EP32: Mastering Land Development and Construction: Secrets to Success with Charles Covey

There's a couple project we did. It's a very large development and it was several thousand homes. We spent a couple hundred thousand in all of our due diligence and all of the engineering design really to get it to a point where we could go for financing. And this is right as financing was really starting to change with the interest rates and we weren't able to get that deal financed at that time. We could now, but we couldn't 12 months ago. And so that was. I had a lot of money at risk and I could have structured that differently and we didn't know interest rates were going to do what they were. But it's just part of it. You have to be very cautious with how you structure the contract terms.

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Hey, hey, hey. Welcome back to another episode with Think Outside the Stocks. I am your host Matvey Jain and today is going to be a very, very interesting episode because the last episode we talked about that we are actually going to start thinking outside of the stocks, outside of the box and look at different asset classes, that is different investment types. And one of the very popular has been the land development and ground up construction. But before we go ahead I do want to mention that this is information and education purpose only. Whatever we are providing as an education on this podcast, please be sure to do your own due diligence on it. Consult your tax professionals, your lawyers so that you can implement this strategy in your financial structure. So Charles here, Charles Scooby from Landways Development. Welcome Charles to Think Outside the Stocks. Hello.

Hello.

Yeah, so he is here today to just talk about that the moment most popular the land development and the ground up construction. And he has spent tremendous amount of times and years in this area. So Charles, so glad to have you on our show today.

Thanks for having me Excited to Be here.

Absolutely. So Charles, just to give you a little background, I like to talk about keeping passive investors in mind. And our listeners, they are, you know these high income earning professionals who are looking to diversify and we like to provide them diversify options not just outside of the stock market in particular asset class like maybe commercial real estate, apartment complex but different asset classes. So we'll have that in mind. And also I introduce our guest with three fun facts. So listeners, if you are looking at Charles, his background a little bit here, the three fun facts about him is that he had an entrepreneur bug bit him early in his childhood. So since he's 7, he's literally thinking about being an entrepreneur. And we will talk about his story from his own mouth in a bit here. The second fun fact that he actually owns not one but five different companies. So he's kind of that, you know, the portfolio way thinking of being an entrepreneur and we would love to have that point of view also from Charles I talked about his specialty is but he has very, very interesting hobbies. Well travel being one of the most popular hobby. We have seen that. But he also likes to travels and goes visits museum by the way, Charles, I'm a museum bug myself. I love to spend days in museums too. So I love that. So we'll talk a little bit about that. And you're interesting other sets of hobbies. I'm going to let you explain them when the time comes. So again Charles, welcome back to Think Outside this talks and you know, let's get started with your story a little bit. Your background. I always like to start there. Tell us what you are today in land based development. And you guys are doing incredible by the way. So bring us up to the speed a jump start in your story.

Sure. So it's really it's two stories. One is my construction and development background and building projects and the other one is kind of the entrepreneur process that happened alongside that. So the entrepreneur process, I feel like it chose me more than me choosing it. As a child I was always interested in making money and about and it was less about the dollars than it was about having uncapped potential. And I think for me that's always been the most exciting thing in life is my potential is not capped by an amount that I can earn. It's just completely unlim. And so I love taking risk and I love seeing that unlimited potential. It's just out there and I can go achieve anything that I wish. And so even as a young child that was a great thing for me. So I started as a kid. My parents gave me opportunities and I could use my dad's mower and I would push it down the street and I would mow everyone's yard and I would get my $20 or whatever it was, and then I would go spend it on toys or whatever kids do. So I had to learn over time. You know, just because you made the money doesn't mean it has to immediately go out. You can hang on to it. So that was a good lesson. That just has always been the bug for me. Just always wanting to find ways to be entreprene, entrepreneurial and solve problems in a way that might be a little bit unique. And so I think that the creation and the problem solving, that's what really excites me about entrepreneurship. In addition to having that kind of uncapped potential, you can kind of frame anything that I've ever done under that umbrella of just always wanting to solve problems and be creative and have uncapped potential. And so the entrepreneur thing is always in my mind. And then as I was a young teenager, I started getting involved in construction and I built houses. At 16, I started on a framing crew and was building houses and. And really that's the very bottom of the ladder to start. And kind of funny story, so I was started, of course we're using hammers and the goal is you want to be able to use the nail gun because that's much more efficient, but they don't let the new guy use the nail gun. Okay. So I had to kind of earn my stripes a little bit. So I used the. I got promoted to the nail gun. And then not too long after that, I shot myself in the foot with the nail gun. So I got demoted back off the nail gun and I had to re earn that privilege. So yeah, the three inch nail into my foot, that was not good.

