Sam Khalil and the Million-Dollar Power of Financial Literacy

Transcript:
Sam Khalil:

[00:14:24] The problem is there's a misalignment with what a high percentage of Australians see as a primary asset or wealth building class, which is property. So we took a decision to shift away and totally abandon financial planning and shift to more a property consultancy.

**INTRO MUSIC**

Tyrone Shum:

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode we’re speaking with Sam Khalil, the Managing Director and founding member of the DPN Group of companies. In delving into his experiences growing up and starting businesses, he shares all about the path he nearly took, why financial literacy is paramount, and why haggling isn’t always worth it in the end.

**END INTRO MUSIC**

**START BACKGROUND MUSIC**

Agent Khalil, Reporting for Duty

Tyrone Shum:

With over 27 years in business under his belt and a team of over 70 people across Australia, Khalil has a wealth of knowledge in all things business. Between property development, financial planning, and more, there isn’t much he hasn’t tried! However, everything he does is tied together and always aligned with his humanist values.

Sam Khalil:

[00:01:54] My usual day's at least 100 emails, a number of calls with key team staff, developing innovative projects within the group. Innovating [and] enhancing what we do, connecting with my wife, which is really important. I like to read. I read spy novels.

[00:02:15] Tom Clancy. I like that stuff. Fairly long books and stuff like that. So I haven't watched TV for years.

Tyrone Shum:

Considering his family’s history and education, it isn’t a surprise that Khalil prefers books to TV.

Sam Khalil:

[00:03:10] [I have an] interesting background. I was born in Sudan, which is in North Eastern Africa, neighbours with Egypt. Wasn't there for long. My dad won a scholarship out of seven nations in Northern Africa to the London School of Economics.

[00:03:23] So when I was born, my grandmother took care of me for the first six months. My mum and dad went, he started at the London School of Economics. Then we followed and we lived there for three years while he got his doctorate there.

[00:03:34] Then he got a job with the Reserve Bank of Australia and we ended up in Australia. And so I grew up [here], we start[ed] off in Ashfield, which is sort of inner west of Sydney, and we moved to Bangalore in the Sutherland Shire, so I grew up in the southern Shire. [I] went to a boys school called Jannali Boys High School. It was pretty rough.

[00:04:06] There is a bit of street smarts you learn in certain regards. So yeah, that's my upbringing in a nutshell. Sydneysider since then, and living more in the Eastern beaches after that.

Paternal Pathways

Tyrone Shum:

His father passed away when Khalil was just six years old, but he didn’t lack for father figures.

Sam Khalil:

[00:04:38] It was pretty sad. But my mum got married again. And my stepdad, I mean, he passed away a few years ago, but he was fantastic as a dad. And so I didn't see him as a stepdad in regard.

[00:04:48] But it wasn't like there was a connection with my dad and his economics. Probably more genetic than social or nurture. It's probably more the pathway I went. So if we sort of talk about the type of work I started doing, I worked in freight forwarding after school, then some gym membership sales, office products.

[00:05:13] But it was more a friend of mine that said to me, 'Hey, look, there's this new industry, it's exploding and growing. It's financial planning'. And I got into financial planning before I got really into more property focused services, or businesses or investment.

Tyrone Shum:

[00:05:31] It's very interesting, because it sounds like you went down the path of what your dad was supposed to do.

Sam Khalil:

[00:05:38] It is a bit different, like, he was working on actually, at the time, computer systems for the Reserve Bank, it was early stages, and helping create computer modeling for the reserve. So he sat more at a level where you're creating policy and data at a national level. So he was a professor of economics. So I didn't go down that pathway.

Tyrone Shum:

As he’s been in Australia for the vast majority of his life, he’s definitely one to call Australia home.

Sam Khalil:

[00:06:25] I guess if many people can recall anything before the age of four, it's only patchy and just little pictures and that. So Australia's all I've known and as you can hear by my accent, there is no accent at all. It's Australian. So it's not like I have an accent that's from the Middle East or Northern Africa.

Tyrone Shum:

[00:06:44] And have you been back to your home country of Sudan recently?

Sam Khalil:

[00:06:47] Only once when I was nine. So I don't really... it's not a reference point for me. So Australia is really home for me. I mean, I speak Arabic, but it's broken. And so family and friends would laugh at me when I speak and I struggle, so I probably have the vocabulary of about a four or five year old in Arabic.

Selecting a Career

Tyrone Shum:

With such a highly educated father, you might expect Khalil to have gone straight to university from high school. However, he had other plans.

Sam Khalil:

[00:07:40] I started working, I just wanted to work for a year. So shipping, I got a job straight out of school in handling big vessels that came in and unloaded cargo and stuff like that. So I worked for a freight forwarding company.

[00:07:54] And then interesting[ly] enough, I went to Theological Seminary, I thought I was going to be a minister. I did that for a couple of years and worked part time. And, yeah, so I thought I was gonna go down that pathway. But it didn't end up going that way.

[00:08:22] If I go into, you know, the impact of losing my father at a young age and stuff like that, I was very shy. And I was really impacted by my local youth group, and my church community, which had a really strong formation of my character, my confidence. And I struggled as a kid, just even eating. I'd vomit at birthday parties. I was just so anxious.

[00:08:46] But it was transformational for me to be part of my local church and youth group and that, I got a lot of encouragement. And I guess, for me, father figures in the church were sort of like the ministers and the youth leaders and what have you, so [they] had such a profound impact.

[00:08:57] I guess it's like a kid who has had maybe a tough home life and had a teacher that has an impact on him and they want to be a teacher. And so for me, it was that sort of impact on me that I thought, 'I really want to help people go down that pathway'.

