John Papaloni is the CEO of Papaloni Capital Inc., a serial entrepreneur with a background in marketing, hospitality, and real estate. He holds both a real estate license and a mortgage license and has been in the real estate business for eight years. His company creates opportunities for people to invest in the real estate market through joint ventures and private equity loans, focusing on multi-unit buildings of 12 to 48 units with seven-to-ten-year holds. He is based in the Greater Toronto Area and also services the Niagara Region.
Host: Richard Lowe | Guest: John Papaloni
Conversation Transcript
Richard: Tell me about your business.
John: I’m CEO of Papaloni Capital Inc. I have my real estate license and mortgage license, which is complementary to what I’m doing. I’ve been in the real estate business for the last eight years. I kind of grew up around it. My parents were landlords. I thought it’d be a great opportunity because I watched people go through struggles, especially with the change in interest rates.
There are a lot of people who want to get into the real estate market but don’t necessarily have the means. They might have the down payment but don’t qualify for the mortgage. They might qualify for a mortgage but don’t have the down payment. They’re looking for ways to get in as an investment. That’s why I created Papaloni Capital, as a way for people to invest with me in joint ventures. Whether it’s a joint venture into a real estate portfolio or a private equity loan, it’s an opportunity to be in the market without having to physically own it directly yourself.
Richard: What got you into that business?
John: The market itself interests me. I saw people struggling to get in. I find people who’ve been in investments like crypto, not because they want to be, but as one of those “gotta get rich quick” things to get money to buy a home. The need to be in real estate is there. It’s not guaranteed, because nothing in life is guaranteed, but it is one of the safer investments. Being an agent for years, I found that my passions don’t necessarily align with that job, but I have an opportunity to use my experience to expand. My focus is really helping people with the investment side, more than just finding someone a house with granite counters.
Buy and Hold vs. Flipping
Richard: Are you more of a flipper, or how does that work?
John: I’m a buy and hold guy. When you’re investing with me, it’s a seven-to-ten-year contract. Unless you’re doing a private equity loan, which can be two to three years because that’s usually the average loan term.
Richard: My parents had a house and they wound up walking away from it. The state grabbed it and sold it, and there was $150,000 sitting in equity they could have gotten, but I couldn’t find them. That would have helped them greatly.
John: Sometimes what happens is people feel so stressed out they throw their hands up and give up. That’s not always the right answer. But when you’re in that kind of stress, looking in from outside it’s easy to say you should have done this or that. When you’re feeling it, you feel stuck and don’t know what to do. Sometimes it ends up being the wrong move.
Richard: I think it helped their stress a lot. They couldn’t afford the loan, so they had to do something.
John: That’s where I come in. If someone wants to be in a business where they see cash flow from properties, the way the joint venture works, it’s not just one person’s investment. I’m raising funding to buy a building. The lowest I look at is 12 units, and I try to go to 24 or 48. Multiple people are invested, so there’s a big cushion to avoid that problem. That’s why I don’t care about interest rates. The only thing that matters is the math on what it takes to acquire it. Interest rate goes up, the offer goes down. Interest rate goes down, the offer goes up. It’s cyclical. For 40 years it’s been going up and down like a yo-yo. The only time you lose in real estate is when you have to walk away or sell. If you can hold on, you never lose.
Richard: I’ve heard the same thing about stocks, go in for the long term.
John: With the assumption that stocks have the potential to hit zero. Real estate does not. Even worst-case scenario, if nobody wants the house at all, you always have the land. The land is always worth something. Worst case, you keep collecting rents. When a stock is at zero, there’s no coming back.
Richard: Cryptocurrencies even worse. I’m not a big fan. Although I do wish I’d bought Bitcoin when it was in the 20s, but I’m not a gambler. Could you buy a house with Bitcoin?
John: There are numerous debates on that. There are possible ways, but it’s very hard. The seller has to be willing to accept Bitcoin, and most people who’ve invested in real estate their whole life believe in real estate, not Bitcoin. You’d have to find someone young enough who understands it and is excited about it and decides to sell their home for Bitcoin. How many of those people exist? It’s been done in Canada, but the number of stories I’ve heard is probably on one hand.
Richard: And then when you cash out Bitcoin to use toward real estate, you’ve got to prove where the funds came from.
John: Exactly. That’s why when you’re buying a house, the first thing they say is make sure your deposit has been in a bank account for at least 90 days. Anything less and they’re going to ask where the money came from.
The Truth About House Flipping
Richard: I knew somebody who was a flipper. He thought he was going to make a fortune. He had an $80,000 profit on paper, but then he had to fix the house. That $80,000 turned into a loss real fast. He never made a living at it.
John: That’s the thing. Everyone wants to do what they see on HGTV. HGTV makes it look simple. But you make your profit the majority of times on the buy. Especially if you’re flipping, because it’s a short turnaround. You have to buy below market. That’s why most people who flip don’t use an agent.
This is going to sound bad, but I believe the idea of flipping is that you have to take advantage of people. You’re looking for the person who’s not going to be any wiser. You knock on the door, “Have you thought about selling?” They say, “The fees are expensive.” You say, “Let’s do a private deal and save the commission.” Why is that person so anxious to save you commission? Because people are such sticklers about paying it, they’d rather burn the place than see an agent earn a commission. They think they’re saving money.
