Real Estate Development Master Class:  Land Acquisition, Valuation, Project Design, Deal Analysis and Project Management.

Real Estate Development can be very lucrative but there are a lot of moving pieces.  This Master Class goes over a 6-Unit Apartment Building as a Case Study in land acquisition, land valuation, zoning guidelines and how they impact value, project design, detailed deal analysis and project management.  This training video also goes over the brand new Project Management Tools Suite inside Rehab Valuator and the many time-saving features we've rolled out recently. After watching our real estate development training video, use our project management real estate software to get started.

Video Transcript Below

Hello, good evening. How are you guys? This is Daniil Kleyman. It's right at the top of the hour. We're going to get going. We've got a lot of ground to cover. Let's see how many people we got on here today. We had over 1,200 people register for 1,000 spots tonight, so we should have very good attendance. We've got a lot of ground to cover. Do me a favor, guys, find your chat boxes. If you've been on my webinars before, you know the drill. Type into your chat box. Say hello. Let me know how my sound is. Let me know you can hear me. We are going to get going officially here in a couple of minutes.

You know, because this is a content webinar and it's just me, we're going to wait just a couple of minutes on some latecomers to show up and then we're going to get going. I've been putting this content together for you guys for about a week. We've got a lot of really great information to cover. So, hello. Hello, you sound good. Sound good. Good. Sound okay. Awesome. All right, well, I appreciate you guys giving me feedback. All right. Hey, hello. Lot of familiar names here. Love the fact that you guys keep showing up. That means I'm doing something right.

All right, well, we've got a good chunk of people here. We're still waiting on a lot more, but we're going to get going because I think this is ... Based on how many slides I have and how much content that I have for you guys, I think we're going to go for probably at least an hour and a half. Make sure you set some time aside. We've got a lot of really great information to share, but we're going to go deep. Okay? So, we are going to talk tonight about new construction, new development, and project management. We are going to cover something that I'm incredibly passionate about. My real estate business primarily right now revolves around new development. I absolutely love doing it and as you guys know, I love sharing information about it. My business is pretty much an open book and if what I'm doing can help you guys in some way or it can give you some new ideas or can inspire you to do something that you're not currently doing or it can help you tweak ... I know we've got some people on the call right now that are already building already developing, and if I can share something that will help you make some tweaks to your business model, then I'm happy to do that.

So, goals for our webinar tonight. We're going to use a six unit ground up project that I'm currently doing as we speak as a case study in new development and project management. I am in the middle of actually framing up. I'll show you some pictures. I'll show you my budget. I'll show you my numbers. I'm in the middle of framing up right now this six unit apartment building and we're going to use that as a case study. I'm going to show you how I found the land, how to value the land, how I designed the project, how I'm building it, how I'm managing the project, et cetera, et cetera. The goal is to give you an overview of the development process.

I'm also going to show you the incredible new project management tools inside Rehab Valuator. If you haven't seen what we rolled out a couple of weeks ago, it's literally going to blow you away. And again, we're going to go through land acquisition, and this is something that's really ... and I'm going to talk about this in a minute, but this is something that's very, very much going to be useful for even if you're a wholesaler, right? Because a lot of you wholesalers out there are ignoring buildable lots and ignoring land and are ignoring opportunities to flip land to builders because you don't understand how zoning works. You don't understand how to value build of lot. So, you're going to get value out of this. We're going to talk about zoning analysis. We're going to talk about project design, budgeting, deal analysis. I'm going to introduce a brand new concept that I'm pretty sure I coined this term, BBRR, and I'll explain to you what that means. It's similar to the BRRRR, but a little bit different, and we're going to talk about project management.

I'm not going to show you how to get rich quick tonight. I'm sorry. This is real estate. I always joke, if you want to get rich really slow, you get into real estate development. It's a great way to build wealth, but it doesn't happen overnight, right? I'm in a get rich slow game. I try to do smart deals that make good sense now that are going to withstand a recession and are going to build me wealth over time through ... how do you build wealth? By holding assets. You build wealth through rent growth, through appreciation, by taking advantage of depreciation for your taxes, and mortgage amortization. My tenants are paying off my properties. It's a beautiful, beautiful thing.

