Ultra Luxury Flipping on Zoom @ OCREIN | April 2021

Um, this month's speaker is Lloyd, who graduated from the University of Pennsylvania in 2010 and started his first real estate development project in 2011. That was quick. Today he focuses on developing ultra-luxury single-family homes in the $7 to $15 million range around the San Francisco Bay Area. Lloyd works closely with his wife as a team to acquire, fund, design, construct, and sell properties. Outside of real estate, Lloyd works full-time for Amazon and his wife, uh, at Apple. They spend their free time skiing, biking, and spending time with their 2 kids. On the Meetup website, I have his telephone number in case anybody would like to reach out after our talk here. So without further ado, I'll turn it over to Lloyd. And I mean, the reason I asked Lloyd, you know, real quick, the reason I asked Lloyd to speak is because of what he's doing. And he is a Pelago agent, and he just recently purchased a property and his commission, I don't remember exactly what it was, and I hope you don't mind me, but—

Go ahead.

It was over $100,000. And obviously, we, the company only kept $650,000, he kept the rest. So I think he's doing really good with that. And anyway, without further ado, Lloyd, go ahead and take over.

Thank you, Joe. So yes, so Joe gave a fine introduction, so I'll skip my intro section. But yes, I graduated 2010. I did So I did start my first development in 2011. The— what happened then was I met my wife in college. So, so we, we started like pretty early. She saw this house that was half abandoned from like leftover from the 2007-2008 crash. So we got a like pretty big loan for like what, what we could carry back then. And then we just built it up. It was over budget, over time, and anything that could have gone wrong went wrong. But in the end, we were saved by the market. So the market went up quite a bit since 2011, so we did make money there. But since then, we've been just building and building. We've done around 10 more. We don't do a lot. We're not a high-volume builder, but we We just build like 1 or 2 a year. And like every year, every house we build, we try to like up the price a little bit. So like Joe said, our most recent build, the most recent purchase was a $6 million piece of land. And we are planning to build a $12 to $15 million, depending on where the market is when we sell it, house when it's complete. So it's fun. And It's something we both really like to do. So I didn't really know what the format of this is, so I just prepared a whole bunch of like notes and I'll go through them. But like, if you have any questions, want me to like elaborate on things, just speak up. And, or Joe, I don't know, do you usually leave like questions to the end or, or is it more of an interactive session?

That's up to you. Um, you know, you can do it either way, whatever works best for you.

Sure thing. So I'll just go through. If anyone really wants to ask me a question, just go ahead and I'll— I can, I can help up there. But, um, like one of the most like, uh, common questions we get asked is like, why do you build like mansions rather than like, like why build a $10 million house when you can build a bunch of $1 million houses where it might be a lower risk or Or it might be like a larger scale. It might feel like it's a larger scale. And it's kind of in the Bay Area. It's like $10 to $15 million. It's probably on the higher end of the luxury market. Most houses here are sold like that people call luxury are usually around $4 to $5 million. With the recent increase in prices, it's creeping up to like $6, $7 million, but $10 million is definitely on the higher end. The reason we like 10 and above now is because there's a natural barrier to entry. Most unsophisticated builders would not pay $6 million to buy a piece of land and then tear it down. So what that gives us is it's a good niche too, because on the other hand, larger builders or larger investment companies, they don't really focus on single-family homes at this price range either. So it's It becomes a niche where like the smaller guys can't do it. The bigger guys don't like it. So, so, um, there's only a few builders doing it in this price range and it really, uh, gives them pretty good margins, uh, for us to, um, um, build on. And also it's the margin makes it, uh, makes the room for error a lot larger. So, um, the other reason is a selfish reason. Uh, Since I am working full-time, my wife is also working full-time, it takes the same amount of time for us to build a $1 million house versus a $10 million house. So it makes a lot of sense for us to just focus on a single large project rather than 10 smaller ones. So the next question people have is, what's the difference between a $10 million house and say a $1 or $2 million new construction? And this is my view, based on the fix and flip and development, they all have the same goal of When you're, when you're building these houses, you're trying to build a house that looks like, like houses at a higher price range for less, and you try to build it less than what it usually takes to build those houses. So, so you basically, you're trying to like cost cut or, or, or value engineer, but build the house so that it looks like something that's more expensive than what it actually costs to build. So at the $1 million or less price range, like this, a lot of times this looks like you could be going to Home Depot or other big box stores and picking out the cheapest things that look like pretty decent. And then at the $5 million or below range, it like, it shifts to like going to like more high-end local stores and finding things are on sale. But when you get up to the $10 million range, buyers get significantly more sophisticated. A lot of them are— first, they're not first-time buyers. They usually have their own homes or multiple homes. Second is a lot of them have some amount of real estate experience, whether it's remodeling their restaurants, remodeling their own offices, or a lot of times they'll bring in designers, general contractors that are friends, and they have a lot more connections. So the designers and general contractors really eat you up. They would point out everything that's done cheaply. They really eat you up. So when you build at this price range, a lot of times you really can't skimp on the materials anymore. So what that means is, for example, for cabinets, instead of using laminate, you have to use wood veneer. You need to put a decent amount of wall coverings there. It's not just paint. And then bathrooms, like the slab, like the amount of slabs you do in the house increases quite a bit. So, what that becomes is, in order to value engineer at this price point, it's really about trying to get the same high-quality material for cheaper than what everyone else can get it at. So, what we do a lot is, for example, for a kitchen, like our biggest task right now when we design kitchens is how do you replicate an $80,000 kitchen by only paying $30,000? So, and the way we do that is usually we do it 2 ways. We either do— we never buy from retail. We always go to the distributors. And if distributors don't cut it for us, we go import. So we import from China, we import from Malaysia. We haven't imported from Europe yet because usually their prices are even higher than the States. So, um, um, but like, um, into distributors and importing, uh, there's a lot of stories there. Uh, I can go a little bit more when we go to the question and answer session. But for distributors, uh, we, we, we found a few of the largest distributors in the States that, uh, that they distribute to like Home Depot, they distribute to like all the big box stores too, but they have their own, usually have their own lines where they, uh, for higher end stuff and they usually only work with retail— like, they work with builders, developers, and retailers. They don't work with end users. But because when we build a house that's $10+ mil, it's usually like at least 8,000 square feet, and usually we build one or two, so a lot of times we can lump 2 houses in the same order. So for example, recently we ordered like 42 slabs from one of the distributors, and at that volume you can actually work with the distributors. And then sometimes American distributors just don't have what we want. Sometimes we're looking at styles coming from Australia or in Europe where it's a much more cutting-edge style. In those cases we import, and a lot of stories about importing. The first time we imported— So Between me and my wife, I like to say she's the crazy one and I clean up after her. So there was one time we were trying to find, I believe at that time we were trying to find slabs and also hardwood flooring that was, we're trying to find it cheaper than what we could find in the States. So she found a factory in, I think it was Guangzhou, where she was just shopping around and she found everything's a lot like a third of the price in the States. So she started buying up a lot of things and like, we ended up with 3 containers coming over. But the thing was a day before the containers were arriving in a cargo ship, she told me, hey, I have 3 containers worth of material coming and I haven't done the customs work yet. Can you handle it for me? And so like that began like the 4 most stressful weeks of my life trying to figure out customs and all. Because the thing with customs is if you haven't done it yet, they would seize your thing. If you haven't paid the dues and then instead of the paperwork, they seize your items and then they store it in a warehouse where they charge you $500 a week for like per cargo. So we were paying like $2,000, $3,000 a week just for storage. And I was trying scrambling to try to get things out of there by like filing all the paperwork. post-arrival and it makes it a lot more complicated, but we've gotten a lot better than that. Like now, now that like we've done— so, so we can talk a lot more about importing and distribution if folks are interested in it. But like another topic that people are very interested usually is also, and it's also another thing that really stretched our comfort zone initially, is syndication and fundraising. So, I don't know how many people here do it, but like, when we first moved, so when we first started, we were actually in Seattle. She was working Microsoft. I was working Amazon over there too. So within Seattle, houses were— land was probably around $800,000, and then for a pretty good area. And then you could probably build houses and sell for around like $3 million. And that was the price range where we were working in at that time. We moved to the Bay Area and pretty much everything doubled in price. So land became low one, mid one millions, and then selling for $3 or $4 million when built new. So it really set us back because we couldn't afford the higher price range. Easily. So we started researching how to fundraise from people. And another motivation at that time was a lot of our friends were asking us how they could pool money with us to actually build homes. So it took us a year to really research that and figure it out. And then we had— we did do one house. The story was also my wife just put down an offer without telling me. It got accepted. And then she told me, and then, and then it was a mad scramble for like 3 weeks to, to basically wrap the whole thing up and fundraise. In the end, what happened was we raised from around 20 investors back then. And then we had so little time in the end that we told the 20 investors to each wire their, their, their portion of the money into escrow individually. So the escrow officer probably went crazy when like she received like some like 20 wires for, for, for the same property. And she, uh, I don't think she ever agreed to work with me again since then, but like, but we've gotten a lot better than that. Uh, we've, uh, since raised around 4 syndication funds. Um, our latest fund, which we used to purchase the $6 million property, uh, we raised $4 million in 4 days. So, um, uh, from zero to $4 million. So, uh, we, we didn't have like verbal commitments or anything before that. We just, Got on contract and we called, we emailed our investor pool and we raised the $4 million in 4 days. So, so yeah, like fundraising, it's now like becoming a much smoother thing, but it's, it's an interesting, very interesting thing. I'll leave this for question and answer session too, for anyone, for any more specific questions there. Last thing I would go over on a high level is like how we select our Our— no, actually I have 2 more things. One is how we select our vendors, and the second one is like loans and stuff. So vendor selection, I like to say, even at the $10 million range, the vendors we use is not that different from like folks you can use at like the $2 or $3 million range. The labor itself doesn't really change. Like putting a tile is putting a tile. Like, Like, as long as they get to the minimum bar, it's actually not that different between like, like levels of houses. So, so like usually what we do is, um, for vendor selection, we really try to focus on folks who are technically good, but are really bad at marketing. So, so if you look, um, if you just go out and Google for vendors, uh, usually what we find is like, you get the same list of folks who are like really good at marketing and then, and they, they're top on Yelp. They're top on Houzz. They're like, They're everywhere. And then these folks are usually very expensive. So, and they're, they're good, but they're very expensive. So usually what I do is like, I call these guys, I call them, and then I get sticker shock by their prices. And then, and then what I do, I said, I'll tell them this doesn't really work. Cause like, like I think our goals are different, but like, can you give me like 3 guys who you think are good, who are going to be a little bit like cheaper than you? And most of the time these people will give you like 3 contacts. And then I call those contacts. Usually they're still too expensive. And I go, go down the chain like that until I find like a few guys who are, who are at the price that I enjoy, that I like, but like, hopefully technically good. And of course, then you do your due diligence where you're like looking at previous houses and stuff. But like, usually I find it takes like a few layers of referrals before you can get to the folks who are really bad at marketing, but are still really good at their jobs. Because like the electricians, the plumbers, the tile setters, slab guys who are really good are mostly technicians. They're, they, a lot of them really dislike the actual marketing, going online presence and all that thing. So, so that's usually how we select our subs. They're usually like folks no one's ever heard of, but like are good. And, and yeah, it's, it's a process, but like the other thing you do is when you, as you're interviewing down the chain, you also learn a lot of things from Because the other thing about like in the construction world and mostly actually in the real estate world, everyone knows everyone and everyone likes to gossip about everyone. So they would tell you, oh, that guy's really bad. That guy is like a cowboy. They would tell you a lot of things like that. And so like from this, you get to learn about like all the folks and you get a really good view of the landscape. After you talk to— probably like when I select a sub, I talked to around 8 other subs before I actually select the one I like. So, so that's like the extent of like selection for vendors. I could go more into that. And then, but like the last thing is loans for the larger properties. I can go on to the technical details because we use like 3 or 4 banks regularly and they, they all have fairly similar loan specs. For a construction loan, usually what they require is a 35% Loan-to-cost ratio. So it's a little bit different from normal houses. Most houses you call it loan-to-value ratio, where it's your loan and your— and what the value of the house is. In construction loans, there's a thing called loan-to-cost, where because they don't actually have a good estimate of how much your house would value afterwards, they use a ratio called loan-to-cost, which— where cost is the land, plus the construction costs, plus any soft costs. So say it takes $9 million to build a house, your loan-to-cost ratio of 35%, it's $9 million times 35, and that's your minimum down. It's like your down payment, but that's the amount of money you can spend before, and then the bank could cover the rest of the 65%. So usually what I raise is I raise that 35%, And then, and then I get the loan for the 65%. And of course, before you start building, you also have your acquisition loan, which is usually for land. Usually banks require 50% down, but because the land is a smaller portion of the thing, your 35% can usually cover the 50% down payment. So, so that's how the numbers work for loans. I can go deeper into that too, but I pretty much went through a fairly high level of the whole thing. And I, I think let's go to like question answers for anyone who has any questions about like any of the topics I talked about just now. Anything?

