Realty Life
Veteran realtor and industry leader Ken McLachlan talks with real people about their passions, their accomplishments and the moments that changed their lives. Realty Life is an inspirational and powerful look at how life turns and the journeys that follow.
Realty Life
Turning Properties into Pension Plans with Brad Closs
Ever wondered how to turn real estate into your personal pension plan?
In this episode, Ken sits down with Brad Closs, an Ottawa-based real estate investment expert who owns an impressive 56 doors.
Brad shares his journey from his first property at age 24 to building a robust portfolio through strategic leveraging and meticulous planning.
From mastering property evaluation to navigating tenant laws, Brad's insights are a goldmine for both novice and seasoned investors.
Discover how you can achieve financial independence and long-term wealth through real estate, just like Brad.
Listen For:
04:52 - Leveraging Properties for Growth
13:30 - Evaluating Properties Accurately
16:20 - Investment Strategy: Follow the Highway
21:58 - Buying in Depressed Areas for Future Gains
Guest: Brad Closs
Email | 613-200-1000 | Website | Facebook | LinkedIn
Ken can be reached at:
ken@remaxhallmark.com
Ken McLachlan (00:00):
Hi everyone, it's Ken McLachlan and welcome to my podcast called Realty Life, where I get to talk with all sorts of interesting people in and out of their real estate business. Really the background to what they do in their lives and how they've helped people and stuff they get through and what they're learning they've done and stuff like that. So I had a real privilege today, it's a little different podcast where I'm specifically talking to someone about their actual work that they do because a very unique part of our industry, real estate industry is the investment part and very analytical, very down to earth stuff, unemotional, and it takes a lot of education, a lot of schooling to be really, really good at it. And I get to talk today with a guy, a friend of ours that works with an agent with us in Ottawa that works with the bill milling team, the tulip team, and Brad close. Brad is, I don't think there's anybody in Mike that I know that has more product knowledge about a specific part of our industry than Brad, and that's investment properties. He owns 56 doors himself. He's researched this stuff in and out completely. He knows his numbers, he's taken classes, he's educated, and he shares his education not only with his investment clients, but with the public real estate agents to help them do things like that too. So I'm really privileged and really happy to have Brad on my podcast today and welcome Brad.
(01:39):
Hey, Brad, welcome to my podcast.
Brad Closs (01:42):
Thanks.
Ken McLachlan (01:44):
It's so great to have you here. I'm going to learn so much about, and our listeners are going to learn so much about and investments and properties and your history and how you went about it and your attitude towards it and what to look for, what not to look for. And it's a lot of information, and I think it's so critically important for our listeners to know that frankly, I look at investment real estate as my pension in life. I don't rely on the government, I don't rely on, I'm not very good with stocks and bonds and that kind of stuff. So my attitude has always been to buy doors and have doors as my pension going forward and how to do it and how to leverage them, how to do that stuff. So talking to you today is going to really offer a great insight into investment properties and how one goes about it, how you went about it, how you grew this thing from, I think you mentioned to me before that it was just your family that got you involved with this. How did you get involved with it? How did you do your first investments?
Brad Closs (02:45):
Well, my parents owned income properties and like I saw, they didn't have to work for anybody else. And so I said to myself, I want this. I don't want to have to work for somebody else. And I read this in a book. If you don't create your own business system and perfect it, you'll become the prisoner of another person's system. So I saw a lot of truth in that statement. So I figured the only thing that I really had good level of knowledge of was real estate. And so I was determined to buy a lot of real estate and buy it to the level that it would support me financially. And then also, like you were talking about, it would be my pension, and I looked up my billings as if they were bank accounts. So each billing, I have 15 billings, so each building is a bank account, which I can take money out of.
Ken McLachlan (03:36):
So you started this 26 years ago, did you?
Brad Closs (03:40):
Oh, actually, I started buying real estate 36 years ago. Wow.
Ken McLachlan (03:43):
36.
Brad Closs (03:44):
I was 24. 24
Ken McLachlan (03:45):
Years old, bought it. How did you get your first one? How did that happen?
