JF1241: Buy Real Estate With Little Or No Money Down with Wendy Patton

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Wendy has been investing in real estate for 32 years, specializing in little to no money down options. If you’re looking for a crash course in lease options, land contracts, subject to, and others, this is the episode for you! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Wendy Patton Real Estate Background:

-Recognized world-wide as one of the most inspiring speakers on “Little or No Money Down” real estate investing.

-Orchestrating the most complete and easy to follow Lease Option & Subject To programs in the US and UK.

– she has done over 750 deals and been investing since 1985

-Focus is on creative seller financing lease options, subject tos, and land contracts (contract for deed)

-Founder of the Michigan Real Estate Investors and has been investing since she was 21 years old

-Say hi to her at https://wendypatton.com/

-Based in Detroit, Michigan

-Best Ever Book: The One Thing by Gary Keller

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? 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 fluff. With us today, Wendy Patton. How are you doing, Wendy?

Wendy Patton: Excellent, Joe. Thank you for having me.

Joe Fairless: My pleasure, nice to have you on the show. Wendy has done over 750 deals, and has been investing since 1985. Her focus is on creative seller financing, lease options, subject to’s and land contracts (contract for deeds). She is based in Detroit, Michigan. Wendy, with that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Wendy Patton: You bet, Joe. When I started in 1985 I was young and broke, and did not have anything saved, did not have any credit established. I wanted to get started in this investing business. I started it because my mother gave me a real estate course that she had purchased at an event, and my father said “No, we’re not gonna do that.” He was a little bit fearful of this investing world.

She gave me the course after I had graduated from college, and on my way from Colorado to Michigan I listened to the course and decided “Oh my gosh, this is what I wanna do! This is so much more exciting than my degree is in!” So I started to pursue that on top of the job that I already had, and was able to start buying properties using creative financing strategies, because like I said, I only made $10/hour and had to pay for living expenses, so I didn’t have a lot of money. Then I ended up getting married, had twins, unfortunately got divorced, so I was a single a mother for many years as well.

So I started doing these creative strategies like a land contract, where you just pay a small amount down to the seller, they finance it instead of the bank. Then I started getting into — the biggest specialty and what I’m more known for is lease options. So I was leasing properties with the option to buy them, and then subletting them with the lease option to buy them to another end buyer – what we call a sandwich lease option – and started making a boatload of money. Of course, I ended up quitting my job soon after that. That’s what I’ve done… I’ve done so many of those, Joe, over the years, and I’ve done other kinds of investing, but some of my favorite things are just those creative strategies that it takes a little bit more creativity to put together.

Now I have the money, so I also buy fix and flip, and I buy and hold… However, those creative deals are the ones that I really enjoy, because they make you think about how to structure something.

Joe Fairless: Yeah, it keeps things fresh, too.

Wendy Patton: Yeah, they’re all different.

Joe Fairless: Let’s talk about one. Will you tell us a story of one creative financing example that you’ve done?

Wendy Patton: Sure. I have this one deal, and it was a deal that — I had an ad on Craigslist, and it basically said “Company, looking for 3-4 homes for a long-term lease.” So this woman called me, she had this home, it had been listed for 189.9k on the market, and it hadn’t sold, it had just expired. So she saw my ad and decided that since it hadn’t sold, maybe she should lease it. Of course, after we talked – I have a little script that I use – she really wanted to sell it, which is what I really wanted to do, buy it.

We worked out a deal, and it kind of sounds a little bit strange, but I ended up paying 185k for it. Now mind you, with commissions she wouldn’t have received 185k; however, because of the terms she gave me – it was a real low monthly; I think I paid $1,100 a month and I had the option to buy it for three years at the 185k.

Well, I knew I could lease it for $1,495 a month, so $1,500/month, and I was able to option it to a tenant buyer who paid me 225k for that deal. So I was able to create this $40,000 spread on the purchase and the selling of something that just didn’t sell on the retail market, and had almost $400/month cashflow on that deal.

It was really kind of an interesting deal. People will say “Why would this person pay you 225k?” and I said “Well, guess what it appraised for?” It appraised for 225k or 240k, I can’t remember for sure, but it was more than what she paid for it. And it was kind of out in the country… This woman had seven dogs.
Okay, first of all, landlords are not gonna take someone with seven dogs, right?

Joe Fairless: [laughs] Right…

Wendy Patton: And she had some credit issues, so that’s why she needed something like a lease option. She just had needed a little bit of time to improve her credit, and it took her only about 18 months to do that, and then she was able to cash me out on that deal. So I’ve done lots and lots of those types of deals, with lease options.

Joe Fairless: Let’s do a summarized replay of that… I’m gonna attempt to recap what you’ve just said, just so I have it in my head clearly. Your purchase price was 185k, and you agreed to pay $1,100/month in monthly payments, and I assume you had a balloon payment too with her?

Wendy Patton: Yeah, and actually I didn’t put anything down on that one and I didn’t get any credit of the $1,100. Had I thought a little more creatively [unintelligible [00:07:24].08] to be credited, but I didn’t.

Joe Fairless: Okay, so it was $1,100 in rent then.

Wendy Patton: Yeah, I paid $1,100, it was rent; totally expense, nothing credited.

Joe Fairless: Okay, $1,100 in rent. That doesn’t go towards your purchase price, and then you have a balloon payment… And when was the balloon payment due?

Wendy Patton: Within three years.

Joe Fairless: Within three years. So basically, I’m thinking doomsday scenario, you don’t find a buyer, but you do find a tenant, and they are renting for the same amount that you’re renting it for from her, and since you have no money in, you’re breaking even… But if you can find someone who pays above that in rent, and then also agrees to a higher purchase price, then you’re making money in both of those areas.