Hi.

Yeah, this is Keith. I have a question for you. So for vendor selection, or I'm assuming contractor selection, you said that you went to— you basically call Call up like different vendors and ask for referrals. You seem like you—I'm just kind of surprised that they are willing to share. You know, like I just would assume that. Try it. It actually, like, like okay. You start with the ones on Yelp that are five stars on Yelp. They they they usually don't like to burn bridges. So if it obviously doesn't work, like for example, architect, I had a. There's a really famous architect in San Francisco called like Arcanum. I don't know if I'm pronouncing your name right. I really like their houses. So I called them up and say, hey, like, I really like your houses. Like, like, what, what are your prices? So, so as a, as a, like the, the current architect that I use the most, he charges me like around $20,000 per, per house. So I called this famous architect up and I said, so I build houses, I build spec homes, and I want you— I really like your house. I want to see if it works. And then so we talked and he told me his minimum price for a single house is $200,000. And I told him that won't work because I can't pay $200,000 for a house design. And so I asked him, I really like you, but do you have any other architects with similar styles that do a lower spec house? And he said, yeah, I can help you out. And he sent me like 3. So usually they will help you because the way it works for them is it doesn't hurt them because they know you're not going to use them anyways. So a lot of times if they help you out, who knows, maybe like in like 5, 6 years when I build my own house, I'll call him up again. So there's no reason for him to burn the bridge when he knows that like, like it's not a fit, but like, of course some of them might, might go like, might, might not tell you, but like, like I find like usually 80% of the time either they tell you or they leak it or they accidentally compare themselves with someone. So, so another, another example of it was I talked to, uh, I called, I was looking for, uh, an AV guy. So, so smart home devices, uh, uh, just a context for smart home devices. It's, it's like, it's very similar to folks who sell like AV stuff. Cause they're, they're usually the same people. They really try to upsell things. Like you can buy like a hun— uh, you can spend $2 million on a home theater. You can also spend like $2,000 on a home theater. So, so it's totally unnecessary to spend the $2 million, but like there are AV guys who are at the $2 million range. So I did call. up, he was charging $200,000 just to connect Wi-Fi in a house. So I told him, this won't work. And then the thing is, he really wanted the business because he thought the houses that I was building fit his profile. So he was really trying to sell me and he was telling me, oh, I work for this builder. I work for this builder. I work for this builder. And there was one particular builder who I was familiar with. So I asked him, For this builder, I talked to like 3 other vendors who said they also work for this builder. Like, like, is it— are those 3 guys BSing or are you, are you actually the person who's working with them? And he, at that point in time, he told me, oh, this, these guys only use us and another vendor. And then he told me another vendor, which I've never heard of before. So I called the other vendor. And so, so like sometimes they leak it that way. Sometimes they, sometimes they, they would proactively tell you who. And, and other times they were like, they always ask you, have you talked to that guy? Because like, I can't beat his price. I've seen that too. So, so, um, a lot of times it's just getting into a conversation with them and like, and, and, uh, and, and sometimes it's like gossiping with them, but like, they, a lot of times folks would, um, another thing that might happen is they might ask you who you've talked to just so that they can figure out like, if you are talking, if you are in the right, uh, price range or the right, um, The right, like, uh, if you have the right mindset as they do. So a lot of times they might tell you, who have you talked to? And I would tell them like a few names and then they would either badmouth about them or say they're, they're, they're good. So, so it's, there, there are a lot of variations to it. So it might not just be asking them for referrals, but like, it's a combination of like, um, rechecking your previous calls and also, uh, trying to Eke out a name from them, uh, without wasting everyone's time too. Okay, thank you. Lloyd, are all the houses that you do in the Bay Area basically only things that you touch and see and go like within driving distance? Yes, uh, I find it quite important to be In at least for, for, for new constructions. Like, I also own a few multifamilies in Oakland, which is around 2 hours from me if on a, on a regular traffic, Bay Area traffic. So those, I look probably like, I look at those like once every, once every like 3 months. So I check on those a lot less, but like for those, um, It's a lot easier to like, say when I have to renovate them, I pretty much like don't have to go and look at them. I just call a guy and tell them to like, just put these things XYZ in. But for the development where it's getting up to a certain price range, it gets a lot harder because the margin for error for like design and stuff is like It's a lot tighter. So I do look at those properties on a, I would say, at least once a week, if not multiple times a week.