Brad Closs (03:49):
My first one, and it's the only property I ever saved the down payment for my dad one day said to me, do you want to buy a house? And I said, yes. And it was an estate sale. And so a guy I was working with at the time, he said, double your payments and then calculate the amortization. Well, the amortization went from 25 years to six years. So at 30 years old, I had that house paid for. And so that gave me a leg up. And then from then on, I always just extracted the equity from existing billings I own for the down payment on the following billings I bought. So
Ken McLachlan (04:22):
Explain how you do that so I understand it. So what you did, you bought this first property, you went accelerated the payment to pay this thing off in 6, 7, 8 years, whatever it was. So yeah,
Brad Closs (04:33):
Six years.
Ken McLachlan (04:33):
Yeah, automatically you own this property without a mortgage. Yeah. Okay. So from that point, you decided that you are going to use this property that you owned outright basically as your bank account, put it that way to borrow money against to buy the second property. Is that correct? That's
Brad Closs (04:52):
Exactly right. And I kept doing that. So
Ken McLachlan (04:54):
How did you do that?
Brad Closs (04:54):
Well, I would go in and I would put my own labor into any buildings I own. I would just say put new hardwood flooring in, say put new light fixtures in paint. I did all my own painting for a long time, just anything, everything I could think of that I could do myself. And then have the property appraised and then put a new first mortgage, like 75 to 80% loan to value mortgage in on the property, and then pull out the difference between that new mortgage and the existing mortgage, and that money is totally tax free, put that money in the bank and then start looking for more real
Ken McLachlan (05:30):
Estate. So you kept on utilizing that and leveraging these properties to be the next one? Yeah. Did you ever, you said you have 56 doors now? Yeah. Did you ever sell them? Yeah,
Brad Closs (05:40):
I bought 21 properties. I've sold six and I have 15. So I have sold properties
Ken McLachlan (05:46):
You have sold. So what compelled you to sell them? Well, they
Brad Closs (05:48):
Were like singles that didn't cashflow.
Ken McLachlan (05:51):
Oh, okay. So you got rid of them that way?
Brad Closs (05:53):
Yeah, I found once I went to three units and over and everything, everything started to work really good.
Ken McLachlan (05:58):
Wow.
Brad Closs (05:59):
Yeah. So I took the CCIM program and that empowered me to be able to,
Ken McLachlan (06:04):
So tell people what that is.
Brad Closs (06:05):
Certified commercial investment member. It's all about calculating the value of commercial real estate, also calculating positive cashflow. So I found I got really good at that. I was doing it so much. And then so I cherry picked the best cashflow properties that I could buy and then bought them. And then again, like I did on the first property, I went in, I put my own labor painting, new light fixtures, like hardwood floors, just anything and everything I could think of, and then increase the value and then again, put a new first 75 to 80% loan to value mortgage on there, extracted the equity and then, which is tax free, not selling the building, and then bought more real estate. So that's how I ended up where I am.
Ken McLachlan (06:49):
You kept on leveraging over and over and over again. Yeah.
Brad Closs (06:53):
Yeah. So the only property I ever saved the down payment for was the very first one at 24.
Ken McLachlan (06:57):
So you took that course. How important was it and how much do you recommend taking courses like that?
Brad Closs (07:03):
I would say it gave me the confidence to move forward and that I had, everything was calculated ahead of time.
Ken McLachlan (07:11):
So what's that mean? Explain what you mean by that.
Brad Closs (07:15):
Say using say the capitalization rate. I could calculate what my property was going to be worth. If I say increase the rent from say, 60,000 to a hundred thousand using the cap rate of properties that we're selling in the area, say it was 5%, that would be the cap rate I would use. And then before I went in and did the improvements, I would know what my property's worth after all the improvements are done because I knew what the market rents were in the area.
Ken McLachlan (07:47):
So you actually, when you did these things, it was a calculated investment. You knew they returned on the numbers, you knew everything. And I feel that most of us real estate agents and investors go by a whim. They just go out there and they don't do their research, they don't do the product knowledge. They're speculating on stuff they shouldn't be speculating on. But you having the background and actually researching it and finding out what goes out there and what should be the rent should be, and everything else can actually give you a forecast of what you're going to get. The return's going to be, correct.