So, we've got lots of topics to cover. I'm going to go fast. I really highly recommend you guys take notes. This is a purely content webinar today. My goal is to teach. My goal is to show you what I'm doing and a lot of you on here are Rehab Valuator Premium clients already and some of the things I'm going to show you, you can down ... Towards the second part of this webinar, I'm going to show you some really incredible things you can do even with the free version of the software. I'm going to show you some incredible things you can do with the premium version of the software. If you have no interest in software, you're still going to learn an unbelievable amount tonight. I promise you, right? We're going to go over many different facets of development and I either already have or I'm going to have more detailed, separate training videos on every part of what I'm going to show you tonight in our content area. It's available for everybody.

We just built a new content area on Rehab Valuator. If you go to rehabvaluator.com/developers, don't go there now, but write this link down. That's our content area called real estate development playbook, and it's somewhere where I am continuously going to be adding trainings on, on real estate development, whether it's rehabbing or new construction. Also, I'm going to use new construction project for the case study today, but almost everything I'm going to show you except for land acquisition, but including project management tools, can be used for rehabbing, whether you're doing small cosmetic rehabs or gut rehabs.

So, who is this for? You should be paying attention, you should be watching this if you want to or already own income producing property, if you want to build monthly cash flow, mailbox money. I don't know why you wouldn't. Seems crazy, right? If you're already rehabbing or doing your development, you're going to benefit from this content. Or as I mentioned, if all you're doing is wholesaling or want to learn how to wholesale, most likely you are ignoring land. You're ignoring infill lots, you're ignoring commercial land parcels because you don't understand how zoning works. You don't understand how to value this land, but there is a huge opportunity in flipping these infill lots or commercial larger land parcels to builders. It's a huge, huge opportunity, and so understanding how to place value on this land can add a whole new income stream to you if all you want to do is wholesale.

Sometimes when we have guest speakers, we usually will just run through content and take your questions at the end. Sometimes when it's just me and I teach, I like to make these a little bit more interactive, so again, we're going to go deep in a lot of this stuff and I'm going to try to pause occasionally and make sure that everybody's following me, and occasionally I'm going to stop and ask relevant questions. If I don't answer your question, made sure that you stick around to the end and we're going to do a Q and A at the end as well. All right? But I like to make these ... You know, when it's just me and I'm teaching, I like to make these webinars interactive, so type into your chat boxes. Let me know if I'm going too fast. Let me know if this is helpful. Let me know if it's interesting and give me some feedback as we go. All right?

So, why am I so passionate about real estate development? Well, the idea of creating something from scratch, the idea of ... To me, it's really inventing, designing buildings that do not exist and I bring them to fruition. An empty piece of land stands there and I get to create something and build it. Something that's going to stand there hopefully for the next hundred years and impact how the neighborhood looks and how people are living, families, renters, whoever. It's incredibly appealing to me. Right? You can touch it. You can feel it. It is just absolutely ... It's one of the coolest things. I'm incredibly fortunate in that I get to do this stuff, right? Change landscape of neighborhoods. It's absolutely amazing. It's also nice that it builds me a very nice income and not just right now, but again, income for the future, cash flow, recurring cash flow.

But to me, even more so than rehabbing, new construction is incredibly appealing because I get to invent something and bring it out of the ground and it's going to be there hopefully long after I'm gone. So these are just some of the projects I've built or that I'm currently building, or that are currently in the design stage. So, something to keep in mind. New development can be, as I mentioned, an absolutely great way to add high quality, low maintenance. I love new development because we get to build ground up, a product that is built well, that is built by contractors I trust. And when these units get rented out, we don't hear from our tenants for maintenance calls generally for years. These are low maintenance, cash flowing, attractive, high quality assets that are easy to lease because they're beautiful. They're new. Everybody wants to live in a new place.

And of course, everything I'm teaching you tonight in terms of development, you can do for flip projects. We also build houses out of the ground and sell them to owner occupants. Some of you guys are already asking if there's going to be a replay. Yeah, probably there's going to be a replay, but stick with me and pay attention today, okay? Here's the flip side. I told you I'm not going to show you tonight how you're going to get rich quick, right? And there's a warning here, and this is one of the reasons why we're doing this training today, because it's not all rainbows and sunshine. Interest rates are rising, construction costs are skyrocketing, commodity prices are increasing. What's going on with tariffs right now is crazy and unpredictable, right? And we're in an economy that may no longer keep climbing. We're in a real estate market that is already in some places declining and showing signs of weakness.