[00:09:10] But interestingly, I mean, even in church, the minister would get up and talk about the footy or something to warm up the crowd and stuff. Actually, when I'd read the paper— we used to read physical papers— I would go to the sports section and throw it out. I didn't really care, but I'd be interested in the business section. [It] just seemed that was in my DNA. It's just what I would naturally go to. I was interested in businesses and business models and stories and stuff like that.

[00:09:10] So yeah, I wasn't necessarily drawn to sport. And it's funny, like, I mean, I'd meet famous sports people [and] I'd have no idea who they are. Because I wouldn't be falling over them in any way. So I'd meet famous cricketers, and they'd say what they did and I'd say, 'Oh, are you any good?'

[00:09:59] It's a different pathway for me in starting there, but I guess what I was passionate about ended up pulling me over that way and then I'd end up back in business. I was sort of conflicted because it was probably more my heart in a certain degree that that was affected growing up. And saying, 'I want to go down this pathway', but I kept getting drawn back to being involved in business and entrepreneurial.

Honing His Craft

Tyrone Shum:

His friend from church who got him the membership sales role at the gym was also the catalyst for Khalil’s next career move as well.

Sam Khalil:

[00:11:14] He went into financial planning industry and said, 'Hey, you've got to come and check that'.

[00:11:17] And I was always interested in finances and things and how to help people make money. And so that's when I jumped into that field and studied and got a diploma in financial planning and what have you. But it was always on the job training.

[00:11:32] So some people will say school was the best part of their life. I couldn't wait to get out of school. I was more interested in practical application and training and doing stuff as we go through. Which is very different, because it was very hard for my mum, because coming from a nation that was very poor, education— particularly tertiary or university, and that my father was a professor— she really wanted me to go to uni. There's the book smart and the street smart. And I took the street smart approach.

[00:12:18] And well, the main thing, again, is obviously, that you keep learning and really become great at your craft, whatever that may be.

Tyrone Shum:

[00:12:25] And how long were you in the financial planning space for?

Sam Khalil:

[00:12:29] A number of years, and it's really what took us into our business into property. Because we were doing quite a broad spectrum of services, anything from managed funds, shares, insurances, and what have you. And then, obviously, an asset class for people was property.

[00:12:44] And just over time, even dealing with business development, people from all the funds and the funds management industry, you'd sit with them. And there's this the volatility, the share market and everything. And it was just so much work and so much compliance. And you just found that— you know, I mean, look, you've got a podcast on this— people that just love property.

[00:13:07] And I thought, 'You know, what? Let's just focus more on property'. And the vehicle that helps that is finance. And so as a business, we made a conscious decision to get out of financial planning. We started getting heavily regulated and it's continued to do so. And even the government, you can see now has regulated it so much, it's so expensive, and now people that can't afford it don't have access to it. So they've made it safe. But now it's so safe that people who need advice can't access it.

[00:13:52] Podcasts like yours now are taking over that role, and people writing books and things like that are actually creating financial literacy and education and that. So people are more having to go down those channels, because a $400 to $500 financial plan is a large chunk for a lot of people.

[00:14:13] And sometimes it's too narrow. And they tried to change that by making it a fee based service versus a commission based service. But property was never a showing on it. So the problem is there's a misalignment with what a high percentage of Australians see as a primary asset or wealth building class, which is property. So we took a decision to shift away and totally abandon financial planning and shift to more a property consultancy.

Pivoting to Property

Tyrone Shum:

DPN has been in business since 1996, and was doing property for the majority of that time. However, it didn’t pivot to property full-time until 2008.

Sam Khalil:

[00:15:10] And the brand was Direct Property Network. And then we shortened the name to DPN as a business, and have been just built an ecosystem of companies, as we've grown from just being a small financial planning business. There's two business partners, we have our own client base pre-2010.

[00:15:32] And then we said, 'Look, dude, we want to more establish a brand and a business from there'. And I began to bring my passion for design and what have you, and really infused that into the business. And it changed then from just being some private practitioners with their own individual client base to creating a corporation and enterprise.

Tyrone Shum:

[00:15:53] That's amazing. So it sounds like you had a very short amount of time working for someone, then you went pretty much into your business as a financial planner, at a very young age.

Sam Khalil:

[00:16:05] I was 23 years old, I was in office products, I had a company car, earning really good money. And it was like, go start a business and leave all the security and work on commission based income.

[00:16:17] And yeah, it was pretty daunting at the time. So I left and saved up money to make sure I cashflowed myself. But I was working under someone else at the time, and didn't really like their ethics. Then I left and started a business at the time called Integrated Financial Solutions, which was the genesis of DPN. And yeah, that's the financial planning business. And we did that for a number of years and all the certifications and what have you.

[00:16:41] But as I said, we shifted down into more property and finance and then have built some enterprises within that.

Work Ethics

Tyrone Shum:

At the time, his parents were running a cafe. While it wasn’t his mother’s first choice for a career, she gave it her all and taught her son to do the same.

Sam Khalil:

[00:17:05] My mum had a degree in law and history and that, but being new Australians and [having] English [as] a second language and stuff like [that], and what she'd studied wasn't relevant here. So, as often they end up in service industries. But strong work ethic, provided for us and what have you, but it's not like they had a massive impact on me in relation to the field of work that I've chosen, apart from being very supportive and encouraging.

Tyrone Shum:

With his work ethic from his family, he had to pick up the property bug somewhere.

Sam Khalil:

[00:17:42] The influence was more one of my best friends. His name is Rod Stewart— not the singer. And then, I guess, my passion for property with some friends, the more often I've visited and renovated a house, and I was just fascinated with interior design. And that sort of flicked a switch in me that's just become an obsession more than anything now.

[00:18:06] I got really interested in design and architecture and all forms of design, whether it be graphic design, interior design, product design. You can see one of our core values is phenomenal presentation. So from our website to our product development, we focus heavily on having design, the creativity and the intentionality behind that.

