‘Building’ Wealth as a 24-Year-Old with 12 New Construction Projects

Ashley:
This is Real Estate Rookie, episode 123.

Donovan:
So after the house hack, I was like, “Okay.” Kind of out of money, but I still wanted to be in real estate, and so I’m just analyzing all these deals, I’m trying to look for flips. None of the numbers make sense, the margins are super thin from my estimates, and so I was like, “I wonder what it’d be like to just build one of these.”

Ashley:
My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson. Hey, Tony.

Tony:
What’s up, Ashley? How’re you doing today?

Ashley:
Good. I just got back from Seattle at 1:00 AM, but it was so much fun. I went to the Fixated on Real Estate Conference, and I was a speaker on a panel there. And then I did a job shadow of my friend, James Denard, of Heaton Denard Real Estate, in Seattle too. And that was awesome going through some of his flip houses. He let me sit in on his business meetings at this team and just seeing the whole dynamic of how their processes work. They actually have investor clients that come in. Kind of like when we talked about in this episode of doing turnkey, they help an investor find a property and then set them up with a design or a plan and contacts and references for contractors to do a rehab, and then they help them sell it at the end. So it’s really cool to see all of that.

Tony:
Well, it sounds like you had a productive weekend. I just got back from four days in Las Vegas for a bachelor party, so I’m just happy that my voice is back in time.

Ashley:
I saw some pictures on Sarah’s Instagram, it looked so fun.

Tony:
Yeah. We had a good time, but now back to the real world. I put in an offer on another property yesterday, but I think I got outbid. It was multi-family, but each unit was separate, but it was six cabins on the same parcel in Big Bear Lake here in Southern California. And it looks like we got to the table a little bit too late and we had already missed-

Ashley:
That would have been your first property on that lake, right?

Tony:
Yeah, our first one out there. We had a hotel that we were trying to bid on last month, but that one didn’t work out, so we’re steadily looking for the right deal but waiting on the right one to come across our desks, so we’ll see.

Ashley:
And the important thing is that you’re not giving up and you’re not feeling rejected, you’re just keep going. And you know that there’s going to be a deal offer eventually.

Tony:
Honestly, after today’s episode, which was fantastic, I think I might just go out there and build something. Donovan was our guest today and he had an amazing story. I think he’s, what? 24 years old, and recently graduated from college a couple of years ago. He is absolutely crushing it in the world of new development, new construction, and he was able to do it with really no experience, no money of his own. And he’s got, I think, 13 properties that they’re building out right now.

Ashley:
And three partners for investing in the last… It’s probably been a year and a half since he bought his first vacant parcel, I think. And he has 12 parcels now and doing 12 new builds on them with three different partners. So you guys, even if you have no interest in land development, listen to this episode as to how he was a rookie, but was able to get partners, get money, to do what he wanted on these deals, the takeaways of knowing your numbers and really being confident. He does a great job of… If you are stuck and need some help with that mindset shift, this is a great episode to listen to. Well, let’s bring Donovan onto the show.

Tony:
Donovan, welcome to the Real Estate Rookie Podcast, brother. We’re super excited to have you on today.

Donovan:
It’s a pleasure to be here. I really appreciate it.

Tony:
Donovan, tell us your backstory, tell us who you are, how you got started in the world of real estate investing.

Donovan:
For sure. Yes. My name is Donovan Adesoro. I’m originally from St. Paul, Minnesota. So I grew up in the cold up there. From there, I knew I wanted to do some type of engineering in college, and so I ended up doing petroleum engineering down in University of Tulsa, so I went down to Oklahoma for that. Graduated and came down to Houston for my full-time gig. But quickly early on, I realized I wanted to diversify outside of just my 401(k), and started looking at different ways to make money on the side, and real estate kept coming up. I got started with house hacking, and then working on some development stuff now.

Ashley:
That’s awesome, Donovan.

Tony:
It’s exciting, house hacking to development, that’s a big jump.

Donovan:
Yeah, it’s a big leap. Thank you.

Tony:
Yeah. Well, I guess let’s start with the initial house hack. So you graduate, you move to Houston, and the first thing you do is buy a house. I guess just give us that backstory, give us that journey

Donovan:
For sure, yeah. So I graduated, moved to Houston. I do all the typical dumb stuff you do as a new graduate, so I financed the new car, I was renting a high rise downtown Houston on the 18th floor, just living it up lavishly with no extra money to save at the end of the day. That got old pretty quickly. I was like, “Man, I’m paying this much for rent, I got my car payment, the car insurance.” And so the amount of savings each month, I wasn’t happy with, and that’s how house hacking really, I guess, came into play. I bought the house hack a year after I graduated, more or less.

Ashley:
That’s awesome, Donovan. What were some of the things that made you want to get into house hacking? Did you start doing research? Did somebody mention this to you? How did you even start wanting to be a real estate investor?