So, it doesn't mean you stop doing deals. It just means you need to get smarter about your deals and you need to understand more than ever how to value land, how to make sure you're not overpaying for land, how to value the entire project from start to finish to make sure that you are not pulling the trigger on a project that just doesn't make any sense to build. Right? And what a lot of developers are finding out right now with interest rates that are a point and a half to two points higher than a couple of years ago, and construction costs are 20, 30 or more percent higher than they were a year or two ago, a lot of projects are already not penciling out. And so you need to ...

What I'm teaching you today, if you're doing development, you need to know. Because you do not want to pull a trigger on projects that you will regret doing, right? So, you've got to understand land acquisition costs. You've got to understand the maximum dollar per unit that you can pay for land. You need to understand how to properly estimate your construction costs, and then impacts of short term and what we call take-out financing. The rules are changing. What financing looks like has changed. So we're going to talk about all of that, right? Take lots of notes. Again, guys, nobody out there is teaching this stuff, right? Everybody wants to teach you wholesaling and how to work really hard for your money. If you can learn this and do this correctly, you're building income streams that will work for you while you sleep for the next 20, 30, 40 years.

So, let's introduce a new concept. Who is familiar with BRRRR? Right? Again, if you go to rehabvaluator.com/developers, we have two separate training videos on this concept. Buy, rehab, rent, re-fi, repeat. So, this is not a new concept that we're going to introduce. This is something that we've talked about. I've been teaching this strategy since 2009. I think a lot of the people are teaching this concept now. I certainly don't take credit for inventing it, but I've been teaching it since 2009, probably before this term got coined. All right?

But you guys should be familiar with BRRRR. It's a concept that's applied to rehabbing where you buy a property, you renovate it, you lease it out to tenants, you take your lease and you take the newly rehab property to a bank, you get the property reappraised, the bank gives you a new loan, you refinance that property, you pull hopefully in an ideal scenario all of your cash out, and then you take the cash and go do the next deal and the next deal. It's an incredibly powerful concept because you can literally take the same chunk of cash and use it to go from one property to the next, to the next, and build a big portfolio. Right? And I built the first big chunk of my portfolio using this method.

But what we're going to talk about tonight is BBRR, right? And this is the concept that applies to new development: buy, build, roll over the financing, and repeat. So, four essential steps to the development cycle. You buy the land, you build with short-term construction financing, you roll it over into permanent financing. Now, rollover into permanent financing is what I do. You can also just re-fi out in the permanent financing and pull your cash out, similar to the BRRRR method. And I'll explain to you how the rollover financing works, and then you repeat, you do it again. Obviously this is an oversimplification, right? There's a lot of interim steps involved in each one of these big steps, right? So for example, under build, you can have deal analysis, design, bid, permit, construction, lease, and we're going to talk about some of those things tonight. But those are essentially the four steps that we use to develop real estate.

Do, let's talk about buying land, right? Let's talk about how you can find land. Now, what you pay for land per buildable unit will make or break your deal. You guys should be familiar with the term that you make your money when you buy, not when you sell. You make your money when you buy. That applies to land just like it applies to houses. So, you have to understand not only what you can and can't pay, or your buyer if you're wholesaling, but also how things like elevations, utilities, soil composition will impact your construction costs. Because all of that will impact what you can pay for the land itself.

As an example, I just built two identical duplexes. We just leased them out in August. Identical duplexes where I paid the same amount for land, but my construction costs on one ended up being $15,000 higher than the other one. That's over 7% of total cost, because my soil study didn't properly identify an old filled in basement, and we end up having to excavate and haul away so much dirt and pour so much concrete into my footers that my costs went up by 15 grand. Right? Now, the project still worked. I had a lot of profit margin on that deal. But that just goes to show you what difference soil composition makes.

So, let's talk about how you find land first. First of all, you find land the same exact way that you find houses. So you're marketing right now, whatever lists you're marketing through, whatever methods you're employing to find deals, you can use those same exact methods to find houses. So, direct mail for example. There's two sites that I like to pull lists from; ListSource and Melissa Data. As an example, you can go the Melissa Data. Most people are really familiar with ListSource, but fewer people use Melissa Data. But you can actually go to Melissa Data. A couple of people are saying they can't hear me. Guys, I'm pretty sure my sound is on and everybody can hear me. If you're having trouble with sound, make sure you turn off all the other applications on your computer, all the other web browsers because they're competing for bandwidth. That's likely why anybody's having sound problems. Okay?