[00:18:26] One of the businesses we launched was in the specialist disability accommodation. And that's where we entered into a sector that we'd never been involved in through one of our colleagues and clients. And we built a home for disabled Australians under the NDIS. And we just took our DNA of design and infused it into that product.

[00:18:50] One of my great examples or admiration was for Apple as an organisation. And my staff got sick of me talking about it. But interestingly, we ended up intersecting with Apple at the headquarters, and they saw what we're doing.

Tyrone Shum:

One of Apple’s core values is accessibility, which aligns with DPN’s. Once they connected, they collaborated on a project.

Sam Khalil:

[00:19:11] And then they bought three busloads of people, we opened the house in February 2020, the Prime Minister at the time, Scott Morrison, Apple were blown away, because we set the global standard for some of the accessibility products using Apple products. So the kitchen bench would elevate using Siri, and it was secure as well.

[00:19:30] And to the point that I even had a bit of a streaming service with some of Apple's key employees globally around it. So it was just interesting that these core values that we had and that I've emulated created that opportunity to intersect with an organisation that I'd admired and annoyed my staff with.

[00:19:48] Now Apple's involved in our project and helping us out in that and it was really rewarding to see that our values that we've practiced and drummed into our team time and time again manifested into a product that set the standard for disability accommodation and lifted it for everybody else.

[00:20:13] And it was always, like I talked about, it's like Apple when it entered into the phone market. They'd never built a mobile phone, but totally transformed it.

[00:20:20] And I guess it's part of our core purpose, which is to empower people to live the life they want. And our big, hairy, audacious goal is to empower millions of people to live the life they want to live. It sounds quite audacious, and that's what it's meant to be. But for a small company, how do you do that? It's not always that you're directly servicing every single person, but through influence, if you lift standards, and you impact your competitors and everybody else, that's how you can impact and empower people's lives.

Making an Impact

Tyrone Shum:

With the NDIS still in its infant stages, it’s not quite as well-oiled of a machine as it will be in the future, but it’s on its way there.

Sam Khalil:

[00:21:17] It's tough. It's not as easy, and I think everyone's working on it. But it's a great partnership between government, not for profit organisations which still provide support and independent living, and private development companies like our organiser Casa Capace, DPN Casa Capace.

[00:21:33] But as we open all these homes, each one, the impact on people's lives, it brings tears to you. Like we had one lady who had been living in a hospital for six months, because she didn't have a place to stay. But she came in and she hadn't been showered properly for that time, she had tears because she could now, the way the house was done, she could have a shower.

[00:21:55] And stuff like that, you just don't realise the impact that you can have, but also just how great a nation Australia is. And if you talk about, you know, how can this happen? It's just, you know, we can't take credit for that. It is just the value system our society has.

[00:22:16] And I know there's some challenges with the NDIS. But fundamentally, the ethos behind it is just that we place so much value on people. And the fact that we invest so much as a society.

[00:22:27] And if you look at, I mean, just even the history. And under Adolf Hitler in Nazi Germany, the way they treated some people, they dehumanised people, and they shunned them. So I think as a society, the fact that we're investing so much on people and lifting value, it has an impact that's far greater than the financial impact. The dignity we've put on people.

[00:22:50] And like I said, I was born in Sudan, but Australia is an incredible nation. And we can complain about a lot of things, but frankly, from our health care system, the way we treat people, you don't want to be in many other nations compared to Australia.

The Classic Debate: Car vs. House

Tyrone Shum:

When it comes to property, acquiring his first home was a process that many are familiar with.

Sam Khalil:

[00:23:36] It was as a townhouse that I bought off the plan, it was five townhouses in the project, in Kurnell Street or Kurnell Road in Cronulla, and it was $215,000. And we scraped everything. And it's just before we got married, and we just put a deposit down at some 20%. And my parents gave me a few thousand dollars. We didn't want to pay mortgage insurance at the time.

[00:23:59] So the loan was $156,000. At the time, I thought, 'That's a mountain of debt. How am I ever going to pay that off?' It was overwhelming the numbers, you know, $156,000. Now it's laughable. But at the time, it was just like, 'This is crazy'.

[00:24:16] It was interesting. I met Sean and Katrina, who were friends, but Sean's now a business partner in the business. But we were there, and he was teaching at the time, and we would talk about, 'Imagine you bought five of these and held them for years'. And this is not knowing that we'd end up being in this industry at some point, but we postulated the idea of with all this debt, it might be better to buy properties instead and rent them out and spread your deposit and hold them over time. Not knowing that there's a business at some point.

Tyrone Shum:

[00:24:51] Is that what happened?

Sam Khalil:

[00:24:53] It's still a property investment but it was a home as well. But what I do know at the time is other friends were buying pretty flashy cars, taking out a car loan for four or five years. We just saved everything to get into it. We had a crappy Daihatsu Charade, we kept one car, we packed our lunches, we had no furniture, we had furniture probably pre World War II given by family, and it was all just, 'Let's get into the property market'.

[00:25:20] And what was fantastic about it was in three years that the appreciation on that was double what my friends had bought nice convertibles for. And their cars are now halved in value. And they were looking at starting to get into the market.

[00:25:35] I think there's a good definition of discipline. Discipline is putting off what you want now for what you want later. And so we just had to go without, but I didn't regret it because the increase in equity was transformational. Whereas those people started coming to see me and asked me for help. And [said], 'I've got this great car', and it's like, 'Get your deposit, get into the market'.

Tyrone Shum:

[00:25:58] Sorry, get rid of your car, get into buying the house now.

Sam Khalil:

[00:26:02] Apart from the anomaly of COVID, generally cars don't appreciate.