Donovan:
For sure. Obviously, I found BiggerPockets after looking up real estate. Started on the YouTube channels and then got really into the podcast. I would listen to them on the way to work every day. I was looking for essentially low-risk ways that didn’t require a lot of capital, and so that’s what’s really attracted me to the house hackings because you can get in with a low down payment loan, and then it’s essentially a little risk because if you can afford the monthly payment without anyone living there, then we get someone living in there, it’s just like an added bonus. So that was the two things I was looking for, it was low cost and low risk

Ashley:
Donovan. That is so awesome that you house hacked. I think it’s a huge opportunity for new investors to become investors. I love that you said that you made sure that worst case scenario, you could afford your mortgage payment on your own. And that’s why house hacking can be so low risk because when you purchase a property and you’re renting out the other units or the bedrooms, that just means your living expense went down. You shouldn’t be going out and buying a huge five-bedroom mansion that you can’t afford on your own and depend on people renting that out as your first property, your first house hack.
So I think that’s awesome you already knew that. And if you can, worst case scenario, nobody moves in and you’re paying your mortgage payment, you’re just like everybody else, you’re normal, you’re paying the mortgage payment. So how is the house heck going and what have you learned from it so far?

Donovan:
Yeah, it’s going well. I guess little context, when I closed on it last year, the reason why I was so concerned with the risk was our salaries were just cut 30% across the board during COVID, and so everyone was panicking. I was like, “Am I going to lose my job?” So it was a little stressful, but I got through it because I really understood the numbers. And through all the BiggerPockets episodes, there’s always that, I guess, common theme that you’re never going to be 100% ready. So I just went with it, and so far so good. The tenant’s on the other side, there’s a family in there, and I also rent out the bedrooms on my side for some extra cashflow and just to essentially not pay anything for my mortgage or insurance taxes, things like that.

Tony:
What kind of property type is this? Is it a duplex? You said on the other side, so it sounds like there’s two units there.

Donovan:
Correct, yep. It’s a side by side duplex.

Tony:
That’s awesome. And how many bedrooms per side?

Donovan:
Each side has three bedrooms, two baths.

Tony:
Wow, that’s a pretty big duplex.

Donovan:
It’s pretty solid.

Tony:
Yeah. So you’re renting out the entire, other side, the entire three-two’s being rented out, but then you’re also renting out the other two bedrooms in the side that you live on?

Donovan:
Exactly.

Tony:
Wow. That’s great, man. That’s absolutely fantastic. Let’s walk through that process a little bit further. First, how was it for you finding tenants to place into this house hack? I think what’s scares a lot of people about the idea of house hacking is sharing your living space with complete strangers. So how has that process been for you? How did you find them, and then how has it been actually like living with them?

Donovan:
Yeah, for sure. One of the ways I found them was on this website called Roomies.com. It’s a website specifically for finding roommates. So you’re able to see the bio of the people and you can get on the phone with them or text them, can get a feel for each other. So that was a pretty decent way to, I guess, build rapport with them before they moved in. Like one of them is a medical student and one of them just graduated college. So they’re around my age and we get along great.

Tony:
And how are you guys making sure that there’s no friction in the house? Does each person by their own like toilet paper and paper towels? What’s the rules in the kitchen? How does that arrangement work?

Donovan:
Yeah, for sure. I probably should have laid some ground rules up front, but essentially, everyone takes care of themselves, but we’ll share some of the, like paper towels or toilet paper, anyone who buys a big pack, we all just share it, things like that. I’m not big on sharing food, so I did make that requirement, you got to buy your own food, but everything else we can share.

Ashley:
When you needed to put together these leases, what was that like for you, your first time being a landlord, doing property management? And how are you collecting the rent? Are you using Venmo? Are they giving you cash? How does your systems look like?

Donovan:
This also probably needs some work. So right now, they typically just Zelle or Cash App me. And then the lease, it was a generic roommate lease I found from a website called lawdepot.com, and I also use the BiggerPockets. I bought the Managing Rental Properties by Brandon Turner, and he had that file that comes with it, I guess there is a lease in there. It has some basic contracts in there. So I use that as well. But yeah, it’s not ironclad or anything, it’s fairly simple just to get by.

Ashley:
There’s so many resources out there to at least get a template or a sample and then you can turn it into your own and add different things to it or take things out. BiggerPockets, if anybody is a pro member, they do have lease agreements and addendums available to pro members for your state. So they’re state specific, drawn up by attorneys from that state, and you guys can go and you can pull those, and they’re free for pro members. So that’s a great resource too. So Donovan, what happens after the house hack? What was the next deal?

Donovan:
Yeah, so after the house sack, I was like, “Okay, I’m kind of out of money, but I still want to be in real estate.” And so I’m just analyzing all these deals, I’m trying to look for flips. None of the numbers make sense. The margins are super thin in my opinion, from my estimates. And so I was like, “I wonder what it’d be like to just build one of these.” And so started running the numbers on what it would cost to build duplexes, and talking to contractors in these different Facebook groups to get an estimate of how much they would actually charge me. I’m talking to wholesalers to figure out what the land’s costs me. And piece by piece, putting it altogether to get an idea of how much money do I need to actually build one of these. I then just went from there.

