- How Simeon and his team provide world-class service
[17:49 - 18:53] Closing Segment
- Reach out to Simeon!
- Links Below
- Final Words
Tweetable Quotes
“You're going say real estate didn't work for me. You didn't work for you. Finance will never change. Finance will go up, finance will go down. It's tied to the economy, it's tied to the market. It is up to you to determine your investment strategy.” - Simeon Papailias
“You can't just read a book and succeed. You can't just, you know, throw a dart at the wall and hit the bullseye. It just doesn't work. You got to practice, you got to dig, and you have to engage in building a power team of trusted professionals in your market.” - Simeon Papailias
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Connect with Simeon on Instagram and Twitter. Listen to their podcast The Broker’s Playbook for real estate and mortgage tips straight from industry leaders!
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Simeon Papailias 00:00
If you can ensure that over the years with the ups and downs of any business, you never, ever change anything other than use the real fundamentals and the real numbers, you become exactly what we are today which is a trusted real estate resource for not just investors but we interview all target the market, because we have built a reputation of using conservative numbers is the bottom line.
Intro 00:24
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.
Sam Wilson 00:35
Simeon Papailias is a commercial broker, and he's the founder of The Broker's Playbook. Simeon, welcome to the show.
Simeon Papailias 00:42
My pleasure to be here, my friend.
Sam Wilson 00:44
Hey, man, glad to have you on. Three questions I ask every guest who comes on the show: in 90 seconds or less, where did you start? Where are you now? How did you get there?
Simeon Papailias 00:52
It's a big time limit. I started about 17 years ago in real estate. And I started by selling businesses, I started selling restaurants. So the actual business of the restaurant not the building, born and raised in the hospitality business. So it's an arena I knew well, and I was able to very easily resonate and connect with restaurant owners looking to potentially retire or get into a different type of business. So I was able to attract that business and flip those businesses quickly.
Sam Wilson 01:19
Right. So that's where you started, where are you now?
Simeon Papailias 01:22
Over the last 16 years, we've grown to be Canada's biggest investment focus realtor group, we produce almost three-quarters of a billion a year in sales, with 800 transactions a year. And we've been doing that now for the last five, six years, kind of at the pinnacle of the organization. I love selling real estate, I love helping people and educating people. And we're gonna do this thing till the wheels fall off, man.
Sam Wilson 01:44
I love it. Okay, so you know, third part of that is how did you get there?
Simeon Papailias 01:48
That's an intricate story that could be an hour on its own. The bottom line, my friend is I've leveraged networking and relationships. I'm a very social person by nature, but I call our firm, it's the empire that food built. And what I mean by that is, there's never a single chance on this planet that somebody's going to buy me lunch, I buy people lunch, and I create reciprocity, I create happiness, food creates happiness. When you're eating with someone, it's very difficult not to like them, meaning if you don't like somebody, you're not going for lunch with them. Because food is an intimate action no matter how high level or low level, you look at it every single time, you're speaking to somebody on the phone while having lunch to their your wife, kid, your friend, or you're dining with somebody with intent. I have a partner and as the partner who is in charge of business development, I built a one relationship at a time, never burnt a single soul on this earth, not for a single transaction. We built our reputation and our network that way.
Sam Wilson 02:45
I love it. roughly $750 million in deals a year. And you said it was over approximately 800 transactions with take the roughly a million bucks a deal, on average, obviously have some probably bigger or smaller than that. What is your target client? What are you selling a million bucks at a time on average, people are buying?
Simeon Papailias 03:06
Yeah, so, first and foremost, we're very blessed to be in a highly valuated market. I operate out of Central Toronto, which is the Greater Toronto Area, the GTA, as it's known, and it's literally the highest valuated market in North America today. And I'm not referring to comparison to Manhattan, what I'm referring to is we have the most cranes in the sky, we have the highest price jumps in appreciation and rental rates year over year for the last six years. So we have a number of people coming into the country. Obviously, we all see what's happening on the globe, today, Canada has been and continues to have an image and enjoy an image of peace and prosperity, where things are a bit slower than America specifically, where they're now enjoying that consistent stream of qualified immigration into the country. Those things are boosting this market. I mean, it is nearly at bubble level. I mean, at this point, you got to start seeing, like with inflation rising there is going to be in my opinion followed all across North America, based on what's happening by getting to a million on average per transaction, the average transaction in the GTA is a million. It's specifically who the client is to attract that tag. We're transacting regular real estate in a highly valuated market.