[00:26:12] It's just a supply demand thing, but you know, it is an anomaly. And it's not like you're gonna make anything that's going to transform your life. It's great. I mean, there's been some amazing stories with collectors cars, but fundamentally, it's not a strategic game changer for anyone.

Cricket and Characters

Tyrone Shum:

As for developments, his worst moment is one he wasn’t in control of and features an unnamed but well-known cricketer-turned-developer.

Sam Khalil:

[00:27:04] We started off with raising funds from clients to invest in development projects that were large subdivisions. And there's just, I guess, a level of trust involved. And they did well, and then clients rolled into the next one, but this person kept borrowing too much, high leverage and [the] GFC came. And it just collapsed. Two million dollars of client funds and that was terrible.

[00:27:30] And I guess one of the key things we learnt out of that, you learn in lending, it's character of the person. And Lloyd, my business partner said his grandfather than me, 'I wish we'd known this principle when'.

[00:27:44] You can never do a good deal with the wrong person.

[00:27:49] And that was such a sage piece of wisdom, which is [something] we've tried to really keep [at the] forefront. What's the character? It doesn't matter how good the deal is, [it] doesn't matter how good the contract you have [is]. If the character is wrong, this deal is going to blow up at some point [in] time. It doesn't matter how much money or opportunity is in it.

[00:28:05] It doesn't even have to be an evil person. Because when we say the wrong person, it just means that it's either a character issue, a capacity issue, or a competence [issue]. So you've got to look at those three things. So as we've looked at some other ventures is, someone's [got a] great character, the competence good, but then look at the capacity. They're too stretched, they can't fulfill on it.

[00:28:33] Character's an easy one. You can't trust them, it's just gonna blow up, [it] doesn't matter how good the deal is. And the other one could be competence, they could have a lot of time, they could have a great character, but are they able to do it?

[00:28:46] So I think if you look at those three things, they're really important. Particularly in development or whatever you're going to do in business, you can't get away from that. So if you go into business, you've got to see it as a very intimate relationship. And you can't do a good deal. [It] doesn't matter how good the deal or the opportunity. If I've given anything to your listeners it's some wisdom is it will never work out. Because who it is will always impact that venture. And don't delude yourself that you'll get away with it by striking the deal or taking advantage or making it in your favour.

Tyrone Shum:

Ultimately, deals, transactions, and businesses are all people anyway. Khalil recognises that if you took people out of the equation, nothing would exist.

Sam Khalil:

[00:29:30] They influence it more than anything else. So even technology and that, people are going to be critical in having a positive negative or neutral impact.

[00:29:41] [In] 2016 I bought a house at Whale Beach, at the northern beaches of Sydney, Palm Beach, like pretty prestigious sort of area. It's a couple of million dollars and it was a bit more of an emotional thing, but I thought it'd go up really well, and three years later, it had gone sideways. I could have just bought a normal investment property in St. Mary's or Western Sydney for better.

[00:30:06] Changed it up again with the advent of COVID, the area's exploded because it was so far away. Like you said, 'where is it?'. But because it's just so far away in the northern parts of Sydney, it just geographically ended up being a second home place for people. People have that as a holiday, but now because people can work remotely quite often, lifestyle has trumped accessibility.

Tyrone Shum:

Another low point for him was following the GFC when properties were down. At that time, he was looking for a home to purchase and renovate.

Sam Khalil:

[00:30:42] And sort of part of our story was at Paddington, and I was just driving the bargain too hard for $20,000 less. Which was negligible, it was, like, 1% of the price. And the property doubled in two years.

[00:30:56] It was a bad decision in that I was being just too frugal. It's something that, you know, I work with clients, people all the time, they say, 'I can't afford more than $1 million'. And it's just human psychology. I said, 'Can you afford $1,001,000?'

[00:31:10] Sometimes we undo ourselves with nice and symmetrical numbers when we don't actually objectively look at the opportunity. So you can do yourself in by making the wrong decisions, but you could also miss opportunities because of being emotionally bound to certain numbers. So that was an opportunity cost decision, because I was just trying to get a nice round number that I liked.

The 1%

Tyrone Shum:

There are many lessons to be learnt in property and in life. One of the property lessons Khalil learnt the hard way was not to drive too hard a bargain. In an effort to save $20,000 he ultimately lost out on a property that doubled in value in two years.

Sam Khalil:

[00:00:02] You look at it and you go, there's the 1% difference from $2 million to $2,020,000. Is it a good property or a bad property by adjusting by 1%? It isn't. So sometimes people miss deals because they're so adamant about the symmetry of numbers. And just human psychology around that.

[00:00:45] Everything was right about it, again, look at it more as a percentage. And say, 'If I've done all the work and the homework and you do due diligence as you should, is it going to become a bad property by 1% or 2% difference?' And if it isn't, don't get so hung up on [it]. It should be more of a value based judgment than a price based judgment. But sometimes we will make those price based decisions when they should be making a value based decision.

Tyrone Shum:

He always has several meals’ worth of nuggets of wisdom on his plate, and he isn’t afraid to share.

Sam Khalil:

[00:01:30] I think for me, it's like sort of... if you can marry what you're really passionate about, and what you're good at, you can do really well. And so for me again, it's a sort of a theme of aha moments.

[00:01:44] And as I said, I was in financial planning, but I like property, and I like design and what have you. And so pushing our business and partners into more property focused and using financial planning strategic approach to that.

[00:02:00] But then it was blending my passion for design. So I looked at our brand and we paid great graphic designers and everything and I said, 'Financial service should do blue' and everything. I was always interested. I love luxury brands. Not for the prestige, and I actually don't like wearing... I wear black.

[00:02:22] I used to wear jeans, got that California laid back [look]. But I'm a mixture of put Tom Ford and Steve Jobs together. And it's Italian high end design. But not for the idea of, 'Hey, look at me'. I don't want to be a billboard for a brand.

