Boston-based new construction wizard, Tyler Winder, joins our Storii Time hosts to talk about profits, timelines, and watch-outs for those building and buying into new constructions.
Saad: Obviously, big player in the new construction space, tons of success with luxury especially and kind of wanted to pick his brain today on kind of his mindset and what kind of goes through the, not A to Z, but really the big milestones along the way as we get to completing a deal, right? And getting the project going. So, I know we got some questions for him, so Mike, take it away.
Mike: Yeah, T.B. Winder, the name investors trust.
Tyler: Look at that. Look at that.
Mike: Right? You like that? That’s it. Come on. Give me the ad reads. I could do this all day.
Tyler: Let’s go. Hit it.
Mike: All right, Ty. So we’re going to talk, I guess. My first question for you is your mindset or the prism that you’re looking through when you’re starting to first scout out potential projects that are upcoming. What are your bottlenecks that you’re looking at? What are you looking at from a financial perspective? It makes sense. And then general areas, what’s going on up there besides this stuff that can’t be shown?
Tyler: The easiest thing about the bad is to trust your numbers. I that’s the most important thing at the end of the day. Don’t start looking at, know, this house has good bones. It was built in 1876. You can do something fun with it. Trust your numbers first and let everything dictate off of that. If you’re a new investor, you’ve been doing this 15 times over again, your where you’re purchasing is all going to be dictated around the amount of equity that you truly have. How much cash do you have at your disposal? And that’s going to kind of dictate where you’re going to be shopping.
Tyler: If you sit there and it’s like, all right, I have a hundred thousand dollars of true equity that I can use, then just work your numbers backwards. How much is the lender going to need for a down payment? They’re going to fund their construction. How much can my hundred grand take me? And this day and age, it might only buy you a $325,000 acquisition. If you’re in Eastern Massachusetts, you’re not going to get anything. So it’s like, all right, we got to get out further west, further north, further south. And then everything’s going to dictate off of that. If you say, I have unlimited capital because I have, you know, investors lined up to do whatever we want to do. Then it’s what kind of towns…you can be very picky. What towns do I want to be in and what product do I want to go in? If you want to hit that luxury market, you know, let’s say in Metro West, like, and you want to dance 6 million plus, or you go to coastal $7 million plus on the beach, like, you have to have significant capital ready to rock and roll. But then it’s ultimately going to come down. What are your numbers look like? Trust your numbers, know what you have to play with, who’s going to be able to fund it, and who’s buying it on the backside?
Mike: Yeah, I guess that last piece, the buyer, do you start with kind of the buyer in mind of who you’re gonna sell to? You get the end product…
Tyler: You need to know who’s gonna who’s gonna buy the product as you’re creating it. SoNot necessarily. You’re going to base everything off your numbers. right. I have a hundred grand. I’m to buy for 325 and central mass. Perfect. That means my exit is going to be $500,000 for a single family. All right. Who’s buying a $500,000 single family in Worcester, Massachusetts right now.
Tyler: And then you base the demographics off of that because like, if you know, I have a family of five who’s going to be buying this. What is the family of five going to be looking for in this particular market? And then it’s like, do we need an extra bedroom up top or can we get away with three larger ones or do we need a squeeze in a fourth one. If I know it’s a family of five, do we have an au pair? Do we have in-laws coming through? I know I have to have a bedroom on the first floor. But again, that’s after I am acquiring the property, it’s under agreement. I’m working with the architect and my agent on who’s going to be buying this on the backside so I can prep it ahead of time.
Tyler: But again, that’s step two, because step one, trust your numbers. Know exactly what the numbers look before I do anything.
Saad: So real quick question… you mentioned some of the steps, right, Tyler? When you talk about, when you talk about going through the numbers, right? How do you determine your numbers? what is your, do you have your own spreadsheet? Are there certain calculators online that you use? And does it vary? Does your thought process vary from deal to deal?
Tyler: The baseline and the foundation of every deal is gonna be whether I’m buying 500 units that I’m developing or a single family. your foundation has to stay the same.
