S6 E14 | Insider Real Estate Development

Okay, we're getting pumped. We're getting fired up. We're doing the things we're talking about buying real estate. Everyone's on the edge of their seats because they want to know how.

They're asking for more.

They're asking for more. And Lithuania's blowing up.

Lithuania, we love you. Thank you for making us number one year after year, six years in a row.

Appreciate you so much. Next is Latvia. We're coming for Latvia. All right. If I want to start buying a bunch of real estate and I have a job, I got, I got cash, I got money. Like, how do I do it? What's the loans available? Like, how do I go about getting these houses?

Well, there's a bunch of different types of loans.

Okay.

And it depends on what your goal is. But if you're looking for a construction loan or a renovation loan specifically, those are out there.

So.

So if you have no credit, no experience, and you've never done this before, you're probably gonna have to start out with private money.

Okay.

Build your resume, and then you can go to a bank and say, hey, I actually know what I'm doing.

Okay.

And so when you go to get a construction loan, they're gonna appraise the lot and then they're gonna look at your building plan. So you cannot get this loan until you have a full set of architectural drawings that, depending on the state, have whatever approvals are needed to be able to build those. So California is going to take like 19 years, probably correct.

Forever.

But in Tennessee, they are pretty good about it, and they make sure it fits the height restrictions and whatever the zoning overlay is for it to be able to be built according to those plans. I don't just print something offline. You need to know what you are allowed to build on that lot before you buy it. And then they'll say, okay, before you buy the lot. Before you buy the lot, you need to know what you're allowed to build on it. Because if I bought a lot for 500,000 and I can only build, build a million dollar house on there, and it's going to cost me $700,000 to build it, why would I pay $500,000 for the lot?

I don't know. Why would you?

You can't do it.

Okay.

Oh, not well.

Yeah. Yeah.

So the lot should be one fourth of your build cost or, sorry, your sale price.

The lot should be one quarter.

One quarter of your after build value. Yes. So if you're going to sell it for a million, you can pay 250 for the lot.

Okay.

Good rule of thumb.

That sounds like a great deal.

Very good rule. Some people have eked it up and tried to get to one third, but you are probably going to lose really bad pretty soon.

Okay, so hold on. This is already so good. You're blowing us away over here. Appraising the lot is. Before you even buy the lot, you said, make sure you know what to build on it. How do you know that?

So when I'm looking at a lot of, let's say, East Nashville.

Okay.

I'm driving by. First thing we'll see is, does it have an alley? Okay, what are the setbacks? So if you're getting a triangle lot, you're probably screwed. There's so little you can build on a triangle lot. Those are a nightmare. But if it's a rectangle, you've got all this other building footprint because there's just. You have the setback. So it's 5 to 10ft, depending on that. And then the front, at least in Nashville, has to be the average of the two houses next to you on the setback. So if you have a house that's a hundred feet back, it's just this quaint little cute thing. But then the other house is 10ft from the front. You have to take the average of those two, average of these two, and that will set how far back on that lot you have to be built.

Okay.

And the reason is the city wants it to look nice.

Similar.

Yeah, it wants it to have that. That flow to it. Not. And so those rules came in play in these older neighborhoods now, not back then, where they were just able to do whatever they want. And so they're trying to have that symmetry, and so that sets what you're allowed to build. So if my building footprint is really tiny, then I know I can only build a house X amount of feet tall, X amount of feet wide, which gives me X amount of square feet available to be able to sell at. What are the comps? So if you've got $200 a square foot and you can only build a thousand square feet, that's really different than if you could build 4,000 square feet.

Yeah.

So that would then dictate what you can pay for the lot. Not all lots are created equal.

That makes so much sense.

Yeah.

Yeah. But it's never put that together.

And if you're building. If you're buying a lot that has a house on it, too, you do need to understand what's it going to cost to demo that house. Then you add that to the lot cost as well. Okay, so there's a. There's a decent amount of science, but it takes probably 30 minutes for you to look up in your city. And the tax statement attached to that house is normally going to tell you what you can put on it for zoning. So if there is a historic overlay, there goes all of your money. It's really expensive and difficult to build an historic overlay. They're much more particular on your design, your height, your window type, all that stuff. And I appreciate historic overlays a lot. They really protect a lot of beautiful neighborhoods. But if you're trying to make money on this and you're new, don't pick in a historic overlay.