[00:02:40] But what I do like about it is the craftsmanship, the design, and again, the whole theme of design. Our office, the way we designed it, and you can see that sort of marble and lighting and what have you and that, and even our branding, we went through black and gold and all that. It was like, everyone kept telling me, the designers and the marketers, 'You need to have the brand as accessible'. And I said, 'No, I want to make the brand as if Tom Ford or Giorgio Armani was doing a financial services brand'.

[00:03:09] But it was interesting as we did it, I pushed away and we did the colours and we set up the offering, we put so much design [into it].

[00:03:18] We invested a lot. And then we did our branding, our packaging, and just everything. And we went a number of awards and actually opened up great doors in different ways.

A Vision in a Windowless Office

Tyrone Shum:
In 2010, he sat down to come up with a vision statement for the organisation.

Sam Khalil:

[00:03:37] And we didn't have anything at the time, we were subleasing off our accountants in a windowless office. But I wrote this vision statement. But it was important because I stopped being a financial planner. And being bound by the technical thing, not didn't just get into product and that.

[00:03:56] If you've ever heard the Simon Sinek How Great Leaders Inspire Action, why you do something, intuitively what we're doing that and writing down our core purpose and our core values, and then really making sure everyone does it. And it's been about gathering great people and delivering all that.

[00:04:14] But as I said, this is a long answer to your simple question is what's the aha moment is I took that design element. So I did that in my private property investing or buying homes. And a lot of time we moved to numbers, because I'd buy properties off the plan, off friends that are developers, apartments, do them up. And sell them and make a profit. I did that a few times.

[00:04:32] So not so convenient because you're moving house a lot, but it was a great way to build personal wealth. And then I thought, 'Well, how about if we started applying that into a business context?' And the business context was let's focus on property, but we would look at finding [and] sourc[ing] properties from other people. They'd say, 'It's just an investment property, don't worry about it'. But I thought, 'Why don't we start designing the properties ourselves?' So we engaged our own architects.

[00:04:57] And one of the problems is when you went to some estates and developers like LendLease, and Stockland, who started focusing on branding their own estates, they didn't want investment properties because they were rubbish. And it was terribly built. But we started showing.

[00:05:12] So they let us come into estates because they actually saw some of our product was better than the owner occupied product. And it's that value through design.

[00:05:20] And as once said by someone for about Steve Jobs, he understood desire, and he created desirable products. And people that didn't put a value on design, it was always more the accountant saying, 'Let's make sure that everything fits a dollar thing', but it was that usability, the aesthetics, the beauty and the purpose. It was not just skin deep, that it looks good. It had to function well.

Innovation

Tyrone Shum:

He found that his theme of aha moments also helped him along his personal journey.

Sam Khalil:

[00:05:47] And whether I'd develop or build houses or do them up or what have you, we're in development. Or, in our investment products, taking that design ethos. Or as I said, as we got into specialist disability accommodation.

[00:06:00] So to me, it was to take and blend these passions, put them in. And it's never wrong, like you said before, if it comes out of you, and they're your core values, and you clearly articulate them and get everyone to align us...

[00:06:22] Not only do you design the products and the services, you need to design your culture, and there's a term now called cultural architecture. And the people that you engage as consultants as cultural architects, because culture divides it.

[00:06:36] If you're born in Australia, no one gives you a handbook and says, 'This is how you are [as] an Australian'. The customs, the egalitarian society, all these things, they're the unwritten rules that you have.

[00:06:47] But when you try to build a team or a group of people, you need to have like, what are our values? And so you look at the cultures that dominate. They have a certain value systems, or companies, which now these companies have cultures, and their economies are greater than countries, where you look at cultures or civilisations that were once world empires, like the Greek Empire...

[00:07:11] Look at where Greece is today, highly indebted, and nowhere. Because culturally, there are things where people don't, you know, their values have actually brought them down. And so I think, if you can really have strong values and articulate them, and live them out, and keep repeating them in a creative way, and making sure everyone's a steward of those values in your organisation, that's how you can have an impact. And so then that's why we have innovation in our company because of those values.

[00:08:05] The amount of work that's gone into that to make it so easy and simple and usable is incredible. And if you watch and listen to videos or say for one yes, there's 1,000 nos. It shows that rigour and standard put to really develop something amazing.

[00:08:22] And it's the difference between excellence and perfection. So excellence is for wimps. Perfection's for the real deal. To excel, I mean, look, let's say there's average, if you get a pass an average, that's excellent, you've excelled. But perfection is driving for the benchmark is a standard. And there's a difference. So some people happen to excel. And I am a perfectionist in that regard. But it is about saying, 'Let's set a standard here, and not accept the status quo as our benchmark, but accept an ideal', and that can be a hindrance in its own right. But however, that's how you can really impact or transform things. Because you say, 'Let's make this the standard, not accept what status quo is'.

Ka-Ching

Tyrone Shum:

He’s worked with numerous developers to take stock and add value, including with off the plan properties.

Sam Khalil:

[00:09:36] One of the other people that impact[ed] me, he was a developer developing luxury properties in Cronulla. But I bought off the plan. One of the ones that I make most of my money on was the cheapest apartment block, it was a large two bedder at the back and there's a storage. I said, 'Can I make this into a terminal room?' The unit was big. And, 'Could I spend a little bit more on the landscaping and the interior fit out?'

[00:09:57] And he said, 'You're overcapitalising' and everything. So I bought it for $299,000 at the time, spent about $80,000 doing it up. And not many developers would do this, because there's too much of a headache. But it was enhancing that product. And it's funny because the valuer from CBA came out and said, 'Oh, it's probably worth $450,000'. I said, 'What are you talking about?' And I sold it about four months after that for $820,000. He said, 'I use my financial advisor to buy investment property'.