Tyler: Yes, there’s a million different calculators that can go, online gurus you can do, but keep everything as simple as possible. The simplest that you can keep a deal, the better it’s gonna be for you at the backend. So you say, what are my numbers? Most important number is what am gonna sell it for on the backside? If I’m tearing it down, I’m gonna sell something for three million bucks. I need to know three million, because from that three million number, I know how much the bank is gonna give me. I can then talk to my contractor, how much money do I actually need to build this house to sell for three million bucks, and that’s gonna determine what I can pay for the property.
Tyler: List price is absolutely nothing. If something’s listed at a million two, but the numbers tell me that I need to buy for 800. I put an offer in for 800. And if they say no kick rocks or say, all right, well, the numbers don’t make sense. You’re extremely over. You’re way overpriced.
Mike: It is. It’s funny how approaching a deal can be a completely different mindset. But it is so easy with an investment property that you’re looking to renovate versus somebody that a family that needs a home. And it’s served for that particular purpose. That is there’s way more emotion involved for this versus this. It’s just like you’re just shooting a ton of shots and seeing it
Tyler: You can’t be emotional with it. My favorite deal that I never had, I still think about to this day, and I wanted to make it work so bad. was two acres in Melrose that no matter what I did to the property was not going to sell for over two million bucks, and I could have bought it for around $750. Old house, the most beautiful piece of property ever. I was emotional with that one.
Tyler: Stop, dude. I’m working now.
Mike: Dog?
Tyler: Yeah.
Tyler: But that’s the one property that I was extremely emotional about and I never bought it and I still drive past man I wish I would have got that but at the end of the day it was selling for no more than two million no matter what I did do it and I could not build it for cheap enough to be able to be below my numbers. I would have had to buy the most beautiful property in Metro West…I would bet against it for five hundred thousand dollars that would never happen. But that’s what the numbers are what numbers are I get emotional about I go 750 that’s when you’re gonna lose your ass you’re gonna bury yourself before you even get to final sign-offs.
Mike: And are you answering to a group of, is it the same consistent investors? Do you raise a fund for a particular project? how does the acquisition of the money happen?
Tyler: So I did start a fund in the middle of COVID. We just did our second fundraise or second fund launch, let’s call it. It’s full discretionary. So I have a handful of investors that just throw me money and I do whatever I want with it. It’s great on this side because you have full flexibility to be able to manufacture deals however you want to.
Tyler: Majority of the time, it’s I lock something up. I know my numbers inside and out. I lock it up with the offer. I lock it up at purchase and sale. But as soon as I get that signed offer, I put all my numbers together. I put a pro forma together, all the comps and all the high-level…everything you need to know about the property. And I blast it out to my investors and say, hey, I’m raising X amount of money. Here’s all the numbers. Here’s everything. Let me know your thoughts. I’m signing purchase and sale in five days and I’m closing this in three weeks.
Mike: And then they get their willing to put in a certain percentage of that particular deal?
Tyler: Yeah, like, let’s let’s say, like, keeping everything super simple. If I were to buy a piece of property for a million dollars, bill for a million, sell for three, let’s use that as a baseline. That equity raise, depending on how it’s structured with contractors, it might be anywhere between a four and a $500,000 raise, depending on debt and how everything is structured. So, if I raise 500,000 bucks, buy for a million, bill for a million, sell for three, raise 500, what is that 500? You set up the parameters. I try to get my investors 30% on paper.
Tyler: There’s upside, there’s downsides, but if I’m basing everything off of investors getting 30%, if the deal goes sideways, if it goes great, at least you have so much flexibility to get everyone protected. And everyone raises it different. I have a lot of developers who can raise capital at 16% equity, grand slam. If you can do that, you’re gonna make a lot of money in this industry if you have everything. If not, you’re going to have to give up more equity, but the more equity you have, the more projects you can get, the better projects you can get, the better markets you can get into.Especially construction now, it’s so expensive. It’s so expensive to build.
Tyler: So, how many times I look at any builder who’s building outside of the 128 belt and say, I don’t know how you’re making money because a four by four is still a four by four. Appliances are still appliances. The base is still the base. I don’t know how you’re making money only selling a new construction for a million dollars. If you give me a land for free and say, go build a 3000 square foot house and sell for a million bucks, I can’t do it and make money.