Brad Closs (08:20):
Yeah. I found the fact my parents owned income properties, that really helped me because like I saw my mother, she'd go in and do all the painting and cleaning and screen the tenants. My dad, he was an aircraft mechanic and he would do all the mechanical work, like the plumbing, electrical, and anything mechanical. He did it and I didn't hire anybody. So I started out, that's how I started out. I did everything. I was the plumber, I was the manager. Nobody was hired.
Ken McLachlan (08:46):
You learn that stuff. Did you just
Brad Closs (08:48):
Do it? My dad, mostly
Ken McLachlan (08:50):
Your dad. What do you do today? Do you buy properties and do it yourself still or do you have other people do it? No,
Brad Closs (08:55):
I leverage more.
Ken McLachlan (08:56):
I see. So you actually hire professionals?
Brad Closs (08:59):
Yeah. Now I'm not 24 anymore.
Ken McLachlan (09:03):
No.
Brad Closs (09:04):
Yeah, back then I just worked right around the clock because when I was where I am now, I'm 60. I wanted to be well off when I was older. That was my goal. And
Ken McLachlan (09:14):
So did it materialize for you that this, did you have a I knew a guy. I know a guy that gave me great advice when I was a lot younger, and he says his attitude towards investment was to buy one property a year. And so he instilled that in me that I was to buy one property a year, hold that property, like what you said, Brad, is that to use that property as my bank for the next property, take the money out and prove upon it and all that stuff. And so I incurred at least one new property a year that I kept. And I looked at that as being my pension plan as far as my standalone, that I'm always going to have these properties that these doors that are sitting there. When we talk about doors, we talk about how many units there are in per building and things like that. So I relied on that as my wealth building, complete wealth building and my cashflow that helped me sustain in years to come. It's going to be an income for me like that. So you necessarily focused on that as your capitalization of growing your capital and plus your cashflow now, right? Yeah. Do you utilize that as cashflow or do you reinvest it?
Brad Closs (10:28):
No, I try not to use any of that money. I don't want to use it. I have a hard time spending money. I love making money, and I hate spending it, to be honest. I
Ken McLachlan (10:36):
Know I'm the same way. I don't like to use that cash flow. I'd rather put it into other investments or put the mortgage down or really push it down as quick as possible.
Brad Closs (10:45):
I'm in the growth mindset of making money, so it's going to be hard for me to get into the mode of retiring and using the money that's saved. I find that's very, very challenging for me. It's going
Ken McLachlan (10:57):
To be the difficult part. When do you actually take that money? When you say you have 80 doors and you have everything set up in 10, 15 years from now, when do you start cashing in on that? Do you not cash in on it? Do you just leave it? Do you live off the cashflow on it or what's
Brad Closs (11:16):
Well, my goal there was I was going to die with them, but on the other hand though, what if a person runs into a health problem where you can't function at the level to be able to run them anymore? So I don't know. I'm going to try to hold them as long as I can. Yeah, because I noticed with my parents, once I started to sell them, they no longer had anything to hedge against inflation.
Ken McLachlan (11:37):
Yeah, you're right. Yeah, I think I would hurt me to sell these properties that I own. In fact, I look to buy more properties even today, do it and just keep playing the game because it is a game. It's an important game. It's a great wealth builder on of that. So let's talk a bit about Landlord and Tenant Act. So we all know that we've all read the papers. Our industry, if you're a real estate agent listening to this, the problems of tenants and landlords and a lot of the people that have invested in properties or having problems getting rid of tenants, they say once a tenant's in there, you can never get rid of them. You're going to have to live with them and that kind of thing. So what's the policy that you have? How do you deal with this stuff?
Brad Closs (12:20):
Well, I found a turning point for me was when my former property manager quit, I hired a licensed paralegal who was an expert in evicting tenants, and then she became property manager. And after that, in almost 10 years, she's been doing it. Look, I've collected like 97% of the potential gross rent.