[00:10:30] A valuer! If anyone would know better opportunities. So I didn't have much regard for his judgment.

[00:10:38] But it was just again, an intuition of saying, okay, again, what would someone want an area of added value through design? And it was just again, buying is part of it's there but also buying in an area that was lifestyle driven, which was a coastal property.

[00:10:55] One area I did that was Whale Beach, which didn't work out, but I didn't actually get to design the product, I was just thinking the area would have its natural appreciation, but it didn't. So that wasn't great. But otherwise, thinking about okay, what's the value in the area, Cronulla? And we did about, I think it was three apartments we did in Cronulla.

[00:11:17] I didn't realise that kind of existed. Because whenever people say they buy off the plan, they might have the plan, and then you know, go straight in move, I didn't realise you could actually add more value.

[00:11:36] It's just unique in that the time in the market. So it wasn't just all through my doing. And also the fact that my friend was the developer, and he allowed me to buy the product and add some value through some design.

His Sydney Strategy

Tyrone Shum:

When it comes to his strategy, he’s built his wealth in two parts.

Sam Khalil:

[00:12:11] Number one is the house part. And so I'm currently in a build of a fairly luxury home at Cronulla, which is probably the largest asset that we have. I've built that up. And that's been, again, as I said, investing, and moving step by step. So from Cronulla, move to Cabarita. And I was actually getting apartment off the plan for Mirvac. And it went down. That was a bad one at the beginning.

[00:12:37] Because it was an order mistake, it doubled after a decade. But then it was to buy a block of land at Cronulla. And that was the first one I designed from the ground up, and it's coming up to the end to finish. But the value increased, not through the land, but through the design of me investing a lot of time in it has add[ed] a lot of value.

[00:12:55] And I've also invest[ed] in a few apartments at Tamarama. And I sit on the owners corporation. It was an old building. And it's the highest apartment in Tamarama, which is near Bondi Beach.

[00:13:04] And the renovation started with the owners corporation. And it was an old building that looked like a Soviet hospital. And the chair of the owners corporation was pretty savvy. She thought, 'Let's put two apartments, two penthouse on top to pay for the renovation of the building'. That's in its finalisation in the next three months. And they're beautiful. I mean, 33 metre wide penthouses, they're going for over $20 million. I got my friend as an interior designer to help with that.

[00:13:32] And so there's a lot of value added in that. Being a lifestyle location. And the one bedders there, the rental appraisals are between $1,500 to $1,800 a week. [It's] been a strong lifestyle locale.

Tyrone Shum:
He’s also involved with land developments and subdivisions, as well as income based products.

Sam Khalil:

[00:13:56] Our dual income product, when I blended design and the economics together, we started looking for products, we put two properties on one block of land and we favoured more land based investments because the land appreciation.

[00:14:13] And there was always the talk of that you either have capital growth or you have high yield, you can't have both. Why can't we have both? And our customers [are] upset that they make too much money. No one rings up and complains, 'My rental property is paying me too much money'. They're just ring up and say, 'So when can I do the next one?'

[00:14:32] And I've read so many articles by so many professionals in the industry or some of the gurus in the industry [saying], 'Dual income properties, you shouldn't touch them. There's no after some mark', and it was just absurd. Because they've existed for millennia. People have shared accommodation for millennia.

Who’s Laughing Now?

Tyrone Shum:

He recognises the fact that people need supplementary income, and that there’s hundreds of thousands of homes with a second dwelling in Australia.

Sam Khalil:

[00:14:59] And it supports someone's living. Or lifestyle, I should say. They're living their rent out of the room or something of a garage and all that. And there's just these absurd stories.

[00:15:07] So I'm not sort of one of the industry people or go to the events or know who's the who in the industry, we just chart our own course. And just go with it. This makes sense, innovate. And we even trademarked the term 'One property, two rents'. And it's been fantastic.

[00:15:25] So design product, getting a better return per square metre, we now have a property management business, we manage 1300 properties. So we've got a great feedback loop. And that's growing really well.

[00:15:34] And as I said, generating a high rental yield and capital growth as a product. And so fundamentally I haven't built my portfolio solely in that stuff there. I've done some other more development based which is more of a business and requires a lot of time so it's not something our clients come to do. They're interested in passive, they've got their careers, their businesses, and what have you. And that's far more easily replicable.

[00:15:59] And sometimes somebody said to you, I would have been better to buy one of those products instead of that place at Whale Beach in Western Sydney, in Jordan Springs, one of the areas which did far better than that place at Whale Beach. And it was a knock on the state. But people made fun. We sold those for 2010 [or] 2012 for about $459,000, which is unheard of in Sydney now, isn't it?

Tyrone Shum:

Waverley Council, in Sydney’s eastern suburbs, had put a fire order on the building of temporary apartments. All in all, it was going to take between $8 million and $9 million to get the building up to standard.

Sam Khalil:

[00:16:55] But the building had no balconies, [it] didn't have a car park. And it was a concrete cancer. $10 million to bring it up. It looked like a Russian hospital, an old Russian Soviet hospital.

[00:17:06] So the chair at [the] time, Christine, she said, 'Why don't we get a development and get some architects? I've got a great eastern suburbs architect'. I wasn't in the building at the time, and I only found out through one of my architectural newsletters. That's what got me interested.

[00:17:20] And I saw this thing, 'Oh, look, penthouses are gonna go on the top by Tobias Partners'. That was an architect that I followed, and went and had a look at it. And I looked up on real estate, oh, there's a one bedder for sale. And at the time, it was $605,000 in 2015. And this was gun barrel views of the ocean.