Sam Wilson 04:26
What are you advising your clients to buy right now that makes sense?
Simeon Papailias 04:31
Yeah. So I don't think that growth is going to slow down at all, not at all. Across spectrum on the other side of that pendulum, I do believe it's actually going to go higher, and it's not going to go higher by 22% a year like we've been seeing like nonsense things that are not both, not viable, not safe and not good enough for agents, not for anyone to have massive swings in a commodity that's supposed to be the safest on the planet is probably the worst thing you want to see. But seeing stable growth at that four to six percent per annum is where you want to see things. You're hedging against inflation, you have affordability at some kind of a decent rate, where right now the Toronto market is not affordable, right? So any first-time homebuyer cannot look at that and say not anyone, but 90% of first-time, homebuyers cannot look at the City of Toronto, for their housing needs. A condo is literally trading downtown Toronto at 1700 bucks a foot, it's not viable, you're not making enough money to support yourself into rent, the rents are also we're talking about a one-bedroom at 24, 2500 bucks. So it has become that little Manhattan, it has become that little downtown LA, it has become a little downtown San Fran, where the circumstances of the economy have allowed a real little monster to emerge. And there's many reasons for it. But as a basic premise, my advice to consumers, investors today is to pay very close attention to the micro-market, they're investing in saying buying anything in Toronto and I'll make money is dumb. It's a rash of generalized decision that leads to hurt. And what I advise is strong due diligence, market fundamentals, what is our demand? What is the transit plans? What is the employment prospects in the said neighborhood? Is there tech companies coming, is warehousing companies coming? What's your plan of life, matching with your lifestyle or your target audience your tenants lifestyle and invest in those micro-markets? So deep due diligence more than ever?
Sam Wilson 06:29
Absolutely. Tell me Is there an asset class that you guys are actively avoiding?
Simeon Papailias 06:35
There is not. I mean, the single-family homes have become the rage, because of the supply and demand Ontario, specifically, the state, that we're the province that we're in equivalent to your state, Ontario has some of the most archaic, backwards development bylaws in North America. And that red tape allows this market to happen. So there's a million things that the government could do to alleviate some of the stress on housing, they just cannot get out of their own way between politicians, between planners, between policymakers, all of the things have just created this perfect storm with the immigration numbers that we have to have this. So there's nothing really I would tell a client not to get into. But there are assets better than others, right now, condominiums, new construction condominiums, where you're going to put a proportionate share, because actually, pre-sales of condominiums worked differently in the United States. And this is maybe an opportunity for US investors, maybe something for them to look at. Basically, here, we have to put down staggered deposits. And it's an actual deal in the US, you don't have to commit to that deal. For example, I was just doing deals in Florida, with one of my working partners down there, we sold 35 condos down in Orlando. And there, the client is not committed to the deal until closing, they can walk away were here in Canada, they can not walk away. It's more of a reservation system in Florida. And I don't know if it's across all the United States, or that's just proprietary to Florida. But here you can hear you're locked in. So the developer cannot change the terms of the deal. So if you're buying today, and it's going to be delivered in three or four years, you're buying at today's price, so let's call it a two-bedroom condominium for 700,000 just for fun. The appreciation is going to be whatever it's going to be it has been obscene, but let's call it even a 5% a year. So 35 grand a year, right? Your deposit structures here, that is where the opportunity is created, you're going to put 5% down now, 5% next year 5%, the year after, 5%on closing. Your required 20% investment into the condominium is done staggered over time, which now starts to kick in the IRR. So your ROI literally jumps massive. And with 35k a year at 5% up and your deposits 5% You're literally making 100% a year on paper, right? Should you keep it, you can refinance that thing on closing, and literally take all your money out and still have 80% equity into the project. Right. So that specific strategy is what I deployed for myself and my partner over the last decade and we build a massive current portfolio. Literally using the market winds, winds were in our sails, we took advantage, we literally don't have a dime of our own cash or risk for that matter in that portfolio with hundreds of 1000s or, in this point, millions in equity across the portfolio.