Wendy Patton: Yeah. I didn’t really get into the full details. One of the things that the buyer did is she also gave me $10,000 down, non-refundable. So I’m not putting anything down with that seller, I’m getting this $10,000 down, so I have $10,000 in my pocket when I started this deal, on top of that cashflow. That’s the part that — even if they don’t buy, that’s what’s beautiful about a lease option; if they don’t buy, or I don’t wanna buy, or I can’t buy, I’m in control with the privilege and the right to purchase that property, but not the obligation.

And even though I have this balloon, it’s not really a balloon because that would imply maybe that I have to pay it off by that time. I have the right to buy it by that time, but I don’t have to do it. So if things tank, doomsday, we have another 2007 type of market – no problem, I can go back to the seller, renegotiate, or go back to the seller and say “You know, I’ve decided I’m not gonna exercise my lease with option to buy.”

Joe Fairless: And the $225,000 purchase price, when she was looking for 185k – is that seller financing where you’re doing the financing for it?

Wendy Patton: I actually only do a lease with an option to buy on it. So it’s not true seller financing, because I don’t even own it, and she’s not gonna own it, so I’m not technically financing it, however I kind of put it in that same bucket of creativity, where it’s almost like owner financing. I am kind of financing it for them in the short-term, until they can get their mortgage. And usually, when I get a deal from a seller, I usually will get a 3-5 years type of timeframe; that’s kind of my typical. Sometimes longer, not usually much less. But when I get my buyer time, usually I will give them between 12 and 18, maybe 24 months, depending on the situation. If they had a bankruptcy and they need that two years, or whatever their situation is, it’s kind of dependent on them, why they need that time to get a mortgage.

Sometimes they may only need six more months, and in that case I may give them nine. I’m gonna give them a few extra months of cushion on the back-end to get that done.

Joe Fairless: The appraisal is an important aspect of this, since they’re getting financing in a traditional sense… In that case, did it appraise for 225k? And if so, what happens if it didn’t?

Wendy Patton: That one actually appraised for more than 225k. And I think the reason that it can, especially when you get to these unusual properties – that one was kind of out in the country, it had 10 acres; it was a little bit unique in that regard – the appraisals are a little bit more flexible than like maybe a city consistent type of “every cookie cutter home is the same.” If it didn’t appraise, I do not have to sell; I only have to sell for 225k. The buyer may not buy if it doesn’t appraise, but I only have to sell at 225k.

Now, I could choose to go down, Joe. There have been times over the years — of course, I’ve done a lot of deals, so there have been a few times over the years where it didn’t appraise, and I’m a realtor, so I go back, I look at the comps at that time, and I might say “I agree with the appraiser”, and maybe then I will go down. I have a choice to, I don’t have to.

For me, I have kind of a philosophy that I’ve taken over these years, because I’ve been in business a long time and I feel like one of the things that became important to me was this whole rule of “Pigs get fat, hogs go to slaughter”, or “You never get hurt taking a profit”, that kind of philosophy. So if I’m still gonna make money and it’s the right thing to do to drop that price because that’s truly what it might be worth, I would reduce my price if I could still make a profit. But that doesn’t mean someone listening has to do that; they just have to sell it for what they agreed to.

Joe Fairless: Right. Will you tell us a story of another deal that you’ve done?

Wendy Patton: Sure. So that’s called a sandwich lease option. Another strategy would be what’s called a cooperative lease option. That’s kind of like wholesaling a deal. So I came across a deal recently where the seller came to me and was willing to do a lease option, however they wanted about 149k, so we’ll just call it 150k, right? And it was really only worth maybe 155k, or something like that. It was so close, and I didn’t feel like I could mark it up that much more than about 155k, because [unintelligible [00:12:36].01]

So what I did is I went in and locked it up on a lease option for the 150k, and I flipped it to a tenant buyer for 5k. But then I’m out of it. So it’s not a sandwich; I actually assigned my contract to the tenant buyer for the 150k, but they paid me 5k for it. Just like we do in wholesaling for investors, except that this is not wholesaling to an investor, it’s wholesaling to like a tenant buyer, who’s willing to pay top dollar to get terms on a property that they’re going to live in and occupy.

I’ve done lots that are like that, those little flip things. We find these deals that just don’t have enough meat on the bones, and I’m not gonna do anything like that; there’s no money in it. I can’t sandwich that, I can’t really do much with it, but I can flip it for 5k. I can do those all day long.

Joe Fairless: So when you come across a deal that the seller is looking for top dollar – or whoever is representing the seller is looking for top dollar – then this is a place where you can go, where you flip it to a tenant buyer who would then buy it directly from the seller, and they’re just assigning the rights to purchase.

Wendy Patton: You got it, exactly. It’s just there’s not enough in there. And this is a great strategy for anyone listening who is an investor, who is out scrounging for deals, they’re sourcing them and they find some deals but it’s just nothing there. We probably have turned away many deals like that, and as long as the seller is willing to do a creative thing like a lease with an option to buy for a few years out, then it’s a perfect opportunity to flip that [unintelligible [00:14:12].17]

Typically, an option fee is gonna be about 3%-5% of that purchase price. In that example, 5k, that’s just a hair over 3%, and that’s gonna be a typical deal that I can do all day long like that.

Joe Fairless: What’s the most complicated deal you’ve done?

Wendy Patton: What was complicated…?

Joe Fairless: Or just a lot of people involved, or a lot of entities, or it was just really challenging – whichever direction you wanna go with this.

Wendy Patton: I’m gonna think of one that’s just really recent… One of my most complicated ones was — I do some small development where there was a lot split, and there was a property that I was buying… I bought the property on an option, so the owner came to me and said “Hey, I’ve got this other property that’s down the road, it’s on this canal”, and our waterfront properties are fairly valuable here in Michigan.