[00:17:47] And it said, once it's done, you'll get a car space, there'll be new balconies, the whole building will be renewed with the sale of these penthouses. So there's a risk at the time, but again, you looked at it, you would say there's no way I want this. But it was having the vision, but knowing again, through design now, it's been a long journey. But it's paying off in the end, and it's taken a lot of my personal time to get involved in it.

Bondi to Bronte

Tyrone Shum:

Anybody strolling the Bondi to Bronte walk can see the building in all its glory, where it now has eight storeys including two penthouses. To top it off even further, it can never be built out.

Sam Khalil:

[00:18:24] And it's an anomaly. It is actually Harry Silas' first building in Sydney, but he disavowed it because the people who built it didn't build it right. So it's ordered me to work on that.

[00:18:34] And it's an iconic project, but it's also a landmark project because it's New South Wales Government base the change in the residential or the strata laws that allowed that 75% rule now, because a lot of buildings are now getting up to [being] 40 [or] 50 [or] 80 year[s] old and they have to be renewed. And before we have to get 100% of the vote to get it over the line. But this was the test case in the sense.

[00:18:56] And now you can get 75% of owners to vote for either selling or renovating. And that's what we're going to start seeing now, is a lot of renewal these old buildings and some where it's permissible are building something on top to help fund the renovation.

[00:19:26] If you want to look at the product it's called Skye Tamarama. If you just Google it, Skye, if anyone wants to look at it, it's got an interesting story. There's been a few articles written about it.

[00:19:45] It's been a long journey and there's been a bit of work and a few challenges and stuff like that, but there's certainly been a great learning experience.

Church and Community

Tyrone Shum:

As well as his love for books which have helped him along his journey, he acknowledges he also owes a lot to his faith, church, and community.

Sam Khalil:

[00:20:21] And I observed how things were done in the great leaders in the church in that regard. So then it was probably more observing and reading about great business leaders. And people. One of the companies I've loved for years is a hand wash, skin products company called Aesop.

[00:20:43] And recently, it's just been bought by Estee Lauder for a couple of billion dollars. But when everyone was building each store that looked the same, they made every store different. And they find that for its own location. I've followed more brands and stories and read about, like I said, and reading about businesses, and actually, this says a couple of influential books on that.

[00:21:07] So one was called 100 Great Businesses and the Minds Behind Them. And I think it was written by a couple of Australian journalists. And it's a great book. And it was just about three to five pages, based on 100 different companies, everything from the starting of Kelloggs, to Apple, to Google, to realestate.com.

[00:21:27] And then they wrote another one called 50 Great ebusinesses and the Minds Behind Them. But it was just inspirational stories. And you just looked at all these different companies and how they started and that. So that, to me, was interesting.

Tyrone Shum:

He was also influenced by Apple, Warren Buffet, and one book in particular.

Sam Khalil:

[00:21:45] I'd say probably one of the most impactful books was a book called 'Good to Great' by Jim Collins. And that was, again, transformational, which was, again, the principles out of that was, again, it wasn't a self help book, it was based on principles and empirical research, it was a Stanford professor. And it wasn't just him writing it. There's a research team of 25.

[00:22:04] And that there was at a time in my life was, again, I was sort of still volunteering a couple of days a week in my church and I was torn between the two. And one of the key principles in that book was find your hedgehog, which is what can you be passionate about and be the best of well, that, and great companies were ones that were successful by what they didn't do, what they chose not to do.

[00:22:26] It that that sort of juncture reading that A, we cut the financial, and just started focusing on the things we were going to do. Even personally, I made decisions to have more boundaries and limit what I should do. And then again, one of the principles and that was great leaders focused on first who then what. It was all about getting good people.

[00:22:45] And so I'd write down in my diary, who's next, so I'd try to collect talented people. And to have all these businesses, all these opportunities was always about creating talent, and recruiting talent, inspiring them and making them part of your culture. And so that was a very influential book, for me, it was good to grow.

[00:23:29] If the culture is there, and there are principles in that culture that ensure that isn't tied to a genius. And Steve Jobs was intentional that he actually got against some Stanford bits to make sure to try to codify that and make sure that it wouldn't be linked to him. He was aware of that problem, where everyone would look and say, 'What would Steve do?' And you hear Tim Cook say that all the time, 'I need to figure out what I needed to do, not what Steve did'. And he was conscious of that as well.

Tyrone Shum:

[00:24:07] If you met yourself, say, 10 years ago, what do you think you would have said to him?

Sam Khalil:

[00:24:15] Certainly, focus a lot more. I mean, I know I shared that in saying that was a transition, hearing that from 'Good to Great' [book by Jim Collins], but to even say 'No More' to things that were really good opportunities or what I thought would be. And so, just to be more disciplined in limiting what I was doing.

Tyrone Shum:

He got some opportunities that weren’t necessarily core and that seemed okay, but they took a little more time than he would have liked.

Sam Khalil:

[00:24:04] Also in, I guess, the type of people we tried to emulate in our company was trying to get more consultants internally and my business, but they watched some of those top real estate agents in the US, the million dollar or whatever and that.

[00:25:21] And I went and listened to some of those guys. And we spent a lot of time trying to replicate the talent at the top. And sometimes that wasn't the answer. And it would have been just better that we really focused on building infrastructure around our key directors. And so because they've always found it hard to find people, those great sales guys. And so it was like, what do we build, let's focus on instead of trying to farm out all this business to people that sort of just didn't get what we get.

[00:25:51] So there was a lot of time wasted around that. And I think sometimes the appeal is I'll just get someone to do the work. And I'll sit back and get the reward. And that didn't work. So it should have been quicker to make those judgment calls and just run it a little bit leaner in that regard.

Tyrone Shum:

[00:26:15] Looking forward to the future. What are you most excited about, say, in the next five years of your journey?