Ken McLachlan (12:40):
Wow. That's unusual though, isn't it, Brad?
Brad Closs (12:43):
Yeah, because I came out of the Corona period there and I had hardly any money owed to me, and a lot of landlords were in trouble financially.
Ken McLachlan (12:51):
And you think that a lot of it was because of the paralegal on your team doing that. So you're advising that perhaps people to get a property manager that actually is the paralegal as well, or has a paralegal department and their whole thing,
Brad Closs (13:04):
But she can represent you at the landlord and tenant board.
Ken McLachlan (13:07):
Can you give a rough average what you pay for property management percentage?
Brad Closs (13:11):
7% of the total gross rent plus HST
Ken McLachlan (13:14):
Plus HST. And that's pretty common, is it?
Brad Closs (13:17):
Yeah. No, look, you've got, if you have less billings, it's higher.
Ken McLachlan (13:23):
Yeah, typically. So you've mentioned to me when we were talking before that you're exceptionally well at evaluating properties.
Brad Closs (13:30):
Yeah. I feel that's my unique value proposition is evaluating.
Ken McLachlan (13:33):
Tell us about that.
Brad Closs (13:35):
I feel I got good at it with my parents owning eight income properties. I was always studying them and well, I was trying to figure out how I was going to be able to buy them because I thought, well, my parents are getting older. I'll buy their properties and that would be a good stepping stone. I didn't feel they were going to rip me off. And so I did buy what, three of theirs, one through my dad's estate. And then I became confident. Things worked out because I had things calculated to what the positive cashflow was going to be before I bought them. And so that gave me confidence to continue. I've heard people say the first one or two properties you buy are the most important that's going to set the stage for the ensuing properties you're buying. If you buy a really good one right at the beginning, you're probably going to do well for a while. And if you do poorly on the first one, it's going to be difficult to overcome that poor start.
Ken McLachlan (14:37):
So they actually say, one of the things I hear is the bias, the so important part of the whole thing.
Brad Closs (14:42):
Yeah. That's where you make your money the day you put, yeah, the day you put your name on that deed is the day that's when you're making money or not making it.
Ken McLachlan (14:53):
And I also have heard that from people that I know. I believe this and I know the other people that invest. One other thing that I regret is not doing it sooner.
Brad Closs (15:02):
Yeah. Yeah, me too. I wish I'd have jumped in sooner,
Ken McLachlan (15:06):
Not starting at a younger age and not doing it, and I didn't really matter to me what the market was like. I didn't really, I want to have your opinion on it. Some people say, well, it's not a good time to buy. It's a great time to buy or whatever it is. And to me, it didn't matter. I think if I did my research and I looked at the numbers and the capitalization rate or the cash flow and the stuff like that, it didn't matter to me what the market was like and all that stuff. Is that your attitude as well?
Brad Closs (15:33):
Yeah, I totally agree with that. The best advice I got was, somebody said this to me, real estate, get it when you're young, when you buy real estate, when you're young time's working for you, if you wait time's working against you, because real estate's always going up over time. If you wait, you're going to pay more later. And that made so much sense to me. And so I had the outlook. I was going to buy as much real estate as I could before the four lane highway came out of Ottawa to Carlton Place. I figured when that happened, Ottawa value would be connected to Ottawa like never was before, and then the values would become fairly equal. And that's exactly what happened. And so I really benefited from getting my hands in as much real estate as I could before that happened. Don r Campbell in Real Estate Investment Network, he said, look for the construction of New Highways because the money will come right down the highway. And that's exactly what happened.
Ken McLachlan (16:20):
So look for the construction of New Highways because the money will fall or flow with the highway.
Brad Closs (16:26):
Yeah, it'll come right down the highway. And I actually came up with a calculation like say around 5 million cars go through Carlton Place coming out of Ottawa. And so say they make an average of a hundred thousand a year, say 5 million times a hundred thousand, well, that's the amount of money that's coming down the highway.
Ken McLachlan (16:42):
Wow. So it gives you, that's the opportunity, money that comes your way. So you do a lot of work in the Ottawa Valley and Pet Wawa and Pembroke and that type of thing.
