Mastering Build-to-Rent Land Deals: The 5-Step Formula to Success

Hello and welcome to the Raise Capital Legally podcast and YouTube channel, where we talk about topics of interest to real estate syndicators and fund managers with an opportunity for live questions and answers before we sign off. I'm Krisha Young, the co-host and business development director for the firm, and this is attorney Kim Lisa Taylor, the founder of syndicationattorneys.com. Before we get started, please note that audio and video from this event will be posted on our podcast platform, YouTube channel, website, and social media. and will be made available to the public. You can go ahead and ask questions at the end of the broadcast by raising your hand or typing it in the Q&A. Now note that information discussed during this event is of a general educational nature and should not be construed as legal advice. So today we are Mastering the Build-to-Rent Deals: The 5-Step Formula to Success with Daniel Kleeman. In this episode, we dive deep into the art of evaluating land for build-to-rent projects with expert developer, Daniel Klieman. Discover the 5 essential steps to determine the true value of a piece of land, ensure profitability, and secure funding for your projects. Whether you're a seasoned developer or just starting in the real estate industry, this conversation will equip you with actionable insights to transform your approach and land offers. Plus, learn how to leverage financing strategies like the BRRR method to maximize your returns. Hello, everyone. How are you?

Fantastic. Thanks for having me on.

Thank you for being here. Hi, Kim.

Hey.

You promised a lot at the beginning of this call. I hope I can deliver.

I have no doubt.

Yeah. So you've been in the development and build-to-rent space for a little while. I think we've talked about this once before on a podcast, certainly offline. So can you tell our audience what that's about and how you got started in that? And what kind of projects you work on?

Yeah, sure. So I've been doing real estate full-time since 2008, part-time since 2006. I'm based in Richmond, Virginia. I kind of evolved into development slowly. I started out renovating houses, then I moved into renovating duplexes and small apartment buildings and small commercial buildings, and then I after 6 or 7 years, I got tired of renovating. The market where I'm in, it's very old housing. All the renovations were extremely involved and we generally took everything down to the studs. So I transitioned to development almost out of necessity because I was getting burned out on just renovations. And for the last 10 years, I've been building ground up. Primarily what we specialize in is building apartments. and mixed-use projects. But I built smaller, you know, I built duplexes, quads, larger apartment buildings, mixed-use projects. We also built single-family homes and townhome developments as well. And so we have a side of our business where we sell usually single-family homes that we build. We sell anything that I build that's bigger than a single-family home, we keep in the rental portfolio. And then we're vertically integrated with a property management company that just manages my portfolio and my assets.

Okay, and you did that, you created your own property management company just because, you know, tell us why you did that. Were you not finding good local people that could do that for you?

Or yeah, I mean, look, there's good local property management firms and there's quite a few bad ones. But even the best property management firms that I could hire are still not going to manage my properties as well as people that work directly for me, whose job it is to only manage my assets. And I mean, there's, there's, there's other nuances that would take me a while to go into about why in-house property management is just better. It's a better place for people to work. It's better for my tenants. But at the end of the day, we take great care in building really, really nice quality product for people to live in. But if that product is not maintained and if the leasing is not done properly, then it's all for nothing. And so in-house property management ensures that after we get done spending a lot of money in building this really nice product, it's actually leased out properly to the right people that will take good care of it and then it's maintained and deferred maintenance is looked after. And that's how we maintain a great quality portfolio 8, 10 years down the road after building it.

And are you only doing this local to where you live or within some certain geographic distance?

Just locally. I mean, in my market, and I'm literally in 3 neighborhoods, and I just entered a 3rd neighborhood On this last project. So I was in 2 neighborhoods and we were very, very tightly geographically concentrated.

Yeah, and that's so that you can control— do you have your own construction company or just a group of contractors you work with?

No, I'm actually— I'm working on starting my own construction company and vertically integrating that as well. For now, we've been outsourcing to third-party general contractors. But yeah, I mean, having— being tightly geographically concentrated is effective from a construction management standpoint, but also from a property management standpoint as well. All of our properties are within a 10-minute drive from our office. And so, yeah, their projects are easy to manage when we're building them, but they're also easy to manage, you know, if we have issues at properties, my staff can get there quickly to handle maintenance issues, to handle tenant requests. And so, yeah, that tight geographic concentration has been very effective for us. But the added component to that is that the more tightly geographically concentrated my portfolio is, the more benefit there is to my existing portfolio from the new projects that we do.

Right, right.

And so I'm a big fan of developing multiple projects on the same block or on the next block to each other. And I mean, the closer they are, there's just no— there's almost no downside to it unless I pick the wrong market and then I'm tightly geographically concentrated in a really crappy market and everything goes down. But hopefully that's not gonna be the case.

Sounds like it's a market you know pretty well. And we're not gonna ask you to reveal your market so we don't create much competition.

No, it's fine. I mean, I have so much content online that I mean, I'm in Richmond, Virginia. People know where I operate and, you know, I'm not, I've never been worried about competition.

Well, and this is a nice You know, way for somebody else, if they want to kind of follow in your footsteps, is think about, hey, if you like where you live and you don't want to be traveling all the time to, you know, larger apartment complexes, or, you know, whatever else you've been doing, you know, all around the country, then maybe this is a way that you can figure out how to actually build in your own community and stay close to home. So I think it's a great idea. So how about Like working with the local regulators and counties, cities, that kind of stuff. How did you figure all that stuff out?