Oh, okay.

Yeah. So yes, and most of them are within a 15-minute to 20-minute driving distance from where I live because Uh, and, and I wouldn't do anything further away, mainly because it's a fairly high-touch process.

Lloyd, there's one person that doesn't have a mic, so I'll ask you a question.

Sure. Yeah.

When you source materials overseas, are you buying from one-stop shop store so you can fill up one container Or are you buying in container load volume per material?

Uh, not container load material. So it's not a one-stop shop. We, we buy from multiple places, and then, uh, there are, uh, there are like agencies which would help you, um, take shipment and then fill it up in a container. So, so we buy like from like 4 or 5 different factories And then, and then they all, they all send their things to an agent. The agent puts it all into container, fills a single container, and then puts on a ship. And sometimes if you're buying from different parts, like even different parts of China, you target different ports. So, and if you can't fill a single— you can't fill a whole container, there are other ways you can split a container with someone else and the agents will do it for you. So it's not that, like, I would suggest it's not that dissimilar from real estate where you are trusting someone to do it for you. But you just got to find an agent you trust and then they can handle a lot of the getting, getting the— it's very similar to DHL, except you don't want to use DHL because they'll— you will never make your money back. It's not like you just got to find the customs agents that will do it for you.

Another question on the chat: is now a good time to build new? I heard lumber prices are up almost 20%. Your thoughts?

So lumber prices probably account for less than, let's say, recent house that I built, cost $2.4 million. Of that, around $200,000 was framing, but that includes labor. So I would say probably around $100,000 of that is lumber. So even though they had a huge increase, it probably represents around 5% increase. The lumber price increase probably increased my costs less than the COVID procedures did. The COVID procedures actually cost me more than the lumber prices did. And I expect lumber prices to go back down probably in a few months. I don't see it staying this high.

Another question. Never built houses before. What are the big buckets of costs when building a house? I'm sorry. And to continue, and what are your typical time Commitments when building a custom home?

Yeah, so, uh, generally we, we, uh, from start, from like acquisition to selling, uh, anywhere from 18 to 24 months. So, so 18, a year and a half to 2 years, uh, is the regular timeline. It could take shorter, it could take longer. Usually you can't do less than 18, uh, but, uh, sometimes it could go over 24. It depends on like the house. Um, The big bucket cost items. So land is definitely the biggest one. But other than that, in terms of materials, framing, foundation, and the roof, those are big ones. Windows are big. And then cabinets are pretty big. In the end, they all like, they are all like in the tens of thousands. So, so they, they all add up to like, usually the co-construction cost is Is anywhere from, um, uh, we can usually build at around $350 a square foot is how much we're able to build at now. So you can just multiply that by the square footage and the houses that I'm building around right now are around 8,000 square feet. So, uh, they cost around, I'm not going to do the math, uh, uh, 8,000 times, times, uh, $350. They're around $2.8 million to build. Plus whatever the land costs. And then there's also permitting fees, interest, insurance, property tax. All those add up to around anywhere between $300,000 to $500,000 depending on the size of your loan and stuff.

Another question. Do you buy land or do you buy teardown?

I buy teardown usually. I've done one or two land But in the Bay Area, it's really hard to find good land. Usually it's teardown because anything that's still land now, there's usually something wrong with it. And Lloyd, do you get involved with the permits or usually the contractor would take care of the planning and permits with the city? I do. So I have the architects, I pick my own structural and those guys. And I do the submission myself. So, so, um, uh, uh, so I do scramble around for the permits. Um, but the con— sometimes I have the contractor do parts of it, but like, um, uh, they just bill me. So if I have time, I do the permits myself. It also lets me have a little bit more control over the timing. Like I can, I can like push, like I found out if you outsource it completely, it takes a lot longer because they don't. They, they, cause you're collaborating, getting like 6 or 7 people to collaborate. And like, uh, if you don't time them right, it takes a lot longer. And if you outsource it to a builder who doesn't care as much, then, um, it might take you a month, like a month more or 2, a month or 2 more. Uh, so, so I like to be on top of the permit side of things.

I see.

Hey Lloyd, could you go through the whole syndicate? I know you said with some of these you're using syndicates to buy them. How does it work with the investment that comes from the other parties? And then I guess your investment, and how does the split work at the end? Yeah, sure. I was thinking I should go through one deal and then with all the numbers. So syndication works by— the definition of syndicate So syndication funds are a particular type of fund where you're usually buying only one property and the fund's lifetime is that single property's lifetime. So, so, so there are other funds like open-ended funds or like, like the open-ended funds are like funds that like last a nondescript amount of time where they might own multiple properties, but we'll stick to syndication. Because usually that's how a lot of these work. But the way it works is you— so usually what I do is, like I said, with the loan, it's a 35% cost-to-value rate, cost-to-loan-to-cost ratio. So in the very beginning, I estimate the total cost of the whole project. By now I have a pretty good It's all spreadsheets. You, you, you just do spreadsheets and, and you can get pretty accurate on how much the thing is going to cost. Every project you just improve the spreadsheet a little bit. And then, and then, so, so I estimate how much it's going to cost in total. And then you just multiply down, like usually multiply down 40% of it. And that's the amount of money I need to raise usually. So I take that money and then the way I usually split it, the first time I did it, everyone had the same returns and I found it didn't work as well. So now I split it between big investors and small investors. So my small investor minimum is $50,000 and I get probably like 20, 30 of them and they make up usually around like 50 to 60% of the total investment. For the big investors, the minimum is usually around $250,000 to $300,000. And for those big investors too, another thing that they have to do is they have to put down personal guarantees for a loan. Because for construction loans, the banks always— there's no non-recourse construction loan. They always require you to put personal guarantees down. And it makes it a lot stronger if you have multiple investors doing it with you. I have 2 classes of investors, one where they're just putting $50,000 in and they get a lower return. They get like a 50% cut of the profit and also a 5% preferred return. For the bigger investors, they get like an 80% cut of their share of the profits and 8% preferred return or something like that. So different return profiles, different risk profiles. And so all this adds up together to around like 30 to 40% of the total cost. So that's the money I usually use for down payments. I also get an acquisition loan from a bank that does land deals. So if you talk to the smaller commercial banks, they usually have things like this, like land acquisition deals. And in a lot of cases, these land acquisition deals, if your loan-to-value ratio or your down payment is big enough, they can do non-recourse. So it makes things a lot easier because the problem with recourse is when you're buying, sometimes you don't know who your investors are until week 2 into the thing. So it's not really a— the reason I like non-recourse for that is because they don't need personal information from the investors. So it makes the loan a little bit faster. So that's the acquisition. You buy the land using that. And then usually I have around like $300,000, $400,000 left over, which is the money I use to pay interest and also pay permit fees, pay architects and the engineers and all that. And that process takes around 6 to 8 months, sometimes up to 12 months depending on the city. And then at the end of that, when the plans are ready, I start working on the construction loan, which usually requires a personal guarantee. So I have the investors who— the large investors, they all work with the bank. They have to send their financial statements and all that to the bank. And I still have to send my financial statement. And then we get the construction loan. Construction loan works like this. They pay off the acquisition loan as a refinance. And then as you build, you draw. So they don't give you a lump sum in the very beginning. They give you like— they don't give you anything in the very beginning. And every time something's complete, they send an inspector, they check the house, and then you can request for a certain amount of money to cover your expenses that you spent that month. And you draw every month. Until the project's complete. Usually the construction loan, you do an interest reserve too. So during the construction period of time, you really don't pay any money to the bank. There's no interest to the bank because they're all drawing from a construction reserve account. And usually it's required just for their risk. They want you to spend as little money as possible during the construction phase so that you can have the cash for any contingencies. Like if you run over cost, if you have cost overruns or anything, they want you to be able to use that. Your own money to pay it off. And then when you sell, pay the bank first, and then the split, it's a waterfall where you pay the preferred, you pay the principal, you pay everyone's money back, and then you pay the preferred returns, and then you pay the profit cut. And then in the very end, I get paid. That's a super high-level thing. We can go a little bit deeper into like how you structure it too. On the structuring side of the syndicate, usually based on what I described, usually it's Class A, Class B, and Class C. So Class A are usually the big investors who have the larger minimum and also the different, like the higher returns. And then Class B are the smaller investors with a smaller return, but they're much lower risk because they don't need to personally guarantee the loan. Personal guaranteeing the loan, it's still not super high risk because usually the property can pay off the whole loan. It's rare that you screw up so badly that the property, given the loan-to-cost ratio and all that, usually unless there's fraud, the house should cover it. And even if it doesn't cover it, it's probably a fairly small amount left over. But that's just like things can happen. So for the investors who personal guarantee, they can lose more than what they put into the property. So it's a high risk, so they get a high return. For the small investors, it's really the maximum they can lose is the amount they put in. They won't lose anything more than that. So it's a low risk, so it's a low return too. And then Class C is usually myself. So it consists of whatever money I put in. In some cases, there are a few properties where I did not have room even to put money in for myself because we were oversubscribed. Usually when I get oversubscribed, the first person I kick out is myself. And I tell the investors, usually they're okay with that too. And when they ask me what skin in the game I have, I personal guarantee all loans. So that's quite a bit of skin. Also, when there are cost overruns, I usually pony up the difference temporarily so that the construction can go on. So those are usually where my expenditure comes from, but that's how it usually works— Class A, Class B, Class C. And then, and I think I briefly talked about the percentages of each one in the beginning.

