Tanh Truong is the founder of Proton Profits, an investment firm that strives to provide its investment partners with diversified, tax-favorable opportunities coupled with superior risk-adjusted returns. He began his career as a full-time pharmacist before transitioning to single family flips and eventually to multifamily and commercial real estate. In this episode, Tanh discusses the importance of finding a mentor in commercial real estate, why he recommends transitioning away from multifamily, and his recommendations for getting started in CRE investing.
Tanh Truong | Real Estate Background
- Founder of Proton Profits
- Portfolio:
- $100 million and 1 million square feet in AUM
- Based in: Cincinnati, OH
- Say hi to him at:
- Best Ever Book: The Go Giver by Bob Burg
- Greatest Lesson: Share your knowledge with others looking to learn about commercial real estate.
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TRANSCRIPT
Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with our guests, live at the Best Ever Conference, Tahn Troung. Tahn, thank you for your time today; give the Best Ever listeners a little bit more about your background and what you're focused on now.
Tahn Troung: Yeah, absolutely. So I actually started my career as a pharmacist; I grew up on the West side of Cincinnati, born and raised. I practiced for about three years or so, and started learning about real estate investing and just traditional investing in general, and back in 2018 I pulled the trigger into real estate investing in single families, small multis, built up a small portfolio with a couple of partners in pharmacy school, and did that for two, three years, and then finally transitioned over to commercial, because in my eyes, that's where the yield really is.
Ash Patel: So were you working as a pharmacist when you started investing in real estate?
Tahn Troung: Yes. So I was a full-time pharmacist; I bought all these properties via relationships or off market, and had property management in place to help -- well, back up. At first, I was self-managing myself, and working a 40-hour week as a pharmacist. It was very difficult to handle some of these calls. I remember a tenant left her water on, and this was an upstairs tenant, and it flooded the entire bottom floor unit. And I'm getting literally 100 calls while I'm at work, dealing scripts etc. Nonetheless, it was a headache, which is why we got property management involved, and it's been a lot better ever since.
Ash Patel: And Best Ever listeners, I've known Tahn for a number of years, one of my closest friends, so I know the answer to this question, but I'm going to have him give it again. Tahn, what made you quit pharmacy and go into real estate?
Tahn Troung: It comes down to time. When you're working as a W-2 employee, you are renting out your time for a dollar amount. So when you actually realize that your time is not worth whatever corporate America is paying you, at that moment in time I realized that I need to find something where my time is worth a lot more than what they're giving me.
Ash Patel: Alright, and then at some point you transitioned from residential to commercial. Why did you do that? And when we say commercial, we mean non-residential commercial.
Tahn Troung: I transitioned to commercial because I started learning about the benefits of it. One, yield. Two, your tenants are really business owners. So you're not dealing with clogged toilets, you're not dealing with somebody who's unsophisticated, calling you at all hours of the day; you're dealing with somebody who's actually more professional. So the headache factor in commercial is a lot better when you compare it to residential.
Ash Patel: How did you get started in commercial?
Tahn Troung: Well, there's not a lot of resources out there. I did a lot of Googling, I tried to get all the information that I can for free, via YouTube, books etc. But I found that everything that I acquired was very rudimentary; it was very basic information. So I started looking for people who were in that space to pick their brain, to learn from them. So luckily, through real estate networking, I found a mentor, and pretty much just harassed them; Facebook-stalked them, said "Hey, I just need an hour of your time. 30 minutes", what have you.
So this went on for several months... And as you can imagine, business owners are very busy, so I always got a no for an answer. And eventually I just said - and this was pretty much throughout the week. And on the weekend I'd just reach out to them and be like, "Hey, I just need an hour of your time, at most." Some of the things that I've done was asked them for going out to dinner, "I'll pay for your wife, your kids, just to get some face time." So this particular weekend, he was gracious enough to say "Yeah, man, you can meet me, but I'm out on my lake house." I was like, "I don't care. Send me the address. I'll be there. 30 minutes of your time, and I'm out." So he gave me his address, an hour and a half out, drove an hour and a half, and started talking to him; that 30 minutes to an hour actually turned into eight. So through that relationship, I learned a lot of how he has invested over the years, and pretty much acquired all the knowledge that he was willing to give me.
Ash Patel: So we're at a predominantly multifamily conference. What's your advice to residential multifamily people in transitioning into commercial?
Tahn Troung: I think you really have to look at the quality of the deal, versus the quantity of the deal. A lot of people you talk to in the multifamily space, they're always "Yeah, I have X amount of doors." In commercial, you don't really talk about doors; you talk about the quality of your investments. If we really measure doors, we would only have 30-40 doors. So focus on the high-quality investments, and that will get you to your goal a lot faster than going from a quantity perspective.