Just slowly as I went. And there are people on our team that we work with that help tremendously to figure that stuff out. We work with land use attorneys and zoning consultants. And also, again, this is where being geographically concentrated makes a big difference because I don't have to build those relationships in 5, 6, 7 different counties or cities or states. And so all of my effort is channeled into kind of getting to know how a specific county works, getting to know the right people at the county, getting to know, you know, the local decision makers. And I only have to do that in one market instead of many, and that makes things a lot easier as well. But we have— we— it's all about the team, right? So the land use attorneys are a big help. If I was entering a new market, I would go and I would hire a land use attorney that can guide me through zoning, rezoning, permitting, variances, all of that stuff. I wouldn't be trying to figure out from scratch. I would go hire a professional that has those relationships, has that local knowledge. Add them to your team.

What other kind of professionals do you need to get one of these projects started? Like architects, surveyors, you know, tell us about all that.

Yeah, yeah, I mean, an architect obviously is hugely important, and, you know, don't go on some random website and try to buy plans. You know, having a local architect in that market that understands local zoning, local building codes, architectural styles, construction methods makes a huge difference. And so here locally, we work with— I typically work 3 to 4 architects at a time. You know, there's somebody that I work with that's really good at small projects. There's somebody that's really good that I work with that's good at medium-sized projects. And there's somebody that I work with that's good at like larger apartment buildings.

If you're— apartment building that you've built?

Physically, I'm finishing a 40-unit mixed-use project now, and I've got a 130-unit project that's going through permitting. And we're— I'm hoping to break ground on that one this year, but we'll see how the market behaves. So as you know, we're kind of in a crazy period of time right now. Nobody knows what's going to happen.

Sure. Okay. And then surveyors, you got to have land surveyors.

What other surveyors? Civil engineer, structural engineer, mechanical, electrical, plumbing engineer. You need a good attorney. You need a good land use attorney. Right. And the land use attorney and a good attorney sometimes are the same person and sometimes they aren't.

Right?

Those are really crucial. You need a good contractor unless you're a general contractor yourself. Obviously, when for our property management, you know, we have a number of subcontractors that perform maintenance for us, and those are incredibly crucial to being able to operate a property management company and maintain our portfolio.

And I would imagine also that you've gotten a reputation or gotten to know a lot of the local brokers, real estate brokers who can—

Yep.

Turn you on to properties that might be suitable?

We deal with brokers. I have relationships with wholesalers that sometimes bring us deals. I have relationships with, you know, residential real estate agents that sometimes bring us off-market deals as well. So yeah, those relationships are incredibly important as well. And again, and that goes back to, you know, if you're in 7 different markets, it's very hard to create a critical mass of those relationships. If you're in 1 or 2, it's a lot easier.

That's right. Yeah. Okay. And what's it— I guess it depends on the size of the project, like how long it typically takes from, you know, getting the— well, let's step back a bit. How do you tie up the land? Do you buy the land or do you get an option contract on it? What's your strategy?

So we don't do options. It depends on On the size, right? Small residential lots, I'll usually just buy with cash.

Uh-huh.

I'll, I'll take that land. I try to buy it obviously cheap. I mean, I, I don't know who doesn't try to buy something cheap, but the goal is to buy below market value, right? And if I'm buying that land cheap, I can take that land as equity to a local bank and get a construction loan. That land becomes my equity. So, and, and the beauty with development And I talk about this all the time, but you can, with the right deal, you can accomplish more leverage than if you're buying an existing asset. Because I can take a piece of land that's worth $50,000, but it's worth $100,000, and I bring that $50,000 piece of land as a $100,000 piece of equity to my construction loan.

Right.

Well, if I'm having to put a down payment on something, cash is cash. I need cash. But I can, I can do a step-up in land basis essentially and bring that land at higher value to my bank and generate more leverage on that $50,000 than I would if I'm buying an existing asset. So if it's small residential lots, I'll buy them with cash. If it's, if it's larger pieces of land, we will typically put it under contract if The zoning is already in place, that contract will either be contingent on the successful due diligence period, or it will be contingent on successful due diligence period and also financing, construction financing being approved.

Mm-hmm.

If the zoning is not already in place, let's say it's a piece of land that I want to upzone, I will put it under contract contingent On that rezoning being successful. And so that can be a 12 to 18 month contract. And we've done that before.

So really kind of— and do you, on those kind of contracts, do you usually have to put down a nonrefundable down payment or deposit?

Yeah, usually if you're dealing with a sophisticated seller, they will ask for Either a non-refundable deposit or they will ask for a deposit that maybe goes hard after the initial due diligence period. We try to avoid that at all costs, right? I want, in an ideal scenario, I want to be able to get every penny out of the deal if the rezoning doesn't go through.

Right.

But it just depends on who you're dealing with. I did a deal 4 or 5 years ago where I bought a piece of land for $2.5 million. It was a very difficult seller and he, his land was on the market and it was on the market for a long time because he would not allow anybody to tie it up long enough to perform due diligence.

Right.

He wouldn't even give anybody 90 days and it's a big 5-acre piece of land. So I really wanted this, this land and I had to show up to his office and give him a $50,000 check that went hard that minute.

Wow.

I don't recommend doing this, but I felt confident I was going to buy the land, but I needed to do the due diligence. But as soon as I handed him that check, it was his $50,000. Again, extreme scenario. I don't— I'm not here to advise anybody to do it, but that's what I had to do in order to get a proper 6-month due diligence period at all.