Ashley:
Donovan talking to contractors and Facebook groups, what Facebook groups? And I’d love to hear as to how you were able to connect with them and that they were willing to just help you out and give you that information.

Donovan:
Definitely, you have to get through the weeds a bit on that for sure. One of them, like there’s Houston Real Estate Investors group. I’m sure most big cities have something similar where it’s just the name of their city and then real estate investing and there’s probably some Facebook group to go to. So that’s how I found the contractors. I met with them in person to get a bit better rapport or visit their job sites. And that’s how I weeded out some of the riff raff, so to speak.

Tony:
One follow-up question from me, because I love that you’re going down this rabbit hole of the new construction, but you said that after the house hack, you were out of money. So you said, “Well, if I’m out of money, let me just build something new.” I feel like maybe I’m missing something there. What was it about the new construction that made you feel that it might be a cheaper route than doing another traditional real estate purchase?

Donovan:
For sure. Yeah, I’m definitely probably a getting ahead of myself there, because I didn’t have the money, but what I was thinking was that the land was cheaper than a house, is the way I was looking at it, because I talked to a few hard money lenders and they said you could put the land down as collateral. So I was thinking, “If I could just afford the land, I can probably get the construction covered.” And that’s how that rabbit hole came about.

Tony:
Can we break that down a little bit further? Explain what you mean by using the land as collateral, and why it would be cheaper for you to do that.

Donovan:
For sure. Good point. So if you buy the land cash, typically, that will act as a down payment on a construction loan. The same way where you go to closing on a flipped property and they ask you for 20% down on a hard money deal, it’s essentially that same thing, but now you’re saying, “Look, I already got my 20% locked up in equity in the land value, so instead of me bringing any extra money, just collateralize that, essentially put a lien on it, for the equity in that, and let me use that amount for my down payment so that I don’t have to bring anything else to closing.”

Ashley:
How many lenders did you go to before you figured this out? And did you shop around and see if there’s different ways to do a construction loan?

Donovan:
For sure. Yeah. I actually went on the BiggerPockets website and was looking for hard money lenders. I talked to a few of the highly rated ones on there and asked them what it would take for me to build, I don’t know, it was like a 1,800-square-foot duplex or whatever my numbers were. And they told me, “Well, we can wrap the land into loan, or you can use the land as collateral.” And so just talking to a few of them gave me an idea of what I could actually do, but I definitely shopped around.

Ashley:
Okay. So let’s talk about the development of it. So you’re deciding to go forward with this. What does that look like? Getting your survey, doing the engineering on it, getting an architect on it, getting a builder, how does that process work for you?

Donovan:
Absolutely. Yeah, there was a lot of pieces to fit together, and I was so naive at the time, I thought I could do it all with no issues. I definitely ran into some issues there. At first, I had to get the money to buy the land. The way I did that was partnering with other people who had the money, but not necessarily the time. And so it was just a one-off partnership, just me and them in an LLC. And they would agree to put the capital down and I would handle the day to day and we just split the profits at the end. And so once I had that down, I got really good, I guess, rapport with an architect, and he walked through essentially step by step what needed to be done, get the survey, I need a survey, the we got to submit the plants to the city.
And so I outsourced pretty much everything that I could, so the architectural plans, the permitting, things like that, and just paid a little bit extra so that I knew it was done right rather than me trying to figure it out myself, if that makes sense.

Tony:
Can we pause really quick, Donovan, on the money partner piece? Because you just glossed over that. You were relatively new in the world of real estate investing, you had done this house hack, a successful house hack, but you had never built anything new. So why on earth would anyone have confidence that you could go out and build this brand new ground-up construction? And I’m not saying that to poke fun at you, but I’m saying that’s what I feel a lot of people in the audience might be thinking about themselves, is, “I don’t have experience, why would anybody partner with me and give me the money I need to go out and do this deal?” So walk us through how you put that relationship together.

Donovan:
Tony, absolutely. Some of the investors said exactly what you said, “Why would I trust you with my money? You have no experience doing this. You’re 24. Just stick to your day job, basically.” And I was like, “You’re right.” So I didn’t hide the fact that I didn’t have any experience, but what I did was like, “Look, I know these numbers like the back of my hand, I live in the area, I’m showing you the comps, I’m showing you the construction contracts, I’m showing you the numbers from the hard money lender.” So instead of putting the focus on me as an individual, I try to put the focus on the deal.
I was like, “Look, even if I’m wrong by 30, 40%, you’re still going to make a pretty solid return.” In addition to that, I also structured it in a way where there’s no management fees or anything for me, I didn’t make any money until the back end when we either sold or there was some cash flow. So there was an alignment of incentives there, I would say, so that made them feel a little more comfortable too. But yeah, they definitely put a lot of trust in me, for sure.