Saad: So, you talked about sending an email out saying like…I’m signing the person to sale in five days, here’s the close date. And you obviously are sending that email out after an offer is accepted, right? So like, how quickly from sending that email out, like, are you able to gather the funds for one of these projects? Like, is that a lot of risk you’re taking on in those situations? Naturally, the answer is yes, right? What does that look and what’s the mindset there?
Tyler: Yeah, I mean, it’s all based around the confidence and how confident I am with my numbers. Everything is going to dictate off that. My second deal that I ever did as a true, or I guess third deal I did as a true sponsor, I had $50,000 in my name and I put $50,000 down at purchase and sale with no investors committed or even interested. you’re all in, all in on a blackjack table. Hi bud. So you put $50,000 down at purchase and sale. Hey, this is either going to work out or it’s not going to work out. But I hope my investors see the way I see. And they did. closed it. You get the 50 back and you close the commission. You get some back. It all works out.
Mike: Did you use your dog as collateral?
Tyler: No…(laugh)….but then the best deal in my mind that I ever locked up was a new construction two unit approved project in Cambridge. And luckily I locked it up for $10,000 down at P &S. So in the event it backs out, at least I’m still walking forward. not, I’m not shelling out a hundred thousand dollars and walking away from it. , I didn’t have a single investor it. took me two and a half weeks of blasting it out, multiple emails, sending it out. I didn’t have one of my previous investors the deal and even commit a single penny. And I ended up wholesaling it. The second I opened up the wholesale market, everyone was scrapping at the bit to try to get it for a healthy assignment fee. But my investors didn’t it. It’s the best deal on paper that I ever bought.
Mike: Can you explain for just an average person watching like what a wholesale is and how one, if you’re buying something and then you can immediately sell it, what are the improvements made and what does that process look like?
Tyler: Typically in real estate, you’ll see a wholesale or you’ll see an assignment. Wholesale assignment are gonna be the same thing. And essentially what you’re doing is you’re assigning the right to purchase the purchase and sale agreement that I have. So if I’m gonna buy your house from you for $500,000, I sign a purchase and sale, close in 30 days, and somebody comes to me and says, hey, I really that house, I’ll give you 510,000 for it. Essentially I can sell them the rights to my $500,000 purchase and sale for $10,000 extra.
Tyler: Do you see it in traditional real estate as a first-time home buyer buying it? No. Investment world, you see it all the time. But if you’re going with conventional financing with a bank, they need to know upfront if it’s an assignment deal or wholesale because that can’t be on the HUD. And if you’re going private, it’s different because it’s card money, not Wild Wild West, but a lot less. So you just have to be very careful where you’re buying it. If there’s an assignment fee, the bank needs to know about it from day one. Because if not, you need to raise or bring that extra money to the table to be able to pay for the assignment.
Saad: I think the trust the numbers piece and Mike, you were saying this earlier, like, you know, when you’re buying it, your mindset’s different when you’re buying it as an investment and you’re renovating, even if you’re not renovating, right? Buying as an investment, like, because that’s my background, is it buy and hold, right? I do not have the experience Tyler has with building and what have you, but he’s a hundred percent right….it comes down to the numbers. cannot get emotional. You have to think about it as a business, right? You can’t, you’re not thinking about your family living there or the memory that I create and all that kind of stuff. That stuff doesn’t matter. So, so yeah, I think, I think it’s really interesting though, like, but even that wholesale idea that Tyler was talking about, you probably have to kind of have that as a I what if. Right? you have to kind of feel have that in your calculus in case things go that way and you you send that email out to investors and Tyler mentioned, sometimes people will not be interested and then you have to have an out.
Tyler: And the whole thing with wholesaling as well, don’t sign up for any of the Facebook investor groups or all the wholesalers out there. Put your name on the list and watch the deals that they send. It is very rare to see a wholesaler who truly knows the development game and the number game. Like if you have a deal under contract, you should send it to me right off the bat and at the bare minimum, we’ll run all the numbers, we’ll set up the assignment the correct way in terms of how to present it to an investor. And you’re going to have a hundred percent success rate rather than, which unfortunately so many of us real estate agents do, great deal comes. I have an investor who wants to go buy the develop. Something came up, I’m going to send it to him with nothing else. All you’re doing is shooting yourself in the foot. We’re way too busy to go through your work and expect to get it. Do the work upfront. Tell me everything about the project and then present it to me.