Yeah.

And you having had the experience that you have, we're probably pretty certain you were going to be able to get it anyway.

Well, and again, I knew the market. It was in the same market where I've already done a lot of development. And so I had a certain level of motivation and confidence that it was the right deal. But yeah, I mean, it really depends on who you're dealing with. In an ideal scenario, you want as much optionality as possible, and you want to be able to get all your money back out if something in the due diligence phase doesn't go your way or the rezoning isn't approved. That's typically how we structure these deals.

So how do you go about valuing the land, especially if you're going to be building something on it that there's nothing like it in the area?

It starts with zoning. You know, what is the zoning? What does the zoning currently allow you to do? What kind of density can you build according to the current zoning? And then once you figure that out, and you can use a good architect or a land use attorney to help you figure that out, the next step is, are there any site constraints that prevent you to be able to build the kind of density that the zoning allows you to build? Because just because zoning says you can build 100 units, Doesn't mean you can physically place 100 units on the property. Maybe it's like this steep. Maybe there's an easement that runs through the middle of it.

That's what I was thinking.

Maybe the soil is so bad on a part of it, or maybe there's wetlands on, on half of the piece of land. And so you start with zoning, but then you say, can I actually build what the zoning allows me to build? What, what are the parking requirements? Maybe the parking requirements where you are are so onerous, you have to have 2 spaces per bedroom. It's extreme example, but it exists. Kind of crazy that, yeah, sure, zoning says you can build 100 units, but by the time you figure in all the parking, you actually can't get 100 units on there.

Mm-hmm.

So, so that's where you start— zoning, site constraints. And from there you say, okay, zoning— again, zoning says I can build 100 units. I've examined all my site constraints. I did my density study. And again, a good architect can help with that, given the height maximum and the setback maximums on the lot, parking requirements. easements, I can actually fit a 100-unit building on this piece of land or a 10-unit building or a duplex, whatever. What kind of income is it going to generate when it's built? What are going to be the operating expenses? And then you subtract your expenses from your operating income, you get to your net operating income, and then it's all income. The valuation is all income-driven. It's NOI and it's cap rates. That's all it is. And then from there, once I know what it's gonna be, what am I gonna build? What is it gonna be worth? You know, what am I gonna build? How much money is it gonna make? Then I know what it's gonna be worth. Then I back out my costs, right? They back out my desired sweat equity and I get to what I can pay for the land. It's literally the same process. And I don't know how sophisticated your audience is, but You know, when I talk to single-family renovators, it's the same process. You're looking to buy a single-family home that you're going to rehab. What is it going to be worth? How much is it going to cost to get it to that state, that renovated state? You back that out and how much profit you want to make, and you get to where you can pay for it. It's same exact process for land.

Yeah.

It's just more Abstract because it's not there right now.

Right. And the numbers are bigger.

Do you have any tools you offer to, like, do you have any kind of program where you help people who are trying to get started or are you working on anything like that?

Right now I have a lot of development training on YouTube. If you look up, I wish I was taller.

Rehab evaluator.

If you look up rehab, yeah, rehab evaluator on YouTube, we have a ton of training, uh, and, and we're working on something more, more formal, an online academy that's going to come out soon that kind of teaches small-scale real estate development. Because again, a lot of what I build is not the 100-unit whatever. We build duplexes, we build quads, we build really manageable, easy to get off the ground projects that still cash flow well and, you know, are People love living in them. And, you know, if somebody is getting into development, you don't need to go and do 200-unit projects, at least not in the beginning.

You know, I can see where there's a huge need for this. I know amongst our audience, which I think probably has a full gamut of people that have done a lot of different things, you know, and maybe even built some stuff in the past to a lot of people that are just getting started in the multifamily space, maybe even some single-family. Fix and flippers and and developers that would like to scale up a little bit. You know, I think there's probably a wide range of people that are listening to these this call, and I know that you know of all the trainings and things that I've been to over the years, and I've been to a lot. You're the only person I've ever run into that actually has kind of scaled into the small smaller developments. Now you're getting into the bigger developments, and you know actually. You know, done a step-by-step kind of a program for it.

So, I mean, yeah, we just try to make it accessible, right? When I, when I transitioned into development, I don't know, I don't know if I searched that hard online. I probably should have searched harder. I don't know if anybody at the time was teaching it, but I certainly wasn't aware of anybody kind of teaching this. And so I figured out a lot of it on my own as I went. And so one of the things that we want to do is, okay, make it more accessible for people because the fact is like we need more housing in this country. We need— every market needs more housing. Every market needs more development. Sure. I mean, you know, yeah, I'm sure there's exceptions to the rule. There's probably one or two markets that are being overbuilt, but overall as a country, we need more housing. And a lot of housing that we create is kind of the infill small-scale housing that fits really well into established neighborhoods, into existing neighborhoods. Smaller scale, it feels more residential. People— we do a lot of mixed use, so a lot of projects that I do, you know, really add to the walkability of the neighborhoods where we develop because we're putting restaurants and coffee shops and yoga studios and bars into these buildings. And almost every market could benefit from more of this type of development.

Absolutely.

More businesses, more jobs, more housing. It's good for everybody.

Community.

Yeah, I doubt if it would make sense in the place where I live, either of the places that I live, because—

Yeah, numbers don't work everywhere.