Ash Patel: What's the hardest thing you've learned in commercial real estate investing?
Tahn Troung: I learned that lawyers make it very, very challenging for you. So in commercial, you have lots of leases, lots of legal jargon that you have to actually work through. So these leases in some of these commercial properties are very nuanced. So you have to know what to look for. Sometimes one sentence or one paragraph could really tear your investment apart. So reading it, it's like a sedative. If you want to fall asleep, you read one of these, it'll get the job
done.
Ash Patel: Give us an example of that one paragraph in a lease that can change a deal.
Tahn Troung: So the first thing I can think of is an exclusivity clause. So let's say a coffee shop was in there, and they have an exclusivity clause that says "No other tenant is allowed to sell coffee." It could be a branded name coffee, or just coffee in general. So now if you have another tenant who's a restaurant, or somebody's selling the Keurig pots, that limits your ability to pull in those other tenants, and eventually limits the salability of your property, because the next buyer will not have the flexibility to put another tenant like that in.
Ash Patel: Alright, so you're making this sound easy. You were wholesaling deals, doing some fix and flips... What was your breakthrough in commercial? What was your first deal, and how did you penetrate that market?
Tahn Troung: Once again, I did a lot of wholesaling, fix and flips in the single family residential space. And my first commercial deal was pretty much just looking where no one else was looking. I looked at broker websites that were under-marketed. So it could be a commercial brokers, it could be residential brokers. And a lot of times when they market these properties, they fail to market it to the masses, call it LoopNet, CoStar etc. So it takes a lot of grind to look at all these broker websites and look through all these deals. But luckily, through that process, I found the first commercial deal, which was roughly 100,000 square foot strip mall about 75% occupied, and selling at close to a nine cap. So at this point, I really didn't know much about underwriting, so I relied a lot on my mentor for that. But it was a deal where it was pretty much in my backyard, and it was in a very, very busy part of town. So location was phenomenal in my eyes. So I thought leasability to get it from 75% to 100% or 90% occupied would have been a simple feat. And once we looked at the numbers, the cash on cash actually looks very appealing, with upside as well.
Ash Patel: Can we deep-dive into that deal?
Tahn Troung: Absolutely.
Ash Patel: What was the purchase price? And how long ago did you guys buy this?
Tahn Troung: This property was purchased new year's eve of 2021. Purchase price was $5 million; listed at 5.25. Purchased for a little bit over five. So it was a million dollar raise; once again, 75% occupied. It was anchored by a Dollar Tree, and it had insurance company, a restaurant... It also had a local furniture store that was paying close to half of what the market rent was. They were month to month tenants, and a lot of the leases honestly were under market as well. So the opportunity there was getting that particular tenant up to market rent, and lease up the remaining spaces to market rent.
Ash Patel: What was the cash on cash return on day one?
Tahn Troung: The cash on cash return on day one was 19%. And upside, as of today - it's close to 100% filled - we're looking at high 30s. I want to say 39, if I'm not mistaken. So we raised capital for that particular deal; our investors, we gave out an 18% preferred return. However, we did flip the deal structure on its head. Typically in multifamily you see 30/70 splits, where the GPs get 30%. So this, we did vice versa, and gave the 18% pref. Additionally, in the first year, we found out that we could create an outlot in this particular deal, and through the rigorous process of creating the outlot we were able to sell it for a little bit under half a million. So, in that first year, our investors actually got paid out 22%.
Ash Patel: Okay, hold on... So 18% preferred return, and then the GPs get 70% instead of 30%.
Tahn Troung: Correct.
Ash Patel: Okay. And what is an outlot sale?
Tahn Troung: So an outlot is if you can imagine a parcel of land - usually they're rectangles, unless you've got some other messed up parcels. But you take that rectangle, you cut a small piece off of it, and you sell that parcel. So a lot of work that has to be done with the city, and your local jurisdiction or municipality.
Ash Patel: Tahn, how long are you guys gonna hold this asset?
Tahn Troung: So typically, we have a three to five-year plan for these properties. But in my eyes, I look at where the economy is today, and what we can do. So we're at 39% cash on cash today; if we wanted to sell it today at a seven and a half cap, I think it's valued at a little bit over $8 million. So you have options here; your option is to sell it, reap the rewards, pay off your investors, or if the economy's not in a good spot, then you can continue cash-flowing, so your investors continually reap those rewards.
Ash Patel: Alright, one more time, the initial cash on cash return was what?
Tahn Troung: The initial cash on cash was 19%.