Tyler: You’re gonna have so much more success at the end of the day because A, you’re doing your work, you’re showing your value, you’re gonna show what needs to be built, what it’s gonna be selling for, does this work for you? But to Saad’s point, it’s like, you have to know your numbers upfront, whether you’re gonna buy and hold, whether you’re gonna buy, renovate and sell, buy, renovate, sell and keep, or you’re just gonna sign it right off the bat. If you lock up a deal the right way, you should have three to four exits day one. And that’s a sign of a good agent.
Saad: How long did it take to do all that analysis and get those numbers together. Obviously you have a lot of experience with this, so you can do it probably a lot faster than others, but still, it’s a process. what is that point form? You identify a deal, now you’re prepped with a deal, you have all your numbers, now you’re taking it to market, whether it’s to your investors or wholesaling or what have you.
Tyler: You’re saying how quick can I get it on paper to be able to present?
Saad: Yeah, how quick can you know your numbers?
Tyler: I do this multiple times every day for years. It’s my wheelhouse. But I mean, if you send me a deal right now and say, what’s your thoughts on it? And I’m in front of the computer. I can tell you within seven minutes if it’s something we’re going to pursue or take it to the next step. Hey, the numbers work. Let’s go to the next step. What’s the next step? Then it’s identifying, you know, how’s the street? Is there easements? Am I next to a train station? Am I next to a gas station? Is there any weird particular zoning things we have to go through? If all those answers check, check, check numbers, check. Cool. Phase two, check, check, check. Cool. I’m going to be there tomorrow at 10 o’clock in the morning, get ready to put an offer in because the only reason I’m not going to put an offer in is if I get there and there’s something that I could not see on the computer.
Saad: Yeah, right.
Tyler: But you should be able to know your numbers very, quickly because it’s identifying what’s the best use of the what’s the best use of the property, tear down, fix and flip, add any unit, addition off the back, whatever it is. You should be able to identify that very quickly just by looking at comps. What’s the highest comps that sold? That’s a similar lot to mine and then start working backwards. You’ll be able to find that right off the
Saad: And how many deals, what percentage of deals that you come across do you actually end up pursuing?
Tyler: When we’re clicking, when I’m really clicking, I’m usually putting in two to three offers a week. Okay. How many offers, like, and it doesn’t get to offer unless I know everything about it. I hate wasting time on it. I’ll tell you again, you send me a deal. I’ll tell you within five minutes if it’s something I want to pursue or not.
Tyler: Every property is a deal depending on what you can buy it at. Your million dollar listing looks great. I’ll pay for I’ll pay 500 for it I gave an offer yesterday That was 50% of what they were asking for I don’t care if you it or not, the numbers aren’t gonna change and if you bring it to anybody else they’re gonna look at it exactly the same way… if they the deal better because they live in the neighborhood…that’s where you start getting emotional it goes up a little bit numbers are numbers. So I don’t know probably one out of ever like…maybe one out of every 15 deals that I put an offering gets to true negotiations are accepted, but I’m not blasting out 75 offers. We don’t have time for that.
Mike: Yep. Smart.
Saad: And how many deals in a year? I usually have between four and seven projects going on at once.
Saad: Got it. Got it. All in greater?
Tyler: All in greater Boston. Yeah. Right now the furthest west I am from Boston is Wayland. But, Wayland, Wellesley, Needham, Lexington, Somerville, Boston. So, we have right now.
Saad: For other folks that might be interested in like, know, maybe they don’t want to purchase their own deals. They don’t know how to flip themselves or what have you. They might want to maybe, Tyler, invest with you or something that. Like, what does that process look like? Number one, can they? Or do you have a closed list of investors? And number two, what would it look in terms of minimum investment? Do they have to be accredited? All that kind of stuff.