Yeah, no, they're resort towns and the land is expensive everywhere.

Yeah.

But if you can get somewhere where the land is not all that expensive and the housing needs are there, then certainly you should be able to do that. So, so we've talked about kind of conducting your density study. That's where you're looking at the site, seeing how it's zoned, and then considering all the site constraints. Is that what you would call a density study?

Yeah, yeah. I mean, a density study is literally, hey, let me do a basic study on what I can fit onto this piece of land. What makes sense here? That, that's all it is.

And, and then does it make sense from economically? Okay, now that you know, then you can figure out, okay, what are the rents gonna be? What are my expenses? And I'm assuming you're using a formula for what percentage of the income is gonna be allocated for expenses.

Correct. Yeah. So, so that, that kind of falls more into a financial feasibility study, right? So density study comes first. Here's a piece of land. Here's what I can build on it. But then you say, does it make sense to build? Because it's going to cost me X, but maybe the market rents, you know, it's all, it's all right now driven by what neighborhoods make sense to develop and what neighborhoods don't. It's what you're going to pay for land. And are there rent— if we're talking specifically about building to rent, are there rents that will sustain and will cover the debt?

Right.

It all really comes down to development right now is very simple. Are their market rents high enough to pay the debt on a monthly basis that's required to build this building? That's all it is.

And is there something left over for you for having done it?

Well, sure, I'd like to make a couple of dollars. Yeah, yeah, I, you know, I'm not a nonprofit. Well, and some people think I am, but—

And a lot of our clients are going to be bringing in some investor money or maybe bringing in some partners. And so that, you know, you've got to be able to look at, okay, we're going to be putting out some of our own cash. Maybe you have— you— because let's, let's talk about what kind of cash you do have to put out. If you've got to put down some kind of a down payment or you got to buy the land, you've got to fork that cash out. And then you also are going to have some costs with hiring your engineers, surveyors, architects, land use attorneys, zoning consultants in order to get the deal permitted, right?

You've got a significant amount of soft costs that need to be fronted. And, you know, real estate development right now is a business where you have to have cash, whether it's yours or it's your investor's cash, and then you're usually leaving that cash tied up in the deal.

Yep.

The fundamentals are such that it's very hard to build something, immediately refinance it, and pull all your cash out. So it really becomes a capital allocation play, right? Should I allocate capital to this project? What kind of return is it going to generate when the project is built? And then what are my long-term projections looking like. And, and what we're finding is in a lot of projects that we build, especially larger projects that I build, that, you know, if I'm building by residential code, initial returns are really good still. If I'm building something by commercial code, we're basically looking at what's my cash-on-cash return when this project is built and stabilized. Right now, in most projects that we underwrite, that number is in single digits. And so then you need to ask yourself, what do next 10 years look like? What do next 15, 20 years look like? Am I bullish about this market? Do I believe in the rent growth story? Because if you believe in the rent growth story, even if this project only cash flows initially 6, 7%, you're going to get a big chunk of depreciation off the top. Hopefully 100% bonus depreciation comes back this year. Fingers—

there we go.

Fingers crossed.

Right.

I had to do this. My dexterity. Anyway, it's hard if you believe in the rent growth story, right?

Watching us is now like, okay, can I say—

I didn't think it would be this hard. But, you know, you're getting amortization on your debt. You're getting appreciation from rent growth because your NOI grows. And so a project with initial cash-on-cash of, I don't know, 6%, 7%, 8% right now doesn't scare me because most of these projects I'm planning to hold for the next 15, 20 years or longer. And over that time, we're going to make tremendous money with these projects. But it's a capital allocation play. Whatever cash we're tying up on these deals, it's probably going to be in there for 4 or 5 years until my rents have grown enough and my debt has amortized enough to where I can pull that cash out. That's all it is.

We have a lot of clients that are doing developments, and there's 2, just 2 places where they tend to raise money. One is to get the land tied up or purchased and then to get the— go through the entitlement process, getting to the permits and A lot of them find that once they've done that, they've also created value in the land that's looked at by the construction lender. So you may not need to bring in any more money depending on your construction costs. And if it's not sufficient to count as your equity on the construction loan, then you would be able to raise additional money again.

Mm-hmm.

And so we, we've helped a lot of clients that have done that. And the one thing I will say that a lot of people seem to not understand is when we're working with development clients, we want them to hold title to the property in an entity that's one step removed from their investors. And the construction lenders prefer that. And also to separate liabilities in case of a construction accident or something at the site. You don't want that to be owned directly by your investment group unless it's just your small, tight-knit group. Sometimes it's just a little joint venture with 2 or 3 or 4 people that are putting up.

Sure.

To tie up the land. And then the equity you create during that entitlement process becomes yours, which you can either pull out by raising additional money in order to get the, you know, go on to the next step and start building.

Or roll that in.

Or you can roll it in as your cash investment in that deal. You already build in equity just from having entitled the land. So a lot of our newer developers, you know, don't understand that. That's a huge benefit for them if they are in a situation where they want to raise money. But if you're just doing single-family and duplexes, you may not ever need investor money, or maybe just one, you know, partner that kind of helps you do that stuff. But if you're going to be doing a larger project, then you probably need to bring in—

Well, sure. I mean, yeah, larger projects are equity-heavy. There's no question. I mean, it's also another reason why I kind of like these smaller developments. You know, my philosophy has always been I can do a 10-unit project and own it myself, or I can do a 100-unit project and own 10% of it and still be responsible for building and managing 100 units. Now, again, it's not apples to apples because in that 100-unit project, I'm going to make a good amount of money off of fees. I'm going to make— I'm going to have an acquisition fee, financing fee. We can stack it. We can stack it. chock-full of fees. That's how a lot of people operate. But I've always liked the smaller deals where I can retain more control.