So, you can go to Melissa Data and as an example, you can literally filter for vacant land. And so you go and you ... For an example, this is a ZIP code where I do a lot of development, and when they filter for vacant land, it comes up with 263 parcels. My list costs me 27 bucks, and that's before applying discounts or special memberships. Right? And so you can go and you can pull in a list from a specific ZIP code and you can mail them or you can skip trace them and call the owners. So, direct mail. Send them postcards.

Tax foreclosure auctions. How many people here go to tax foreclosure auctions in your area? Looks like a bunch of you guys, right? Tax auctions used to be an amazing place to get deals. Now I think in a lot of places they're kind of oversubscribed and mobbed by investors, but even now, less people bid on lots than they do on houses. And the funny thing about tax auctions is lots are actually ... When you go to a tax auction, you find the list of properties that will come up for auction ahead of time. But unless you break into those houses, you really can't get into the houses. So, it's actually harder to figure out the value of the house because you can't really get into it. You can't see the condition of this inside unless you peek through the windows. But you can see the land. You can drive past the lots. You can do all of your research and due diligence on the lots and be able to play some more accurate value on the lots. Right?

As an example, in my area, company called Motleys, they're an auction house. They do quarterly tax options. So you can see there's one up where there's going to be 50 plus tax delinquent properties that will be auctioned off. And some of these properties are lots. So find out who in your county holds these auctions and how often they're held. Usually lists of properties coming up for auction get released ahead of time. And I've bought a lot of lots off of tax auctions. Now, better than going to a tax foreclosure auction is getting ahead of it, right? Some of these counties take years to take somebody that is tax delinquent and bring them to foreclosure. But you can get ... You know, why would you wait? You can get lists of tax delinquent properties and market to those lists.

These lists are usually publicly available. Now, they may not be published on every county website, but you can ... You know, so I'll give you an example. Again, I can't tell you guys what's going on in your county. I'm not an expert on every part of the country, but in the county where I do most of my investment, these lists aren't published, but I can email the right person at City Hall at the county and request the most recent tax delinquent list. And that list is like 10,000 parcels just in my county. And I can filter that list and market to that list. All right? Who's done this? I know a bunch of you guys have already done this. I've talked about this before.

Other ways to buy land. You can physically drive for dollars, just like you physically drive for dollars to find vacant or abandoned houses. But even better than driving for dollars is what I call online driving for dollars. All right? So, what's online driving for dollars? If you go to your local county tax assessor's website, in a lot of these online databases, you can literally pull up a satellite map of parcels. I've literally bought probably 10 or 12 lots this way where I have a specific neighborhood that want to buy, Landon, and I pull up this map and I can literally surf this map and click on ... You know, this is a satellite image so I can see where's the vacant land. I can click on the parcel, pull up the owner, pull up the address for the owner, and send them a letter. I've bought a lot of land this way, right? It's a little bit manual, but if you have specific neighborhoods, specific areas that you're targeting, this is a great way to do very targeted, very cheap direct mail, right?

This doesn't cost you anything other than post stamp and some time. You go through in the specific neighborhood, you will probably pull 20, 30, 40, maybe 50 lots and you can print off letters, lick some stamps, and send them direct mail. Everybody's got money for this, right? You can't tell me ... There's not a single person on this call that cannot do this, right? If you can do 40, 50 letters yourself, you don't have to pay a mail house to do this.

So, we've talked about physical driving for dollars, online driving for dollars. Don't ignore MLS. Don't ignore LoopNet. Don't ignore Zillow. It's much more rare to find good deals there, but I bought a almost a million dollar piece of land a year and a half ago that sat on LoopNet for like a year. It sat on LoopNet for a year and I bought like three acres of land that's zoned by right for 114 units. I'm going to build 100 plus unit apartment building on this land and I paid less than ... I'll give you an example. On average, developers in my market right now pay about 15 to $20,000 per buildable unit for land. I bought this land for a 6.9 thousand dollars per buildable unit. And it sat there on LoopNet, right? I don't know why. I don't know why people ignored it. I don't know why nobody else bought it, but you never know, right? Don't ignore MLS. Don't ignore LoopNet. Don't ignore Zillow. Less people are paying attention to land than houses, and sometimes you'll find great deals where nobody else is paying attention, right?