Ash Patel: 19%. Alright, so this sounds too good to be true. A lot of the Best Ever listeners are going to be skeptical. What are your thoughts on that? Is this something that you can replicate?
Tahn Troung: I definitely think it's replicatable. There's so much less competition in the non-residential commercial, that you're not fighting with a lot of people that are in the same niche.
Ash Patel: And Tahn is pointing at the audience, who is predominantly multifamily.
Ash Patel: No offense. But is it replicable? Yes, it is. It's a large grind; you have to find out ways to actually find deals, whether it be on market or off market, and you actually got to put the hours in. So I spent probably 50-60 hours a week just plainly looking at deals. So it's kind of like rubbing a tea strainer against your forehead... So if you want to look for off market properties, there's other ways to do that. But you can leverage VAs, you can leverage some type of training system, to where you have people coming out looking at deals for you. Direct mail, cold calling, etc.
Break: [00:13:01.17]
Ash Patel: Give us an example of another deal that you've done with great returns.
Tahn Troung: So this second deal, this was a 38,000 square foot warehouse. This deal was found off market via a text messaging campaign. The owner was a little bit on the older side, looking to divest all of his investments. And this deal was occupied by two tenants; cash on cash on day one was 15%, with long term leases. Their leases ended in '26 and 2030. 60% occupied; if you leased out the remaining 40% of space, your cash on cash becomes somewhere in the mid 30s.
Ash Patel: How did you find that deal?
Tahn Troung: Off-market. So buying some of the data that's available out there in the commercial realm, sending out a lot of text messages to the local market or whatever market you're focused on in order to get that... And the owner, surprisingly, being a little bit older, responded to a text message.
Ash Patel: Give us an idea of an epic failure in real estate. Something you learned a hard lesson on.
Tahn Troung: Oh man... I haven't learned too great a lessons in commercials, where we had downside, but I'll share a story in the residential space. So this was when we were wholesaling. And we acquired this property through off market direct mail. The price was very, very appealing. It was $28,000. Properties around there were selling for 150k, 160k. And the issue with this was the owner was not really a real estate investor. He was more so a business owner; he focused on a multimillion dollar business, and we had issues actually coming to see the property. Keys were changed, the tenants had not been paying, he'd been trying to evict them... A lot of headaches, right? So essentially, I bought the property sight unseen.
So now the headaches with that is I have to go through the eviction process. And during that process, it was the COVID moratorium. So it was extended by several months in order to get this tenant out. So at the point where I was able to get the tenant out, schedule the sheriff, etc, and the movers and whatnot, we finally got to see the property. So I did not walk into this property. I could smell this property from the street; the windows were open... So they're moving everything out. And it's borderline a zoo in there. You've got two dogs, three cats, a couple guinea pigs... They're moving everything out. And the movers came up to me and he goes, "Man, you're not going to believe what else is locked in this property." I'm like, "It can't be that bad. You got pretty much everything out." And he goes, "I am not kidding, there's a 400 pound pig in the kitchen, laying on top of six inches of feces." And I don't know if it was just all pig feces, or dog feces, or cat feces, but that's where the odor came from.
So eventually, I got all the feces taken care of, and sold the property at breakeven. So the lesson that I learned there is always go view the property, and don't take what the seller and/or brokers are telling you.
Ash Patel: You'll never buy another sight unseen?
Tahn Troung: I will never buy another property sight unseen.
Ash Patel: Alright, what's your advice to the Best Ever listeners that maybe want to look at pivoting into non-residential commercial?
Tahn Troung: I think multifamily guys, they have the knowledge to take down a commercial deal; you just have to be willing to find that information out there. Analyze a couple of deals a day, and eventually you'll get enough practice to the point where you'll be proficient at what you're doing. Find partners that are doing it. Use whatever means necessary in order to learn as much as you can, in order to take down these higher-yielding assets.
Ash Patel: Let's deep-dive into that. So when you say "Find commercial deals to underwrite", where do they go to find those?
Tahn Troung: I think Crexi and LoopNet are probably your two easiest places to go to. They have a extensive due diligence vault. So you can go in there, request the OM, read through a couple of OMs a day, whether it's in your market or someone else's market, that you have boots on the ground at, and just look through what these OMs have to say, and get to know the property in all of its detail.
Ash Patel: When you're underwriting a commercial property, what are some things to look for?
Tahn Troung: I would say location; as many of these real estate investors know location is key, you can't change location. If you have something in a good location, your risk of failing dramatically diminishes. Aside from that, you want to make sure that there's actually traffic coming to your property of interest. And you want to look at what type of tenants are there; will they survive after your your purchase? So your job as the landlord - you're a business partner in this venture if you take over a property. So you want to make sure all your tenants succeed, so that you are generating continuous returns. And obviously, it's a win/win situation for the tenant as well, because now they get to stay, and you build a long-lasting relationship.