Sure.

And that makes sense. We'd all like to do, you know, all these deals by ourselves, but we just don't have the money to be able to do it. And that's why people even consider doing syndicates or creating funds. All right. So we've kind of talked about a lot of the questions that we had. What do you think What are some of the common mistakes that developers make when estimating net operating income?

Well, I mean, rosy rent growth projections. I think a lot of people right now, they're putting together— I mean, I don't know if it's now or if it's always, right? I think what you'll often see is people that are putting together pro formas are using rents that they think will be in place 2 years from now when the project gets delivered. And that can be very dangerous because if the rent growth stops in the next 2 years or if it's slower than we think it's going to be, then what's going to end up happening is you're going to need to, to refi out of that construction loan. You're going to need to bring quite a bit of cash to the table. So when we build pro formas for our projects, we use today's in-place rents. Always, even though this project won't be delivered for 2 years, what can I get today in rent for these units? And that, I think that's a lot safer. Then of course, underestimating operating expenses. You know, if you're seeing a pro forma with like a 25% operating expense ratio, you need to, you know, you need to be careful because any lender that's going to see that is going to laugh you out of the room. Yeah.

What is— is there a rule of thumb for that, or is it just geographic dependent?

I think it depends. Like, in my market, on smaller projects that we build, I'm using around 30%. If it's a larger multifamily project that has a lot of common areas, amenities, I'm usually forecasting about 35%. But you'll see There's properties out there that are operating at 40%, 45%, sometimes 50%.

Yeah.

We, we don't. But again, a lot of the buildings that I like to build are very efficient. They don't have a lot of wasted space, a lot of hallways, a lot of amenities. And so that drives our operating expenses down. And so every year we look at how our portfolio operates and we're typically hitting around 30% on most projects. But I mean, I can't speak to every market or to other operators.

What kind of loans do you typically get on these projects? Are they, you know, are you working with credit unions, small local banks?

Yeah, so we're primarily going out to local community banks. The loans I really like are hybrid loans, meaning it's a construction loan that then rolls over into permanent financing. when the project is stabilized. I— what I don't like is having a refi risk, right? What I don't like is being in the middle of construction, not having permanent debt guaranteed. And a lot of people are comfortable operating that way, and I've never understood it, especially in the rising rate environment. So I don't like to break ground on the project unless I have term rate and funding locked in. Now, it may not be locked in for very long, Meaning like project I'm finishing now, we got a 5-year fixed rate loan, 2 years interest only for construction, 3 years amortized at 29 years. Don't ask me about 29. It's a long story. It's amortized at 29 years for 3 years at the same rate. And then after 3 years, that rate resets. But at least I have 3 years guaranteed at right now, what do we have locked in, 6.42%. I have a decently good rate locked in for 3 years after my construction is finished. What I don't want is having a gun to my head at the end of my 2-year construction period where I have to get out of that loan.

That's right.

So that's typically what we do. And the alternative is A lot of the projects that— a chunk of projects I'm working on now that are larger, we can refi to non-recourse financing once they're stabilized. And so I'm starting to look at some Fannie Mae loans to refi into perm. But at the very least, want that option. I want something in place locked in for when the construction is finished. But then I'm also watching my prepaid penalties. Because what I want, I want the best of both worlds. I want optionality. I want to have permanent funding in place, but I want to be able to get out of that permanent funding. Does that make sense?

Yeah.

So we just watch our prepay penalties and then I've got both. I've got guaranteed funding in place, but my prepay penalties aren't so high that I can't get out of it if rates drop or I want to go into non-recourse financing.

That's it. And yeah, that's one of the things I was gonna ask is I would assume these are all recourse loans. So you're doing personal guarantees on them, right?

Yeah. I mean, I haven't heard on the construction side of many non-recourse loans that you can get. I'm not sure if that exists. I haven't seen it. So on the construction side, you're always signing your life away, basically. Development, it's risky.

Are you ever going to do land loan or do you just not go there?

Yeah, I mean, I try to avoid it. At all costs. But some of the larger land that we've purchased, like the $2.5 million parcel that I bought, I financed, I think, 70% of it. I just didn't want to put that much cash in. But I try to avoid financing land as much as possible because it's a non-income-producing asset. You're just writing checks every month. And that can add up very quickly.

So what are some of the biggest challenges you've had on some of your construction projects?

Well, on Monday I woke up to footage of 2 of my porta-potties being set on fire. Does that, does that count?

Yes, I think so.

I think so. But the footage was taken at night and it made it look Like the building was on fire because there's a large glass storefront. And when they were putting it— when the firemen were putting out the fire at the porta-potties, their reflection off the glass, it made it look like they were inside the glass. And so that's what I woke up to Monday morning thinking, that my project that we're finishing and leasing— it's a $15 million project we're leasing for March 1st— I woke up on Monday thinking it burned down.

Wow.