So it was on the canal, not the main part of the lake, but number one, it wasn’t ready; I felt like it could be split, but I wanted to make, of course, the purchase subject to this split being done, and I had to go through an entire process that took about nine months where I had to do an application to the city, I had to hire a surveyor… I had to put a lot of money out on this deal without it closing.

Joe Fairless: And time.

Wendy Patton: Soil borings on it… And to make sure that — the city wanted soil borings to know what could be built and what the quality of the ground was. So it was a lot of things that I don’t normally deal in, and I learned a lot about just land development, just from this one little teeny parcel.

It ended up working out. We ended up getting the approval, we got the right to split it, and then at the last minute after it was ready to split and it got all approved – I went to all the meetings and I went in front of the township… Then the seller goes “You know, I kind of changed my mind. Maybe my son wants to buy it.” So then immediately — I have this thing called a claim of interest that gets recorded against their title… And I didn’t even tell him I was doing this; I went right to the county, recorded my claim of interest to say “Hey world, I have an interest in this property. I’ve got a purchase agreement dated such and such”, and then once I had it recorded, I came back and I called him and I said, “Hey, I just wanna let you know that we need to move forward. I think you should contact an attorney if you feel like we have a valid contract… But I have a claim of interest recorded against this, because I’ve done everything and I’ve paid all those money out and I’ve spent nine months to split this property and make it valuable.”

I think he got some legal advice, and the guy was like [unintelligible [00:16:32].02] you’re not gonna win… You might as well just sell it to Wendy.” And he did, and it worked out fine, but there was that moment of “We changed our mind.” I had a little bit of complexities in that project, and…

Joe Fairless: And some drama.

Wendy Patton: Yeah.

Joe Fairless: When he told you that, was it over the phone or e-mail, by the way?

Wendy Patton: Over the phone.

Joe Fairless: Over the phone. Let’s pretend I’m him. Wendy, I actually think a relative of mine is going to buy it, but I appreciate working with you and talking to you over the last nine months.

Wendy Patton: Okay, Joe, why did you change your mind? What happened? I thought your son didn’t wanna buy that property.

Joe Fairless: Okay, so now we’ll step out of role-playing… So I give you a reason, and then how do you end that conversation?

Wendy Patton: I’m trying to remember exactly how that call went, but I probably would have said something like “Okay, Joe, you know what? I hear what you’re saying and I need some time to digest that. Let me think through that. Can I give you a call back maybe tomorrow or the next day?”

Joe Fairless: Yup.

Wendy Patton: And then what that does is it keeps that relationship still intact, where I didn’t get angry, I didn’t get upset with him, however, I needed to go protect myself immediately with the title. Because as soon as someone starts to flake out on me and I’ve done work, I immediately go and record that, because I’ve got to protect my interest at that point. I don’t ever normally do that unless there is an issue.

Then I came back and said, “Okay, Joe, here’s the deal. I’ve really thought about it, and I just don’t feel that it’s fair. I’ve spent the last nine months doing this, and if you want to get out of the contract, then I feel like it’s only right that you pay me now what I’m going to sell those properties for.” And he goes “Well, what do you think that would be?” and I go, “Well, it’s gonna be a lot more than you sold it to me for, because now I’ve put thousands of dollars, and not including any of my time, into confirming to see if these properties are even splittable. And now what they’re worth is two lots, not one, because of the work I did. So if you’d like to buy me out, then you could. Would you wanna do that?”

And of course, he had no idea what they were gonna be worth, and when I told him what they were gonna be worth, he said “Wow, that’s a lot”, and I said, “Well yeah, that’s why I wanted to do that. I went through this whole process.” And we ended up closing on it, but it was a little bit risky there for a minute. I was a little bit worried for a little bit; I was like, “Oh man, I just did all that work…”

Joe Fairless: Oh, I bet. Yeah, nine months, that’s a long time and that’s a lot of money. How did you know what to do with the county to push that through for the split?

Wendy Patton: Well, normally when you’re gonna do anything that’s gonna be a split or land development, you kind of start with the city first – and that one really was through just the city – where I would go to them… I actually usually go in or call the assessor first, or whoever in that particular — in Michigan it’s the assessor’s office, they’re the ones that go out and value land and properties. I would call them and just say “Hey, I’ve got this property. Here’s the property ID number, the address (or whatever it is). I think it might be splittable, and I just kind of wanna know if you think it might be; if you could tell me the process over the phone or if you can tell by looking at your aerial overlays… Is that a possibility that it could be divided?” I’ve done quite a few of those, too.

So I just ask, and then they might say, “Well, this is what you need to do first.” “Okay, what is that? The application? Okay.” And then of course [unintelligible [00:19:45].20] soil borings, which was kind of unusual. Some cities, they’ll want perc test on it, if it’s gonna be a septic area… It depends on where you live. I kind of live on the North part of Metro Detroit, so 5-10 minutes North of me is gonna be all septic fields and bigger parcels, and then just South of me is going to be your normal lots in the city, with your city water and sewer, normal subdivisions. So they kind of look at both.

Joe Fairless: All-in, how much did you pay, and then how much did you sell it for?

Wendy Patton: I can remember my profit, because I 1031-exchanged it…

Joe Fairless: Okay, what was your profit?

Wendy Patton: It was 70k on them. For a little deal. I think we paid maybe 70k, or something… It must have been like 64k, because I probably had 5k of closing stuff, and the fees and stuff in there.

Joe Fairless: What did you 1031 into?

Wendy Patton: I 1031-ed into another property up in Northern Michigan.

Joe Fairless: What’s that deal?

Wendy Patton: It’s a lot on a golf course where we thought we would build our summer home. We put it into the company first, because it was an LLC, and then we thought that later, if we end up converting it, then we’ll do it, but we probably aren’t going to now. So we’re probably going to sell that property, or 1031 exchange it back down somewhere closer to something else; I just don’t know what it’ll be, but I’ll probably put it into more of an income-generating asset.

