All Forum Posts by: Barry Ruby

Quote from @Keagan Maloney:

I have a well-paying w-2 job but I want to transition into ground-up residential development. I want to replace my day job with buying land, building spec homes and selling them. I have little construction experience, and little capital to invest. After doing research these seem to be reasonable options. With knowing my current state and end goal, which would you choose?

1. Start fix and flipping properties to gain experience and capital?

2. Work for a home builder to gain experience and then launch into my own company when ready?

3. Jump right in, Find a mentor to partner with on deals (of course I would need to bring something to the table, not expecting handouts)?

4. Something entirely different?

Current Skills: I have worked in solar and software sales the past 4 years. Not afraid to cold call, or knock doors. 

Looking for a nudge in the right direction from a vet. I appreciate it!!

Hi Keagan,

Ground up development requires knowledge of the numbers and processes. The numbers involve learning the language and metrics of finance and how to use them to conduct pro forms analysis.

I will be happy to share a worksheet I created to run in-depth analysis for a ground up Multifamily project and teach at the same time

If you’d like a copy let me know how to get it to you and it’s yours.

Quote from @Ariel Ramira:

Looking for a mentor to help me get started. I am interested in purchasing a multi family home in an out of state market that’s better than where I live (Oregon/washington). 

I have the financing but not the knowledge on how to pick a city and get started with an investment. Would be willing to pay a mentor to help me through this process. 

Hi Ariel,
Congratulations on your initiative. If getting started includes needing help getting your numbers and due diligence done let me know if you’d like me to sends you a very robust Multifamily proforma that is designed to be a tutorial as you use it 

Hi Dan,

Congratulations on your decision to become a developer. In my experience, developers are typically engrossed in deal-making. Networking with them can be challenging, and extracting the specific information you need to transition into this space can be even more scarce and haphazard.

To my knowledge, no certifications are required to officially label oneself as a developer. I've always found this somewhat amusing, considering that almost everyone a developer hires often requires certification. Professions like engineering, law, accounting, architecture, and general contractors necessitate degrees and licensure.

Development is unique in that it welcomes (perhaps even encourages) a maverick spirit. While degrees are not mandatory, a few prerequisites are necessary to successfully execute a ground-up deal.

You can engage in networking extensively, but unless you can speak the language of finance, comprehend its metrics, and know how to utilize them for in-depth pro forma modeling, progressing in the business becomes challenging.

The initial step in executing a development project is to identify and properly control the acquisition of a site. In the first stage of this process, you must underwrite it to ascertain its highest and best use and financial performance.

Conducting this analysis sets the stage for securing a purchase contract with terms and conditions aligned with the timing and budget of the planned project. The ability to perform this analysis requires financial literacy and the capacity to underwrite the deal of your dreams.

Therefore, the most direct route to a career in development involves acquiring the necessary skills and tools to accomplish the job. While immersing yourself in various aspects of the field may enhance your understanding, a developer doesn't need to embody all the roles he/she hires. You only need to be proficient enough in the languages associated with development to function effectively in the role.

Feel free to reach out if there's anything specific I can assist you with or if you'd like to have a chat. Development is not rocket science; you can achieve success by accessing the right resources and connecting with people who can provide the knowledge and tools you need to get there. Best of Luck...and call on me if you need a hand.

Stuart is correct in citing the lack of any hard data and, therefore the inability to talk "numbers".

However, the answers to your questions, conceptually are:

1.  The value of site approval is tied to its current zoning and where it goes from there. If the site's current zoning meets the intended use(s) for the development of the planned project (the use by right also mentioned by Stuart), little or no value would be created through the approval process. If the site requires a step or steps to get it entitled to accommodate the planned improvements, each of steps has the potential to increase value. 

Annexation, zoning, density, preliminary, and final plat approvals are examples of the steps associated with increasing site value.

How much value is created is determined by deducting the "as-is" value from the entitled value.

Establishing the entitled value involves determining and underwriting the Highest & Best use of the site and applying a residual analysis.

A residual Land Value Analysis is conducted by establishing the built-out value of the project and deducting everything from the total value BUT land.

The generic formula Total Sales or Capitalized Value - a Target Project Proft - commissions & closing costs = Residual Project Budget - Site Cost - Hard Cost - Soft Cost - Finance Interest points and fees = RESIDUAL LAND VALUE 

Residual Land Value is the price that can be paid to acquire the property that is supported by the Project planned to be built on it.

One of the most important factors in doing this analysis is an Income-Driven approach. That is, it uses Market Sales and rent rates to establish Total Project Value.

2. Unless and until you have acquired the knowledge, skills, and tools to underwrite the site, there is no apparent way for you to assemble a team and conduct the due diligence and pre-development permitting activities.