Yeah.

Does that answer your question?

Yeah, perfect.

And Lloyd, what fees do you charge usually, like disposition fee or such thing as a syndicator? I don't actually charge that much fees. I believe in doing most of it at the end. So I do have a— I actually, now that I'm licensed, I don't even have an acquisition fee anymore. I just take the, I just take the seller fee as the, as the, as the acquisition fee. And during the course of it, there's a 2% management fee. It barely pays the bills for like, for like the software, like the software and like various costs that we have. Like, in the, like most of my money comes from the selling. So the profit share in the very end. Right. And to be like, to do such syndications with like more than 10 people, like, do you need a license for that? Like, you don't need a license for that. You need a pretty rock-solid PPM. So private placement moratorium, or memorandum moratorium, I think it's a private placement It's called PPM. I forgot which M word it is. I think it's moratorium or memorandum. I forgot which one. I think it's memorandum, hire placement memorandum. But it's a legal document that spells out all the terms within the deal. You definitely don't want to roll that yourself. You want a lawyer to write it for you. And they would also write the operating agreement for your LLC. So when disputes happen, you just follow line by line. It's like a real estate purchase contract. When anything happens, you just follow it line by line and things don't go wrong that way and you don't get sued because the worst thing that can happen for a sponsor is getting sued. Right. And when it comes to reporting, is there a specific guideline? So the SEC, the way it works is they They, um, most companies, if you want to fundraise, you have to be public actually, uh, in, in the general case, you have to be public. Right. But they have exceptions called, uh, they have Reg A, B, C, D, I think. Um, uh, and, and like the newest one is the crowdfunding one. Uh, but like they have other ones that are older that, um, that, um, that are more pertaining to like fundraising where you can only, uh, fundraise from accredited investors. In some cases, you can also fundraise from 35 people you know personally or previously did business with, and there are different rules to them. I think the specifics of that, I would— I don't know if I can cover everything within this meeting because there's quite a bit to it. My suggestion is to talk to a lawyer because they can spell it out a lot clearer. And in terms of what you want, how much money you want to raise, how much advertisement you want to do, like depending on whether you advertise publicly or not, you can either get the 35 non-accredited investors, or if you are— if you want to advertise publicly, you get the— you cannot get the 35 non-accredited investors. So it depends on your investor profile, what you plan to do, and also how much you raise. And they are And based on that, you, you fit into different types of exceptions. I see. Thank you, Lloyd.

Lloyd, quick question on, on that. Now that you have all the documents and the attorneys reviewed all that stuff, do you just use the same stuff but change addresses and names on the next project?

I'm tempted to. I have not done it. I've gone back to the lawyer every time. Although now that I see how much they change each time, I'm tempted to do it. But you're paying for the lawyer not only for the documents, it's also for the legal support during the construction. So sometimes when you get things like investor wants to back out, investor, or there's some investor Like there's some conflicts or something, another thing you're paying for is the legal support there. So it's not just the documents, but also like the support afterwards. And it's quite important because if you get your own document and then something happens and you find a different lawyer to look at it, they would usually— it's very similar to like if you have an architect draw plans and then Midway, you try to switch architects, other architects are going to come in and rip the plan apart. So it's same with lawyers. They don't like work that's done by other people. So you want them to provide the support for the things they write so that you don't get a different lawyer that rips your thing apart and tells you you're screwed. So I still pay for it and I think it's worth it for the protection. It's like $10,000 to $20,000 for the for the documents and the legal support. But like, uh, like you could lose at the size of the deals I'm doing, you could lose a lot more if you don't pay for this as a, and like, as a, as an insurance. Now, of course you do other things like, like umbrella insurance and all that stuff too. But like, like this is also another form of insurance, also like LLCs per property and stuff like that, that like folks sometimes don't need to do, but at the dollar amount you want to do as much of it as possible, because one lawsuit can really screw you over. Thank you.

Anybody else have any questions for Lloyd?