Ash Patel: And with commercial underwriting, do you look at cap rate and NOI as well?
Tahn Troung: Cap rate, I tend not to really look at it. However, it's one of those where you have to look at it as a measuring stick, dependent upon what the interest rates you're getting from your funding source. Aside from that, NOI I do look at, but I have a more heavy focus on what type of value-add you can add to the property... Because even if something's listed at, call it a five cap, but you have a solid business plan in order to optimally manage this property, to add all this value, to get all this upside; that cap rate at the end of the day does not matter. So you want to make sure that these deals are not necessarily bulletproof, but at a point where all your risks are mitigated based on what you see and what value you're able to add to this asset class.
Ash Patel: How does lending work for non-residential commercial?
2; Typically, they are recourse loans; you're looking at a five-year, seven-year, or possibly even 10-year terms; balloon payment, of course. And your interest rates are fixed for those timeframes. You can always negotiate for interest-only. And typically, you get some points on the frontend as well. But right now we're seeing six and a half, potentially gonna go up to 7%. Does that answer your question?
Ash Patel: It does. And when you do interest-only, is that a variable rate? Or is it fixed?
Tahn Troung: Typically, the interest-only period is fixed at that interest-only timeframe, whether you negotiate for 12 months or 24 months. And after that it becomes principal and interest for the remaining term of your loan.
Ash Patel: Alright, so we hear a lot "There's a retail apocalypse. Office is dead." What are your thoughts on that?
Tahn Troung: I think there's a place for office. They can't stay working from home forever. Efficiency is just not there. And office spaces, if you ever go to an office, you see everybody hustling and bustling... And it kind of motivates you at one point. So I think office will come back at some point, I just don't know when.
As for retail, I think if you have particular tenants that are not necessarily -- well, I'll say, Amazon-proof, or internet-proof, they should survive. You can't buy a haircut online. You can't buy a burger online. So some of those services are still going to be there. And if you see doom and gloom in retail, figure out a way to be creative with it. For example, typically, retail properties are just man doors where your consumers walk in. But if you are able to instill a bay door, now the use of that property can change; you can have a different type of tenant occupy that particular space, that's not necessarily 100% retail.
Ash Patel: Explain that more. So you install a bay door into a retail building? What does that do?
Tahn Troung: That widens your tenant profile. So if you have one particular configuration, you might only be able to curtail to a specific set of tenants. Now, if you add a bay door, and people need storage, it allows them to transport their goods and store them into your building. So now your tenant base actually increased, so the leasability of it becomes a lot easier.
Ash Patel: Tahn, what is your best real estate investing advice ever?
Tahn Troung: My best advice is your true worth is determined by how much more you give in value than you take in payment.
Ash Patel: I love it. Tahn, are you ready for the Best Ever lightning round?
Tahn Troung: Yes, sir. Let's do it.
Ash Patel: Alright, Tahn, what's the Best Ever book you recently read?
Tahn Troung: I'm going to cheat and give you two. And this wasn't recent. The Go Giver is pretty much what I live my life by. And the second book is Atomic Habits.
Ash Patel: What were your big takeaways from both of those books?
Tahn Troung: So in Atomic Habits it really focuses on eliminating bad habits, while giving you the ability to create new habits. So my belief is that motivation gets you started. However, discipline keeps you going. And Atomic Habits helps you with that. The Go Giver is just a parable that gives you five short lessons; you can read the book in about two hours. But the lessons that you learn in there is applicable to life, as well as in business. And if you look at everybody around you, when you provide so much value, you yourself and your business escalates exponentially.
Ash Patel: Tahn, what's the Best Ever way you like to give back?
Tahn Troung: A lot of people in the residential space still don't know a lot about commercial. There's a ton of people that reached out to me for help in commercial. Happy to do that with anybody who's learning commercial, happy to teach you everything that I know from when I started up until now. And that has been one of my most rewarding experiences.
Ash Patel: And Tahn, how can the Best Ever listeners get a hold of you?
Tahn Troung: I'm pretty active on Instagram. You can search me at @pro_tahn. I have a website, protahnprofits.com. Reach out, let's get the conversation started.
Ash Patel: Tahn, I've got to thank you for your time today, sharing your story from becoming a pharmacist, going down the traditional route of residential wholesaling, fix and flips, getting into commercial, and killing it. So thanks for your time today.
Tahn Troung: Appreciate your time, brother. Hopefully the audience got some value.
Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five star review. Share this podcast with somebody you think can benefit from it. Also follow, subscribe, and have a Best Ever day.
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