Sam Wilson 09:29
That's really fascinating. I love small things like that, that make a big difference in how you execute. You guys are an investor-focused broker firm. And so you're not just an active investor here as well. But you're also an investor-focused broker firm and I think we talked off air you have 57 agents that are working for you guys right now. What does that mean? And how do you feel like you guys differentiate yourself maybe even from other commercial real estate brokerage firms?
Simeon Papailias 09:54
Yeah, for us, it's 100% what we like to call world-class service. My partners specifically, we have two very unique positions that we've created. So my partner literally works mine in his internal database. And our database is about 10,000, strong. Those are people who have come in to speak to Sydney and to speak to Jas Takhar, who was my partner, and I think he would make a great guest on your show as well, just to be honest with you. He's a podcast superhero. But he works our database, he also writes the systems alongside our VP of Sales and Marketing, Laura Stewart, on the customer journey. So how they're marketed to how they're not sold, how they are sold. So what opportunities do we present? I, on the other hand, source the inventory, when you have 10,000, investors, the appetite on a market that's jumping 15 and 20%, a year is massive. So what we have done is I go out, I have the relationship with the developers, the builders and our strategic partners, I bring the inventory in after we qualify it and negotiate incentives for any set project. And then it goes straight into a launch scenario where the interested investors put up their hand, our team reaches out, takes them through the due diligence that's already been done, the initiatives that are already been negotiated. And the incentives, closing costs, everything is put on a one-pager showing exactly what the projected expectation should be. And if you can ensure that over the years with the ups and downs of any business, you never, ever change anything other than use the real fundamentals and the real numbers, you become exactly what we are today, which is a trusted real estate resource for not just investors, but we interview all the target for the market, because we have built a reputation of using conservative numbers is the bottom line.
Sam Wilson 11:42
No, I think that's great. So tell me this, when it comes to the financing side of things, it's a question. I'm asking people a lot right now because in times past, when we've had downturns, recessions, corrections, people have gotten caught on the wrong side of financing. What are you guys advising your clients to do right now as it pertains to the properties or financing?
Simeon Papailias 12:04
Yeah, I mean, you got to watch it like a hawk right now. So the fed on your side of the border in the fed on our side of the border, every time the US makes an announcement, within two days, Canada makes its own announcement, because our economies are that interrelated. So right now, we're going to be seeing double ticks up meaning not a quarter-point basis, but rather, they're gonna be going up by half a point, I was hoping I actually put it on the record out there in January that we're going to see two to four increases this year. But it looks like I was wrong. And we're going to see four to seven increases this year, or the equivalent to so if that's the case, where they're going to try to reverse the quantitative easing, they did during the pandemic, there is going to be follow up, there's going to be some massive Delta's with some bleeding properties out there. And what do I mean by that, to make myself ultra clear, you bought a million bucks, your financing was approved at 1.6%, because of record lows, and you thought your rent of 3000 a month or whatever the case may be, it was a great investment, because your cash flowing five bucks a month? Well, again, the difference between doing due diligence properly, including a three or five-year plan, knowing what the where rates are going, that's the difference between brokers and advice, I would never advise a client to do anything. If this was a cash flowing play, they would have to be able to cover it at the posted rate, not at what they got approved that because the posted rate is always 2, 3, 4 points higher than what's the actual rate, if your property doesn't stand against the posted rate, you can't make it work because the risk is too high. Because if you're a schoolteacher making 80 grand a year in the property is X whatever the case may be, where's the money going to come from? You're going to end up putting it up for power of sale, through whatever process your state has. And then you're going say real estate didn't work for me. You didn't work for you, finance will never change, finance will go up, finance will go down, it's tied to the economy, it's tied to the market, it is up to you to determine your investment strategy. If you're going after capital appreciation, you better be able to bear the storm of negative cash flow. So if you're investing in Toronto, you're not investing for cash flow, you're buying a two and a half cap. You know, you're going to be red, right? But you also know you're going off 50 grand a year, almost guaranteed, right? So it depends who you are, what your pocket can handle.