Yeah, hi Lloyd, I, I joined the call a little late, so I'm not sure if you already talked about this, but just wondering if you can talk a little bit about your path to how you got to where you are today? I mean, were there a series of baby steps and what would you recommend to somebody just starting out? Yeah. So the first property, I'll talk about the milestone properties. There are quite a few. Actually, every property you learn something, some more than the other ones. So the first property I did, the main mistake, I'll talk about all the mistakes. I think that's a good Good way for folks to learn. The first property I did, it was the one I did in 2011. I would say the first thing, whenever someone starts doing development or renovation, a lot of times they aren't used to the dollar amounts that you get invoiced for. Everything when you develop a house is in the $10,000 range, usually when there is a cost overrun. Like you find out your sewer needs replacement. It's like $30,000, $40,000. You find out like, like there's a septic tank buried and you need to dig it out and like, or like put a concrete, it's like $10,000. Like everything is in the $10,000 range. Like digging, digging a utility line. Usually it's the things underground that really bites you. That's unexpected. The underground, like whatever. So usually those are what's And those usually cost like $10,000 plus. And what I found is like in the very first house I did, I wasn't used to that dollar amount. Like, like my, I was used to more like, I was fresh out of college. I was more used to like $100 thing. What, like this thing costs $100, like anything over $1,000 is like very expensive. And like, here I am like getting bills for like $20,000, $30,000. Building a deck was like $4,000 and things like that. And you really get sticker shocked every time. And at that point in time, another mistake I did was I picked the cheapest contractor I could find in the market. And in 2011, there were a lot. 2011, it probably wasn't as bad as say in 2006 where everyone was a contractor. So by 2011, most folks who weren't originally contractors have like already left the market, but like it. I still picked the cheapest guy. He was like 2 hours away and he barely managed the house. And the other thing I did was I second-guessed that guy every time he proposed something. Every time we had a cost overrun, I second-guessed him. I'll call my own subs and stuff like that. And it really ruined the trust relationship between myself and that contractor. So what happened there was we went over time because I second-guessed everything. So So he stopped calling his own subs. He's, oh, we have this problem. You go call your own guy. And I spent like 2 weeks, 3 weeks trying to find a guy and then build. So the most important thing I learned from that property is find a contractor, or this applies to everything, like find an agent, find a contractor, find anyone who you work with, an architect, or like the number one thing is you have to trust them. So you need to find a guy you trust. If you don't trust the guy, you should fire him. Like there's no reason you should work with anyone you don't trust. But once you find someone you trust, you've got to trust them. And then you got to work with them and allow and trust their judgment, trust their knowledge, trust their experience. So, so that's like the number one tip I, I give to folks who buy houses with me. Like, like, like I've kind of done a lot. I just got licensed recently, but like even like 3 or 4 folks who I've worked with, like the number one thing I tell them is like, if you ever, if you don't trust me, Just don't work with me because like, like it's a very important thing. And it's really demotivating for like builders and architects and real estate agents and everyone if you second-guess everything they tell you. So that was the number one thing. So that, that property, we probably, we spent, we originally budgeted $500,000. We spent $625,000, something like that on, on building it. And we sold it for $800,000. So we still made it pretty good. Originally we budgeted $500,000 and we thought we'll sell it for $600,000. Um, uh, in the end, the market went up so much and we were so much over time that like, it took us like 3 years to build the first house. Um, and then we still sold it at a profit. So we rolled that over to the next house. This time we found a guy we trusted. Uh, and the next house, we didn't really learn anything because the builder was so good. We really didn't have to do anything. Uh, so fast forward 2 more houses to our first California house. Our first California house, it was another slightly sticker shock experience, but also we found a builder where we didn't really match with in terms of like— what I was unhappy about was he wasn't spending as much effort as I would like him to, to help me cost value engineer or cost cut. He would just like find the guys that he worked with normally. And then, and then even if they were ripping him off, uh, so, um, I, I used them for 2 houses, uh, should have used them for one only, but like the, the, when he's— when things were starting getting over our budget, uh, we really started pushing the limits to like how we can find materials. That was the house where we started doing importing, looking for distributors, looking for, uh, folks who were out of— who looking for like finishes manufacturers who are out of, out of state because everything in California is more expensive. So one tip is, if you want to find something cheap, look outside California first. If you're not comfortable looking outside of the States, if you find someone in Alabama, they can probably produce things for you that are way cheaper than California. Well, you have to be at a volume where it makes sense because shipping is going to kill you. But like, but like when, when it, when you can get a big enough order from approximate same location, Then it really saves a lot of money. But initially I wouldn't do it because you really have to be pretty precise because when it takes 2 months to get cabinets over, you really have to time it correctly or else you would delay your project by 2 months. So a lot of times what we learned from those houses was when you start, you really have to have everything planned out if you want to do what we do. So like, by the time we get our permits, we've already drawn out all our kitchens, all our bathrooms. We know all the fixtures, all the lights, all the toilet plumbing fixtures, all the, like, everything, everything in the house. We know what we're going to put in already and we spec it already. And, and what that gives you is a lot of time to actually figure out how to buy those things. So, if you're just buying things as they come, you can't do better than going to the local store because You, if you, if you need your cabinets in 2 weeks, there's only that much you can do. If you have like 3, 4 months before you know you have, you can contact a factory in Malaysia and have it shipped over because shipping from, say, Malaysia is 1 month, and then they take 1 month to produce it. So, so it's a 2-month process. So if you're 3 months away, you can actually do it. If you're 2 weeks away, you can't do it. So, so what we learned from there is if you want to do any kind of like value engineer by importing or going for distributors, you have to plan ahead. So draw out all the rooms. If you know CAD, CAD them all out so that you know everything. And it also reduces the amount of confusion between you and the subs. So what we do now is when, say, the electrician comes, on every wall we put a picture of where the lights are with the measurements and all that. We just nail it on every wall. And then so there's no questions that way, no confusion that way. And because everything's planned out, there's very little change in between. And that's how you speed things up. So, but it takes a little bit of experience. I wouldn't— it's not something you can do with the first house, but you can probably do by your third or fourth house. You can probably know by then what you need and how you can plan everything out. And I find like a lot of times you just print things out and nail on the wall. And then people follow it and then you don't really have to be there as much. And mistakes don't happen as much and miscommunications don't happen as much because it's all on the wall. So, and then, okay. So, and then the next step was syndication. And that I've talked about, but like the first time we, we fundraised was, was a mess. I also talked about that earlier where, where that escrow agent probably went crazy when she received 20 wires a day before closing. All from different names, and she had no idea. Some of them weren't even labeled correctly with the escrow number, so it was a mess. But like, by now it's like with syndication fundraising, when you fundraise, it's like— for folks who are real estate agents, it's like managing a closing, but instead of having one buyer and one seller, you have 40 buyers where you have to make sure all 40 of them are doing the right things at the right time. So it's a little bit of coordination. It's a lot of emails and like you have to be very explicit like what the timelines are, when's everything due, and yeah, so that's the last thing, but like by that time, by now it's like not a lot of things where— we're still learning a lot of things, but like it's less applicable to beginners, more applicable to like— Like it's more— we're learning more. I think we're shifting more and more towards like learning how the commercial developers do it because their tools are another step forward. And like, for example, everything is 3D modeled and all that stuff. So we're slowly approaching that state. Maybe we'll build some commercial properties in the future, but for now we really like the single-family properties because we like building Instagrammable houses. It's the joke when you say— The houses that we build, We can actually, like, if you go on Instagram and look at like the super expensive houses, we're actually building similar things. And we do enjoy doing that. I hope I answered your question, but like I listed a few things, but I don't think those would really help some beginners because those are the major mistakes a lot of folks make. What is the process? Go ahead. What does the process look like when you're researching possible teardowns? The reason we only build 1 or 2 a year isn't because we only want to build 1 or 2 a year, it's because it's really rare to find deals that are worth it. So it's actually a really simple back-of-the-envelope math. I can even tell you guys. And if anyone ever finds anything that that meets it, tell me. Because like, um, so, so, um, I take the land price and then I take, uh, I go look at it and see how, uh, based on the city, they tell— they have a floor area ratio, which tells you how big of a house you can build. Um, so you just take the acreage or, or the size of the property and you do the math on what's the biggest house you can build. Uh, we don't build basements. Um, It's popular in some places, but basements really increase your cost because— and it also increases the time it takes to build a house by like 2, 3 months. So we don't build basements. So we just take the FAR and then we multiply it by a lot. You get the maximum size of a house you can build. With the recent California legislature, you can also build an ADU, which we usually include. ADU is like a free 800 square foot. So for every piece of land, you can add that in. And then with that, you get your maximum house size. Our building cost right now is around $350. It could go up a bit, a little bit, but like not that much. So we multiply that maximum size by $350 a square foot. We add how much the land costs. So So it usually adds up to a pretty big number, and then we— I add around $500,000 for soft costs, architects, interest rates, and all that. So that's the total breakeven cost. I divide it— I multiply it by 1.175. So 1.175 is the number coming from— it's 35%. I need 35— I need to contribute 35% of the cost in cash. So it's 35%. And I'm looking for a 50% cash-on-cash return on what I put in, on the cash I put in. So my criteria is 50%. Some builders are lower, some builders are— not that many builders are higher. So 50% is a pretty high margin for builders. And 1.175, where it's coming from is 50% times 0.35 plus 1. So that's 1.175. And then, um, and from there, uh, that's the total amount of, uh, uh, uh, money I want to sell at, uh, to, to meet my criteria. And then I divide it by 0.93 to include like agent costs and closing costs. So, so I, I count a 7% closing cost. For things like staging, agents, other taxes and stuff like excise tax. I forgot all, like basically all the closing costs. 7% is probably a lot more than what the real closing cost is. It's probably closer to 6%, but like, I just do 7% and then that's the amount I have to sell at. And that's like, and then I look at market comps to see if that makes any sense at all. I hope someone was writing that down, or it's recorded so you guys can say it again. But it's, uh, it's the back of the envelope math I do, and it's easy enough I can do on a calculator when I'm walking around the street. So, uh, that's, that's how I just price things out.