Tony:
Something you said that I want to make sure that the rookie listeners remember is, I try and put the focus on the deal and not on myself. Man, what a great piece of advice for people that are just getting started out, because you’re right, if you don’t have experience, maybe you shouldn’t be focusing on yourself, but if you can say, “Hey, this is such a solid deal that even if I’m 50% wrong, you’re still going to get a great return.” Then it’s almost a no brainer for them at that point. Man, what great advice. I guess last question from me, Donovan, on this piece, how did you actually find this person? Was it just like networking in these Facebook groups that you were in? Was it in like a family friend? How did you connect with this person?

Donovan:
No, I wish. Family or friends don’t have any money, so I knew I had to go elsewhere for it. So yeah, through these Facebook groups, actually one of them was through the Real Estate Rookie Facebook group, he’s actually out of California. But the first guy was through a different, I think it was like an apartment investors Facebook group, first guy who partnered with me. And I just said, “Hey, look, he’s in a high cost living area. I’m here in Houston, I can handle all this work for you, and it’s probably a fraction of what you would pay.” I think he lives in New Jersey, so a pretty high cost of living there. So I was like, “Yeah, we can get this done for 60, 70K and I’m sure that 60, 70K is like a down payment for you up there.”
And so that was my target, I guess, an investor, someone in a high cost of living area doesn’t have that much time to invest.

Ashley:
Donovan, what would be just three things for a rookie investor, advise you can give them if they were going to go this new development route? What are just three things that stood out to you that maybe you learned, or you may even have known ahead of time, but really helped you get through the development process?

Donovan:
For sure. So development’s risky, there’s a lot of variables, and the timeline is a lot longer than maybe a flip. One of the things I would say is, make sure your numbers have good amount of margin going in. For me, what I was looking for was like a 40% return, 40, 50%, that way, especially if you’re a newbie like me, I was planning for stuff to go wrong, but still enough, I guess, to still make sense for our partner or for yourself. So that’s the first one. The second one is, when you actually do decide to go through with it, make sure you have an excellent title company that you’ve vetted or this referred to you just because there’s so many issues that come with raw land.
Because typically what happens is, mom or dad owns it, either mom or dad passes away and then the children own it. And the split between them isn’t necessarily clear because maybe the dad remarried and things just get really fuzzy really quick. And so you need to have a title company who can handle that. Otherwise, you won’t be able to buy the property, or if you find out later, you won’t be able to sell the property. I’d say that’s the big one right there, number two. Then number three is really rely on a team, so really try to get referrals for the other pieces so that you’re not relying on yourself to figure stuff out.
Because for me, example, I didn’t know how to do permitting in Houston. Okay, so get an architect who knows how to do the permitting for me. It was 300 bucks or so, but well worth it because I didn’t know how to do it, it would’ve took me a lot longer, so just pay for it. So I think on your first deal, really try to get a lot of those things outsourced.

Ashley:
That’s such great advice because you can think you’ll save money by doing it yourself, but a lot of times, you won’t save money and it’s just faster and easier for somebody else who knows what they’re doing to get it done. And even though you may be paying them, you’re going to be saving a lot of your time trying to figure out. And if you do it wrong, and especially if you have a flip or something like that, those holding costs can really hurt you if something is taking longer. Let’s talk about your new construction plan a little bit more. Do you want to tell us how it’s going and what has happened with it?

Donovan:
Yeah. So we purchased 12 lots between me and my three partners, six of them are being worked on right now, three of them are framed up, one of them closes next month, and the other five are so hopefully by end of year, January. So next month will be the first one that actually closes. So that’s an exciting thing to show on my track record as well as get the investor their returns back. That’s how it’s going now, and so far so good. There’s hiccups along the way, for sure, but I just figure stuff out as I go, honestly.

Tony:
Donovan, I just want to make sure I didn’t misunderstand what you just said. You said you have 12 lots that you guys are building out right now?

Donovan:
Yes, sir.

Tony:
Holy crap, man. I thought you said when you were doing new construction, you’re going to build like one duplex, but you’re building 12 of them. Okay, let’s slow things down a little bit. Was the initial plan to build 12 from the beginning or was this just like you found the right piece of land maybe you… Walk us through how you went from, “I want to build one duplex,” to having 12 lots.

Donovan:
My thought process the last year, essentially, because this all started in August of last year, it was first, “I need to get a partner who agrees to do it with me.” So now once I get a partner, I said, “Okay, I need to get one deal, one solid land deal that will make him money so that he comes back to me for future deals.” And then from there, once we got going on the first one and the permitting was going along, he’s like, “I got some more capital to put to work. These numbers make sense. Why don’t you go and get three more?” Okay. So I go and get three more. Then he’s like, “Okay. I still got a good amount of money on my line of credit available, why don’t you just scale it up to eight?”
So with one partner, I have eight and then the other two partners, I have two each. So that’s how it happened. It wasn’t planned, it was just they said they wanted to put money to work and I was like, “Roger that, and I’ll go find it for you.”