So that's one. I mean, challenge, look, challenges, timelines are always a challenge, right? Timelines are always a challenge. Every month costs money. Every delay costs money. Some delays you can avoid, weather. We've had really rough weather here. Some delays are because a contractor is underperforming. They don't have tight control over their subcontractors. They're not proactive about ordering materials and ordering supplies ahead of time. And so we've gotten better at building in penalties into our contracts with our general contractors that have a per diem penalty in there because, you know, I finished the project 2 years ago that we didn't really pay close attention to that part of the contract and it was a project that should have taken 14 months and it took 24.

Wow.

And, you know, and part of it was COVID in their defense, right? It was just harder to order supplies and order materials, like, but delays cost a lot of money. So we've gotten better at really having tight clauses in our contracts about that. You know, unforeseen site conditions are always a challenge. That's why you really need to do due diligence extremely carefully. The more carefully you can do due diligence, we've gotten better at just reviewing plans. A lot of the slowdowns in your construction project will happen because something will get permitted, and then when your contractors or subcontractors go to build it, something doesn't make sense in the drawings. Or maybe there's a discrepancy between your architectural and your civil, or maybe between your civil and your plumbing, or maybe between your architectural and your structural. And every time there's a discrepancy that's caught on-site or a question, things stop.

It stops. Yeah.

And that could cost you anywhere from a day to months, because God forbid you have to submit something that's big enough to where you have to submit a plan revision. So our focus is more and more on very thorough plan review before we ever go to permit. And the more time you can spend on that, and having good contractors helps with that. Because that adds to my knowledge and fills in my knowledge gaps, right? But the more you can review every inch of your drawings before you ever go to permit and cross-reference those drawings, the faster your construction will go and the less money you're going to spend. And that's huge. I mean, that's a big lesson.

Just want to remind everybody that's on the call that feel free to put a question in the Q&A, raise your If you would like to ask a question of Daniel or me or Krisha, Krisha Young is our business development director at Syndication Attorneys, and she also has her own coaching program helping people overcome mental impediments to achieving their goals. And she's very talented at that. And if you want to reach out to Krisha or me, you can reach out to Krisha at krisha@syndicationattorneys.com or kim@syndicationattorneys.com. Daniel, do you want to give everybody your contact info?

Sure, I can, I can put it in the chat.

Yeah, and go ahead and say it too in case we have people just listening.

Yeah, it's— so my, my email address is Daniel, it's with 2 I's, daniel@rehabvaluator.com. No E, valuator, rehab valuator. I don't know if you can see it. rehabvaluator.com. So you can reach me. I generally am pretty good about replying to emails.

Excellent. And so also, Krisha, if you could let everybody know about our books, or I've got them here if you don't have them handy.

I do. Yeah. And there are a couple of questions in chat and the Q&A, so we can get to that in a second. And I always like to put my 2 cents in with regards to mindset and things that I pick out of conversations our guests. And, um, there were, there were just 2 things. Well, there's, there's a lot here. You're, you're a very sophisticated and intelligent businessman.

Well, thank you.

Yeah, and, and very thorough.

Very kind.

Oh, very thorough. It's like step by step by step by step. So I admire that. Um, but there was one thing that you said way at the beginning, and it was just sort of like this flippant comment, but I think it's like important. Um, when you were talking about like there's no competition, and I really like that. You know, that's such a great mindset to be in, even though like there is competition technically, but there kind of isn't competition, you know. And I think the more we can be in that mind space, um, we just stay in our lane and then we can have success in that, you know, without having to worry about what other people are doing.

Yeah, I mean, we, you know, first of all, I've never been a fan of just clutching my pearls and worrying about what other people do. And I've always been a firm believer that there's a ton of opportunity out there. There's a lot of meat on the bone. You know, I've always believed in collaboration. You know, look, some real estate markets are really cutthroat. I talk to people that are doing business in New York, for example. I mean, that's, but I mean, that's, it's, it's it's dog eat dog and it's very, very tough. Here in my market, we've always collaborated, you know, I have people locally who I mentor that are trying to follow in my footsteps and there's bigger developers than me that I call and I admire them and I admire their projects and they're happy to talk to me and answer my questions and everybody helps each other. I don't know how many markets there are like that, but in my market, we've always been very collaborative. I mean, it's been sharing information. We go to the same networking events, we help each other.

Yeah.

And then at the end of the day, like, I've got a bunch of properties and somebody goes and builds something nice around my properties, it only helps me.

Yep.

It only, it brings up my property values, right? As long as they're building something nice. And that's kind of the message that I've been trying to serve Preach for a long time is build, build quality stuff that will last for a long time and people will actually enjoy living in.

Are there any, uh, like groups that you are part of in your local community, you know, that, that support developers?

Yeah, so in my town there is, there's a couple of just networking groups where, where developers meet up. Um, I don't go to kind of the regular RIAs and wholesaler meetups so much, but there's, there's a couple of groups where, where developers go and, and talk. And, you know, there's online communities as well. And, um, in, in every market you, you have it.

Interesting. Okay. Um, and, um, I guess, uh, Christian, could you tell people about our books and how they can get copies of those? And yeah.