Lloyd, um, are you doing this because you want to get rid of your 9-to-5 job? Are you doing this because you love real estate?

Both. So I think we wouldn't be doing this for 9— for by now it's like 10 years with— if I didn't like the real estate, especially because I have the 9-to-5 job. I think by now, if we talk about pure income, I make more from real estate than from my 9-to-5. Maybe, maybe it's hard to say. It depends on the year. Sometimes I make more, sometimes I make less. So. The 9-to-5 job, it's a constant question for me and my wife whether to quit or not. We haven't quit yet, mainly because development with 1 or 2 projects a year, it's really hard to— like, your development project looks like this. You spend money, your cash flow goes down for like 2 years, and then you do 1 sale. So it's not like Buy and hold where you are, where it's going. And it's not like fix and flip where it's fast. It takes 18 months to 24 months. So, so the, the cash flow in between becomes a problem. And like the, the 9 to 5 job really allows us to, like, if there are any unexpected expenses or anything, we can, we can use our 9 to 5 income to, to pay it off. It's getting to a point where if we scale up a little bit more, So right now, the, the reason we haven't been able to do like 3 or 4 houses a year is just because we can't find land. There's no, no good pieces of land in the Bay Area that, with the market this hot, is really hard to find land. So if I can find like 3 or 4 pieces of land a year, then I won't be doing a 9 to 5. It's like, it doesn't make sense anymore in terms of the time investment. But like, for now, like until I can figure out how to get Cheaper pieces of land, uh, the 9 to 5 is a necessary evil.

Any other questions? Let's see, there's, there's one. If you were to buy a property, wait for it to appreciate, then flip, what do you consider good appreciation rate?

So it's really hard to know appreciation rate for single-family properties. Because there's no math for it. It really depends on the market. So in the past 2 or 3 years, I started buying multifamily for buy and hold. And I really like those for appreciation. When it comes to appreciation, I really like multifamily a lot more because there's an actual formula to calculating how much the appreciation would be. In the next few years. For single-family, it's really hard because if someone builds a house and some crazy guy buys it for overpriced, it bumps the market up. And then all it takes is a few folks, all it takes is a small shift in the supply-demand and the whole market tanks. In the single-family market, I never buy for appreciation. I never count appreciation in. Because it's too risky to count, to rely on appreciation, especially in the current market too. You never know whether the appreciation will last you 6 months to a year. So when I price properties in, I usually actually price a 10% discount to the selling price. Whenever I get— you know that back-of-the-envelope math I do? At the very end of it, that number, I want that number to be lower than any comp within the market so that I can confidently say that there's at least a 10% to 15% upside to it. So that's why it's so hard to find properties because I'm stingy. There was one property where I lost money on where I— that property, I counted appreciation because the market was going up and I counted appreciation. And that property cost me $200K. Ever since, I never count appreciation, and I actually discount my things by 10% because it's so hard to predict the appreciation. Onto multifamily and commercial properties, those are a lot easier to count appreciation because it's all cap rate, and cap rate doesn't change as much in the market. So if you raise your rents by an X amount, especially in California where cap rate is so low, if you raise it by— raise a unit's rent by like a small amount, you raise your property value by a lot because it's like, uh, the 5-cap property is like times 20. So, so, um, uh, for buy and hold, I, I really prefer, uh, multifamily, uh, because there is a formula to it and, and appraisers also agree to that formula, which is the important part. Because a lot of times, uh, it's not only the market that bites you, the appraisers also bite you. When you're trying to get a construction loan and your appraiser appraises your property like a million less than what you thought you would be able to buy it for, it really screws your numbers over. And what that results in is that you have to put additional money in, and that's the worst thing that could happen. So I usually try— for our past 2 properties, we've had the appraiser come in higher than what we anticipated or pro forma. So it's a pretty good— track record in the past few properties that I've done. But you really have to dig really hard to find properties like that.

There was another question about where you're located. You're in the Bay Area, correct?

I am in Menlo Park. I live in Menlo Park. I build in Menlo Park, Atherton, and Los Altos in the Bay Area. Yes. So for the particular cities in the Bay Area, Menlo Park, Atherton, Los Altos, uh, sometimes Palo Alto, but like not really because Palo Alto is really overpriced. But, um, yeah, those are the main places I focus on. And there's one question, prefer building over buy and hold? Um, so, uh, my personal strategy now is, um, I will continue building because, uh, it's, uh, It's, it's pretty quick cash flow. Um, I don't put a lot of money into my own properties right now, mainly because I want to keep my cash for anything that, uh, if you have cost overruns or if you are buying material from overseas, a lot of time, say we're buying like cabinets from overseas, they might cost like $60,000 for like 2 or 3, for a whole house full, $60,000. A lot of times when the cabinets are not in the house yet, the bank would not allow you to draw anything. So in between, from when we pay the factory to when we install it, that period of time, I, the sponsor, me as a sponsor, I cover that cost instead of the fund. So I usually reserve a lot of cash for myself for these costs over— for these temporary expenditures. So I myself, I don't put a lot of cash into The building properties, it's mostly investor money. A lot of times, like for example, for a $4 million raise, I put in $200,000. But, but like, and then I would say in the end, my, my, like my take-home, I take home around 30% of the profit. And that amounts to around like $400,000 to $500,000 per property. It's, um, um, $400,000 to $500,000, not including the amount I put in. So, so from pure sponsor, like profit, I take home $400,000 to $500,000. And then, and then from the $200,000 I put in, I, I count that as a Class A. Uh, so I make the same as the Class A, but like it ends up to— but that money, I usually shift it over and I buy buy-and-hold, uh, properties so that, uh, I can get a more regular cash flow. But in the Bay Area, it's really hard to find things for cash flow. And I haven't explored out of state yet, but I'm starting to look into it. But right now, I'm still buying mostly multifamilies within the Bay Area for buy and hold.

Lloyd, when you buy and eventually sell 2 years or 3 years down the road, You're talking about long-term capital gains, correct?

Yes. Okay. Yes, uh, all the, all the gains are long-term capital gains. It might not matter with the new tax proposals, but like, um, for, for the past few years, it's, uh, long-term cap gains.

Thank you. Another question: do you see more commercial high-rise buildings being converted into residential because of WFHA?

What's WFH? Work from home. I see. In the Bay Area, the trend right now is single-family. I think it's all of the United States, it's single-family. Anything with an elevator is not doing well, but it might be temporary. I would say the multifamily market right now is hit really hard in terms of rents. Although property prices hasn't gone down yet, because I think most people are expecting it to be a temporary shift. And single-family has not been this hot in a long time. I think not been this hot since '06. So no, I, I, there's not a shift right now. In fact, it's shifting towards single-family. Heavily right now. But like condos are slowly picking up, I think. But like, um, um, what's really done really well in the past like year is single-family.

And someone would like to know if you can share the address of a completed project so they can see pictures of the finished product.

I can, I can show— I have a, uh, I have my own website. I can, I can, uh, show— how do I share screen? I'm gonna share screen. Because I have like the website, so I can share what, what I— figure out how to— I think it's this one. I think this— oh, I need to allow Zoom to share. Give me one sec.

Okay.

Oh, it won't let me. Okay, I'm gonna paste my website here. I haven't had Zoom set up and I don't want to leave the call because it requires me to restart Zoom. But here's my website.

Lloyd, try that. Try sharing your screen now.

Oh, it works now. Okay, it looks like it works now. Okay, cool. Yeah, so perfect. So this is one of the houses I did. This was probably 3 years ago, 4 years ago. Oh wait, did I do this? I sold this 4 years ago. So, so this is an example of— you guys can see this one, right? I shared the right window.