Tony:
Can we talk a little bit more about the team aspect of this because you mentioned that as being one of the important pieces? So I guess, who are the team members that are helping you find the deals, who are the team members that are actually helping you facilitate the construction piece? Because you mentioned the architect, but how much does the architect do versus what the general contractor does? I guess just walk us through who your team members are and what role each of those people are playing.

Donovan:
Typically wholesalers are where I’m getting my best off-market deals from, and there’s a variety of wholesalers, probably three to five that will send me deals in the area I’m looking for. And those were all found through Facebook groups as well. And I guess a really important note on that is what I did to gain their trust when I was new, is I would tell them why I didn’t like the deal that they sent me, “Hey, Donovan, here’s this house in a different zip code.” “No wholesaler, I’m actually looking for land deals, this amount of square footage in this zip code.” So that helped build a rapport.
From there, the architect helps with the plans, and get the permitting done, which is a big piece. And then the general contractor is essentially handling all parts of the build from there. So my GC is excellent, he’s great. I try to refer him business as much as possible because he’s been awesome. So I got really lucky there where finding a solid GC is as you know, there’s plenty of horror stories here, but the GC is handling all parts of the build, I’m checking in every other day, going to visit the sites. But from an execution standpoint, he’s handling that and then the lender is handling the financing. So that’s the four main things I have.

Tony:
Man, this is like a master class on new construction for rookies. This is a really, really great breakdown, Donovan.

Donovan:
Thank you.

Tony:
I want to circle back to the architecture piece. First question is, how did you find your architect? And then second, what should someone expect to pay? And I know this will vary by market, but at least where you’re at, what should someone expect to pay an architect to do all of the design, the plans and the permitting?

Donovan:
Sure. So I found the architect by asking for a referral from the general contractor. So I found the general contractor at first, and then from there, I was saying, “Hey, who do you use for your plans and permitting?” “Oh, I got this guy.” “Okay, good enough for me,” if he’s used them before, just some type of referral is what I was looking for. But then in terms of costs, typically, if you wanted to design your own plan and customize it, you can probably expect to pay about 250, 2 to 250, a square foot. So on a 2,000 square-foot home, anywhere from four to 5,000, typically can get you plans, created and permitted with the city.
In Houston it’s cheap and other places it’s not cheap. So I’d say it varies by state for sure.

Ashley:
How did you get connected with an architect? Was that from a referral too?

Donovan:
Yeah, it was from the general contractor who referred me, but then from there… Actually, one of the architects built the duplex I live in. So the one you’re seeing now, I like the floor plan so much, I went back to the architect who built mine and then said, “Hey, I just want to tweak this, tweak this.” He said, “Great. We can do it.” But then the other architect I have was referred to me by the general contractor.

Ashley:
I’ve done a couple new developments for another investor and then built my own house. In your opinion, do you think that architects are not usually aware of the cost of different things? For example, when we did a new patio home design, they had these great ideas and put in different things, but the contractor was, “Well, every time you make a corner or a jag out, that’s going to add to your cost.” So what’s your opinion on that? And advice for rookie is an architect may bring you this beautiful design and layout, but how do you differentiate what’s going to actually be the best return on your money?

Donovan:
For sure. That’s a great question. I think it’s tough because it depends what… I think you need to specify what you’re trying to do. So if you’re doing like spec new construction, beautiful, selling for high-end prices, what I’m doing is affordable duplexes. So I know my target market want someone like me, younger guy, gal, who wants to buy a house hack. That’s what I’m aiming for when I’m building these. And so for that, the architect that went to design pretty much most of the homes in this area. So he knows affordable housing, he knows what’s reasonable and what’s not going to be cost effective.
So I think maybe just finding an area where you like the floor plans and just go into that architect, maybe a good idea.

Tony:
One more follow-up for me, Donovan on just the timeline aspect, because I love the idea of new construction as well, but obviously, buying a house is a lot faster than going out and building something brand new. So from the moment that you actually close on a piece of land, how long will it take until that house is completed?

Donovan:
Typically, it’s going to be about 10 months. The one that we’re closing on next month of September, so to give you a timeline, we close on the land in December of 2020, by about April, we had the permits approved with the city. Obviously you can’t build until you get the permits approved. And so while that permitting is going on, I’m lining up the financing, making sure the builder and I have the contract set up, and that’s going on behind the scenes while we’re waiting for the permits. And so ideally, what happened was as soon as we get the permits for the land, the loan has already closed and we can start building
And so that’s what we’re looking at is four months for permitting and five months to build. So nine to 10 months.

Tony:
That’s actually not too bad. I’ve looked to build in Joshua Tree and it’s like 10 months just waiting on plans to get approved in Joshua Tree. So it’s a very different process, I guess, depending on what markets you’re in, but it sounds like you’re in maybe a more efficient market when it comes to new construction than where I’m at.

