JF1096: Working Full Time While Investing on the Side with Brad Tacia
Brad works 40-50 hours a week at his job, but owns a 110 units of multifamily, 2 single family houses, and has a 50 unit syndication under contact. A lot of investors start with full time jobs, while trying to invest on the side. Brad has been pretty successful with this model, so listen to what he has to say! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Brad Tacia Background:
-Real Estate Investor Began investing in 2011, going full time investing in 2015
-Replaced his full time income in 2 years after switching to multifamily investing
-First multifamily property was 12-unit in 2015, with his largest being 63-unit in September 2016
-5 years ago was working 70 hour weeks as an engineer
-Based in Detroit, Michigan
-Say hi to him at firstname.lastname@example.org
-Best Ever Book: Millionaire Real Estate Investor
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Joe Fairless: Best ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Brad Tacia. How are you doing, Brad?
Brad Tacia: Great, thanks for having me, Joe.
Joe Fairless: My pleasure, nice to have you on the show. This is gonna be a fun interview, because you have a full-time job, but yet you’ve got quite the experience from a multifamily standpoint. A little bit about Brad – he began investing in 2011, and he got his first property (a 12-unit) in 2015. His largest was a 63-unit deal in September 2016. He is based in Detroit, Michigan. With that being said, Brad, do you wanna give the Best Ever listeners a little bit more about your background and your focus?
Brad Tacia: Sure. I grew up in the Detroit, Michigan area. My background is that I went to college for automotive engineering, and I’ve been doing that since 2000. My day job career has been in the engineering world; I definitely enjoy cars and engineering, but the day-to-day grind is really what had me looking into the real estate world. I dove in both feet, and I’m looking to do that full-time here shortly. I love real estate and everything about it, and what it can do for us.
Joe Fairless: How many hours a week are you working at your full-time job?
Brad Tacia: Right now I would say probably in the 45-50 range.
Joe Fairless: You’re working 45-50 hours… And what’s your real estate portfolio look like?
Brad Tacia: We have 112 units at the moment. 110 multifamily and two houses. We’re going to be selling those two houses this year. Then we’ve also got a 50-unit syndication on contract, so that will get us up to 160.
Joe Fairless: Where are they based?
Brad Tacia: All in Michigan. We have some in Monroe, Michigan, which is about 45 minutes South of Detroit, and then we have the majority of the rest in Lansing, Michigan (the capital of Michigan), and then a few in a subdivision in the city of Fowlerville, Michigan.
Joe Fairless: How many are in Monroe, Lansing and Fowlerville?
Brad Tacia: We’ve got 24 in Monroe, 23 in Fowlerville, and the balance would be in Lansing. I guess that’ll be 113 shortly.
Joe Fairless: Okay, cool. Lansing has been a market that you’ve clearly had some success in… How far away is it driving distance from you?
Brad Tacia: About one hour…
Joe Fairless: Okay. How did you build the team and find properties in Lansing?
Brad Tacia: First we got a property on contract that we found from a broker, and we jumped on it, got it under contract, then we interviewed about 10-12 different property management companies and narrowed it down to one that was really the leader in the city. So that’s where we found our property manager, which is one of the key players in our team.
Then our mortgage guy – we found him from a colleague from some meetups in the area. He’s actually down in Monroe, but he has funded most of our purchases.
Joe Fairless: By funding you mean the debt financing?
Brad Tacia: Yeah, the bank financing. It’s a credit union.
Joe Fairless: Okay. Which one?
Brad Tacia: Monroe County Community Credit Union is the one we use. They’ve been fantastic to work with.
Joe Fairless: What type of terms do you get with them?
Brad Tacia: Generally, most of them have been under a million, and one was over a million, so these are recourse loans; we’re not quite in the nonrecourse area yet. So these terms are 20% down, 4,25%, 4,5%, 20-year amortization, [unintelligible [00:06:08].02] five-year term with a rate adjustment at five years and then five years fixed again. So it’s a ten-year loan, but with two different rates.
Joe Fairless: 20% down… Are these properties ones that you put money into to improve, or is there a different business model that you do?
Brad Tacia: Each of the complexes is a little bit different. My first ones in Monroe were pretty much turnkey. They were built in 2006, 2007 and 2008. They were very nice units. They even got new roofs recently because of a hailstorm. For those I didn’t really need any capital at all; I was comfortable with that as my first apartments.