But if the home’s worth a million dollars, your offer is going to be between 750 and 700. If they’d listed with an agent and got 900, even after 50,000 in commissions they’d have 850 versus 750. They’re not ahead. But for the private buyer, you need that 750 because you need the savings for the 200,000 renovation. Now you’re at 950, sell for 1.15 million, and your profit is 150,000. But you have to find those deals, and they’re very hard. People are impatient.
And believe it or not, some sellers are very well informed. You think you’re getting the deal, but he got you. You bought at 950 and it was only worth 950. There’s your loss.
Richard: This guy also went to auctions a lot.
John: Auctions aren’t always deals. That’s why working with an agent is important. Just because it’s an auction doesn’t mean you’re getting a steal. I’ve seen auctions sell for more than what the actual market would have brought.
Richard: One thing that drove him crazy was he bought a house, paid cash, and couldn’t get it permitted for two rentals.
John: Absolutely. Sometimes there are restrictions. If your plan requires turning a one-story house into a two-story to make money and the area doesn’t support that permit, you have no hope. There’s a due diligence required. That’s why there’s no instant flip.
People do get lucky sometimes. That HGTV story does happen. Take 2021: buy a home in January for a million, put in 200,000 in renovations, by September the renovated house sells for 1.4 or 1.5 because someone fell in love and got emotional. But what if you’re the guy who bought December 2021 and you’re ready to sell in June 2022 when they’ve raised interest rates three times? That’s where people got burned.
Richard: And the market is tight right now.
John: There’s still opportunity, but your contingency plan has to be that you’re willing to hold. If you need to sell within eight or nine months because the interest rate is killing you and you don’t have the money, it’s not a good buy. Hold off. At least with a casino you’re playing some form of a game. I’m not saying you can’t make money flipping sometimes, but nobody talks about the times they lose. They always talk about the wins. I’m willing to bet there’s more losing than winning.
Tenant Relations and Landlord-Friendly Markets
John: You need to have money set aside for maintenance. Roofs are going to break. They’re only meant to last 15 years. If the average roof repair is $3,900, do that over 10 years, that’s $390 a year you should have as part of the rent. When the tenant calls about a leak, you call the roofer and get a new roof. Tenant’s happy because you cared and their stuff’s not getting damaged. Landlord’s happy because they’re not replacing the whole house. Everybody wins.
Richard: My maintenance people say report things immediately. Don’t wait. They fix things same day or next day. But if you wait like one guy who waited six months to report a leak, it might come down on you.
John: And this applies to all business, not just real estate. Too many people see everybody as competition or the enemy. That doesn’t work. You’re in a constant uphill struggle. I asked a landlord once: if someone comes into your retail store and the shoes are the wrong color with a scuff, you’re going to fix it, right? Of course, that’s a customer. So why is it that at your building, when a tenant tells you something’s leaking, it’s “screw you, ungrateful tenant”? Those tenants are your clients. This time your product is the house, not the shoes.
Richard: When you’re paying Florida rates, 2,500 or 3,000 for a two-bedroom a month, you expect service. That’s not petty cash.
John: That’s why being collaborative matters. Whether it’s business or your relationship with tenants. Collaboration will always grow you bigger as a group than being the Lone Ranger.
John: I always caution anyone looking at real estate: always use a realtor. Not because I care about commissions. It’s the due diligence. Especially for the first few times. And if you’re doing a rental unit, find out which jurisdictions are landlord-friendly. I’m a realtor in Ontario. My message to people is: if you’re buying a home to live in, buy in Ontario. If you’re buying as an investor, do not buy in Ontario. We are not landlord-friendly.
Right now the landlord and tenant board, which I call the tenant board, has an 18-month backlog. If someone stops paying rent, it takes 18 months to even see it get to court for eviction. If you put one number wrong on the notice, your paper gets shredded and you start over. You can actually go three years without getting paid. That’s why it’s too risky to invest in places that aren’t landlord-friendly.
Richard: Here in Florida it’s so landlord-friendly it’s almost unethical. People getting evicted after a seven-day notice.
John: I’m all for that if it’s for the right reason. I believe in fairness for both sides. The minute something’s not reasonable for either side, that relationship needs to break. I’m okay with controlled rent increases. What bothers me is when somebody decides they’re not going to pay and they’re in your house destroying it and you can’t get them out. Rent control should keep up with inflation. If inflation is 5%, rent increases should be 5%. If it’s 2%, then 2%. Someone shouldn’t go from having a decent job to their entire paycheck going to rent. There’s got to be balance.
Richard: My rent increase 12 years ago was 30%, which is huge. They lost almost 40% of their tenants within a couple of months.
John: I like to have the same tenants as long as possible. My parents had tenants for 20 and a half years. I’m fine with that and with keeping up with inflation. As long as rent’s paid on time and they maintain the property, relative to normal wear and tear. If you’re playing darts and you miss the board and hit the wall, I expect you to fix that.