Brad Closs (16:52):
Yeah. Yeah.
Ken McLachlan (16:54):
Do you go other places as well in Ontario?
Brad Closs (16:56):
Well, first Smith Falls mostly. Yeah.
Ken McLachlan (16:59):
So if you had me as your client, I mean typically a meeting would be that you would assess what my goals and aspirations were, obviously. And if I was looking for capital gain or cashflow, are there's two different animals to look at? Arthur?
Brad Closs (17:19):
Yeah.
Ken McLachlan (17:21):
So would you just analyze me completely what I want my ability to buy and that kind of thing?
Brad Closs (17:26):
Yeah. I would look at, say I found buyers will generally buy in a location that's similar to where they grew up in because familiar with those types of people. Say if it's a blue collar town they grew up in, will they feel comfortable interacting with those people? If they grew up in the middle of a city, will they feel comfortable interacting with those people?
Ken McLachlan (17:50):
And the formula that you have, you can actually plug that into any market in any part of Ontario and figure out the value and the projected value based on rents and everything else going forward. And that skill is not many realtors can do that or spend the time doing that really right now.
Brad Closs (18:10):
Yeah. And that's exactly what gave me the confidence to buy.
Ken McLachlan (18:13):
Yeah, I think that's brilliant because there aren't a lot of people that are doing that now, and it's important to, have you ever bought with a partner?
Brad Closs (18:21):
No. Me, my dad and my sister.
Ken McLachlan (18:22):
But other than your family?
Brad Closs (18:24):
Okay. No, other than my family, no. Yeah.
Ken McLachlan (18:27):
Would you consider that or have you helped people buy with partners or what's your experience with that?
Brad Closs (18:33):
My dad told me to try to avoid that, and maybe he wasn't totally right saying that, but I think he meant more so in the beginning because the partner may not be as say, knowledgeable or committed as what I am, so the partner isn't putting in as much as me, so then therefore it's not an equal partnership. So my dad,
Ken McLachlan (18:55):
You can help people if they wanted to partner up, put people together with shareholders agreements, you can rely on them and steer them in the right direction at all times like that. Yeah. And for mortgaging, have you found that difficult, more and more difficult to get mortgaging?
Brad Closs (19:09):
No, I've found it easy actually.
Ken McLachlan (19:11):
Do you do private money or do you do institutional?
Brad Closs (19:14):
No, I have all bank mortgages. All first mortgages. Wow. Yeah. I have had the most luck with the Royal Bank because they would finance up to a six unit residential building on a residential mortgage versus a commercial mortgage. I see one point there. Yeah. The point there, I had around 10 mortgages on four to six unit buildings, which were really commercial buildings, but you could get a residential mortgage on them. And then I went variable from 2008 right through to 2022. Over a 15 year period, my average boring rate was 3.25%. Wow. And so three quarters of my mortgages or more were variable, but then I could see this gravy train wasn't going to last forever. So I started to lock them in. And so I got three quarters of my mortgages locked in on five-year closed mortgages with all the renewal dates staggered before the rate started to go up. And so I felt like I was very fortunate to put myself in that position, but I had studied it. And so I just had a feeling, and I can't really say I had a formula that would predict that the rates are going to go up, but
Ken McLachlan (20:23):
Your inclination, because you knew the market, you knew you were starting it, and you do that for your clients as well, you would advise them going forward and when to do lock in and not just, it's important to people to hear that you just not only buy and sell for yourself, you actually help a great deal of people do what you're doing. So the knowledge that you have that you've actually live and breathe it for yourself is you're actually helping other people doing it as your business as well. We're going to get into that in a minute.
Brad Closs (20:49):
Yeah, that's right. Yeah.
Ken McLachlan (20:51):
So what would you tell me if I was a younger person? I just asked you the question, how the hell do I go about getting into this thing? What should I do, Brad, how do I start?