Sam Wilson 14:17
That's really interesting, especially on the financing side, how many, especially for you, you know, if you're buying for appreciation, so a lot of what you guys, if I'm hearing you correctly, you're buying things out of the gate that aren't going to make sense as a cash flow play?
Simeon Papailias 14:30
That is absolutely correct.
Sam Wilson 14:31
Wow. Yeah. It's a very different strategy.
Simeon Papailias 14:34
Well, it's a speculative strategy, right. It's based on real market fundamentals. So although you know as a fact that the numbers are going to be skewed the wrong way as to what you know, should be right. There is enough data to support the growth projection, right to ignore it would also be foolish. I'm not saying put the farm on it, because you should never do that ever. But if you know as a fact that there's a shortage of almost 40,000 units a year across any market. And the policy, the time, the supply chain constraints are not going to allow it to be fixed for at least another five years. If you have the money, you'd be a fool not to invest, right? But for you to put yourself at risk or in danger, just to maybe partake in it. That's wrong. So you have to be able to know look at yourself in the mirror and know who you are, what kind of stress you can take, and govern accordingly, right?
Sam Wilson 15:26
Are you helping your clients do that underwriting side of things? Or I guess maybe you putting that together? When you say, Hey, this is the deal. This is the financing might make sense if you can line it up.
Simeon Papailias 15:37
100% we do that is exactly what we do. And that's what, again, what sets us apart. We offer full suite analytics, supported by real data. And it's always as part of a schedule to whatever email with any suggestion that goes out. So you're not going to get this is what I think or loosey-goosey. You're gonna get fully supported research improved as to what we're recommending.
Sam Wilson 16:01
Yeah. And I think was packaging that up, because a lot of stuff you'll get I think on the commercial real estate side is, you know, they'll show you the deal underwritten was like you said loosey-goosey a couple hey, if it was you know, you got it this percentage, this is what it could look like versus here's the one we absolutely recommend for your project.
Simeon Papailias 16:16
I mean, did you look at the capital expenditures, the remaining life of the equipment inside the mechanical room, the roof, the asphalt, the walls, the moisture? Like there's, again, people think, Oh, let me look at the rent or that's in the back of a napkin? That's great. No, bro. Not great. Because you're gonna be in a couple 100,000 The first year, which is gonna turn everything upside down, right?
Sam Wilson 16:37
Absolutely. What's one mistake you feel that you have either made or maybe you see some of your clients making that you could help others avoid.
Simeon Papailias 16:46
It's the same one I made when I was younger. And the same one I see all the time as clients not doing enough digging, it's every single pot of gold is hidden under some dirt. It's never out in the open, or else somebody would have already had it. So in order for anybody to win in real estate, just like anything else on the planet, you can't just read a book and succeed, you can't just, you know, throw a dart at the wall and hit the bullseye. It just doesn't work. You got to practice, you got to dig, and you have to engage in building a power team of trusted professionals in your market. And that is the number one piece of advice that I would give to any investor. If you're in Toronto, by all means hit us up. If you're in Vancouver, if you're in Seattle, if you're in San Francisco, there's a million meetups. There's a million resources where you can google it local real estate meetups speak to other investors who did you work with? What was it like? What did they do for you? Did you have to pay them don't look for free look for the right professional that wants to hit exactly what you do straight on at all times.
Sam Wilson 17:49
I love it. Simeon thank you for your time today. We've covered a lot of fun topics everything from financing to where you guys are finding opportunity down to you know building an investor-focused brokerage firm it's been a blast certainly enjoyed it. If our listeners want to get in touch with you what is the best way to do that
Simeon Papailias 18:03
My handle across all social media profiles is S Papailias, S-P-A-P-A-I-L-I-A-S as well as if you just Google Broker's Playbook. You're going to find our industry-facing podcast, which is The Real Estate and Mortgage Professionals, Investors' Playbook for the Investor, which is launching on April 15.
Sam Wilson 18:23
Congratulations, Simeon. Thank you again.
Simeon Papailias 18:25
My pleasure, Sam. It was awesome to be here. Thank you.
Sam Wilson 18:27
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories so appreciate you listening. Thanks so much and hope to catch you on the next episode.