Absolutely. So if you would like to raise capital like a pro, you can get our free books. We have 2. If you're new to raising capital, it's this one here. You can learn the laws, the structures, and the strategies to secure funding for your deals. And if you're already raising capital or you're a little bit more into the game here, you can get our more desktop reference book here for more sophisticated information. Both are available on Amazon. If you go to amazon.com, you can search up Kim Lisa Taylor and grab these books on Kindle. You can also get the second book on Audible, or you can text 844-796-3428. Sorry, text the word syndicate, S-Y-N-D-I-C-A-T-E, to 844-796-3428, and we'll send you over a free copy of one of those books. Or you can even head over to our website, syndicate and click free book, and we can get you over a free e-copy for you, depending on whether you've raised capital before or not. The other thing that I wanted to mention, Daniel, was just that local relationship conversation that you were having at the very beginning.

Mm-hmm.

And what I liked about that is that you were building the relationships, you were establishing tenure in your own, like, local network there. But that allowed you to take a risk in your business, like eventually, right? You took that $50,000 risk.

Yeah.

You know, and I think that, that, that's like a testament to, you know, like, hey, like, we've been here a while, we get this market, we know it, we've got, you know, we've got people who've got our backs. And so now we can take this kind of risk in the, in this neighborhood by like tossing $50K that might, may or may not turn out to anything, and it did, which is great.

Yeah, it's a level— yeah, it's a level of comfort. It's also just from a, like, a deal underwriting perspective, makes things easier because if somebody calls me and they say, hey, I've got a piece of land and it's in neighborhoods I'm very familiar with, it's much easier for me to know, hey, I know this location, I'd be interested. Okay, how much? Oh no, that's too much. Or no, that works. I don't have to reinvent the game every time.

Yeah.

So I can, I can underwrite a larger number of deals very quickly because I'm very familiar with the market. Whereas if I'm looking at, I mean, even at one of the counties that's next to us, it may be 5 miles away, but I just don't know that market. For me to figure that out is a lot more work. And now I'm spending a lot more time underwriting one deal, whereas I could have underwritten 5 deals in the market that I'm already familiar with. And so yeah, there is a level of comfort there that you add by just going deep instead of going wide. And also, I just don't like to travel far.

Yeah, well, it's niching, right? The riches are in the niches.

Yeah, yeah. It's just, it's easier from multiple standpoints.

So we do have some questions.

May I?

Did you have anything you wanted to add there? No? Okay. Okay, we've got some questions and some stuff in the webinar chat here. Chris Stevens said, I'm sure y'all will cover building MF to rent versus SF to rent, but there's me asking to make sure you do.

That was covered.

It's covered. Okay. Eric Hector said, RE single-family detached housing, have you derived a product price point tenant profile that supports residential For rent use? It seems the value of for-sale detached housing product always seems to provide a greater NPV relative to for rent.

Yeah, yeah. So I'm, yeah, I'm happy to address that, and that's a great question. So in my business, yeah, single-family homes we sell. I will always make more money when I sell a single-family home than what my rental return will be. I haven't been able to really make the single-family for-rent model pencil out in my market. Every time it makes sense to sell them, and it's also healthier in my view to have a part of your business where you generate operating income and equity via sales, and then have another part of your business where you're building long-term assets and you're using You know, the flip profits from from the sales as equity into your long-term deals. So for me, the rule of thumb is if I'm building a single-family home, I'm going to sell it. If I'm building anything larger like a duplex, I'm going to keep it because even the duplex, the duplexes that we build are over and under. It I can literally build a two thousand square foot house and it doesn't pencil out as a rental, or I can build the same two thousand square foot house and break it up into two apartments. And generate 50 to 60 times more in rent on the same 2,000 square feet, and it pencils out great as a rental. And and then it comes down to does the zoning allow me to build a duplex? Sometimes the zoning says you've got to build a single family home, and I don't want to go through the trouble of rezoning it. I'm just going to do what the market allows me to do. I'm going to build a single family home, and I'm going to sell it. Or maybe the zoning allows me to. To build a duplex, then I need to make a decision. Am I in need of more equity? Because then I'm just going to build a house and sell it. Or do I want to add more rentals to my portfolio? And then I'm just going to build duplexes. And duplexes are great because people love living in them. They feel just like single-family homes. If you're living in one of these apartments, you don't have neighbors to your right, to your left, behind you, in front of you. You just have one neighbor above and below you. And so they're It's a very popular rental product, easy access to parking. So that's a very long way to answer your question. But yes, single-family homes we sell, anything larger we build, build and rent.

Just lost Krisha. No, that's okay. I'm still here. So someone asked a question about something I said, and the question was, what did Kim mean by entitling the land to add value? I can answer that, or if you'd like—

Yeah, please go ahead.

So it's really just all of the key steps you have to go through in order to get that project approved before you can start construction. So, you know, your due diligence, your feasibility analysis that we've talked about during this call, your zoning and land use approvals, environmental review for— you probably don't have to do that for single-family or duplexes, but maybe when you get in a commercial, you do, right?

Yeah, we need to do— we do Phase 1 studies, and I'm dealing with one project where we have wetlands right now. And so we have to remediate that.

Yeah. And then site plans and design review. So you've got that with your, you know, architects, engineers, city planners, you know, coordinating all of that and making sure that that all meshes and meets the community guidelines. Your subdivision, if you're doing a subdivision, you have to do mapping and land division if that's required. But it sounds like you don't generally have to do that. But maybe you buy a parcel and have to join parcels sometimes, or—

Yeah, we mostly do infill development. So I don't personally do raw land development where we have to subdivide it, bring roads, bring utilities, not to say that I won't down the road, but everything I'm doing now is infill. Road is already there, utilities are in the street. So our entitlement process is quicker, simpler. You're back. All right.