We just thought “Well, if we built something up there, we can rent it, we can use it a little bit…” We were just exploring that whole idea, and that’s what we thought we would do.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Wendy Patton: There’s a couple things, not just one thing. Number one, of course, get started immediately. Get as educated as you can. One of my biggest things I always tell investors that are wanting to get started, I say “Look, it’s not easy, it does take a lot of hard work, but it will pay off in the long-run if you just do it, and you do it persistently and consistently.”

Turn off the TV at night; stop watching that crap. You’re filling your mind with negative stuff. Spend your evenings listening to podcasts like this, to positive motivational things, reading, educating yourself, calling sellers, whatever it is… Especially if you have a full-time job. I think it’s that whole changing your mindset, and have some really strong goals that you’re gonna go after.

So it’s not necessarily all the real estate stuff. Actually, to me I would say the mindset is the most important thing. It’s changing your thinking first, because real estate is — yeah, you learn about real estate, you wanna learn about the techniques; all that stuff is great, but to me, the biggest thing that ever held me back was I didn’t think that I should make more than 100k or 200k/year. I actually had an issue with that, and from the very beginning I thought, “Well, money is the root of all evil” and all that stuff. I think everyone has these types of things that hold them back.

Yesterday afternoon I was mentoring one of the agents in my office. He was saying that he has been living at the poverty level for 15 years, but he’s brilliant. And I said, “Well, why are you living at the poverty level?” and he said “Because I think it’s this message I got when I was a kid, that I would never amount to much.” And I’m like, “Well, when are you gonna change that? I’ll help you. Let’s work on this right now. Because if you don’t change that mindset, you never will amount to much as far as income goes.” Anyways, I could go on for hours on that whole topic.

Joe Fairless: I hear you. It’s the foundation of what we must have.

Wendy Patton: Yeah. I was in a seminar last week and one of the speakers said a teenager or a kid has thousands of thoughts that go through their minds, and 80% of them are negative. But when you’re older, it’s even higher. “Am I good enough? Am I gonna amount to enough?” So it’s kind of like changing that whole mindset… And I’m not so much a ‘rah-rah-rah-rah’, it’s just that I do believe there is so much truth in that, that I have to always combat that negativity coming into our lives, or those naysayers that are saying…

My father, in the beginning he was like “Oh my god, I cannot believe you’re leaving your corporate job. Are you crazy? You have retirement, you have 401k, you have health benefits. Why would you do that? You went to college for this.” Then now, he’s 87 years old and he’s my biggest cheerleader in the entire Universe. He’s like, “Oh my god, my daughter Wendy!” He’s really cool.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Wendy Patton: Sure.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:23:58].00] to [[00:24:47].19]

Joe Fairless: Wendy, what’s the best ever book you’ve read?

Wendy Patton: I like The One Thing by Gary Keller. It keeps you focused and on track.

Joe Fairless: Best ever deal you’ve done?

Wendy Patton: Best ever deal I’ve done… I just did one this year in my IRA; I bought this property for $200,000 out of my IRA down, I borrowed from another IRA to fund it because I already had properties in my IRA and I didn’t have the cash in there, and it’s a deal that will net me about 90k tax-free in my Roth. So there you go.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Wendy Patton: I made a lot of mistakes over the years. I think one of my biggest mistakes, Joe, was back in the downturn I was speculating in Florida and other places, speculating on future appreciation instead of investing on current numbers and watching the data in the market.

Joe Fairless: Best ever way you like to give back?

Wendy Patton: I run the Michigan real estate investors group and I absolutely love that, because that gives me the opportunity to help hundreds of people locally learn to do the techniques that I made so much money at over the years. I love that.

Joe Fairless: And how can the Best Ever listeners get in touch with you?

Wendy Patton: I would say go to my website, WendyPatton.com. It’s got my office phone number, I’ve got some free giveaways on there… I would go there to check out a little bit more about what it is that I do and what I offer.

Joe Fairless: Wendy, thank you for being on the show and educating me and perhaps some Best Ever listeners on creative strategies. You truly did deliver on what you said you were focused on, and that’s creative financing. We’ve talked about three different structures, or creative deal-making, perhaps… And that’s the sandwich lease option, the co-op lease option and the lot split.

The lessons learned along the way with each of those three, with the lot split in particular, having the moment of drama where you then had to go get a claim of interest recorded on the property, and just knowing to do that. I wouldn’t know to do that. I would be talking to people like you, certainly, if I came across that situation, and say “Hey, what do I need to do here? Can you please help me out?” So that’s why we have this podcast – for Best Ever listeners who perhaps come across situations like that, then we know “Okay, if I have a contract but someone’s trying to back out”, then claim of interest – get it recorded.

So those types  of things, and then just your overall approach… I’m really grateful that you were on the show and shared that with us. Thanks for being on the show, Wendy. I hope you have a best ever day, and we’ll talk to you soon.

Wendy Patton: Thanks, Joe.

Al Beahn and Joe Fairless

JF1201: Turn Key Real Estate Investing In Detroit with Al Beahn

Listen to the Episode Below (24:52)
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Best Real Estate Investing Crash Course Ever!

Al runs a business that finds cash flowing properties for other investors in Detroit. He’ll tell us that most of the negativity associated with Detroit is exaggerated media driven information. About 90% of the clients that come to Detroit to see some properties are surprised ina  good way and end up investing with Al. Find out how to set yourself apart from other turn-key providers. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Al Beahn Real Estate Background:

– Founder and CEO of Pioneer Homes, the leading source for cash flow rental properties

– Past seven years, he has closed more than 1,000 deals, valued in excess of $50 million

– Has clients across six continents

– Based in Detroit, Michigan

– Say hi to him at: https://www.pioneerhomesus.com

– Best Ever Book: Profit First

 


Made Possible Because of Our Best Ever Sponsors:

Are you looking for a way to increase your overall profits by reducing your loan payments to the bank?