Then the second one we’ve got construction going on, because one was just a shell; a 6-unit that was full, a 6-unit shell, so we’ve got a lot of construction going on with that one. Then the 63 and the 23-units after that were some light capital work, but really not a lot.
Joe Fairless: How are you financing the light capital work?
Brad Tacia: The one that we’ve got a fair amount of capital in we have a construction loan. The ones that are light capital are just coming out of cashflow. It’s light enough where we delayed taking distributions from them for a few months and we just use the first few months of cashflow for that.
Joe Fairless: And does Monroe County Community — what was it…?
Brad Tacia: Monroe County Community Credit Union…
Joe Fairless: Community Credit — I knew I was missing a word… [laughter] Monroe County Community Credit Union – have they done both of those loans in Lansing, even though they’re in Monroe?
Brad Tacia: Yes. Once we were performing on the first couple, they will go fund anything anywhere for us, with the right financials.
Joe Fairless: Excellent. What lessons have you learned in the lending approval or the overall process while working with the credit union to get these properties financed? In particular the 63-unit.
Brad Tacia: Well, definitely getting that coverage service ratio is one of their number one things to get right. That one in particular they liked a lot, because it’s a senior apartment complex, so they enjoyed that one. They actually gave us 25-year amortization on that one, which will bump the cashflow up a little bit, because it’s a senior — it’s not assisted living, but it’s an independent senior living facility where we take 55 and older people. I guess banks seem to really like that, that was one lesson we learned with that.
As long as you hit the service coverage ratio, you have a proven team — even if you don’t have the experience, if you get a property manager that’s very good with the area and the type of property you’re using, they put the property ahead of the person. That’s what I love about apartment investing – you’re not doing everything on your own credit. It’s the building itself, the property, and your team really that makes it work.
Joe Fairless: Let’s talk about the 63-unit that I believe you said you got from a broker… Is that correct?
Brad Tacia: Yeah, that’s correct.
Joe Fairless: Was it publicly marketed?
Brad Tacia: Yes, it was. This one was through [unintelligible [00:09:27].19] They’re pretty big in our area. It came on LoopNet, the place where most deals go to die, but we got it the first day on market, we went full price on it, got it under contract, and the reason we were happy with how they priced it was because they have 70% expenses to collected rent…
Joe Fairless: Wow…
Brad Tacia: …so there was so much opportunity to improve the management and just gain equity immediately. So the building was in really good shape, it was just run poorly.
Joe Fairless: Yeah, please elaborate. Keep talking about that… How did you knock it down from 70% to whatever percentage you ended up with?
Brad Tacia: The main thing we did was they had an on-site property manager – full-time property manager that was there from 8 to 5 every day, and they had a full-time maintenance guy and then another part-time maintenance guy, all on payroll. Their payroll expense was 90k+, which is insane for this size of a building. It just didn’t make sense at all. A 63-unit is much too small for that much on-site support. The property manager that we found is based in Lansing also. They have a bunch of maintenance guys on-site, and they have a property manager that runs our building and then a couple other smaller ones as well… So we’re not paying their entire salary. It’s a real easy drop in a better management style, more of a industry standards system, and boom, you just gained a bunch of equity and cashflow.
Joe Fairless: You said it was 90-what?
Brad Tacia: Call it 95k maybe, and now it’s roughly 25k.
Joe Fairless: [laughs]
Brad Tacia: That was an easy turnaround one for us.
Joe Fairless: Wow… 95k to 25k – that’s a difference of $70.000.
Brad Tacia: Exactly. And they still had a lot of maintenance cost — maybe a 10% maintenance cost as well. I don’t even know how — you would think they would save money by having enough on-site staff on the actual maintenance cost, but they didn’t. It was just wasted money.
Joe Fairless: And what’s the cap rate in the area?
Brad Tacia: Generally I would say that area is about an eight cap maybe.
Joe Fairless: So it’s $875,000 worth of value that was created…?
Brad Tacia: Yeah, that sounds about right. It was a home run, yeah.
Joe Fairless: See, this is why I love doing this show, because a lot of multifamily investors are complaining about how they can’t find deals, where are you finding deals… You found it on LoopNet. Now, you made an offer the very first day, so you pounced on it, but you immediately were well-versed enough to know that the expenses were out of whack, and you offered full-price and you got into it. Usually, the people who are complaining about “There’s no deals out there”, they’re also the same ones who aren’t going to make a full price offer on a deal the very first day. They’re gonna take more time to analyze it… I’m not saying that’s a bad thing, you do have to make sure that you’re comfortable with your offer, but you were prepared enough so that when you did see something, you jumped on it.