And then, how else do you go and find deals? Referrals, right? Go network. Go talk to people. "Hey, I'm looking for buildable lots in this area. I'm looking for land. Bring me deals. You know, I'll pay you a referral fee." Go to your local county surplus sales. Again, be creative. There's a lot of ways to find these deals. Is everybody with me so far? Michelle ... Idea, for small mailings, campaign campaigns, I do my own mail, but for bigger mailing campaigns, I hire it out. Right?

Are we good so far? Everybody with me? We're just getting started guys. Roosevelt. Yeah, I develop spec houses as well, right? So in addition to the rentals, I develop spec houses we built. I've got four houses we're getting ready to break ground on in the next couple of months that we're going to build and sell. But my primary objective is to build rental properties. That's really what my business is focused on. All right? So, let's keep going. Again, guys, we're just getting started.

The other thing that I do a lot by the way, is buy from wholesalers. I prefer to buy from wholesalers. I prefer to have the wholesalers do the marketing. I'm going to take a sip of water here. I prefer the wholesalers to go do the marketing, lock up the deals and bring me deals. I absolutely love paying wholesalers assignment fees. There's nothing I love doing more. Right? And guys, if I'm not getting to your questions, then I will get to them at the end of the call.

So, some important things to consider. Once you're framing, once your project is getting framed up, your costs are fairly predictable from one project to the next, assuming these are similar projects with similar specs. But as I mentioned, new utilities and site work can make or break a deal. They can absolutely make or break a deal. Ideally, you want lots that are level, with good quality soil. You want flat lots with good quality soils, unless you're ... Again, every area is different. In some areas and some states and some cities, basement lots, so lots where you have a walkout basement in the back, are common. People like buying walkout basement houses.

In my area, we don't really do basements. I hate basements. I want flat lots that I can just build my foundation on and start framing. I want good quality soil. They don't have to excavate. When you have to start hauling and replacing dirt, it gets incredibly expensive. You have to, first of all, haul that dirt and dump it somewhere. That costs a lot of money. Oftentimes you have to replace the dirt with good quality soil. Or if you don't do that, you have to do really deep piers or footings. All of that gets really, really pricey, right? And I think I already talked about this, right? $15,000 more I just spent on an identical duplex.

So, let's talk about the kind of due diligence. Once you've identified land that you want to buy, before you even start placing value on it, let's talk about the kind of due diligence you should be doing. All right?

All right. So first of all, zoning confirmation. Valuing land is all about zoning, right? Zoning determines what you can build and what you cannot build on a particular piece of land, and what you can or cannot build determines its value, unless you want to go through the rezoning process, right? But what you should want to do and what I prefer doing is buying something where I can build by right. If I have to go through a rezoning process, it can potentially be lucrative longterm because I can massively improve the value of the land that I bought by going through the rezoning to be able to build something there that you cannot build right now. But it takes time, and it costs money, and it takes a massive investment of time and effort. So ideally, I like to buy land where I can go and file for permits and start building, right?

So the first question you should be asking when you're looking at a particular piece of land is: what can you build by right? So again, I can't guarantee you how it works in your county, but we're able to call our local county and get what's called the zoning confirmation letter. So here's an example. This is a lot where we built a single-family house and sold it. And before we closed on this lot, we got this official letter from Richmond City, saying if you look at the area at the bottom, it says, "Based on the information available, it's my determination that the subject tax parcel is a legal lock of record for the construction of a single-family detached dwelling," right? So before we closed on that, we had confirmation that, in addition to clean title, right, we had confirmation that this was a buildable lot. All right?

Survey. Before I close on any piece of land, I order a survey. Now, we also get full title work done to make sure there is a clear title. But a survey will sometimes identify things that title work may not, right? It'll identify power lines that are going over the property that may interfere with me being able to build. Easements or any other encroachments or obstructions.

Here's an example of a lot that I built on that, even though I ordered the survey, I didn't pay attention to the fact that if you look over here, you see this dotted line over here in the left, and then if you look, you see where it says, "4.5 foot alley in common?" So I ended up building over this alley in common. I ignored what this survey showed me because I didn't know any better. This was a couple of years ago. This is two lots that I bought, and by the way, I bought these lots by doing online driving for dollars. I sent a letter to the owner. I bought these two lots. I combined them, and I built a really awesome wide single-family home, but I built it over this alley in common. You see where the dotted lines are on the left.