All right. So we've also got, you know, if you have to do any public hearings and community engagement, any development agreements and permits, With local authorities, conditional use permits, that you're gonna be working with your land use attorneys to get any of that stuff done, and then your final approval. And then does that typically get recorded, and then you go forward with construction, or is there any kind of a, you know, other steps in there we missed?

No, I mean, I think you covered it very thoroughly. You know, we, once there's site plan approval and architectural plan approval, we, we come in, construction loan is approved, and we typically try to kind of line those 2 things up together, building permit approval and construction loan approval, then, then you're off to the races.

And I mean, there's actually a strategy that we've seen some clients employ where you'll tie up a commercial property and get and go through all of these steps and get it entitled for a specific use and then sell it. To, you know, because there's a lot of land.

Yeah, absolutely. I mean, there's a whole set of— I don't know if you would call them developers, right? But they're investors that specialize in titling land and flipping it.

That's right.

And you raise the value of the land by titling it, but then you don't have to go through the pain of building it for the next 2 years.

And the builder, the benefit for the builder is they don't have to, you know, have the staff and the funds available to tie up that land for 2 years that it might take to get all that stuff done on a commercial property, then they can just go ahead and hit the ground running, get the construction loan, they're building, you know, within weeks instead of months.

Yeah. And some of it is also a matter of risk, because sometimes you will tie up land and spend money on soft costs to get it rezoned, and there's no guarantee that it's going to go through. And so every time you're spending money on site plans, architects, surveyors, land use attorneys to get something rezoned, you're spending that cold hard cash. There's no guarantee that there's going to be a payoff. And so there's always a level of risk there. So yeah, I mean, if a builder is happy to, to take the project over when it's already 100% ready to go because they don't have to take on that risk of entitlement.

And depending on what kind of a property it is, I mean, you could be generating millions of dollars worth of equity if it's a big subdivision project or something like that. You turn around and sell it to a builder. Sometimes it's just amazing how much it's worth to them not to have to go through all that process and have that land, that money sitting idle. You know, they want their money working and they want their investors getting paid. You know, as quickly as possible. So they want to get that product, you know, constructed and out. And so an anonymous person asked, how do you raise money for your deals?

It varies. I try not to raise money for my deals. That's the goal. But if I can self-generate the equity, And then I do again larger projects. We're doing one now where we brought in limited partners into the deal. And so there I'm the GP and I have a co-GP in the deal and then we contributed a big chunk of the equity between us. And then there's a piece that we raised from limited partners. And in this case, it was just a few people and we didn't, I mean, it was very paperwork light in this case because they were all accredited investors and they were friends and family and they just got added on as limited partners to our operating agreement and they're basically getting same share of the project that we do, meaning based on how much cash everybody put in. We didn't stack it heavy with fees or anything else, but most deals so far, I've either self-funded or I've partnered up with a friend of mine and we put up the cash 50/50 and done the deals. I Again, personally, I'm a fan of that model. I think any healthy business should have an operating income component and a long-term asset component. And so in my business, we build spec homes and that generates a nice chunk of profit. Relatively, nothing is quick in real estate development, but if I'm building it and selling a house, I can get my money back and make a profit in, let's say, 7 to 9 months. And then I'm taking that as equity, deploying into my long-term projects. But as the scale of the projects that we're doing is getting bigger and bigger, I am gonna be raising more capital through, through the limited partner model, through the syndications. Might be, might be calling Kim for help because—

A lot of those.

Not, not, not my area of expertise at all. I try to avoid this world, but, you know, to do 200-unit deals, 300-unit deals, you, you know, you just don't— who's got enough cash for that?

Yeah. If any of you have this book or if you want to get this book, there is a whole section in there on how to structure, uh, your deals, including a development deal. So if you're interested in that, uh, you know, grab the book, um, and, uh, you know, you can get that information there.

Of course, I need to, I need to read it. You sent me the book. You see behind me right there on the couch? That's actually your book lying right there under my cell phone.

Oh, nice.

That's it. That's, that's that book. So it's on my, it's on my reading list very soon.

Nice.

All right, well, um, this has been great. I think a lot of people will be really happy that we did this. Um, Daniel, we would love to know more about your academy when it comes out. We'd love to put it up as a resource on our trust list.

Yeah.

We've got a whole place in there for people that have training programs. And we're actually working on a virtual event that's going to happen this June. So you'll all start hearing about this soon that is called Go Beyond Multifamily Summit. And the whole purpose of it is to explore different ways that you can invest in real estate besides just going out and buying value-add multifamily. projects, which are kind of very competitive right now, and, you know, it's hard to find.

Yeah.

So if you can find a different way to get into the business, whether you're building your own or you're looking at some mixed-use or maybe some other asset classes, then you can continue to invest even when the multifamily opportunities are a little scarce. So we look forward to telling you guys all more about that, and hopefully Daniel will be able to get you on that virtual event.

Sounds fun.

Your target to get your academy up and running.

Yeah, that's, that's the plan.

That's June.

Okay.

Yeah. All right. Very good. All right. Well, thank you so much. Thank you, Krisha, for, uh, joining us today. Thank you all for taking time out of your day to listen, and, uh, we're glad you're all here. And thank you so much, Daniel, for being a guest on our show.

Awesome. Thanks for having me, guys.

Thanks, everyone.

Bye-bye.