New to the industry and trying to COME OUT SWINGING!

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New to the industry and trying to COME OUT SWINGING!

Nick Tolson
Developer · Inglewood, CA · Member since 2016 · 7 posts · 2 votes

Hello all,

I have been looking for a RE community ever since joining the industry back in late 2014 and I'm surprised I have just discovered this wonderful site. 

My journey (keeping it short): I got my CA Salespersons license in October 2014 as a "foot-in" and step to getting into development, and made my first transaction on a little condo in Playa Del Rey in February 2015. Shortly after, in May 2015, I got lucky and was offered a part-time job/apprenticeship with a small team of developers who have done a lot of business in the past 30+ years (built ~7,000 homes). I proved to them that I was hungry and they saw that I was serious about becoming a developer so they offered me a full time position earlier this year and are basically mentoring me to become a developer one day. They have bestowed upon me many responsibilities and trust me with a bit of business even though I am still so green. 

Recently, one of the associates brought up the idea of me finding my own small deal (single family house or 2-4 unit building; I'm assuming they'd be willing to put $1-3mil total in if it pens out favorably)  to take from beginning to end - funded by them -  and taking a good amount of the profit.

As much as I've learned in the past year, I still have minimal knowledge on how to take a project from beginning to end. Additionally, our team is very small, and very busy, (5 person firm) so they don't necessarily hold my hand on a day to day basis but are as available as they can be.

My hope is to gain some insight/knowledge from you all who've either done this before or can point me in the right direction.

My goal is to come out of this deal in 1.5-2.5 years with a beautifully done 1st project that will jump start my personal track record. I realize that there is a TON to learn and go through with even getting a single family home built, so I definitely don't want to bite off more than I can chew, but I am a fast learner and will have support; I know it's all a process.

With that being said, what are your suggestions? Where should I start?

Thanks in advance for the input and help!

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y

@Nick Tolson  stick to your group... read what you can, but stay put.. let them help you through this.

Bp is great but you need CA state specific and LA specific knowledge.

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JLH Capital Partners51 Review
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  • Douglas Dowell
    Denver, CO · Member since 2012 · 350 posts · 175 votes
    10y

    I would give a gander at the Real Estate Development workbook and website of Howard Zuckerman Institute of Real Estate Development (coaching offered but I am not affiliated). I recommend the ULI education as first rate.   The two best books they offer imho were the Guide to Professional Development and The Market Analysis book.  The Multifamily book was meh.  

    I haven't taken the ULI proforma courses but they look outstanding if you want more insight into the financial side.

    I think you are in a tremendous position in that having experienced mentors an important piece.

    Consider also finding a piece of dirt that looks potentially suitable and then put together a pitch deck/feasibility study to get feedback from your mentors perhaps.   

    @Karen Margrave  @J Scott  @Bryan Hancock  @Nick L.  @Kenneth Bell

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  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    10y

    Development is extremely complicated and fraught will all sorts of risks.  Some of these risks are not clear until you've been doing things for a while.  In Texas there are 10-year warranties on the foundation and framing for single family structures by law for instance.  Can you say 10-year contingent liability?  

    Or....how about if you build a house on a hidden spring and it starts to move?  Does your contract with your professional engineer indemnify you for any bad engineering?  Did you get enough core samples?  

    Or....how about hidden easements or flood maps that are not publicly available and some city engineer keeps them on their computer?  

    Or...more commonly....how about if your contractor fails to perform on their contracts?  If they take too long or miss their budgets and you have financing on the project will the bank be on board firing them?  Will they wish to hold the project for 2 months while lien releases are verified and statutory time periods expire for subtractors?  If you fire the original builder how do you handle warranties with your buyer?  

    Or....how do you ensure your buyer is comfortable with the warranty you or your builder provide?  Does your company have enough clout and credibility for the warranty to mean anything?

    Or....if you raise money how do you know some of your investors won't start chirping to attorneys at the first sign of trouble or things not going perfectly?  Do you have proper offering circulars disclosing the risks?

    I could go on and on and on.  The setup you have is favorable and I think you're well-served to go as slowly as needed and learn with them helping.  However, don't expect them to do everything for you or to protect you.  If you're on your own you need your own specialists to help out.  Here are some of the key ones:

    -Civil engineer

    -Architect

    -Real estate attorney

    -Securities attorney

    -Competent real estate broker

    -Builder (VERY key)

    There are other things like interior decorators and such, but the ones above are REALLY key to making the project work well.  They should know your area and project type well.  Don't skimp on these resources.  Try to find the best of the best in your area and treat them very well.  

    You'll also need good financial modeling skills and to bake in a sensitivity analysis.  Look for projects with fat margins that allow you to screw up a lot.  Things WON'T go as expected.  We have done 54 development projects in the last 5 years and not a single one has gone as expected.  Some go better than others, but none go as planned or expected.  Building and developing is risky and is hard work.  

    Hope this helps....feel free to reach out if you need more pointers.  

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Nick Tolson  stick to your group... read what you can, but stay put.. let them help you through this.

    Bp is great but you need CA state specific and LA specific knowledge.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Bryan Hancock  Oregon has the 10 year rule as well.

    based on the 10 year rule in Texas that is one state I would personally NEVER build in.  based on the rehab jobs I have been funding there the last few years.. everyone of them had major foundation issues  LOL.. We get nothing like the clay you guys fight .. 

    ours is water intrusion.. 

    for all the great reasons you state thats why I suggested he stay put and let his mentors lead him through this... 7k homes in CA is Major development and would be in most markets so obvioulsy those are Big buck boys.. stick to them

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    10y

    MLAW engineering is your friend Jay.  There is actually a IoT company called Aquadation in Austin that we have considered doing a seed round in that MLAW funded as well.  You can have remote monitoring of the foundation and apply water as needed to help with any movement.  

    So yeah....state laws matter as does what you're building on.   Your local civil engineers should know things really well.  Make sure you analyze your contracts thoroughly to understand who is bearing what risk.  The T&Cs are generally negotiable.  If your professionals aren't willing to sign up for risks in the services they're providing you should seek other professionals.  

    All of this discussion is common sense.  Common sense is not common practice though.  Enter into every possible contract thinking of the worst thing that can happen and how you'll get screwed.  That may be a bit cynical, but ask any developer that has been around for a while and they'll probably be equally as cynical and skeptical about any new relationship.  Development is a relationship business.  Finding the right team to execute is much of the battle.  

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Nick Tolson You have a good group right there, row houses are common, on today's scheme, im willing to bet they have one in Santa Ana. Anyway, they are your resource, be careful on the books you read, most only apply 15% within a CA setting. I am trying to help a friend build his 20 unit apartment, once he gets his full set of plans, I'll be Project Managing the job for free, to have one apartment under my belt, who knows, someone might be interested in hiring me sometime later.
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