That is painful. That is absolutely painful. My goodness.

It was okay. It wasn't the last time that happened, but you know, when you're in construction for a long time, these things happen. So I was fine, but. But learned a lot about construction and was just really fascinated with building and putting things together. And just like men go out here and we just build this stuff from nothing. And it's just pretty amazing to me. And it still is to this day. Even with some of the projects that I've done, I'm still very fascinated by the. And so being part of it and learning construction, trying the different trades, I can do most everything that it takes to put together a building and I've done most of them myself. And it's kind of my whole story of looking to what's the next step? Well, if you start at the bottom as a framer, the next step is to go to the nail gun and then the next step is to learn another trade. And then the next step maybe is to get into construction management. So I went to school at Texas A and M and has a great construction program there. I was actually an economics major and I had a construction business in college. So got to learn about economics and finance and a lot of the things I very comfortable in, spreadsheets and, and putting numbers together and had a construction business in college. I would hire young guys out of the construction science department. They would help me remodel apartment complexes and was always growing, always trying to do a bigger thing. And so then in 2018.

Hold on a second there. So in the age where people are actually, you know, dependent on their parents and getting the fees probably paid by the parents, you actually have a construction company and you are employing other students to go through that company. Incredible. Incredible.

Yes. That was fun. And just goes back to the entrepreneurial thing. I saw a problem, I talked to some people about it. They said yes, I could help them with this problem. And there's a company. So I always wanted to find ways to be flexible. And when you're in college, you don't have tons of time. You got to be very efficient with your time. And so, you know, working for somebody else just wasn't a good way for me to make enough money to pay my bills. And I didn't have a ton of support. My parents were wonderful, but they didn't have a ton of financial ability to pay for college for me. And so I had to cover that. So, you know, being in business for myself was really the best way to accomplish it. So that was fun. We had a half a dozen or so employees that, that worked and we had a great time. I don't know how we got. We would go out at night and we would do the partying things that college students do. And then we would be at the job site at 6:30 the next morning working. I don't know how we did it.

That's crazy. That's absolutely crazy to think about.

Yeah, that was fun, but I enjoyed that. And then in 2008, things got pretty tough. A lot of the projects that we were doing, these were capex projects for apartment complexes as they were really kind of turning down the. Turning off the water faucet and not spending any Money, they were sitting on cash. A lot of those projects dried up. So I took a position in Dallas with a large commercial construction firm. And that was really my entry into the large world of commercial construction and projects worth hundreds of millions or even billions of dollars each. And that was very fascinating to run those projects and work kind of on the project management side and understand like how does the management of these go, go together. And during that time frame, I was always looking for a way to get back into working for myself. And that was just always my desire. So when that opportunity came, I took it. And we have built a lot of projects across Texas, both as a general contractor, specialty contractor, and had large staffs and worked projects, many hundreds of projects across Texas. So that really allowed me to build a resume that is so diverse. You know, from college campuses and public schools and public works projects and apartment complexes and all of these great projects across in the high rises in Austin and Dallas and Fort Worth. A really interesting way to build a resume. Just being out there putting these things together and still fascinates me how we build these buildings. It's great.

This is amazing. Charles. So essentially you are helping to build America. We talk about diversified asset classes in think outside the stocks, you are actually building diversified asset classes from student housing to apartment complex, probably self storage and stuff. And you are building mobile home parks too. That's very interesting. So let's talk about and jump into that subject matter expertise. I mean over the period of years from shooting yourself with that three inch nail, from the nail curve. What I love about that is that which I always say that you know, you got to roll your sleeves, you got to learn the nitty gritty details of a business to be able to manage that business. Because then you know what the problems it can face at the ground level and you can solve those problems better, you can anticipate that better, you can mitigate those risks better. So kudos to you. And you know, just going back to your story, right. I mean I just can't get head wrapped around the fact that you are at the college, you're not only self sufficient, but you are helping other students being self sufficient too. So kudos on that one too. So with that, let's talk about this topic, the land development, right? And we will talk about the construction also in little bit. But with the land development, getting what needs to be done, the horizontal construction. Walk us through that process. What does it look like?