And it'll tell you that on the tax statement.

Yeah, normally it does. And it normally will say if it's in a flood zone when you are getting your survey. Never, ever, ever buy a lot without getting a survey. Ever. My gosh. My friends bought like 10 houses in this one street. And so they thought they knew everything. They bought this house, tore it down, go to pull their building permit, and they're like, oh, you can't build on this lot. Like, why? There was just a house on there. And they're like, oh, there's a historic pipe under it and you cannot replace it. It will affect this whole region. So this is deemed unbuildable. And they're like, what? There was already a house on it? Yeah, but it was this tiny little thousand square foot house from the 1800s and you already done with it. So they ended up selling it to a house I built.

The.

The homeowner of the house I built has extra yard for their kids. They lost like $200,000. Oh, yeah. So always get a survey. And when you're getting a survey, just going to run wild. Get a dang tree survey. Understand where those power lines are. Ask where the trees are. Ask where the pipes are.

There's a difference between a survey and a tree survey.

You have to actually tell them you want to see the trees on it. They won't just put it on there. Yeah, they don't. They won't put the electrical lines on there. They won't say, yeah, you have to.

Actually ask them in the survey to add these things.

This is sponsored by Pain.

Welcome to Pain.

But Pop question. Why would you want to know where the trees are? Who cares?

Because that's building, right? Like, you got to know where they're at to build something.

Chop them on down. And I don't Chop the trees down.

Of course you don't.

So you now have this hundred year old beautiful oak tree that you worked around instead of. Oh my gosh. We designed this entire house and oak trees right in the front left corner of the house.

Fun fact.

And the neighborhood hates you.

That's what my dad did. Yeah. The house I lived in, he didn't want to chop down the tree, so that's why I lived in the tree house.

I love that.

Yeah. Just put the house around the tree.

It's a beautiful amenity. And I've actually been very loved by a lot of communities for protecting these trees because they're really old and people just download plans off the Internet. Don't care. Just, just go and go. And I'm like, no, you have to care. Caring weirdly will come back to you too, of course. And it, it, I never thought that it would pay off in the way that it does because I, I always paid more than my competition did. I wasn't ever trying to cut the ladies legs off. I protected the trees. I cared about like the historic look of the community. I just spent a lot more give a crap time.

Yep.

And the interesting way it came back to me is when people did want to sell their houses, they always called me and said, I'm only selling to Brittany. I'm only selling to Ariel. So it was really fun. I got more deals than anybody because the neighborhood themselves wanted what I was investing in. That community.

And they knew you would care and take care of everything. Oh, it makes perfect sense. I love that.

Okay, so when you go to get a construction loan.

Yeah, yeah, yeah, yeah, yeah.

So you've, you've got your survey.

Yep.

You've got your building plans.

Yep.

And you've got your projected build cost and sales price if your plan is to sell it. And then the bank will say, okay, based on the total that you've got between buying the lot and all of the build costs, we'll give you 70% of that.

Okay.

You need to put up 30%. They won't even make you put up 30% down up front most of the time. So either they'll make you put it down right away or they'll take out 30% of each draw and make you do that or they'll make you do the last 30%. Every bank is different.

Okay.

And so it is negotiable. One of the best things you can negotiate as a pro tip of a lifetime is draws along the way. So getting a construction fee or a builder fee for yourself. Imagine you've got 30 houses going or even two houses going and this is your full time job. But you have no income. They know that they need your attention. To manage this project. You can actually pay yourself along the way and have some kind of an income built into the loan.

That is a pro tip of a lifetime.

You can also ask for interest carry to be part of the loan.

Okay.

So instead of coming out of pocket for interest every month, it's just in the loan. Much better deal. Protect your cash flow at all costs. All costs. It's so expensive.

Fascinating.

It's so expensive. So, yeah, it's pretty easy to get a construction loan if you have something on your resume. If you don't find someone to partner with.

Okay.

Don't make all the money the first time. Really follow them closely. Get things on your resume. That's one of the best things I did was working with Polly for free. And even when I was living in my car, I was building my resume.

Yep.

And I got to say, my team and I did these. So he didn't pay me in money, but he paid me in resume.

Sure.

Which was awesome.

Sure. I mean that's the experience. Right.