Yeah.

So, so this one sold for around $5 mil. So, so it's a modern farmhouse. So the story about These lights came from China. The hardwood floors— this was the hardwood— this was the house we imported on. So the first house we imported on, hardwood floors came from China. One tip, don't import wood products because, at least from China, because there are a lot of like— There are a lot of anti— like, there's a lot of— okay, so America is a huge producer of wood. So there's a lot of lobbying against importing wood products. So anything that's wood is really hard to import. But like things like slabs, like these slabs, these slabs came from a distributor, but like, and these guys came from China too. But like, like the, these marble tiles, they, they are a lot easier to import because there's not a significant amount of marble production in the States. So, so you learn things like that when you import. This house is more recent. This house we sold for $7 million, and this was one of the more recent sales we sold. The reason it's not staged, we sold it before it was complete, but like, these are some of the pictures we did. It's a 5,000 square feet house, and you can see— I don't know if you can see clearly, but like, we're using the same lights here as over here. Because when we import it, we imported 10 of them, so we were reusing the same lights over and over again. Same with these guys, these, these 2 guys we're using like here too, because we imported 10 of them, we had to keep using them. We probably won't import lights again because we found like good sources of lights in the States that beat the price of us importing it ourselves. So, um, we usually try not to import because it takes a long time and it's a lot of work. We only do it when we really can't find anything in the States. Yeah, so these are examples of the houses we built. This was one of the older houses we built. It's a— but we were using a lot of— look at the materials here and also with here, we're using the same tiles mainly because we import a whole bunch of them. We're just storing them, so So we were using them everywhere. But so usually with these things, we import a batch and we find places to store them and we keep using them until we run out. For this house, we ran out. So we mostly using new things except for lights. We still have a bunch of these lights. We still need to use them. So yeah. So these are like examples of the, 3 of the houses. I'll put more up, but like, I'm just waiting for one to complete so that I can put more up. Because I don't want to put things that are too old because they don't represent my current style anymore, the current style anymore. So these are the ones that are more recent and like more representative of like what we are building today. Yeah, this, this house was probably our best financially. We sold it around $500,000 above what we pro forma'd. And so the investors got probably around— the Class A investors got 48%, I think, cash on cash, and then 43%. And the Class B got 40— 38%, or was it the other way around? No, other way around. Class A got 48%, and then Class B got 34%. I think it was the number. So, and that's cash on cash. That's not annualized. And it took us less than 18 months, this one, because it sold before we were complete. Yeah. So I'll see if there are any other questions. Do you see, with the super low California cap rate, are your multifamily buy and hold cash flow? They are cash flowing. So my multifamilies are, I have 3. So one's a 2 of them are 10 units. One of them is a 5-unit. The 10 units were around $2 million each, and the 5-unit was around— the 5-unit was pretty cheap. It was like $700,000 for a multifamily. So they are cash flowing in that the bank would not lend you more money than— the bank would not lend you— the bank has a cap on how much they would lend you, and it's called a DSCR. Debt coverage ratio. And what a debt coverage ratio is, they want the income of your property to cover the debt by a certain ratio. And usually it's 1.25 for most banks in the Bay Area. So they want your monthly payment to be 75% of your income. So you always cash flow, it's just how much down payment you make. And well, of course, with COVID I would say most of them are breaking even with COVID because I think COVID is really tough on multifamilies because the tenants really don't have to pay. But I would say for the 10 units, 90% of the folks are paying. And then for the 5-unit, they're all paying actually. So my 5-unit is actually doing the best. My 10 units are One of them's breaking even. One of them, I'm probably slightly cash flow positive. It's not really like— in the Bay Area, you're not really looking for cash flow. You're really looking for appreciation because you're allowed— you're rent controlled too. So you're allowed 3% rent increases per year. But with the 3%, with the 5% cap, it's actually quite a bit if you do the math, because you take most of the 3%. The cost of your property doesn't actually rise at 3%. So say you, in the end, evens out at 2% a year. You can divide it by how much rents you're collecting and then multiply it by 20 to get how much your property would appreciate a year in terms of how much it would be worth within 5 or 6 years. So, so that's like, so it's the only case where I'd say you, you are actually counting on appreciation to, uh, to, to wealth build. It's more of a wealth building structure rather than the cash flowing. Uh, it's a different, little bit different mentality, but like, uh, um, I'm also evaluating whether it makes sense to buy higher cash flowing properties out of state or in other parts of California. But I haven't done it yet. And then the next question is, do you hire a designer? My wife does most of the design. So all this is my wife. So she— and like, I would say our current design is good, is comparable to most other properties with designers. So there's really no reason for us to hire a designer. Designers wouldn't The designers, they would source materials for you a lot of times, and they don't, uh, they won't try as hard to import and stuff. So, so, um, uh, and a lot of how we build so cheaply— $350 is probably, uh, really cheap for this price range. Uh, uh, most other builders are building at around $400 to $500 per square foot. So we are really beating them in terms of like, uh, cost per square foot. And the way we beat them is just by Most of them would not import or buy from out of state because they just don't spend as much time on each property. So that's how we are doing it there. What types of insurances do I get? Any insurance to cover the syndication too? Yes. So it's important to get insurance. It's probably one of my bigger tips too for real estate is Don't get wiped out. It's okay to lose money. It's okay to lose money on 1 or 2 deals. You usually don't lose that much. Say for the deal I did, I've done 9 properties. I've lost money on 1 of them. It was a syndication deal. In the end, what happened was I paid all the investors their principal back and I ate the loss myself. And we lost around $200,000 on a $4.8 million house. It's not like it's a— you can usually survive the money losses, but don't do anything that will cause you to be wiped out. And definition of that would be like, don't do fraud. Don't, don't do bank fraud. Don't do like any type of fraud. Make sure you buy insurance. And like, and for insurance, there are multiple insurances you buy. So for your personal, I have like a personal liability insurance and personal umbrella. You definitely want that personally because the lawyers can always get through the LLCs. For LLCs, you want LLC to have— so there are 2 insurances for LLC. So one is for the house. So it's just like a normal construction insurance. It's called fire insurance, they usually call it, but it's basically for the construction. It's not like a normal homeowner's insurance. There's another one where it's a liability insurance. That's usually Quite expensive too. And then the general liability insurance is just for if you get sued, if the LLC gets sued, someone falls off a roof and they sue you, things like that. You want both types of insurance for that. And that's it. I think that's it. And then you want the LLC and you want to set it up correctly. It has its own bank account. You want to do all your bookkeeping within that bank account so that You don't mix the money because that's another way you get sued. So in the end, real estate is a really long process. You don't really get rich from one single deal. You need to do deal after deal after deal. And the key is you don't get wiped out from one deal that you can't do additional deals in the future. So it's okay to lose a little bit of money, but you don't want the case where you lose your whole house and all your own money, because those are the cases where it really sets you back. And then let's see, your multifamily, are they managed by— Yes, I have them managed. I just don't have time to self-manage. With so much going on, with the full-time job, the construction, and the multifamily, there's no way for me to actually self-manage. And with 25 units, it's really hard to self-manage too, because there's quite a bit of work there too. So I do hire it out to to property management companies in the Bay Area. And, and you just count it within your costs when you pro forma. It's usually— you can still make money. Any more questions? Uh, so I'll answer the insurance question first, uh, regarding, uh, do I ask the contractors and subs to add me as additional insured? Um, usually it's the other way around. Usually the contractors want you to add them as your additionally insured. Um, um, I haven't done it the other way around. I, I might actually think about doing it, but, um, I don't know if they're willing to, because a lot of times the contractors, they have their own bond insurance and it covers all their properties. So I don't know if they would be willing to put you in. So I don't ask for it, but like, I cover myself and sometimes they ask me to put their names on mine, but I never asked them to put— I might look into this. I don't know. I don't do it myself, but I might do it. Let me research this. It's a thing I've never thought about. Tips on interviewing contractors. A lot of times it's the trust relationship. You've got to trust them. And then of course it's whether