Well, I'll tell you how we got to that point of starting that venture. And so you know, talking about all these projects and we were doing stuff all over the state, I realized I'm building a lot of things for other people. And when I finished that thing for somebody else, I always had to go find more things to build. And I saw all these people that were at the top of that process, the developers that were putting these projects together. I thought, you know what, that's the guy that really has it all in front of him. That's the guy that really has the advantage of being able to be in control of the process. And so I realized that I needed to be in that position to really be able to accomplish the things I wanted to. And so that was about kind of engineering. How do I get into the developer's role? It's not a piece of cake, really. Take some time and you have to take some tremendous risk. And that's what I found out, is that there's risk in any type of career and any type of business. But in the development world, there's really big chunks of risk, you know, to the tune of hundreds of millions or even billions of dollars at a time. Now for me, I'm very risk tolerant and I enjoy the risk and I like to mitigate that with a lot of data, but I enjoy being in that risk position. And so it really seemed like, okay, development is a good spot for me. So as we started doing that, we eased into it, bought a few properties, flipped a few properties, mostly raw land that we would develop and then sell or do some, you know, minor horizont and then just started. And you can see this throughout my career, I always want to go for into the next level, the next bigger thing. And so we started adding bigger and bigger projects and went from doing single family lot sales to builders, to now building our build to rent communities and projects in the hundreds of millions of dollars. So the land development is really fascinating because it's. You've got to have such a vision to be able to see out ahead, what can this thing be? And that's really fascinating to me.

I love that journey you have built up and actually being at the bottom and thinking about how you can systematically own this company and hands in there. So let's talk about that land development as a process.

Yeah, and that's why our company is called LandVest. So it all centers around this land and this parcel that we have to acquire. And so it's about knowing the submarkets that you're going to be working in. It's about understanding what's going on and what is A good parcel and what is not. And oftentimes we kind of made a name of finding parcels that other people had avoided and finding ways to turn those into really unique and very special developments. So we don't look for the cookie cutter scenario very often. We try to find something that's a little bit unique and that's going to stand out in the marketplace. And for me, that's such a fun thing to do. So if you think about this, Texas is great because there's land everywhere, right? So we have an advantage doing it here. If I was in New York City, it's tough. There's not as much land to go around. But here we have such a great opportunity. There's land everywhere. And so we're just always on the lookout for great parcels. And then it's about finding parcels that work for the things that we happen to be building, for the product types that we're building. And then you get those under contract and there's a whole process with entitlement and getting all those ready to work.

So you're talking about that, you know, particularly specific projects that people are not interested in. So you kind of created your own niche. Let's talk a little bit about that niche that what is it that you're looking at when you visualize the opportunities that this land can bring?

I'll give you an example. So with our build to rent products, so we build townhomes that are going to be constructed and then rented like a horizontal apartment complex. Okay. So you think about, they're managed by a management company, just like an apartment complex, amenities very similar to apartments. So in many ways this is a multi family model, but it's more horizontal, takes up more space and the individual owners have a garage. They have kind of a little more of an independent feel of living than they would in an apartment complex. So these parcels do have to have some location. They do have to have proximity to things that people need. You know, they need to be close to grocery store or Walmart and restaurants and schools. So location in real estate, as you know, location is very critical in anything multi family or built to rent. Location really drives the whole thing. So trying to find parcels, parcels that are well located but also might be unique. I'll give you an example. It was a parcel that we acquired that had a lot of floodplain, it had a lot of trees, it's a long creek, kind of a weird shape. Everyone else just kind of left it alone because it wasn't the nice cookie cutter square, easily divisible and make it simple. This particular property, we saw it had a lot of value because it was very underpriced compared to other things in the market. And it was going to take some work. Right. We had to do some work with the engineer. We had to do some work clearing on site and moving a lot of dirt. But it's going to end up being an absolute home run because it was a, essentially a diamond in the rough that we were able to polish with our efforts and, and create a lot of return for our investors.

And that's nice. And then going back into that strategy. When you're looking for this land parcel, give us an idea about, you know, are these like 20 acres, 25 acres, 100 acres, 200 acres? Are you kind of taking it out and kind of creating the parcels? What is that business behind it? Is it cleaning out the trees, creating roads? I mean, you and me talk about horizontal, but to our listeners, horizontal construction is a new word. Explain that a little bit. You know, what about the utilities, the water lines, the sewage and you know what exactly when it comes to the land development and of course. Right, entitlement and I think one of the most risk carrying factor. So let's talk about that. What does it entail and what are the risks and how do you kind of mitigate those risks?

Let's do it chronologically, if that's okay with you. Let's talk about entitlement first.

Absolutely.