Tyler: It gets, this is where everything gets dicey. So in the fund world, I had a SEC attorney draft up everything. It’s very soup to nuts, hundreds of paperwork that you have to sign and figure out and make sure you’re accredited and all of that. And true individual property, buy a property, single, single-owned entity, LLC purchases the property, gets the loan, builds it and sells it. You can pretty much get it from anybody. And you kind of say that with a little bit of like, because if you’re, if you’re investing $20,000 and you have $25,000 to your name, don’t do it. you have to have like, that’s the last thing in the world you want to have as an operator as someone who’s texting you every week. Yeah, what’s going on? Do you understand the risk in the timeframe with back off? Yeah. But at the same time, you have that kind of flexibility.
Tyler: Your first deal you’re probably ever going to use that you raise money is going to be friends and family. Hey, guys, I found this contractor. He wants to work with me. I found a property. I’ve ran the numbers. I talked to you guys. You guys showed me what all the numbers look like. We have it all set. I’m signing first in sale. I need to raise money for down payment. I’m willing to pay you this, but I need help acquiring this. Would you be interested in working with me?
Tyler: To your point, so many people want to flip a home. HGTV has 50 shows on right now about flipping homes, flipping Chicago, flipping LA, whatever it is. But unless you’re in the business and this is your full-time gig, it is very, very difficult. So, there’s not a lot of options to do a project if you don’t have the time. So, partner with someone myself, like, hey, I’ve got some funds, send me your next deal. Cause then I mean, it’s a single property and you can feel it, touch it, watch it grow, see how does on the market, walk through open houses and be like, I’m a part of this without swinging hammers and dealing with all the shit that we have to go through as developers.
Saad: Speaking of swing hammers, mean, like, you know, talk about you need to have a team, you need to have time, you also need to have a team, right? So you probably have trusted, not trusted lenders and attorneys and what have you, but you probably have, you know, your whole list of contractors and HVAC guy, electrician, handyman, but more than any man, full on GC and all that kind of stuff. How long did it take you to build your team, your full-on team, give yourself credibility and confidence to go out to the market the way you do?
Tyler: Well, the very first deal I did…I kind of worked into the business backwards. The very first deal I ever did was a $4 million spec home in Weston. And that’s what opened up the whole world of hard money lending acquisitions. What is the bank going to offer? What’s an LTV? So I started working backwards off that. The people I worked for their entire portfolio got wiped out. So I learned what not to do. So the first deal I ever did was a single-family flip in Holliston. think I lost 27 grand on it at the end of the day, but I project managed it. had to go, you know, pay for the porta potty to get over. I had to meet the plumber. I had to run it and trust that I know how to actually finish a project. Once it was that, it’s all right. Let’s get a GC involved because I don’t want to be on site every day swinging hammers. I’m not a contractor by trade. I don’t have that expertise everybody else does.
Tyler: My contractor that I use, he’s been in the business for 40 plus years. He’s seen everything, built everything from, you know, $10 million condos to apartment buildings to you name it. I can bring a project, I know the numbers. Do these numbers work for you? They say, yes, we go for it.
Tyler: So, how long did it take me to build it up? There’s still so many subs that I do not have a laundry list of because I’ve been playing the developer card versus the general contracting. The general contracting business, you cannot take it lightly. It is a brutal, brutal business.
Tyler: Dude, I am working so hard on it. Panic.
Tyler: It is the brutal business, from making sure that every sub is insured, all of the stuff besides actually doing the work, it’s a brutal, brutal business that quite frankly, I don’t want to be a part of. So many developers go the general contracting route, but a trying to lock up somebody to do a custom build or, you know, there’s good cashflow to be able to renovate a bathroom….So, they’re getting cashflow because developing you get paid upon the sale. You might not get paid for 12 months, 16 months, two years, whatever it is. It’s tough. You got to be able to withstand it. But you think that you’re going to save money because you’re going to do it all yourself and manage everything. But it’s so time-intensive to gather everyone to make sure everything is doing it right. How much time you’re investing in before that first swing of the hammer is brutal. So if you have a GC company, they are worth their weight in gold having a good GC because of all the shit you don’t have to worry about. And then us, as investors, we can go focus on the stuff that makes us money. And what is that? Running our numbers, putting out offers, buying properties, lining up the financing, lining up the agents to sell it and trying to put a good team together.