If you decide to pursue this opportunity, your first step in figuring out value(s) is to confirm current zoning and uses to see the as-is value. Before you put any significant effort into this, you should reduce your understanding of how to acquire the land in writing with your in-laws.

Once you have site control, you can contact developers, contractors, and realtors to gather data needed to determine usage, and value and seek validation from the permitting authorities about what can be built on the site as-is or with a zone change.

If you do get into this process, the most important issue for you should be to be able to answer your #1 question, which is "How much value would getting a site approval plan add?'

To know that, you'll need to do the residual analysis. I'd be happy to send the pro forma tool along to you if you like to play with uses and the values they create for the land.

Hi Neal,

Do you own or have the property under control?

Have you conducted a pro forma analysis to determine feasibility and financial performance?

Have you made an investment proposal that spells out the amounts, timing, and application of the funds you are seeking and shows the performance metrics on the Project and Stakeholder levels?

Do you have a track record to demonstrate your ability to do this "relatively" large deal?

If you have not done any or all of these things, your search for debt and equity capital is premature. 

Please feel free to let me know if you need/want any clarification on the above

Hi Evan, Thank you for your thoughtful and (I think) accurate response. I am conducting a ground-up development Program based on 1:1 time with me and only me. The Program is designed for each Mentee to select a real site to use to learn the language and metrics of CRE along with workbooks and tools that I have created to function and teach simultaneously.

The end goal is to empower the mentee to understand how to select and underwrite a site for its highest and best use, how to properly secure it under a purchase contract, and move it through the Pre-Development process to get to a shovel-ready deal.

The course includes my support for 1 year to ensure that the mentee has all they need to successfully apply what they learned and go on to do projects of their own with confidence.

Hi William, what are you looking to accomplish? Land Ed is one phase of ground-up development. While both involve finding and properly securing a site and bringing it to full entitlement, the ground-up process includes the land piece but gets way more involved and complex to execute.

The full "Monty" for ground-up development needs to include financial literacy, an explanation of metrics, and how they work. From there, it requires the ability to conduct underwriting the highest and best use of a planned project, which requires a pro forma built by the user or acquired from a competent 3rd party. 

Once the above skills and tools are acquired, understanding the sequential process of the development along its timelines and costs needs to be correctly implemented. The process must be understood and applied to team building, investing your and 3rd party capital, and financial deal structure with debt and equity sources. 

The first pieces (literacy, metrics) and the following ones noted above are pretty straightforward. The problem (as you have cited) is trying to understand what you need (you don't know what you don't know), where to get it, qualifying its source(s), and the validity and usefulness of all that.

Pardon me if I've gone into this too much, but I meet many people with the same concerns that you are voicing and this is offered, as much as possible in direct response to your post.

Please feel free to contact me if you have any comments or questions.

Quote from @Aaron Friberg:

Hello All, 

We own a large lot in Hillcrest that currently has 4 units(1 building). Next step is to develop the property, but need to figure out whether it's better to add a couple ADUs or tear down and put up an apartment complex/condos, etc (my guess is property is currently zoned for 12 units). An architect has offered to run through the zoning for the property, advise how many units could feasibly be built, tell us how many ADUs can be built, etc., and run through a projected cost benefit analysis of the different options. Cost for that service would be $5k. Question for the BP community (and specifically for folks with development experience or larger projects like this) - does this seem like a reasonable next step to you? If not, any other suggestions as we navigate cost/benefit analysis of how to proceed with the development? We've done several fix and flips, but nothing to this magnitude from a development perspective, so trying to think through best next steps. Thanks in advance for any suggestions. 

Would also be open to partnering with an experienced developer in SD of similar projects if it makes sense. 

Aaron

Aaron,

Your first step should be to run an analysis to determine the highest and best use of your site. Architectural drawings are not needed to do this but an understanding of unit count, mix, size and price points for sale or rent are.

You can get this type of information from an architect or site planner without paying as much as you’re being quoted to do preliminary layouts.

from an architect or site planner without paying as much as you’re being quoted you are being quoted.

Give me a shout if you need some help.

@Hugo Ramirez

Hi Hugo,

Your first order of business should be to become literate in the language of finance and to understand how the metrics work.

From there, build or acquire a pro forma to allow you to conduct in-depth underwriting analysis.

Doing anything in real estate requires you to have these skills and tools.

Feel free to contact me if you have any specific questions, and wishing you the best of luck.

@Andrew Adame

Andrew, nothing dealing with construction is required for real estate brokers licensure.

Looking for and depending on a broker that has been involved with the purchase and sale of property that involves construction MIGHT get you some of what you’re looking for but is a long shot at best.

You would be much better served by finding a land planner, civil engineer or contractor to work with if you need assistance with early stage planning.

Feel free to contact me if you have any specific questions about how to go about getting started.