Patch of Land offers a fix-and-flip loan program that ONLY charges interest on the funds that have been disbursed, which can result in thousands of dollars in savings.

Before securing financing for your next fix-and-flip project, Best Ever Listeners you must download your free white paper at patchofland.com/joefairless to find out how Patch of Land’s fix and flip program can positively impact your investment strategy and save you money.


 

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? 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 fluff.

With us today, Al Beahn. How are you doing, Al?

Al Beahn: I’m doing great, Joe. How are you?

Joe Fairless: I’m doing great as well, nice to have you on the show. Al is the founder and CEO of Pioneer Homes, which is a leading source for cash flow rental properties. Over the past seven years he’s closed more than 1,000 deals valued in excess of 50 million buckaroos. He has clients all across six continents, which almost is all of the continents; is Antarctica a continent? I think it is.

Al Beahn: I haven’t done anything there.

Joe Fairless: I figured that would be the one continent that you don’t have — this is where my board game risk background comes into play; I know my continents. And Al is based in Detroit, Michigan. His website is PioneerHomesUS.com, which is also in the show notes page.

With that being said, Al, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Al Beahn: Yeah, absolutely. Thanks a lot for having me, Joe; I’ve been looking forward to it. I actually got into real estate in 2009. I graduated college, CMU [unintelligible [00:03:31].16], and I was living in my parents’ basement. My dad was not the kind of guy that liked having that going on, so I think I was home for about three or four months and he just sat down and said “Look, man, you’ve gotta figure something out.”

I had always wanted to get into real estate, I just never really understood how or what to do, so I just kind of took a plunge and went out and I raised some funds, and I bought my first fix and flip. I did that back in 2009. Bought my first property for $27,000, I did all the work myself – I guess you could say I learned the hard way doing that. I flipped it, I think we sold it about four months after we purchased it. It was a 90-day renovation, and about 30 days to sell.

At the time I think I was 22 years old and we cleared about $16,000, and I said “Man, this is kind of cool.” I was kind of like my own boss, I was doing whatever I wanted to do, and that’s kind of where I got into the business. That kind of transitioned us into the turnkey model, which kind of developed in about 2010 for us.

We were just kind of in the market; I always say we got lucky. It was just good timing, and being local Detroit guys, that model just kind of fell into our lap, and the rest is history, really.

Joe Fairless: Are your turnkeys in Detroit?

Al Beahn: Yes, about 90% of what we do is in Detroit. We were doing a lot more in the suburbs a few  years back, but the markets kind of shifted and we don’t see as much value there anymore, but yeah, we about 90%-95% now is in Detroit.

Joe Fairless: Pros and cons of investing in Detroit.

Al Beahn: Pros and cons… Pros is definitely going to be the price points. The ROI’s are significantly higher than the rest of the country. I think there’s a ton of value still to be had. Last week we were walking through properties that we could be all in at 40k-50k that will appraise in today’s market for 80k-100k, so… I think there’s a lot of opportunity for instant equity in certain parts of the city. I think there’s obviously the high ROI as well.

Cons – I think if you’re not careful with where you are, you’re definitely gonna be liable for some vandalism and theft like that, because that’s a real thing in Detroit if you’re not careful where you are. I’d say probably that’s the biggest con.

Joe Fairless: Where do you need to be? What areas?

Al Beahn: We try to stay in the North-West side of Detroit. We hone in on about six or seven different zip codes. East side there’s a couple small pockets; we like East English Village… That’s one of those areas I was talking about last week. It’s one of the few areas on the East side that we invest in. So between that and the West side, we try to stick to the West side for the most part.

Joe Fairless: When you talk to potential clients who have only heard about Detroit through probably negative means, what does that conversation sound like? And when they do invest, why do they ultimately invest?

Al Beahn: It’s really just media-driven negativity. This isn’t something that they’ve experienced themselves, so it’s just like a false image that they have, and I’d say 90% of the people that come here end up investing. I don’t think people expect to see what they see when they get here, and I think that’s one thing that kind of makes them get over that hurdle. But I don’t know, I guess we [unintelligible [00:06:46].01] They really take the time to educate the people that don’t wanna come visit. The sales cycle is extremely long – 60 to 90 days is pretty common, so I think they’re just comfortable that we spend that much time with them over the phone and educate them about the city as much as possible.

We like to share info about the market as well, so there’s just a lot of things I think that go into that, but ultimately the easiest sale is when they come here. They come and  we show them certain parts of the city, and they just… A lot of people that have never been here are shocked to see what they see in certain parts. We’ll show them the good and the bad. I’m not gonna sit here and say there’s not bad parts in Detroit because there are, but we just try to avoid those areas.

Joe Fairless: Let’s talk about your business – how do you stand out from other turnkey providers?

Al Beahn: Great question. There’s definitely some competition here. I think it’s just the time that we spend with our clients. I’m not gonna bash any of the clients or competitors because I think they’re all great in their own ways, but I think that some people just wanna be educated a lot before they decide to make this decision. I’d argue that our sales guys are pretty thorough with our clients, and then obviously our product is definitely top tier to our competitors. We know where to be in Detroit.

So I think just a communication thing, and obviously, after the sale too, we really try to stay in contact with our clients. If they have any issues, or sometimes there might be some paperwork [unintelligible [00:08:16].03] with the property management, so we try to help them get through those hurdles as well. I think those are a handful of those issues why we kind of stand apart.

Joe Fairless: And how do you make money on the business?

Al Beahn: Our profit is built into the purchase price of a property. We buy it for X, we put X into it, and then we sell it with our profit built in.

Joe Fairless: Do you manage it, too?