Saad: That’s a really good insight for anyone listening is that is that whole point about a GC. So many people try to build their own team and think they need to know one person to do this, one person to do that. And sometimes it’s helpful, right? For one-off jobs and things that. But for projects this, what Tyler’s talking about and what Tyler’s done, time is money, right? And you’re and also it’s not just money. You saved that time. You don’t have to deal with that headache. That’s good for you. It’s better for your mental health, right? it’s a lot of work. I think if you’re trying to go down this path, even if you’re not, a good contact to have for just whatever you own right now is a GC, a good GC. Somebody who knows what the hell they’re doing and has good connections to people who are licensed, insured, and just generally do a good job.
Tyler: Well, and I mean, you kind of look at it if you go talk to 50 developers from people who’ve been doing it for one year, people who’ve been doing it for 40 years, truly playing development. You can make millions and millions of dollars. You can lose everything. it is, is life’s game of blackjack. Second blackjack reference today. How about that? But it, but it’s life’s version of true gambling and going to the casino is buying a property to do this. If anything goes wrong, you can get wiped out very quickly. So you’ll meet developers who are billionaires that have gone bankrupt multiple times because that’s just the risk of the game. So it’s having a good GC that can take all of that off your shoulders And then we can focus on the important things as a developer having, you know, having steady cash, having equity, having backing, having all the agent connection, having the next best deal. Because if you do one deal, do it successfully, don’t shop for anything, it’s going to take you three years to do what you could have been building if you had the right team.
Tyler: Also to Saad’s point time is money. There are serious implications if you don’t do work for a month, and these price points where interest rates are at right now, you are kissing tens of thousands of dollars goodbye every month going to the bank. And if you don’t pay it, you’re screwed. So like, is it worth paying extra having a GC who can move quick? Who can handle everything, who takes the stress off of your shoulders? All day long.It’s just can you make the numbers work? And that’s where I say, you give me a land for free and say build a 3000 square foot single family cell for a million, I couldn’t do it because I have to make sure my GC is making money on it. And after everything’s said and done, commissions, interest, insurance, tax stamps, there might not be any money for me at the end. And that is working on a free lot. So, there’s very specific towns I can work in and a lot of towns I can’t because I know what the base number is to buy and the end number is to sell. Cause the cost of construction is always the same.
Saad: Yeah.
Mike: Yeah. Just, one question off of that is, is what are, what is a cost that maybe people are, it’s unexpectedly high to an average consumer, that they wouldn’t know about, like, it permitting costs or, you know, anything else involved in the, in the actual build?
Tyler: This honestly, the scariest stuff right now is before you even start seeing the actual product.Not in entitlement permits and stuff that. That is what it is, but the roughs. Going in and if you have a 3,000 square foot house that you’re doing brand new electric plumbing HVAC insulation, I mean you’re spending 150,000 bucks just off those four trades in this house. That does nothing for the end value. You just have to have it. Cost of copper is through the roof. Plumbers are extremely expensive right now.
Mike: Thanks for that.
Saad: I’m installing an electric charger right now, right outside. I mean, I’m not doing it. I have the electrician who came in and started the process yesterday. He was saying he’s like, because of everything that’s been going on, and just the cost to install a charger, especially if you’re just getting the, you know, those thicker wires. He’s like, it’s double the cost than two years ago. So I mean, like, I think this goes to your point that number one, time is money. But two, in those situations, you don’t have people who don’t, if you don’t have people that can move quickly and know what they’re doing, it’s going to cost you, especially when you do it at scale. It’s going to cost you more more and more. I mean, we see this with new developments, right? these condo buildings, there was one in East Boston, Mike, you and I have talked about, they were underwater real fast because instead of closing in the four months, five months after they had mentioned…was again a new construction condo or condo building…it took two years. So, they were way underwater and I don’t know how much money they lost. must have lost like, you know, to the tune of $5, $6 million on that project. just because of how long it, and it was because of an issue with their construction company.
Tyler: Well, because you think about getting a construction loan, the bank doesn’t give you all, if you have a $2 million budget from acquisition and construction, they don’t give you the 2, the full 2 million. It’s a draw process. So, as I do a hundred thousand foundation, then the bank releases a hundred thousand dollars. So if you’re going to have delays or issues, do it before you even start going into that construction budget, because that is the cheapest point of the project where your money is actually going to be the least expensive. If you have delays on the very end where it’s just not selling, that’s where if you overprice it, it’s just on the market. Tens of that’s your highest interest rate or based off how much money you actually have in play versus if you have it all at the beginning, it’s like, “Hey, it took three months to get this set. At least I’m only paying X amount versus three months on the backside where the, where the total amount is, is double.”