Brad Closs (21:01):
I would say Don r Campbell, he asked his audience with real estate investment network, where do you buy? And so everybody had different answers, and he said, you buy outside of the boom. The Olympian York had a statement that harmonized with that. They said The best place to invest in real estate is the most severely depressed area you can find because at some point in the future, that area won't be depressed. So you to try to locate a market that's saved like Carlton Place before the highway come down, buy before that, and then once the highway's there, then your prices are a lot higher. So try to buy in a depressed area where the values are low, but things are happening financially. The prices are going to go up. Like say a lot of people say moving out of Ottawa to this commuter town, like say Perth or Carlton Place or Almont, those types of towns. Yeah,
Ken McLachlan (21:58):
Because growing the opportunity, you said follow the highway, wherever that's going on that. And there's little opportunities throughout Ontario. Absolutely. Through Ontario. There's other opportunities that are out there.
Brad Closs (22:09):
If I was in Toronto, I'd try to buy outside, say on the fringes of
Ken McLachlan (22:13):
GTA out in Durham, past Durham, actually rip that area out there in Claremont and all that kind of thing. So there's lots of opportunities out there. So you would sit down with a person that, a young person, or it doesn't have to be a young person, but a person that wants to start to be an investor, and you would coach them through it, help them determine the best thing for them. You would advise them on how kind of money they have to put in with the projection should be, and walk them through every aspect of the transaction to help them be an investor and encourage them along that way.
Brad Closs (22:44):
Yeah. I had some clients, they only knew one thing, and the one thing they knew was to go ahead and buy. They really didn't know anything about the business.
Ken McLachlan (22:51):
Wow. This has been great. I think there's so much knowledge that you have to instill in people. And I know that you are, and there's a lot of people that real estate people like us, that we do so many things. We might dip our toes into investment properties and you might do whatever, residential, multi-family homes, but you focus just on investment properties, correct? Yeah. Where you do that, you help people with the knowledge that you have that you've learned after all these years, 26 plus years of doing this business, and you've actually have a framework that you've done it for yourself that you can show people, you know what? It's not just me telling you what to do. I've actually done it so the product knowledge is there so people can rush assured that they're there. It sounds like I'm really doing a commercial for you because I am, because I think it's so important that people, when they're wanting to get investments, they actually get involved with people that really have lived and breathed it and done their thing and offered it.
(23:50):
I'm so proud that you're working with Hallmark that you can help people do this and help your clients do this. And actually, you help other agents as well. You educate them, you train them and do things like that. So Brad, this has been amazing. Really, really good. A lot of information here. You're from Ottawa, but tell people that you work in the Ottawa Valley, you're doing a lot of work with Bill Myers team. Correct. Tulip team on that. And you focused a lot of your stuff on education, which I'm really proud of that you've done. You spent years and years getting your certification, which is, I mean, we've talked a lot about that, you and I, and how you've done that. And I love that you have this knowledge that you actually take the time to learn and you help your clients and other people learn what you've learned along the way. So I can't highly recommend you more than you have for their product knowledge, what you have and the ability to help other people. So how do people get ahold of you, Brad?
Brad Closs (24:46):
Oh, they can just call me six three two hundred 1000.
Ken McLachlan (24:51):
And what's your email address?
Brad Closs (24:53):
Brad.closs@hallmarkottawa.com
Ken McLachlan (24:59):
This has been amazing, Brad. You're incredible. Thank you for doing this, and I'm proud to be working with you. And I know the work you do for other people makes a big difference in their lives. And listen, buy one property a year, an investment property a year, and Brad will help you do it or educate me for you. Thanks, Brad.
Brad Closs (25:15):
Okay. Thanks for having me. Have
Ken McLachlan (25:16):
A great
Brad Closs (25:17):
Day. Thanks so much.
Ken McLachlan (25:23):
Thanks, Brad. I really appreciate you being here today. It's been so much information that we gathered from you, and I'm sure people will have a lot of questions. I'm glad they have the email address to get ahold of you. And if you like this podcast, we'd encourage you to press, like subscribe to it and tell your friends it's something that we are trying to get out there and really talk about our industry and what behind it and how people get through it. And it means a lot to me to have your support. And I hope you have a great day and make somebody happy out there today.