That's documented the crap out of those houses too. I made sure there were winners. I took the before and after pictures. Like somebody's got to believe in this 21 year old girl. And these banks are going to give me a hard time. I already knew it. So it was smart. I, I did a lot of things really right. In the pursuit of learning this difficult business now.

So earlier the onset of this, you said construction loan and then renovation loan, which I promise I've never heard of that in my entire life.

Really?

There's not only a difference, I'm assuming, but the renovation loan is. It's already been built.

Yeah.

I mean, what's that difference of that?

Like they're going to ask for your actual contractor bid on both of them. And they'll say, let's say it's $100,000 to renovate the house. And so let's say it's $200,000 to buy it and $100,000 to renovate it. They're going to give you a percentage of that 300,000.

Okay.

So they're not going to ask you for. They might not ask you for build plans, but they will ask you for the build specs. Okay. Right now it's three bedrooms, two baths. What's it going to be when you're done? Four bedrooms, three baths. Or we plan to spend this much in the kitchen, we plan. Like, you have to actually tell them your plan and where the math came from, and then they'll fund the.

We say, then this is the bank, right? You're talking to the people at the bank. Yeah, yeah, an individual there. Now do those people. They can. They can give you a hard time, though.

I mean, most of my construction loans over the last X amount of years, I got 100% loan to value. Really? I didn't have to put anything down. Yeah. And it was at 5% forever, which was awesome. So I didn't have to come. Very few banks asked me to put money down because I was so good. And when they did, they said, I only want 30% of the lot cost, not the whole project. Big difference. Yeah, really big difference. For your cash outlays. So you really do have to think through how much cash you have to play with. How much holding cash do you have? What is the interest rate if you are borrowing an investor's money for the cash down? So I would do that. I'd have some other investor actually put the 30% down for me, and then they'd be the second lien on the property. But I made sure there's enough equity there to be able to protect them. So lots of different ways to do it, but pretty easy to get both renovation and construction loan. Just put your little package together. I do all their work for them. At this point, you can probably use ChatGPT to ask them what should be in my renovation loan package that I present to the bank so that they give me the loan.

That's such a good question.

You can also just call your banker and ask them. Just call them and ask them, hey, what do you need to see from me? And instead of, you can just call.

Up the bank and tell me what I need.

What do I need to qualify for this? And then if you. This is a huge pro tip. If you get rejected by a bank, what do you do? Go to another one, ask them why. Why did you probably do that with ladies, too.

Yeah.

Why did you reject me? Oh, well, you just don't have enough years of experience. Okay, so how short was I? Well, one year. So can I come back next year? Yeah, absolutely. What do I need when I come back next year? Or your credit was messed up. Oh, so if I just pay down this credit card by $3,000, you'll give me a $400,000 loan? Yeah. Oh. So again, I'm always saying communication, taking people's orders, asking people, what does it take for me to qualify what does it take for me to be better? What does it take for me to earn your business? What can I do for you? How can I make you feel more loved and respected by me? Like, just ask.

Yeah.

And people will tell you. That's why I'm so direct. Here's exactly how to win.

Yeah. This is how you win.

This is how you get fired. This is how you win. I like the clarity all the time, but, yes, it's. It's not hard to get those types of loans.

Okay, other types.

There's a bunch of different types of loans, but those are if you're looking to do new construction or renovations, those are at least the blankets they'll fall under. And then they'll tell you what special thing they have going on. Because banks are running specials. Because they're looking to give you business.

Yep. Yep.

Because they lend money for a living.

Yeah.

So they're trying to get people to ask them for loans. Instead of being intimidated, know that they want your business. So how do I get begged for? I have had. There's actually brokers for big deals and all of my apartment complexes I've ever bought, we use a broker because he'll go out and hustle the deals for you. Oh, I'll give them 80% loan. Well, I'll give him 90. Well, we'll give them 4% interest rate. We'll do 5. But we'll do interest only for the first three years. Can you do interest only for the first year? Yeah, we'll match that. Okay, well, we'll do, you know, no clawbacks, like. Well, they just compete because they want to fund your deal. That's actually how you need to reframe correct lending. These people are trying to place their money. If you can be the best bet and you can be branded well for keeping your word, you're going to have people give you better and better terms. That's why the rich get richer. Yes, if better investing terms, huh?