Okay, so I'll give you a couple of examples. So we're doing a lot of acquisitions right now for mobile home parks in Texas and this has been really interesting. We're doing a lot of work on finding well located parcels. We've got a bunch of these already under contract and we're still adding. So we're going to try to get about a dozen of these right now. And so as we're doing this acquisition, we've got to look at a couple of key items. So definitely got to find out, do we have water? Is there water service to the area? Power usually is pretty straightforward. Most areas near a major metro have power, but water can be problematic. Right. Is it in a city that has good water service, but do they have capacity for it? Is it on the edge of a city where it may or may not be in the city's jurisdiction? It might be a rural water district that has to serve it. So water is a really big driver and then. And sewer capacity is very important. So the question is, you know, if it's in the city, does the city have capacity to serve It And a lot of people talk about this often, oh, well, you know, there's a 12 inch water line and there's an 18 inch sewer line. So you're good. And that might not be the case because there might be so many people already on these utilities that they don't have the ability to take more people. And so that's very important to. You have to. We have to really dig in. We have to talk to city staff and we have to find out do they have the capacity to add 300 more units on this particular set of utilities. So that usually takes a lot of time. You've got to talk to a lot of different people and no city is ever the same. No project is ever the same. It's always different people to talk to. You know, as much as we try to systemize in our business model, try to keep everything as systemized and orderly as possible, there's really no way to cut out the human element here. You have to be able to talk to people and to be able to negotiate and to find ways like if I'm a jerk, they're not going to want to talk to me and then I'm not going to get the information I need. And now my project can't move forward. So you have to find ways to be able to work with people. So also on the entitlements, the other portion of that, in addition to having utilities, is, is it zoned, is it annexed? So a couple things there. If it's on the edge of the city and you have the ability to annex into the city and get city services, that can be done, takes a little bit of time. If it's not zoned for what you need, let's say, for example, it's on the edge of a city in an area that's growing, it's being developed around it, but it hasn't been zoned before. It's probably default zone into agriculture and you have to get it zoned into a new use, whether that's single family or multifamily. Sometimes you'll have a piece that is single family zoned and you want to get it zoned into something else, say multifamily. And that's another process. And so there's a lot of people that have to be involved here. So a lot of my job is really about. I kind of refer to myself sometimes as a professional cat herder. So there's a lot of people that have to kind of get corralled. So there's my staff and there's engineering Staff and city staff. And then we have attorneys that write PDs and zoning documents. And usually it's two or three different types of attorneys that are touching different things. One for contracts, one for zoning. You know, it's so many different people that touch the process. So it's very important that we find every way possible to keep things in order. Because I need a project to move as quickly as possible. I can't just forget to email somebody about a particular thing. I can't have my staff just forget to do a contact. So we have to keep things in order and keep things managed. And we've got a lot of list management systems for when a project is in motion and all the different, you know, there's 50 different things we have to do as part of the entitlement process.

So a lot of moving parts in there. When you're actually going through the entitlement, especially the zoning part of it, right. If it is not, not zoned for the purpose that you want to drive in, which can actually create the maximum impact, the maximum returns then going through that process. So is it important to have the connections with the city, kind of know from the city that what is the city's planet? And kind of thinking ahead that okay, so probably this particular location might turn out to be interest to the city. Is that important in what you do?

It is also. I'll give you an example of one that we're working on right now. So I just had a planning and zoning meeting meeting that was a couple days ago. That was a. Actually didn't go the way that we had hoped, but we got good information. So this is one where the city plan, so it's not a zoning, but their long term plan for this parcel is commercial. As it turns out though, it doesn't really work for commercial because of some access problems and there's an oil well on it and some other things that, you know, happen in Texas. And so according to their city plan, they want it to be commercial, but they're starting to warm to the idea that that might not actually be the best use. So we're wanting it to be residential development and that's what we're working on, zoning. So zoned agricultural. We want it to be changed to a PD zoning, which is a planned development, which is. Means we got some things that we want that are a little bit different than their standard zoning. But there's this conflict of the long term. City plan wants this to be commercial. And so that's the challenge of trying to, you know, the Commercial doesn't work for maybe another 10 or 20 years. There's just not enough development in that area to support the kind of commercial heavy duty commercial high rise that they're wanting. So then it's about a negotiation and saying, hey, you know, we think that we can add a lot of value to the city. We'll do these things. Things. Will you approve our zoning? And so that's the part that we're at now. It's back and forth to negotiate. It's. We've been working on this one for almost two years and you know, when it works, it's going to be great. And if it doesn't work, you know, that's just part of the game.

Yeah. So let's talk about when it doesn't work, because I think that's what carries the risk. So is it the probability of, you know, this land development project most of the times work out well or some actually don't work out? And is there any kind of a longer due diligence period where you can at least see that, what direction it is going before you actually put in the money and purchase it, or does it go to a place where actually it's just a probability game in terms of the returns?