So you made an offer the first day… When did you officially have it under contract?
Brad Tacia: Within a day or two of that… A letter of intent anyway.
Joe Fairless: Okay, so you had an agreed upon letter of intent within a couple days.
Brad Tacia: Yes.
Joe Fairless: But you submitted your letter of intent (LOI) the first day and it was a full price offer?
Brad Tacia: Correct.
Joe Fairless: And prior to submitting the LOI on the first day, did you receive the Trailing Twelve financials and the current rent roll?
Brad Tacia: We got the financials, but we did not have the rent roll yet. We received that in due diligence.
Joe Fairless: Okay, so you were able to make the full price offer. Was this the first property that you were buying in Lansing?
Brad Tacia: Yes, it was.
Joe Fairless: How did you have the comfort level to buy a property — and it’s only an hour away from where you live, but still, it’s in a market that you don’t have property in… How were you able to feel comfortable doing that?
Brad Tacia: Well, a part of our due diligence was definitely researching the area. We spoke with all the property managers and some local police stations, and then some people we knew that lived in the area… That was a big part of our due diligence. Both me and my partner Mark were from this general area, so we have a lot of contacts in the area.
We also know the city a little bit, but we knew who to talk to about how the area is doing. We did our online research, talking with people and putting the data together.
Joe Fairless: Cool. Let’s talk about your 50 units that you said that you have right now under contract that you’re syndicating…?
Brad Tacia: Exactly, yeah.
Joe Fairless: Okay. Prior to these 50 units, did you use your own funds and that’s it? It sounds like you had a business partner, too?
Brad Tacia: Yeah, we have a 50/50 partner on the 63-units, 23-units and then one of the 12-units. It was all of our personal funds. We didn’t have any passive investors on any of those deals. This 50-unit is our first real syndication.
Joe Fairless: Tell us about how you’re structuring it.
Brad Tacia: Me and my partner Mark are syndicating this one, and it looks like we’re probably just gonna have one investor. We had planned on having about six or so investors, but one of the first ones we spoke with said that they wanted the whole deal… So it looks like there’s a good chance that we might just go with one investor. That is really gonna turn out to be more of a partnership than a full PPM kind of syndication.
Joe Fairless: What type of structure do you think you’ll do with them?
Brad Tacia: Basically, this is a similar deal to that 63-unit, where this one is actually 75% expenses… So it’s just as crazy, not run very well, so there’s plenty of profit here. We’re basically splitting the profit 50/50 on this one, and the investors are putting in all the money.
Joe Fairless: Okay, so you won’t put in any of your own money…?
Brad Tacia: Correct. We found the deal, we’re signing on the loan, we’re getting the financing, we’re getting the property management in place and running it, so that’s what we’re bringing to the table.
Joe Fairless: How did you find this 50-unit?
Brad Tacia: This was an off-market one that we found. My partner found this one on just a local Facebook real estate group. Someone said “Anyone interested in a 50-unit in Lansing, off-market?” We said yes, got it under contract, and here we are.
Joe Fairless: A Facebook real estate group… Please elaborate.
Brad Tacia: There’s plenty of real estate groups all over the country, but this is a local one that we had, and someone piped in asked if anyone was interested. It wasn’t an apartment-specific one or anything, and we jumped on it.
Joe Fairless: Based on your experience, what is your best real estate investing advice ever?
Brad Tacia: Just get started one way or another. I got started in single-family houses… It’s a lot less intimidating. I can definitely see starting there with a rental house or two, just so that you get the idea of how renting real estate works. Then from there, apartments let you scale so much faster… So if you’re looking to replace your job income, houses take a long time to do that. However, you can get comfortable, whether it’s small apartments or a single-family house. You really just need to get the ball rolling, and then once you get more comfortable, it’s crazy how fast you can grow your portfolio.
Joe Fairless: How were you notified of the broker deal that got placed on LoopNet, the 63-unit?
Brad Tacia: I just had a search on there for the area that I was interested in and the price range that I was interested in, and it popped up in my e-mail. I called the broker right away, I got right out there and checked it out, and really jumped on it fast.