their price range matches. You want to look at their properties. And sometimes I call their references, but a lot of times with contractors, references are hard because a lot of times they give you references on their homeowner clients. The problem with homeowner clients is they usually have not tried more than one contractor. So unless it's a horror story, they won't be able to tell you whether this guy is better than the other guy because they only tried one guy. And I usually rely on information from banks, from the city. I ask the city inspector, who's the best contractor you worked with recently? They will tell you because they inspect every house, so they will know. The banks also know. The banks know who does it on time and under cost. So I ask banks, is this guy good? Is that guy good? And they will tell you. So, so there are a lot of folks in the industry that you can ask from, and not just like homeowners who usually don't know. You want to ask folks who see, who can see financials or like work done from multiple contractors. And then do you ask contractors and subs? Uh, and you should— yes, I, I'll look into that to see if anyone, uh, and then, oh yeah, um, most of them are like— most of my contractors. And all right, so the question is, are all your contractors and stuff licensed? Uh, most of the time they're licensed. Uh, the only ones I would use unlicensed are the landscaper. I sometimes use unlicensed landscapers because in the end, like landscaping It's, it's much less of an issue if they are unlicensed. The biggest risk of unlicensed contractors is they don't have insurance and you have to— and it might bite into your insurance. So I don't do it as much. In the very beginning I did. It's rare that I do anymore, but like once in a while for very small items, I might, for landscaping only. I definitely don't do it for anything like framing and stuff because those you definitely want to use license. Yeah, that's all the questions, I think. Anything, anything else? I have a GC. I don't GC because I don't have time. And I don't think I might. I don't think I need to GC. My GC can probably do that job a lot better than I can. I have a few friends who GC themselves. They take significantly longer to build their house. So, so you, you, you— it's really— the GCs are expensive, but they're not that expensive. They probably charge for the amount of work they do. They are pretty cheap. They take around 10%. But like 10% of the cost. So it's not 10% of the whole house, it's 10% of How much they are. So, so for example, for, for, uh, one of my recent houses, um, land was $3 million, the construction was $2 million. Uh, so, and we sold it for, uh, $7 point something. So, uh, they only take 10% out of the $2 million, the $2 million. So it's actually a very small amount. They, they, so their, their fee was around like $200,000, right? Uh, and that's actually less than the agent fees I paid. To sell the house, even though the agent fee is 3%. This was 5%. It's 5% of the full cost of the sale. So it's actually— the agent fee itself was more than the GC fee. And the way I look at it that way, the GC is probably there every other day managing subs, making sure the scheduling is correct. The amount of work they do and the amount of time they spend, it's probably— that's why I got a license because The amount of time my agent got, they collected a lot more than what my GC did. And the GC definitely spent a ton more time than the agent did. So that's partially what drove me to get my own real estate license, because I did the math and it made a lot more sense to get a license rather than be your own GC. Uh, uh, for— okay, depends on the material. For lumber, I let the GC pay because I, I really don't want to be buying that. Um, uh, like, like the GC— like the good thing, like for things that you don't want to count, like doors, I let the GC pay. Um, usually they, um, they don't charge. My GC doesn't charge. Okay, so I've worked with 4 GCs. Um, it depends. Some of them charge, uh, their percentages on materials. Some of them don't. Um, My current one does not. I don't think so. I don't think he does. I have another one who does. So, so some of them, they would buy your materials for you, but they won't, they won't put their fee on top of it. So, so it depends. But like, for some things I let them buy it. For the things that I care about, I buy myself slabs. I buy myself— like, there are some things it really doesn't make— like, I can't really get cheaper than the VC. I let the GC buy it, like doors, lumber, doorknobs. I let them buy, because there's not— it's not worth saving time there or saving money there because it's such a small amount. You might as well save the time and let them buy it. The big items like slabs, cabinets, windows, I let them buy because a lot of things can go wrong for windows if you measure it incorrectly. So I let them do the measurements and let them buy it. So they take the liability if they measure wrong. And that they have to buy a new one themselves. So, so that's another thing, like for, for some things it's okay if you order wrong. For other things like windows, lumber, and things, if you count wrong or you measure wrong and you buy the wrong thing, you have to buy another one versus if the GC buys for you and they buy the incorrect one, usually we make them rebuy it or they will handle the return and purchase, repurchase. So, um, it depends on which material. Do you account at big box stores, which you used to use for a project? Uh, I have accounts everywhere. Um, I, I, I, I have, uh, um, so to get accounts in, in like, um, I have accounts with Home Depot. Home Depot doesn't really give you any discount though. So, so it's useless, but like for, for other things like, like appliances, uh, For, um, uh, for manufacturers, uh, if you call up the, the, if you reach a certain volume, you can call up the cabinet manufacturers in the States or like furniture, like, um, like Kohler and all those, you can call up their like more central reps. You might not be able to reach the distributors, large distributor directly, but at least you can get the contractor accounts yourself. So you can get the discount yourself. Um, I do have accounts everywhere for those. The GC also does. Sometimes we compare prices and whoever gets it cheaper buys it. So it's also the working relationship between either you or your GC. In some cases we can get a better deal, we buy it. In other cases they get a better deal, and sometimes we compare and I ask them, what can you get it at? And they say they can get it at that, and I said, I can beat that, I'll get it, and then we get it. So It depends, but like I get my own accounts. He has his own accounts. I introduced him to some accounts that he gets sometimes too. And it's a mutually beneficial relationship, but like, yeah, like once you, once you set up once, okay. So, so the way to get accounts, I can also tell you how to get accounts. Set up a website, post a bunch of pictures like this. And then a lot of times when they ask you for an account, they ask for 2 things only. They ask for your website. They want to see that your style matches their price range. For example, if you, if you have a very expensive furniture brand and you want to get discounts from them, you gotta have— you can't, you can't post your rental, like cheap rental pictures in your website. You gotta post some nice pictures. And like, for example, when you post these pictures, we can get— we have, I have accounts with like, say, Design Within Reach. And all those things that I used to buy my own. Like sometimes when I buy my own furniture, I got it from Designer Within Reach, but like I got a contractor account with, or I would say it's an interior designer account with them because, and it gives you like 25% off. But like, you got to show them a website with like pictures like this. And then like with the Charlotte, like my website, I showed you just now, charlotteventures.com. And then they will look at the pictures. They will feel like, this matches their style. And then they will also ask you for, uh, EIN. So your, your, your, uh, tax ID, just to prove that you're an LLC. So all you have to do is open an LLC and then create a website, put some nice pictures on it, and you can go everywhere and get these discounted accounts. So that's what I found. They really don't check anything else and they, there's not really a minimum you have to spend with them. So that's one thing I found out. Um, so, uh, you guys can all go open your Like, ideally you post your own pictures. Don't post someone else's pictures because that goes into a sketchy realm. But like, if you have some nice pictures, just create a website and do it. And you can get a lot of discounted from a lot of stores. Like every store has— whenever I walk into anything furniture finishes related, I go in, I tell them I'm a developer, I have this. Like I build like X houses a year and I order this amount. And then I asked, do you have a contractor discount? And then usually I can get it. So, so, um, uh, it's something that doesn't hurt. And if they say no, then like you can keep pushing. Uh, they usually have one. So, uh, my contact information. Yes. Uh, let me just drop my email. So instead of my phone, cause I am much better at email. So I put my email here. Joe, if you can update the meeting invite with the email address too, because, uh, and if, if it's phone, text me rather than call me, because during the day I have like back-to-back meetings. So a lot of times I can't listen to the— pick up the phone. If you want to call me, just leave me a voice message. If I don't pick up, I usually reply, but text me too, because I am much better at texting than at— And my number is on the— it's on the invite, but I can put it here too. So any other questions?

Okay, no other questions, and thank you everyone for showing up. Lloyd, thank you. I will try to change that. Uh, I think once it starts, I can't change it on the—

They have comments or something, I don't know, on the website.

But, uh, yeah, I think they do. Maybe I'll just throw that email in there. But anyway, thank you for spending your time with us, uh, tonight. I appreciate it.

Hope it was useful. But yeah, thanks everyone.

It was very useful, at least to me it was. I, I know there's, uh, 35 people that stuck around, so yeah.