Yeah, so this is a very good point. Well, I've made mistakes in this area and I've lost money in this area. So I can definitely speak from experience on what not to do. That's the funny part about land development is there's no textbook, there's no cheat code. I'm fortunate to know people in the business and people in land development and most developers are great to ask questions and they're wonderful resources. And everybody's always been very kind to me, but I didn't know the questions to ask. And so I definitely have put parcels under contract, gone hard with earnest money and then, then found out there were problems or then found out that we couldn't get the financing and lost the earnest money. And that's not good. You don't want that to happen. So I've made that mistake. And so now we structure our deals in, in ways that make more sense for us and are also very fair to the landowner. And so in, in today's world, you know, I'll never put a contract on a property and say, oh, I'm going to buy it in 30 days. 30 days isn't enough time. A city won't probably respond for a couple of weeks to even give us answers. So we try to do a lot of our diligence, even before we go to contract. Contract so that we have a good idea. I don't want to waste anyone's time. And then once we go to contract, we have a lot of option periods built in so that we can extend because ultimately there's going to be things out of our control and whether that's okay. One example, the guy from the water district is on vacation for two weeks and he's the only guy that can give us the answer we need. There's nothing I can do. I just have to wait.

Especially during COVID I'm sure this must have been.

Oh, absolutely, yeah. People. People couldn't get answers to you. And we've seen answers from cities and any of these public entities. It just, it drags longer and longer and longer. So it takes many months to get all the answers. And then, you know, with the. Especially with zoning, like we're back and forth with planning and zoning and city council and the engineers. You know, this is a many, many, many, many month process. And so we always have contracts now that are able to extend and that have a direct path or if this happens, happens, here's the solution. And I used to write contracts that were, you know, just very simple. You close in 60 days and. Or you have a 60 day due diligence and then a 45 day close. And if you don't have options to extend, you might be in trouble and you might lose your earnest money or you might lose control of the property. And now somebody else can swoop in and take it even after you've done work on it and spent money. So that's definitely something to be very cautious about. I spent. There's a couple projects we did. It's a very large development and it was several thousand homes. We spent a couple hundred thousand in all of our due diligence and all of the engineering design to get it to a point where we could go for financing. And this is right as financing was really starting to change with the interest rates. And we weren't able to get that deal financed at that time. We could now, but we couldn't 12 months ago. And so that was. I had a lot of money at risk and I could have structured that differently. And we didn't know interest rates were going to do what they were. But it's just part of it. You have to be very cautious with how you structure the contract terms.

Yeah, that's a very interesting point. Just a risk gets carried. I think it's about identifying that risk factors and building into your contract. So love the way you're doing it. It's kind of mitigating those risks. Right. Trying to identify early on, how long have you been doing this? I mean, this looks like, I mean, the actual land development and bringing it to the horizontal levels. How long have you been doing this?

A few years. So we started transitioning our business model over into the development position, away from more construction. Construction is really, in a lot of ways, is a leverage on labor, it's a leverage on people. And we realized, especially post Covid, that that was not simple of a proposition as it maybe used. And so maintaining large staff was very.

Challenging, especially the dependency on the staff and then their availability and just the cost of labor that's growing, right?

Absolutely, yeah. And so we started to drive more and more dollars and more and more resources over into development. So post Covid is when I really started transitioning a lot of our business into development. Been a great time to be involved in development, but definitely challenging, challenging times, getting things financed. Good deals can get funded, but deals that were skinny or maybe subpar, they're not to going to work. And so if we can be successful now, then I think in the good times, we're going to be in a great position.

Very well said. Those who can survive in this particular market cycle is a long Runway for them. And those who are buckling in, they're just not going to survive at all. Having said that, what is your strategy and what kind of returns do you typically see, you know, as a land developer? And do you stop at the horizontal some percentage that you go into actually doing that development, going the vertical? What is the business strategy that you have? Currently?

Currently, sure. So everything that we're doing right now has got a vertical component to it because we find there's just more ways for us to add value and there's just a bigger paycheck at the end. Now the challenge with that is it takes longer. Some of these projects are two or three or four years before you completely finish. And so you've got to have a great deal of patience. The nice thing about land development is that in many cases, if we get a piece of property entitled and we get it zoned and we get everything platted and now it's ready to build. In many cases, we could flip out of that project. We could sell that project at that stage if we wanted to, we're giving up some profit for later. But we're also, you know, creating money now as opposed to further down the road. So we do have opportunities to exit and we really like to do the vertical component. And that's where my skill set really shows up is when we have the ability to take all of the finance and all of my experience in economics and then all my experience in the field and kind of marry those two together. We feel like we're at a great advantage when we add that vertical component. So we try to do that every time we can.