Donovan:
Absolutely. The other thing too is it varies by county, even from Houston to Austin, there’s a massive difference in permitting time. So make sure your county is… I guess make sure the rough timeline estimate, because that could be a hairy situation.

Ashley:
I was in Seattle this past weekend and I went to look at this house that my friend is flipping. And so I actually saw a year ago, and so they’re just tightening up the flip now and finishing it up. And the house, it was falling over, it was a hoarder house, horrible, rough shape. And they got the permit for that fairly quickly to go ahead and rehab the house. But the bath deck, that permit took like four months to get a deck permit in this town, and it was just crazy. And one of the things the investor said to me was, “Even as a rookie, as an experienced investor, make sure you know these weird little things that your town or county or city may have in place that will affect your rehab, affect your budget and definitely affect your timeline.”
So he said in that city, that was one little weird quirk that was in their permitting process that a deck permit can take four months or longer. So everyone be aware-

Donovan:
Yeah. You make a really great point.

Ashley:
Yeah. How did you find out, Donovan, how some of the permitting processes go? I know you said that you used your architect and let them do that, but did you do any research on your own, such as contacting the code enforcement officer or anything in the area?

Donovan:
Yeah. I talked to them, I also talked to other developers. I told them specifically what I was trying to do, was like, “Look, I’m trying to do duplexes, what are some things I’m going to run into?” They’re like, “Well, for example in Houston, a lot of it’s in the flood zone.” So they said, “Hey, if you build in a flood zone, you typically don’t have a slab on grade foundation, you have to use a different foundation.” That just increased my cost 15%. Now, that project doesn’t make sense anymore. So I really relied on my network. And also I try to look at the building code as well
I probably need to, it’s so long though. Oh my gosh, it’s so long. So I relied on my network to really help me on the first few. But as I get into more complex developments, I’m going to need to really dive deep into the building code. So I know it, it’s in the back of my hand.

Tony:
Such a great point. Ashley, Donovan, I’m glad you guys brought that up because I felt like a lot of maybe new investors don’t know that you can’t just walk into the city and just start asking questions. It depends on the city, some cities are probably more helpful than others. We were looking at buying a hotel in big bear and I went into the city just trying to ask some questions about like, what does permitting process look like? And they were just like super helpful. They emailed me this, all the documents they had on this one property, they just sent it to me in an email.
So as you’re looking to get some of these questions answered, your local city county, whoever, can be a big resource. Donovan, I want to ask a little bit about your exit strategy. So you’ve got 12 lots that you’re building out right now, is the plan to keep all 12 as long-term rentals? Are you guys flipping some of these? What is the exit strategy look like?

Donovan:
For sure. The original exit strategy was to hold, and this was again, we bought last year most of the 12, actually, we are under contract on 13 as of yesterday, but most of the 12 we were built to rent. That was the goal. The nice thing about the duplexes, and in comparison to single families that they’re going to cash flow if we can’t sell them. So right now, as you guys know, the market has ran up over the past 12 months and the appreciation has outpaced the rents. So now we’re looking to sell just to capitalize on that, just so I can show on my resume, it’s successful exit and investors get their money back, things like that. But I think going forward, I’d prefer to build and hold.

Tony:
One last question before we get off the topic of the new build, I just want to really quickly go back to the investor piece because I think it’s a little bit interesting, the timeline, 10 months, I guess that’s not too bad., but are you structuring it so that there’s interest being paid to these investors during this 10-month period? Or is it just like a split on the profits that are generated from the sell of the property?

Donovan:
Yeah, it’s a straight split on the profits. And my argument for it was I’m not taking any fees, I’m not making any money throughout this whole time, so if you’re going to accrue interest on top of that, then we can do that, but it only makes sense if I’m being paid as well. And they’re happy with that as well that the interest are still aligned. So straight equity split.

Ashley:
Donovan. I want to transition us to something different that we haven’t talked about on the podcast yet, but when I was reading the show notes before we got on here, I saw that you are renting out your car. Can you tell us more about that?

Donovan:
Absolutely, Ashley. I own a 2003 Hyundai Santa Fe. I can’t rent that out because it doesn’t meet the taro requirements. So that’s my day car.

Ashley:
Well, tell us right there. Tell us about Turo and their requirements real quick.

Donovan:
Yeah. So for Turo, I don’t know all the requirements, but basically, it can’t be more than 10 years old, it can’t be a salvage title, it needs to be under 130,000 miles. So there’s a few requirements so that your car is in decent condition. So I wanted to put something on there for extra cash flow. And the reason I was doing it was because I didn’t want to necessarily buy an investment property. I felt like that’s going to be a pretty big hit to my DTI versus maybe just buying a car and getting a similar cashflow. So I did my analysis and if you have me on Instagram or Twitter, I walk through my analysis of how I picked the car.
So I picked a 2015 BMW like 528i. Long story short, I picked a nice car that looks good even in older years. So you know how BMW and Mercedes, they pretty much look the same each year. So I took advantage of the depreciation that was already built into the purchase price on this one, I’ve been renting it out, and it’s doing pretty solid, like maybe 400 a month off of, and I financed everything 0% down. So it’s almost like infinite ROI because I didn’t put anything into it yet.