Joe Fairless: You were subscribed to their newsletter and you received the e-mail from the broker and that’s how you were notified?
Brad Tacia: I got the notification through LoopNet, so it wasn’t off-market, or anything like that. I had not worked with that broker before. It was just a LoopNet subscription, I guess. You put an automated search in there, and you get e-mails when something new pops in there.
Joe Fairless: So you just signed up via LoopNet, said what you were looking for, and you got notified when something was posted?
Brad Tacia: Exactly.
Joe Fairless: Cool. What about the 50 units you saw — were you the person who saw the post on Facebook?
Brad Tacia: No, my partner Mark found that one.
Joe Fairless: Okay, your partner Mark found it. What were the immediate next steps?
Brad Tacia: The immediate next steps for that one was that he was actually gonna be out of town the next week, so I went out and checked it out.
Joe Fairless: How soon after?
Brad Tacia: This one we kind of drug our feet [unintelligible [00:19:01].07] Probably about a week after. I think they were feeling the off-market before listing it; if they didn’t sell it off-market, they were going to list it with a broker. But we were actually kind of dragging our feet on this one, and that actually worked to our advantage. I didn’t think the area would be all that great from my previous knowledge of the city, and then I went out there and was pleasantly surprised. I talked to the property manager, and he told me the same thing – it’s actually a pretty good rental area.
So in this particular case for negotiating, dragging our feet actually helped us out.
Joe Fairless: What do you have it under contract for?
Brad Tacia: We have it under contract for 1.125 million. That’s 225k/door, and the average rent is about $660/unit. It’s the same kind of high expense deal as our 63-unit. We’re gonna put the same property manager in there as our 63. This is only about three miles down the road from our other one, so it drops right into our system.
Joe Fairless: And how did you gain the credibility necessary with the broker on the 63-unit, since that was the largest deal you had done, and you weren’t local, you didn’t have any property in the area?
Brad Tacia: That’s a good question. Basically, I think it was just talking the lingo; we knew some of the same people, proof of funds, we had our property manager picked out… Beyond that, it was just talking with the broker and telling them that we know the next steps, we know what we’re doing, and what we said we were going to do we did, each step of the way. So we just showed competence, generally, I would say.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Brad Tacia: Sure.
Joe Fairless: Alright, well let’s do it then. First though, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Brad Tacia: I would say The Millionaire Real Estate Investor. That really got me going in the real estate hard.
Joe Fairless: Best ever deal you’ve done?
Brad Tacia: The 63-unit in Lansing, with the 70% expenses.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Brad Tacia: I would say I spent too much in lawyer fees on my first deals. They were coming to closing with me; I spent a lot on legal on that one that I really didn’t need to.
Joe Fairless: What’s the best ever way you like to give back?
Brad Tacia: Coaching, I would say… Friends, and I’m actually starting a coaching program here, where I will be coaching apartment investors just like what I’m doing here.
Joe Fairless: What’s the best ever way that you would tell someone who has done single-families, they’re ready to do multi, but they can’t find deals – what’s the best ever advice you’d give that person?
Brad Tacia: To be out there, to keep looking. Network with brokers… They can direct-mail right to owners, LoopNet… People say they’re not out there, but they do pop up. Just look everywhere and keep on it.
Joe Fairless: And Facebook groups.
Brad Tacia: Yes, exactly. That’s true.
Joe Fairless: Was the person presenting the 50-unit a wholesaler, or was that the owner?
Brad Tacia: He’s a part owner. It’s a syndication and he owned a piece of it.
Joe Fairless: Best ever way the Best Ever listeners can get in touch with you?
Brad Tacia: They can e-mail me. That’s email@example.com. I also have started a Facebook group called Apartment Investors Of Michigan. Go ahead and join that, and we have a fair amount of information sharing on that site as well.
Joe Fairless: Brad, thank you for being on the show, talking about these multifamily deals that you are getting in a time when I hear a lot of complaining from multifamily investors about how there’s not any good deals… And especially with your background, because you have a full-time job, and you were able to get a 63-unit from a broker without having gotten one that large before. So you showed the credibility, you had the things lined up, and then you acted on it almost instantaneously. You submitted the LOI that day… It’s a case study for how to act and approach getting deals on some markets that are hot or the deals are few and far between.
Thanks for sharing your story, and also talking about your business plan with each of the deal, and reducing the expenses. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Brad Tacia: Sounds great. Thanks, Joe.
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