Yeah, but without shooting yourself with another nail.

Right? Just don't shoot yourself with the nail gun.

I love that. So essentially, you know, when you, you are building, there are kind of two phases and I actually do talk to my investors because education is really, really important. Right. They see that there is really high returns in the whole development project. But I look at it as two phased approach. Right. The phase one is where really the high risk is where the entitlement has not done. There is that, you know, a lot of back and forth with the city, their timelines, but once it's entitled and then you go into the actual development, then the risk of the development is little bit lower though there is still risk, risk of, you know, the cost of the leper and material and etc, but at least the higher risk of the entitlement, that's over. Right. So is that how it is that there is a phase one and if you have, you know, a chance to exit the phase one, you can exit the phase one and then, then there's a phase two which is basically till everything is kind of built up vertically and now we can start leasing. Or do you hand it over to somebody else for leasing purpose houses?

Yeah, we don't do the leasing in house, so we partner with large firms. Lincoln Property is a good example. One of our management companies and you know, they're one of the largest in the world and we really defer to them for the management piece. There may be a point at some time where we decide to bring that in house, but I think that's probably a lot further down the road. So we rely heavily on management companies to help and they help us also on the front end because they have really good data. And so as far as operating costs and what other projects, similar projects are doing as far as rent that way our performers are always very, very solid and have up to the minute data.

Thank you so much for sharing that. So now is that we have understood the business model of the land development and the construction. I'm sure passive investors listening to it today must be thinking that, oh my God, this is not my piece of cake, but what can I do to get involved into It So I'm sure that, you know, people like you, syndicators like you would have projects where the passive investors can participate in it. But if they decide to do that, you know, in terms of the due dilig and asking those questions. So what are the questions they should ask or what are the areas that they should be very careful of? And especially the high interest environment. Right. How does that impact? Because I think even with a construction loan, this, you know, different floating loans that, that you have to go in, unless the lender sees some level of occupancy, they do not, you know, the agency loans especially do not happen on this kind of projects. Right. So can you guide our passive investors a little bit about that, what to ask for in this project?

Yeah, this is great, great to look at. If I'm investing in a project, I would want to be looking at obviously understanding the team that's behind it. I think that's critical in our case. You'd want to understand me, you want to understand my team. Who's the GC that's going to be building the vertical portion with us? You know, who are the engineers? Who's the architect? Do they know what they're doing? Have they done it many times before? And that's very important. You know, what is their track record and so what's their experience? So that's very important. Also in this market, I would look really closely at the terms that they have with their lenders. You know, like what kind of. You want to see the term sheet, you know, ask for the term sheet. What does it look like? What are the terms? What kind of interest rate? Everyone's paying a high interest rate right now. So that's just kind of the name of the game. You just have to make sure that the deal still works with that interest rate. Now also, what is the interest rate capped at is a very important element. And right now we don't know when interest rates are coming down. They may go up some more. And so that's a really specific thing that I'm looking for is what is the worst case scenario on this interest rate? Let's say it's a construction loans. Some of the construction loans are at, you know, 11, 12% right now it's pretty high. But could it go to 13 or 14 or 15? What is the. Do you have the ability to buy a rate cap and did they buy a rate cap or could it just keep going and crush the project? So I think what's the worst case scenario on the interest is something I.

Would definitely look at kind of a stress test, right?

I would also look very closely at rents. Something that we've been doing internally is stress testing all of our rents. So in fact we were just doing this a couple days ago, taking one of our performers on a large project, so it's 322 town home project. So we took the Performa and we took all of our rents and we crashed them down to what we think is, you know, a level that probably wouldn't happen, but that we could definitely still lease them. So we tried it there. We also extended out our lease up phase. So we had a seven month lease up. We pushed that out to a 12 month lease up just to see can the performance still handle it. And does that work? Does it make the project no good? And turns out this particular project, it's a wonderful project and it could handle those stresses and still give really good returns. And so we're really happy with that one. But not every project will be that way. So you want to see how are they stressing it, how conservative is the underwriting? You've probably seen this before. You know, people start adding all these things in that in order to make the deal work, they've got extra fees and their cap rates probably a little bit lower than they're going to actually get. And you know, there's all these things that they've done to kind of tweak it to make it work. And right now if you have to make a project work, it's scary. You want a project that just naturally just flows well and you don't have to try that hard to make the numbers go. Like back the napkin math, if it works on the back of a napkin now you might have something. If you have to get in a spreadsheet and really tweak the numbers just to make a marginal return, then that's going to be a scary project. There might be something that could be problematic in there. So I definitely watch out for that. Dig into the underwriting, understand like what they're putting in as their assumptions. I think I started to talk more about rent. So the rent is really important and we're seeing rents either stabilize or drop in a lot of of markets. And over the last couple years we've seen people just keep. Every year they're throwing a 10% rate increase on the rents. And that's not a scenario that's going to be able to happen anymore. Even in big markets like Dallas, we're seeing rents stabilize, build to rent. Rents are still going up a little bit, but Multifamily rents are pretty stable and we might see a 1 or 2% decrease. Other places like Phoenix I know is seeing like a 5 or 6% decrease and some other places even more than that. So watch those rents and watch what rents they've plugged into their Performa and what their comps are for those.