Ashley:
Our friend, Robert Leonard, he actually just told Tony and I how he bought a camper and he listed it on, I think, Outdoorsy or a comparable website to Turo. And he did it with 0% down, and I think he got his first booking within 45 minutes. And it already covered, I think two months of his payments, maybe even more. So this is a really interesting to me. How long have you been doing it for?

Donovan:
I just got the car in April, so it’s only been about four months or so, but so far so good. Luckily no major accidents or anything.

Ashley:
I had looked at the website and for some reason, you can’t do it at New York State yet unless it just change. This has been a couple months ago, I had looked. Donovan, maybe I can buy a car in Houston and then leave it there and I can rent it out. I already bought a motorcycle in Houston, so why not get a car there too?

Donovan:
Yeah. There are car in there too. Leave it at the airport. We can make it work.

Ashley:
Yeah. Awesome. And what is your Twitter? You said that you… but the whole story and how it’s going on there so people can check it out?

Donovan:
Yeah. My Twitter is @donovanbuilds, D-O-N-O-V-A-N-B-U-I-L-D-S. And I talk about all my deals, I’m pretty transparent on there, so follow me to learn more and DM me if you have any questions.

Tony:
All right. Donovan, I want to take us into our mindsets segment. Are you ready for that, man?

Donovan:
Absolutely.

Tony:
All right, brother. A lot of folks that are listening, they’re listening to your story, they’re like, “Oh my gosh, I want to be just like Donovan when I grew up.” They love everything that you’re doing, but they’re afraid of getting started. So break it down for us, Donovan, if you go back to Donovan before that first deal, before the house hack, before all these new constructions, what were some of the misconceptions you had about becoming a real estate investor that turned out to be false? Some things that were maybe holding you back, some misconceptions that you realize now just weren’t true?

Donovan:
For sure. I think the biggest one for me, that’s allowed me to get to the 12 lots is you need money to be in real estate, but it doesn’t have to be your money. So that was really key. And once I had that mindset switch, it’s like, “Look, if I have a deal, the money’s out there.” And 10-year treasury yields are 1%. So long story short, the money is available if you have a good enough deal. So that was a big mindset shift as well.
In addition to that, really doing enough underwriting and just looking at deals so that you can recognize a good deal will allow you to have the confidence to maybe go after some investors or ask mom and dad, or auntie, whoever for money, because you feel like you really know your numbers.

Ashley:
Yeah. I loved how you had even mentioned that in the beginning too, and you said that you just showed your numbers, you showed the deal, you showed the investor, the partner, that the numbers work. Worst case scenario, they’re still going to make those a little bit of money. So I think that’s such a great point. And I give this advice to your spouse or your significant other too, when you want to bring them on board to start investing is show them the numbers, and you did just that with a partner. And obviously, it’s been working out well for you. So congratulations.

Donovan:
Thank you. And yeah, absolutely.

Ashley:
I’m going to take us to our Rookie Request Line. So you guys can call us any time, leave Tony and I have voicemail 18885-ROOKIE. We get these voicemails emailed right to us. So we get to listen to all of them. So thank you guys who call in. So we might take that voicemail and use it on the show or our guests to answer. So that’s 18885-ROOKIE. Today’s question-

Marge Everetts:
Hi, this is Marge Everetts from Baltimore, Maryland, calling about a question on property. I purchased a 1.75 partially wooded Riverview lot in 2003 with a 1031 exchange. Now, I’m anxious to sell the property. I paid 61,000 for it. And apparently now the tax assessment says it is worth $35,000. So just wondering since the price apparently is going down, if you have any thoughts about going with a regular realtor or trying to do it yourself from a specific websites as far as selling property, and any suggestions you have. Thank you.

Donovan:
I think at first looking at the property taxes, the assess value is essentially irrelevant. So in my opinion, that’s irrelevant because it depends on what the comps are selling for, how much can you build the thing for, and then how much can you get the land for? So don’t worry too much about the market assess value or the tax assess value, it’s not as relevant. In terms of listing it, I would say probably get a realtor if it’s like acreage, just because as you get into larger pieces of land, typically there’s fewer buyers, so you probably want more people to see it. And I think what better way for people to see it than on the MLS?

Tony:
Awesome Donovan. What great advice, brother. I want to take us into our random question segment. We don’t always do this, but I feel like it might be good to throw some questions at you. My question goes back to the new construction piece, and this isn’t necessarily to… you’re doing a great job, so I don’t want this question to come across as me thinking that you’re not, but how much do you think that the success you’ve had around this rapid growth, with going from one to, I think you said you just closed another one yesterday, put you like in the mid-teens.
How much of that growth from one to 12 to 13 was because of what we’re seeing in the market right now with prices just going up like crazy? Would your strategy still work had that recent increase in property values has not happened? I guess that’s the question that I’m asking.