The Ghostwriting Process
John: I’m going to ask you something. You’re in an interesting business. I’m fascinated with what you do. One of my dreams has always been to write a book. I’ve got a lot of things in my head. But it’s a matter of sitting down and putting it on paper. I’ve loaded up the computer many times, stared at the screen, and just had that face.
Richard: Those are the people who hire me.
John: Eventually I’m going to get serious about it. My problem is thinking of the words, what’s interesting, what’s not, where to start. The book is really about a story. There’s always that hero, always the villain. And sometimes I just blob away and have no idea what the point is.
Richard: That’s what I do. I have a lot of interviews up front where I listen and take notes, lots of notes, recorded. I’m learning about you, not necessarily your subject, but about you, because I need to write the book as if I were you. It’s almost like being an actor. I have to know the way you speak.
I had one client who wanted his book with swear words because that’s how he speaks. Another was from the South with the drawl and everything, and he wanted that culture to come through. I do the interviews, then do the first chapter. We revise it until it’s done. That first chapter can take some time because you’re going to say this isn’t what I wanted. That’s normal. We’ll sit down and go through it. Then the next chapter will be closer, and the next one closer still, until we’re just banging it out because I’ve got it.
It means I have to take my ego and put it on the table. Because you’re criticizing what I’m doing, and that’s hard to take sometimes. Every ghostwriter goes through this. You have to realize they’re not telling you you’re a bad writer. They’re telling you this piece needs to be fixed. That’s part of the process.
John: People take things personal because they associate themselves with their work. We’re brought up that way. Go to school, get a good education, get a good job, work hard, get promoted. So when someone says they don’t like what you produced, you feel attacked.
Richard: Writers suffer from something all creative people do. Impostor syndrome. Every time you give something back to the client, you think he’s going to hate it. He almost certainly won’t fire you. Ghostwriters get fired because of attitude, not because everyone knows we’re going to revise this 15 times. But if you’ve got a bad attitude about it, that’ll kill you.
John: We’re a people business. People want to deal with people they know, like, and trust. If you have an attitude, that’s a sure way for them to not like or trust you.
Richard: Although sometimes you’ve got to make sure you’re not walked on.
John: There’s a difference between arrogance and confidence. I think that’s the line.
Every Overnight Success Takes 10 Years
Richard: I ghost wrote a book for a guy who does property management. He takes over the mortgage, rents it for the mortgage rate plus some percentage, and either buys it or runs it as the owner. He’s got a nice little business doing just that.
John: Everything requires work. There’s no simple, easy way. There’s no such thing as waking up rich. It’s small things you do consistently that build over time into a bigger and bigger empire. Every overnight success has been a 10-year success. We see them when they just popped up, but the reality is they’ve been doing it for 10 years to pop.
Richard: I’m finding that as a ghostwriter. I have to market myself, and the marketing is over time. I’ve got people who come to me after finding an article I wrote four years ago.
John: That’s why buy and hold works. Over time, over time, over time. You need patience. If you want something quick, try your luck with Bitcoin. Anything that turns out well has always been slow, steady, and boring. The simple boring things you repeat over and over tend to be the things that turn out.
Richard: Part of this is you build a reputation, you build equity, all kinds of things come into play over time. If you’re trying to do it quick, you’re making shortcuts and taking gambles that probably won’t pay off.
Networking and Living Intentionally
John: Most of my hobbies revolve around work, and I don’t mean the sad state of always being at the office. I go out, I’m not working, but I’m networking and meeting new people. The more you know, the more you grow. I may meet a plumber at a bar. I don’t need a plumber today, but when there’s a leak in six months, I call Bob.
You grow and build based on your network. You should wake up, do your morning ritual, and then figure out who you need to meet that’s going to help you get closer to your goals. Everything I do is intentional.
Richard: I was a terribly introverted person most of my life. Networking was definitely not easy. When I went into ghostwriting full time, it became essential. If you don’t network, you don’t get business. I had to break that introversion. For creative people, though, I have to recharge. I do that by working on model kits, usually just half an hour at a time, to make the mind relax and then come back to writing or networking.
Closing Words
John: Anybody watching or listening: an idea is just an idea unless you execute it. Don’t spend too much time analyzing and get stuck in analysis paralysis. Come up with an idea, get started, and you can adapt and change as you go instead of trying to perfect it from the beginning. No matter how much you try, you will never perfect it. An idea you have will still be just an idea a year from now if that’s all you do. Anything is possible if you’re willing to put in the time.
Richard: And you should start writing that book today. I had a client who came to me at 78 years old. Her lifelong dream, her only bucket list item, was to write a book. She hired me. We took 16 months. We wrote her book, published it, and she passed away shortly after. She achieved her dream. When she saw that book on Amazon, it was worth everything just to see the joy on her face.
If you’ve got a book in you, call me, call some other ghostwriter, sit down and write it yourself, get a book writing coach, whatever you need to do, and start now. Because who knows what’s going to happen in a year. The same is true for real estate. If you want to jump in, do it. Figure out the barriers and do it.
Learn more about John Papaloni at johnpapaloni.com.
Find Richard Lowe at TheWritingKing.com.