Wow, that's a good sum up of, you know, what they should be looking out for. In fact, you know, when we work with other sponsors and we bring in their investments, their deals to our platform and think outside the stocks, you know we are looking at hundreds of points. Right. And I think what you highlighted, it's really the important aspect. We also over the period of time thought that, that you know, the sponsor, the team being the top, most important because a good sponsor can take a good deal and bad sponsor can really take even a good deal deal. And we have seen this in current market but they take that good deal and you know, make it worse. Right. So that is the most important aspect you also highlighted on the debt structure. That's really, really important as well. And just you know, on the other, you know, kind of a triangle that I may look at is you know, the sponsor due diligence, the debt structure and the location and the market and the data behind it and having the some of the stress test done, that's really important. Of course it's much more deeper and complex. Yeah.

So again the market study of course, like you know, that's going to be really critical. Do you trust the market? Do you trust the momentum of the market to be able to rent the project?

Love that. So I hope the listeners, if you're listening to this and you got a good kind of insight into what land development and construction projects look like, what risk they carry, how can you participate as a passive investors and what to look out for. I really appreciate Charles, you throwing such a tremendous light on this process and sharing your expertise in this. You know, if they want to reach out to you and see what you are up to, how can they reach out to you?

Certainly they can find me on Instagram or on LinkedIn. So I'd love to somebody reach out, send me a message. You got a question, you're looking at a deal, you're not sure what to do. I really like helping people. It's just something that I take a lot of enjoyment from and so when somebody reaches out with a question, I'm happy to answer and provide it.

I yeah, I say that we are in a connection business. It's not a real Estate business because, you know, more we contribute to each other's growth. I think that's going to be including our investors, that is going to be a more satisfactory path. Right. That's what I even focus on. I love that you have the same basis, the same values too. Again, if you want to reach out to Charles, please do reach out. Also, at the same time, do remember that this is an educational information purpose only as we are kind of taking a different asset class, that is different investment types are bringing this guest to you. So make sure that you do your own due diligence if you want to participate or consult your, you know, lawyers, tax attorneys or whatever, you know, mentors that you're seeking out for before you invest in these deals. But Charles, really appreciate you being here. With that, I'm going to jump into our next segment, which is one of my favorite segment, which essentially with the theme of the show itself, think outside of the stocks. I love to ask my guest, the experts that how do they think outside the stock? So our listeners can get to know about their own strategies too and learn from them. So Charles, tell us, how do you, Charles, think outside the stock?

Ah, I love this. So outside the box thinking is one of my favorite things to do. I always believe that any task that we do or anything that we're doing on a daily basis, there's another and better way in most cases. So there's always room for improvement. And so I'm always trying to re engineer the way that we do things. I always think that there's a better way to do it.

I love that. And how do you invest outside of the stock market? Are you diversified beyond your construction business or other businesses that you participate in? And especially do you have any kind of concrete plans around your financial structure to kind of that grow, protect, preserve and pass your generational wealth point of view? Would love to know about those strategies as well.

Sure. Yeah. So one thing I don't do a lot of is stocks. So stocks are something that is passive and I like to be a little bit more active my portfolio. And so stocks aren't something that I've ever just really been attracted to. That's actually part of why I got into land development is because I was doing active investing and buying properties and I realized, hey, I want to get more into this. And so stocks for me are not really a big thing. So definitely very heavy in real estate. I like to bet on real estate. Some people would say that my portfolio is higher in real estate than they would want. And I get that but in many cases I'm trying to risk mitigate with the efforts that we're doing. Definitely have precious metals and other things that are stable and things that just sit in the safe and they sit in a, sit in a warehouse and they're just stable there and they're not going anywhere. But I have some crypto as well. I think crypto is an interesting space. Crypto is one that I don't watch it on a daily basis. I'm not worried if it goes up 5 cents or not. But it's a long term hold thing and studied the space enough to know which ones I think are the longest play. So that's an interesting bet. I think crypto is fascinating but I don't spend a tremendous amount of time on it. And then we've invested in a few companies. I like to bet on the jockey versus the horse. Right. So you know, a lot of times I'll know a few founder and I'll understand their vision and, and I'll invest in those companies. So we're invested in a couple of funds that do venture investing and invested directly in a few other companies.