Mike: We do have a question from the audience. Can you talk about a path to finding a good GC tips on not getting screwed? So maybe what kind of shyster behavior should we be on the lookout for?
Tyler: I mean, references is everything. Any new GC you’re talking to, get a list of references. I’d love to see references from a bank, as well, because that’s going to be everything is going to be focalized off the the bank. So good references. Know the past projects that they’ve actually done and verify that they did the work on them. What was their timeframe to actually do it? You have to have a lot of back-end research. And I know this the hardest way because I very initially trusted a GC who did a lot in the 90s and was getting back into it. He didn’t know what the hell he was talking about. Had a track record on paper.
Mike: He missed Y2K.
Tyler: Yeah. Hundreds of units that he quote-unquote developed that never happened. And you had to learn the hard way when the bank goes and seizes all the property. I guess the easiest thing to really get your references, try to get references with a bank as well. That’s going to be huge. Verify past projects where you can verify how long the project took and did they stay under budget
Tyler: …dude, I’m work in here.
Mike: We’re going to let you go to him in a second.
Tyler: Come on, dude. Those are key. then it’s knowing their processes upfront. Like, hey, if I’m funding you to get started with the subs, how much realistically do you need? Do you have the capital as a GC company to be able to stay ahead of construction? So, if they don’t, it’s not the end of the world, but you just have to know that ahead of time that if I’m sending you $100,000 before the bank’s reimbursing me, I need to know that for my raise or my equity launch versus, you’re very well funded, please verify it, and then I need to know how your draw process looks so we can stay ahead. So it’s just continuing to ask questions, kind of a first date. Just keep asking questions just to learn a little bit more about who you’re getting into bed with.
Saad: We have one other question.
Mike: Go ahead. Should we plug your dating profile?
Saad: Yeah.
Tyler: Hinge live.
Saad: Does the GC own a part of the deal?
Tyler: There’s a lot of ways to structure it. So if you want to like, like, it’s creative financing. if you give them, if you, if you give me a deal guy owns no mortgage on it and is interested in the process, we can structure 75 deals in front of a whiteboard in an hour about how do we want to buy this to make it work. So I’ve done deals, the deals I’ve protected myself the most, I make the least, but I know I’m protecting myself…bringing the GC in, building it at cost. It’s going to keep our breakeven numbers drastically lower. And then we all get a piece of the profit on the backside. That’s the easiest way to kind of protect yourself. Hey, build it at cost. We all get paid on the backside after we sell. So once you get good, all that is going to, it’s going to keep, it’s going to prevent you from making as much money as possible. But again, the risk is going to be higher as well.
Tyler: Cause then what you’re doing, if the GC is charging, let’s say 20% on top of all the costs and that’s his fee. You need to make sure that the numbers support 20% above, like, you know, when you go bring it to the bank, does it support that extra 20% cost? If it does, it doesn’t make sense to give up your equity, because you’re going to make more on the backside.
Tyler: But if it’s new GC, it’s a great way to get in with them right off the bat, because it’s a good way to get in with them right off the bat, because it’s going to keep them, it’s going to keep their skin in the game, they’re incentivized to build it quicker, cheaper, and get it on the market and sold. If it’s just cost, unfortunately, what is actually keeping them engaged to be able to finish this as quick as possible unless you set up incentive.
Tyler: Developer, a developer, 101 class, you buy it, you retain 100 % equity. Your GC builds in all of their costs with their budget. And if they’re completely over budget, that’s on them. If they’re under budget, that’s on them as well. Number two, partner with the GC. They do it at cost. Make sure you verify all the costs and you have some sort of a profit split on the backside.
Saad: Love it. This was awesome.
Mike: It’s good energy in here.
Tyler: Oh my dog came by.
This Instagram live is transcribed for your easy reading. If you want to catch Storii Time live, every week, follow @saadmun1r and @photolowski on Instagram.