Donovan:
Yeah, for sure. And that’s why originally we were trying to do build to rent because at first, it didn’t make sense to… It made sense to sell, and I learned that from BiggerPockets as well is to have multiple exit strategies. So the goal was to build to rent because we could get 10, 12% cash on cash and it was a new property. So a little maintenance for five years. But yeah, the reason why we’re selling now is strictly benefit of the luck from appreciation. And I’ll take a look any day and I’m not taking credit for it, but it definitely was a good timing in this case, but hey, I’ll take it.

Ashley:
Donovan for my question, can you just give us real quick, just the numbers on one of those duplexes that you’re building, what’s the cost to build? How much is the investor going to make on it? How much are you going to make on it and what is it going to sell for?

Donovan:
Absolutely. I think this was the first one we bought, this one won’t be finished until November, but we bought the land for about 35,000, the plans and permitting for about 8,000. So in it for the 43, then we bought the construction loan. We wrapped in the interest payments. So pretty much took a larger construction loan so that we didn’t have to pay interest each month. And so that construction was worth 222, I’d say roughly. So that pretty much brings all-in to 265. And then I guess the portion of that the investor paid out of pocket was the land and the permitting. So roughly they’re in it for 45,000 at the moment.
And then as I mentioned in the show earlier, we collateralized the land for the construction loan. Then now we’re under contract on that one for 358, 499, and that one should close in November.

Ashley:
So you already have it sold and it’s not even finished yet or it has finished?

Donovan:
Correct.

Ashley:
Wow. Awesome.

Donovan:
Yeah. They’re pre-sold.

Ashley:
That is so awesome. And when you do that, do they help with the design or anything? Or, “This is what it’s going to look like, do you want to buy it or not?”

Donovan:
Pretty much, yeah. Because we’re not building high-end luxury, I’m trying to be as cost efficient as possible, but I send them a video of what it’s going to look like because my friend had built a similar one. So they have a video of what it’s going to look like for sure, and then if there’s any changes, small ones we can make, but they don’t really have any… I guess they can change the finishes, but not the design, if that makes sense.

Ashley:
What do you think they will rent for each side?

Donovan:
Each side would rent for about 1,450, so 2,900 gross. And then the contract price would be 359, roughly.

Ashley:
The one that you have sold, is it an investor? Is it someone that wants to house hack it?

Donovan:
Yeah. I guess I should clarify. The one we have next month that’s finishing next month, that one’s under contract with a house hacker.

Ashley:
Awesome.

Donovan:
Thanks. The one that’s finishing in November, the one that I just mentioned the numbers on, that one’s with an investor who’s just putting 20% down.

Ashley:
That’s so cool. I think it’s awesome too, you’re helping somebody else house hack really.

Tony:
That could potentially be a business model. It’s like if you’re the investor that goes out and builds these really nice yet reasonably priced-

Ashley:
Affordable.

Tony:
Affordable properties that an investor can step into house hack, make a crazy good return, and you’re just churning through them, knocking them out and you’ve got this long line of people waiting to buy them. We’re thinking about doing the same thing for the Airbnb space where we build or rehab, and we sell these properties as turnkey Airbnbs, where they’re fully furnished and you’ve got the listing photos, everything you need to get that property up and running on day one is there when you buy the property, so you can just step in and hit the ground running. So man, you might have a million-dollar business idea right there, Donovan. No, I think you do, Tony.

Ashley:
Yeah. Turnkey house hacking.

Tony:
Awesome. I’ll trademark that.

Ashley:
Yeah. Give them all the lease agreements and here’s the rules you should do and how you find tenants.

Tony:
Yeah. I love it. I’m going to give a quick shout out to today’s Rookie Rockstar. So again, if you guys are not in the Real Estate Rookie Facebook group, make sure you guys join, is one of the most active, one of the most engaged real estate groups out there. And like Donovan mentioned, I think he met one of his partners in the Real Estate Rookie Facebook group, so the proof is in the pudding. Anyway, today’s Rookie Rockstar is Eric D. And Eric D. closed on their second door on June 1st.
They put probably, they said 100 hours of sweats into making it presentable, and they just placed the first tenant today, which is their second tenant ever. So Eric, big congratulations to you for getting that second deal and getting that second tenant in place.

Ashley:
Well, thank you Donovan so much for joining us today. Can you give everyone some information as to where they can reach out to you and where they can follow you on social media?

Donovan:
For sure. The main place right now is on Twitter, I’m not much of a picture or a video guy, so I’m lacking on that area, but Twitter @donovanbuilds and Instagram @donovan_651. And so DM me and I can help out wherever I can.

Ashley:
Well, thank you so much. This was really fun doing these and new development deals and going over them. So thank you for sharing with us Donovan. I’m Ashley @wealthfromrentals and he’s Tony @tonyjrobinson on Instagram. We will be back on Saturday with a Rookie Reply.