I absolutely love that. So with that, as much as I'm enjoying this conversation, we are coming to the end and the last segment, it's a kind of a fun segment where I asked you quick questions. I call it a rapid fire round where you can, you know, answer in 30, 60 seconds or even more if you want. But you know, that's going to be the last segment of our show. Are you ready for that?

Let's go.

Absolutely. So let's start by asking you one of the topic that I eluded before we started this show. What are your interesting hobbies that you have?

Yeah, so I really like to garden. Something about plants, gardening. As a kid we had large gardens and I had to work in these gardens and I didn't like it. And so for many years I just avoided gardening. And as I've gotten older I realized, you know, plants are very therapeutic and I like to be in my garden. And in fact I picked some okra for my garden earlier and I'm going to cook it for dinner. So there's something about that that I really enjoy. And I like to hike. I travel all kinds of different places to find great hikes and also the museums. I love the museums.

Yeah, I think the museum is the best part. But interestingly, I have a mean recipe about okra. That's an Indian way. Maybe I can share it with you sometime.

Yeah, please share it. I'D love to try it.

Fresh okra is always the best for that. My second question is, what are the interesting jobs that you have done?

Oh, my list of interesting jobs is fascinating. So I'll just highlight three that are probably the largest range. And so, you know, you know about my construction history, obviously, and started there, I worked on a hog farm in Iowa, so that was really fascinating. We were shipping livestock, they were breeding stock that were going to be used all across the country and across the globe. So we were shipping a lot of them internationally. So that was wild. I worked in a Alaska as a fishing guide for a while and that was pretty interesting. Just a very. A fascinating place. It was southern Alaska, so it wasn't too cold, but catching salmon and all kinds of things, meeting great people. So I enjoyed that. I also worked in Washington D.C. on Capitol Hill for a congressman and I worked for Ralph hall from Texas. And that was wild. To really see. To see how the political process works from the inside and be in those meetings and be in the Capitol and see legislation put together together and the negotiations that take place. I really enjoyed that.

Wow. From hogs to fishing to politicians, and now in real. It's like completely different corners of the entire, you know, job.

And that's not all of them. That's just, that's just the highlights.

That's just a highlight. Okay, we need to, you know, meet more and maybe I'll try to know more interesting jobs that you have had before. But thank you for sharing that. And I'm going to end on the last question. Question, which we started talking about in beginning of the show, is that the most interesting time that you remember, which was absolute the bottom line and you kind of made from there. And we talked about this a little bit. But tell our listeners that, you know, what was that time and absolutely started from scratch.

Yeah, so this was back in 2015, I believe it was. Had a lot of problems in business and some struggles, you know, things that I thought maybe weren't in my control and was just trying to find, you know, just down to the. The last few dollars in the account and, you know, had some struggles on a job site, had been raining. We couldn't bill for the work that we were doing because it was too muddy and just really struggling. And I remember sitting and it was in a skid steer, one of the. The machines. And I was sitting there just trying to figure out what to do because we couldn't work and it was too wet and I was trying to find someone to blame and I was trying to blame the weather and I was trying to blame other people involved and all these things. And I realized, realized, you know what, there wasn't anybody to blame. I was the one responsible. So I was the problem and I was also the solution. And that mindset shift in that moment really changed the way that I see the world. And I realized that there's nobody else to blame in every case. I'm responsible for the situations that I put myself in and I'm responsible for fixing it if there's a problem. And so that's really shaped the way that I have built business since then.

What a great note to end our show with. I love the resilience that you have had. And you know when that time when it was raining for 40 days straight and with that $78, the last dollars that you had in your bank account, look at how much you have achieved over the period of time. And you know, I give it to that, to the mindset shift that you had and kind of expecting that best version of yourself every time from you and as you started this show and talking about that, how can you achieve, achieve the best, right? So looking at what you have achieved and where you're going, I think this is incredible journey you have had and I wish you luck in everything that you do. And again, thank you so much for being on our podcast show and sharing your expertise, sharing your life journey. We have had such an honor to have a discussion with you now.

This was fun. Thanks for having me.

Thank you so much.

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