And they know the rules of the game. They know the people that own the rules. Yeah, right. One of the things that you've taught me and a couple of other really powerful and wealthy real estate investors taught me was pretty much what you just said. But for me to sum it up in my words, you, the bank works for you, act like it.

Yeah.

Like, when you go into a bank, they want to give you money and you're paying them for that money. So they are your customers. You can say, like, listen, I have this amazing deal. Wouldn't you like to fund this incredible opportunity? Right. This is the benefit to you as well.

And know that that's not even the person you're interacting with.

Money, Correct. Yeah, exactly.

It's not even their money. They work for the bank to get them loans. So just change your frame of reference.

So it sounds like in doing all of this, like, we're going to the bank, we're getting constructions, we're renovating. It sounds a little bit like development. So this would be considered development.

Yeah.

Okay, so what's the biggest pro tip of a lifetime, if you will, for being an incredible developer?

Oh, man. I don't know if you're ready for it.

I. I have my pen and paper ready.

It's pretty good.

I'm ready. I'm pumped.

Pretty good. So I was just talking about taking order, asking for clarity, and then just doing the thing that people want. What if you did that for the city?

Wait, what?

So there are city planning, entire departments for most every city should have them. They should be pretty robust. And they actually release the plan of the city. It's like cute font, and they work really hard on it. And this zoning department will actually say, this section of the city is zoned for this. This section of the city is zoned for this. And they change it all the time. So you could be in a regular neighborhood and then they put a historic overlay on it, but you do have the right to fight and blah, blah, blah, blah, blah. Point is, that city will say, you know, as Nashville's growing, based on how many people are currently moving here, we really need more affordable housing or we don't have enough housing for all the areas that people want to live. So instead of being able to put one house on this lot, let's zone it for two. For any lot in this size square footage with this amount of frontage, you can now put two on one. Guess what your lot just did. It's like a stock split.

Yeah. Yeah. It feels like a double.

Yeah.

Yeah.

I don't even know if I use the right words, but yeah. Okay, good.

Yeah, you nailed it.

Yeah. So now your lot is worth double. Not quite double, because two on one lot's not going to be worth the same. But point is, I have friends that by simply just reading the map of what the city released, no way. They swooped in.

No way.

And bought these little houses that were worth $400,000. But because they're on this busy street, the city zoned that lot to be a 30 story high rise.

What?

What do you think? This $400,000 little single family home lot is now worth.

No way.

Yeah. Millions and millions of dollars.

Whoa.

Yeah. So you do lot assemblies and then you can build a big 30 story thing and so then you can sell it to some Californian.

Yeah.

And. And it's worth a lot because. And I've done that a lot. Not necessarily with the plan to flip it to somebody else. So I've done a lot of simulations where I've taken seven lots and instead of seven single family homes being able to be built there, we put a five story building and 305 units. So what do you think it was worth if you could only build a house versus if you could build 305 units and two stories of commercial? So it's like worth a lot more. So that's putting things together according to what the city's already saying they're needing. If you're filling the city's order, they're not going to say no. So all of what you're trying to transform and make the city better because the professionals are saying if we don't put more density here, no one will be able to afford to live in Nashville. They really are trying to keep it affordable. They want to keep the creative class here. But not if developers don't come in and build more, then no one can be here. One little single family crap hole is going to be worth 5 million.

Right.

And that's not. That's not where a city grows. Well, so you can make millions solving a lot of problems.

I feel like this episode by itself is worth all the money that people are paying to listen to Broke to work.

Hey man, find needs, figure em out. Solve world problems, be a force for good and make a lot of money doing it and help a lot of people.

Come on, family. That's what we're going for. That's it. And that is why we are taking so much time, energy and effort to pour into every single listener. We really appreciate your time. We appreciate your energy. Thank you so much for being a part of the broke to awoke movement Family. We're not a trend. We are shaping and changing the very landscape of this earth. Thank you, Brittany. That was a great, great episode.

Thank you. If you have watched or listened to this podcast and had your heart set on fire and you're so excited to go to the next level, but you are looking for a coach. Both Jeremy Alexander Newsom and myself have been struck by God and felt convicted to coach people. Now. We're not the right coach for everyone, but we might be the right coach for you. Go to broketoawoke.com reach out to to us and we'll have the conversation.