Al Beahn: No, we have a third party. I actually did property management for the first five years we were in business, and then I realized it’s not profitable. It was really more of a quality control for our clients, but it just kind of became a drag and it was really just kind of a money pit for the company, so I got out of that about four years ago, and now we just refer it all to a third party.

Joe Fairless: Do you have one third party you work with?

Al Beahn: There’s a couple we work with. If we have a really big month, I try not to shift too many properties at one company at any given time, just to ensure that everything is handled properly. Nobody will tell you that they can’t handle it, but we’ve kind of learned that there is a breaking point for sure on what they can take in at any given point.

Joe Fairless: On that note, on the breaking point for what a property management company can take in, what were some things that you noticed slipping through the cracks that normally wouldn’t if you didn’t inundate them with a bunch of properties that they’re bringing on for the month?

Al Beahn: I’d say the number one thing is just getting in contact with the tenants on a timely basis. A lot of the companies that we’ve screened, they would get really hung up on the paperwork and they wouldn’t wanna contact anybody until the paperwork assignment. Sometimes when we sell a house, we have clients that work 70 hours a week, they travel to different countries or out of the country or out of state, and sometimes they can’t get to that, so we were seeing a property management agreement (PMA) not be signed for 30 days, and the next thing you know we have a tenant who hasn’t been contacted in 30-45 days. So I think the biggest thing for me – and I’m not sure about you guys in your market, but here my most important part of this whole process is the transfer… So when we give a file to the manager, my number one thing is to get in contact with the tenants right away, and I think for us at least — because we also buy properties that are already turnkey… So we might buy property from a landlord that’s retiring, or something like that, so for me I think it’s really the contact with the tenant, to make sure that [unintelligible [00:10:33].07] with everything.

Joe Fairless: Yeah, I’d say that would be from a business owner standpoint. That’s the huge variable for you and growing your business, because if your client has a poor experience with the third-party management company, the house could be great, but then the management company just totally blows it on who they put into the property, or how they retain that person, or how they screen the future person, or they don’t address certain maintenance issues… That just seems like that could be a big headache for you and that could cost you some business.

Al Beahn: Right, absolutely. This is our screening conversation when we’re looking for new managers – “The number one thing that we need is that when we give you a file, you need to contact these tenants within 24/48 hours”, because a week goes by, two weeks go by, they have some maintenance issues, rent’s due and then they try to call somebody and they can’t get a hold of anybody, then red flags start going up. We’ve had tenants leave on us just for that simple little thing… So yeah, when you’re doing volume, there’s gonna be that little tiny percentage of issues, and that’s usually the number one issue – the lack in the management process. We’ve really tried to hone it and tried to perfect it. We’re not perfect, but I’d say we do as good as we possibly can with that part.

Joe Fairless: How many deals are you selling a year?

Al Beahn: We’re pacing probably to do about 250 this year. I try to hit between 15 and 20 a month, that’s our goal. Obviously, we have months where we succeed that and then other months that we don’t, but we’re pacing to do about 250 this year.

Joe Fairless: That’s a whole lot of deals, and you’re talking about you’re buying, renovating and selling them as turnkeys, about 20 a month or so?

Al Beahn: Yeah, we do about — I’d say 60% is already turnkey; we buy a lot of property as is, and then the rest would be the turnkey renovations, correct.

Joe Fairless: What type of process do you have – if any – with your clients who purchase the property and then after the purchase hand then off to the third-party management company. Do you have some sort of process to follow up with them later?

Al Beahn: Well, our sales guy is known to keep in touch with them, and a lot of our clients are long-time clients, so I wouldn’t call it a specific process; it’s more of just a relationship thing, because we’ve learned that if you maintain these relationships with these people, and you don’t just sell them a house and say “Hey, it’s great to meet you. Good luck”, there’s always that repeat business.
We had a guy who bought a house from us early in the year last year, and my sales guy just kept a relationship with him. Not trying to sell him anything, just “Hey, checking in… How are you doing? How’s your family?” I think they had a similar interest in sports, so they kind of chatted about that, and the next thing you know the guy had saved up some cash and bought another property. So it’s really not a specific process per se, I think it’s more about building relationships with your clients, and for me that’s always been the best way to do business… So I’d say that’s what we do with that.

Joe Fairless: The biggest challenge that you have right now is what?

Al Beahn: The biggest challenge… I’d like to say inventory, but it’s usually not inventory; Detroit is a really big place. I think really it’s just some of the people in Detroit, some of our competitors – I don’t wanna call them competitors, but… They’re in every market. The guys that think they’re wholesalers and they market properties at just crazy prices. When we’re selling houses at 45k-50k, these guys are sending lists out with properties for 25k-30k, and it’s just a real struggle because people see that and they just think that’s the market, so they want properties for that price, and we just really don’t do that. Yeah, we come across deals from time to time, but I think that’s probably our biggest. If I talk to our team, that’s probably the number one thing, if I had to pick.

Joe Fairless: What do you do to help mitigate the damage that that could have on your listings at the price points you have?

Al Beahn: Well, we cannot pool comparisons. Go look at the Google Maps Street View, go pull up Trulia and look at the surrounding values. I’m never one to use Trulia, but if you pull up a property and there’s houses in the area at 10k-15k, the majority of that, and then you go pull up one of our properties and there’s houses in the 50’s and 70’s, you can just see it’s a totally different property, it’s a totally different asset; it’s not apples to apples.

And the number one thing is to say “Look, I think you should come and look at them both. We’ll take you to that property and we’ll take you to ours and you can just see it for yourself.” And it’s funny, because a lot of people don’t wanna do that. They just wanna buy it site unseen. We turn away a lot of business, Joe. There’s a lot of people and we say “Look, we can’t compete with that. I don’t wanna put our name on that product.” So a lot of times we’ll just let the business walk away, because sometimes it’s a really hard pitch to get them to understand that.

Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Al Beahn: Best advice ever, that’s a good one. So the Best Ever listeners will like this, I guess… It’s really basic – I think no matter where you are, you have to do your due diligence. I’ve seen so many investors lose their shirt because they do not do their due diligence. Maybe that’s just a very simple, basic answer, but it’s such a major thing in the process. Obviously, price is one of them, but I think the due diligence part – inspections, title work and all that stuff… That to me, especially if you’re kind of getting into real estate — I know when I first got into it I didn’t even know what due diligence was; I’d walk through a property and think I just need to go to a title company and close. But I think the due diligence, inspections, title work is huge for me. If you’re just getting into it, I think that’s a big deal, for sure.

Joe Fairless: Tell us a story about when due diligence played a major role in the acquisition of a property.

Al Beahn: Yeah, absolutely. Back in the day, before we were good at this, it happened all the time. Buying properties on quitclaim deed… There was a time we bought (I think it was a) five-pack – this had to be in the very beginning, the first year, maybe a year and a half in the business. I found a house on a quitclaim deed. I think at the time the prices were so cheap back then… I wanna say we bought a five-pack for 55k or 60k, and “Hey, there’s back taxes. Hey, there’s water bills. Hey, there’s tax titles”, so you have to either [unintelligible [00:17:00].28] or you did not get title insurance. That happened to us before. I’d say that was probably early on one of the bigger mistakes that we made, just buying a property without understanding the title side of things.

Joe Fairless: Would you say that back taxes and water bills are more prevalent in Detroit that it will come up in due diligence compared to other markets?

Al Beahn: Well, it’s hard to say… I haven’t done much business in other markets, so I’m not sure. I’d say because of what happened in Detroit – there were 140,000 foreclosures when this whole thing hit the fan back in ’07 through ’09, so… To put it into perspective, there were on average 20k to 25k tax-foreclosed properties in the Wayne County auction every year. The most recent tax auction – there were only 6,500 properties. So it’s all getting cycled through.

So I think five years ago – absolutely; probably the number one in the country. But today, it might be more than average; I couldn’t say it’s more than any market, but it’s probably higher than the average.

Joe Fairless: Yeah. It was a poorly worded question. I should have asked you just relative to the properties you’re buying, are there a lot of back taxes and water bills? Because you’re in Detroit, you’ve been investing in Detroit, so you’re not aware of other markets. But you answered it. You made my stupid question into a smart answer, so thank you for that.

Al Beahn: No, it’s all good. I’d say maybe 20% to 30% of our properties that we buy have more than two years delinquent.

Joe Fairless: Okay, got it.

Al Beahn: I’m not sure, it might be different in every market. Here it’s after three years you’re subject to foreclosure, so we rarely see more than that.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Al Beahn: I’m ready, man.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:18:51].24] to [[00:19:44].01]

Joe Fairless: Best ever book you’ve read?

Al Beahn: Profit First, by Mike Michalowicz.

Joe Fairless: Best ever deal you’ve done?

Al Beahn: This is a tough one; there’s two of them. I’m gonna talk about the first one because  it was the first one I really did a creative deal. It was a package of 11 duplex units. In Detroit, a duplex — they’re side by side, and they’re actually two separate parcel ID’s, so you can buy and sell each half individually. There was a package of 11. I believe four of the units were actually side by side, so we actually bought the package, sold off the two buildings that were attached, profited enough to actually pay for the other seven units free and clear, and we had seven free and clear units with cash-flowing tenants basically for free.

I say that’s my best because it was one of the first deals we did that was very creative like that, and to this day I always love that deal.

Joe Fairless: Oh, absolutely. Do you still have those seven?

Al Beahn: No, we sold those probably about two years ago.

Joe Fairless: Okay. And when you sell them for your own personal investing, what’s the reason to sell and what do you do with that cash?

Al Beahn: At the time I think I was trying to get into some better assets at that time, so two years ago. I’d probably just put it back into the turnkey business and use it to basically flip some more properties.

Joe Fairless: And do you currently take some of the profits from the turnkey business and then buy rental properties for your own rental portfolio?

Al Beahn: Yes, I kind of do that model. I like to buy property from some of our profit. So if we flip ten houses, sometimes I might just maybe keep one of them. It’s almost kind of like a “no cash out of pocket”, really. There’s obvious opportunity cost there, but we do that as well for sure.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Al Beahn: In real estate as a whole, still to this day one of the bigger mistakes was selling some of the assets that we owned. Even though it’s duplex units, I’d argue if I would have held on for a few more years, it’d be much more valuable. But mistakes — it’s always probably a due diligence thing. We’re doing so much volume, sometimes something slips through and you’ve kind of gotta eat it. But it’s always usually a due diligence thing. I don’t think there’s a deal that stands out that I’d say was like the worst deal we’ve ever done.

Joe Fairless: What’s the best ever way you like to give back?

Al Beahn: That’s a good question. For me, I don’t really have any formal way of giving back. I like to donate to our church around Christmas time more than average, but… For me, we get a ton of people that reach out to us through our social channels and other ways like that, people that obviously have never done anything in real estate, and I kind of make it a point to at least help a handful of people. I get a lot of kids; I’m a younger guy, so a lot of kids (15, 16, 17) reach out to me through maybe Instagram, and I’ll just be really bold with them if I think they have a crappy sales pitch, or their approach is bad, but I try to make it a point, at least a couple kids a month, just to kind of give them a little bit of advice.

I know back when I was 16, 17, even if I had one little tidbit of advice, it would help me out a long way, so I try to do that as much as I can each month.

Joe Fairless: How can the best ever listeners get in touch with you?

Al Beahn: You can call the office. I’d say the easiest would be through e-mail. The e-mail would be info@pioneerhomesus.com. Check out our website, PioneerHomeUS.com, and all of our social handles – most of them are @pioneerhomesus, so I’d say those are the best ways.