Sam Khalil:

[00:26:21] So some of them I've been working on for a while. And I don't know if... I'm sure you've been in the property industry, or education of people and properties, is housing affordability and rental affordability.

[00:26:31] So we're just about to release a white paper we've been working on for a while, called Multiply the Supply. And again, it's from our wheelhouse, where we're building these dwellings that can house two families, basically.

[00:26:42] And so what we find really missing out there, it's a really simple thing. It's already happened in New Zealand, the UK, and California, is we just basically going to lobby the government, we want to get a change.org. So everyone, just stay tuned for it, it's called Multiply the Supply, we want to get a petition going and we want to basically get laws, planning laws changed at a state level that allow where there exists one house on at least a 300 square metre block a duplex to be built. Two dwellings. And it can be done under a CDC private or complying development consent. So councils can't deny it or delay it.

[00:27:21] The idea is, I mean, the federal government says you're gonna release 10,000 affordable houses over the next five years, you've got 350,000 immigrants coming in the next 12 months. That's, like, one and a half week's supply. And there are families of people who've been displaced. So the only way you're going to release hundreds of thousands of properties to market where there's already existing infrastructure, as you say, where there is one house, allow two. It's a very simple solution.

[00:27:49] It doesn't cost the government anything. Because the private sector people say, like, unlock the value. So it's really just land utilisation. It's not high rise. And the fact is, by 2030, 32% of households will be single person households. And over 50% will be one or two person households.

Unlocking Land Supply

Tyrone Shum:
With that, he notes that the idea that every home needs to have four to five bedrooms is impractical.

Sam Khalil:

[00:28:21] So if you can unlock all of the land supply in regional areas, within our cities, because the problem's all over the place, and there's nothing on the horizon that is going to bring enough supply, and you can't build more high rises. Everyone doesn't want to live in a high rise.

[00:28:34] But if you can just say where there's a block of land, and if you remember years ago, I don't know if you do, but people used to subdivide, and they had 1200 square metre blocks. But what's happened is the planning laws, everyone's done it, no one does that anymore, because no one's got a 1200 square metre block.

[00:28:52] The problem you have also is that the councils who are the gatekeepers here, the counselors have voted in by the existing landowners, who then protect their ownership. And we don't want anyone else to live here. So you get nimbyism.

[00:29:07] But the only way you can change this, and the mandate's really coming now. Because it's unfortunate because you've got a section of society that can't get into the property market, but it's also affected becomes generational because then they can't help their kids. And you create a massive divide. Because those that have then can compound wealth, access the equity and keep building wealth.

[00:29:31] If you can't get into the market, because it's not affordable. And so we've got a systemic issue. And if governments really want to do it, it's very simple. And it's not the only solution. But it's a simple one. You can do this all the way up to western Sydney and that. You just create great planning laws that improve the standard. We want high standards in these laws, not too diluted.

[00:29:49] And what we'll do is regenerate all of the old inefficient old building stock that's not efficient, because there's the economics to do it. And as I said, if you do it as a private certificate, and they've done this, as I say, in other nations that are struggling with the same issues, if you don't let council get in the way, and you make a state based law, and that's what we've done with our product, the dual income product is based on the rule that you can do a secondary dwelling on a 450 square metre block, but it's a single title, so you can't sell it separately. And this was done over a decade ago.

Tyrone Shum:

That set of environmental planning is great, because counselors can't stop it. And it can be done.

Sam Khalil:

[00:30:26] What we're saying is update that, push it around. So again, long answer to a short question, what's the future there? But I'm passionate about this, because again, what's our core purpose? To empower millions of people live the life they want.

[00:30:38] And if we can now go into lobbying, and take, again, what our DNA is, through great design, good innovation, and that, you can have transformed. And that's probably one of the most pressing things in our society now is somewhere to live. And if we can unlock more homeownership and rental affordability, just purely through supply, and just the solution sits right in front of us, that will be that.

[00:30:58] And probably then the other thing is creating institutional funds to do what we've done for clients. And probably finally, my biggest dream is to get into vertical integration into building. And to create a prefabricated building technology company where you manufacture the houses, build them in a beautiful design. I guess it's like cars. Treating houses like cars. Because of the model that we have, if we can manufacture them with beautiful designs, like no one goes into a dealership and goes, 'I'd like to design my own car'.

[00:31:31] There's been hundreds of millions, if not billions, invested in the design and engineering. But you know the price and the product gets delivered to you. The only way you can do that as if you have a limited number of products. But spend all the money on design. So you remove a level of choice, you allow a little bit of customers, you can change the wheels, and the colour and that. But no one's going to spend hundreds of thousands in the design and the top end architects for project homes. But what happens if you someone else could do at that level, infuse that all in there, manufacture and deliver it? So? There's a lot more to come, Tyrone.

Tyrone Shum:

[00:32:12] Well, Sam, I'm gonna have to say you have achieved so much in your life as well, how much of that success that you've achieved is due to your hard work, skill, intelligence, and how much of it do you think has been contributed towards luck?

Sam Khalil:

[00:32:29] I would say first of all, say not luck, but opportunity. The fact that I'm in Australia. And one of the actually other books that I like, there's Outliers, which is by Malcolm Gladwell, And he demystifies success, because it would be arrogant to say, this is just purely my hard work. The fact that I just live in Australia, the finance system, the opportunity affords me. Like, if I was in Sudan, I would not have the same opportunities as I have in Australia. So half of it is just the fact that I'm in this nation. The laws and the opportunities, the great financial institutions, and all those sorts of things.

[00:33:02] And then the balance would be certainly hard work, persistence, diligence, and the people that that I work with, and surround myself with or connect with.

**OUTRO**

Tyrone Shum:

Thank you to Sam Khalil, our guest on this episode of Property Investory.