Joe Fairless: Congrats on building such a high volume business, with 250 deals a year that you’re rehabbing and then selling to clients across six continents. I did confirm via Google, while we were talking, that Antarctica is the seventh continent. You’ve gotta work on your Antarcticans. I don’t know about the stats, but maybe I’ve got an Antarctica listener, and they’ll be a new client. If so, then let me know; that way I can claim to cover all seven continents.

Also, the overall approach that you take with the due diligence, lessons learned along the way, the back taxes, the water bills etc., and then knowing where to invest and where not to invest, or at least an area where you need to go in eyes wide open. So perhaps maybe you do invest, but it’s just an area where you go eyes wide open. Where you choose to invest would be the West side and the North-West side in general. It sounds like there are exceptions.

Thanks for being on the show, Al. I hope you have a best ever day, and we’ll talk to you soon.

Al Beahn: Joe, I appreciate it, man. Have a good day as well. Thank you!

JF1096: Working Full Time While Investing on the Side with Brad Tacia

Listen to the Episode Below (25:07)
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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 bradtacia@gmail.com
-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.

Break: [[00:20:55].05] to [[00:21:54].14]

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 bradtacia@gmail.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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JF587: How You are Leaving Thousands of $$$ Behind by Not Doing This!

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“Wholetail,” acquiring a property at a wholesale level and selling at a retail price without doing a lot to it, or very little. Today’s guest is pretty savvy using this strategy and has found success in this niche. Tune in and see how you can save even more cash at the closing table!

Best Ever Tweet:

Mike Cowper real estate background:

  • Been a wholesaler for 15 months and done over 50 transactions, 4 of them being his own rentals
  • Say hi to him at: webuyroi.com
  • He is based in Detroit, Michigan
  • His Best Ever book: Four Hour Work Week by Tim Ferriss and The One Thing by Gary Keller

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Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Need financing?

Are you a buy-and-hold investor or doing fix and flips?

I recommend talking to Lima One Capital. A Best Ever Guest told me about them after I asked how he financed 10 properties in one year. They are an asset-based lender with unique programs for long-term hold and fix and flippers.

Click to learn more or, better yet, reach out to Cortney Newmans at Lima One Capital. His cell is 404.824.6121.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips:https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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JF438: When Should You Evict?!?

Every landlord loathes the eviction process…you lose money, time, and it just looks bad. Not fun. Our Best Ever guest is a property manager pro, and he has processed many evictions, but is now well seasoned and evicts carefully. He is able to collaboratively work with tenants who will pay if they genuinely slip, but make no mistake, he is still stern and begins the process regardless. Hear his side of property management!

Best Ever Tweet:

Drew Sygit’s real estate background:

  • Founder and operating partner of Royal Rose Property Management
  • They have 403 units under management
  • Has 17 years in the mortgage biz as a mortgage broker and banker
  • Say hi to him at http://www.royalroseproperties.com
  • Based in Detroit, Michigan

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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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JF422: How to Flip 12 Homes a Year with a Full Time Job

Our Best Ever guest is not a full time investor, but he still manages to fix and flip 12 homes a year! He has established a power team that works cohesively in the Detroit, Michigan area. He was inspired by a previous guest on the show, Josh Sterling, who challenged him to jump in! Hear his story!

Best Ever Tweet:

Tom Wooderson’s real estate background:

  • Been investing for three years and is an active real estate agent, wholesaler, hard money lender and rehabber
  • He’s on track to rehab 12 properties in 2015 while having a full-time job
  • Based in Detroit, Michigan and graduated from Michigan State University
  • http://•http://www.twholdingsllc.com and thomaswooderson.com

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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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JF365: $1,000 Credit Card Charge to Virtual Wholesale Genius!

Ready for a new market? Our Best Ever guest hints how he successfully wholesales properties…virtually! No need to be everywhere at once; he instructs how to close a deal in another city while in the comfort of your home! How to find your “boots on the ground” including additional real estate professionals in places other than your hometown, you have to hear this!

 

 

Best Ever Tweet:

 

 

Chris Bruce’s real estate background:

 

 

  •  Full time real estate investor who started investing in Detroit, Michigan then went to Tampa, Florida
  • Say hi to him at http://escapethenewbiezone.com/aboutme
  • Popular podcast called Escape the REI Newbie Zone
  • Virtual wholesaling in different markets
  • Based in Tampa, Florida

 

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Made Possible Because of Our Best Ever Sponsor:

 

Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF 359: How To Buy FIVE Houses While Making $30,000 Per Year

Today’s Best Ever guest has probably flown you across the country and he kept you safe then, so listen up because he shares with us exactly how he left his job as a pilot and continues to have investing success.

Best Ever Tweet:

Josh Sterling’s real estate background:

–           Based in Detroit, Michigan

–           Currently own and manage 125 units

–           Flip about 12 – 15 properties a year and also runs a property management company

–           Was an airline pilot for 5 years and now I have a Piper Saratoga that he flies for fun

–           Say hi to him at http://www.epicpropertymanagement.com

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF 107: Presenting…The World’s Fastest Refinance!

All we do is…set refinance records…and win! 🙂

Today’s Best Ever guest shares how he set an unofficial world record on the fastest refinance on a property, why it happened and how to avoid in the future. Plus, we talk about his experience growing up in the real estate business and his company’s focus on multifamily investing.

Let’s go!

Tweetable quote:

Nick Keesee’s real estate background:

–        Founder of Nile Capital, focused on multifamily family investing

–        Real estate investor who has property in the Detroit area

–        Based in Novi, Michigan about 30 min from Detroit

–        4th generation real estate investor

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Sponsored by: Twenty Four Sound – visit http://www.twentyfoursound.com and mention “bestever” for an exclusive 20% discount on your purchase.

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