And when it came time to go sell the house to the people with whom I already had a contract, right, who pre-bought this house from me, it took us like four months to get title insurance because the title insurance company didn't want to provide title insurance for this, because of this alley in common, right? I don't want to get into legalities and specifics, but it caused us massive, massive headaches because I ignored what the survey showed me. If I had paid attention to what the survey showed me, I would have built a house slightly to the right and left this alley in common clear, and I would've avoided a lot of headaches, right? So title work didn't point this out. There was clear title on this. But the survey showed me something that I should have paid attention to when I was designing the project. Soil report. All right. That's the next thing. We've talked about zoning confirmation. We've talked about survey. Let's talk about soil report. I usually don't ... I only get soil reports before I close on land on bigger projects. If it's like a single-family buildable lot, I usually close on it, and then before we go to build and design the project, I order a soil report. A special soil engineer goes out to the property and does borings to a certain depth, depending upon what I tell them I want to build there. Am I building a single-family house, a commercial building, is there going to have a crawl space, is it going to have a basement, is going to be two stories, three stories? Based on the load on the soil, they say okay, we're going to bore down to 10 feet, 15 feet, 20 feet, and they do soil studies, and they come back to me with something like this. And I have to submit this along with my building permits.

This is a letter from the soil engineer, and it says, "We did this study. These soils possess maximum allowable soil bearing capacity of 2,500 pounds per square foot." And then they tell me, look at the area down here at the bottom, right? How deep my footers have to go, how wide my footers have to be. My concrete footers. Footers is what goes under the foundation. Footers are what supports the foundation, right? The block foundation goes over the foot.

Now again, guys, if you're like in California or if you're in Texas or I don't know if that's how you build, right? Your foundations may get built completely different from how we build foundations, right? The goal of what I'm teaching you tonight is just to get you to think correctly, right?

So in our case, we usually dig footers, and so this tells me how deep I need to dig, how thick I need to pour my footers, how wide they have to be poured. And so we use this in the design of the project, and when we get ready to go and build the foundations, we go off of the soil report. Is everybody with me so far?

And again, the way you build may be completely different so don't use what I'm doing as face value. Go and find out how things get done in your area, right? The key is to know what to look for, right? I'm trying to teach you how to fish. I'm not going to give you the fish.

Other due diligence. For bigger commercial parcels, we get, so right now, I've got a big commercial parcel under contract, and before I close on it, I have a 90-day due diligence, and I'm getting a what's called a phase one environmental study done, which is costing me a couple of grand, but a company is going out there and doing an environmental assessment to make sure that there is no environmental issues associated with the piece of land. The piece of land I'm currently buying, there's a gas station directly next to it, so we're going to do testing to make sure that there haven't been any leaks, contaminations in the soil, et cetera, et cetera.

Utilities. Is there water and sewer already on site? Is there a water meter at the property? If there was a house there in the recent past, there may be a good sewer line running to the property. They may be still a waterline running to the property. That's going to save you a lot of money and allow you to pay more for the land, right? If there is no water, no sewer, what fees are you going to have to pay to your local county to bring water and sewer to the property? What's it going to cost you? All of that has to go into account when you're figuring out what to pay for the land. All right?

So let's talk about financing. I'm not going to spend a lot of time on financing tonight, but let's break financing down. Financing falls into two categories: short-term financing and long-term financing, right? Always on these projects. So short-term financing, what I do often is I go, and I buy the land with cash, and I bring that land as equity to my bank. So instead of bringing cash to get the construction loan, I'm bringing the land as equity to the bank, and they usually finance all or almost all of my construction, right? So they look at the land because I own the land free and clear, and that's my equity. Now, you don't have to buy land with cash. I didn't start out buying land with cash. Now, I'm doing a little bit better than I used to do so I can ... I have disposable cash, and I can buy land. If you loan half cash to buy land, go bring on a joint venture partner or a private lender, right? Go find somebody to partner with.

Or you can get construction financing from the get-go, right? So you can get construction financing to buy the land and do the construction. You'll again, with a bank, you'll need some skin in the game. We use community banks to do construction financing. It's usually pretty cheap money. It's interest only for six to 12 months. But again, go get a private loan. Go get a private money lender, right? We have great training on private money. A lot of you guys already have this training. Go find a private lender and get private lender to finance the land acquisition and the construction. If the deal pencils out, then you won't have to deal with banks at all. I like dealing with banks because it's very scalable, right? It's very easy for me at this point to get cheap money from banks at very good terms, and it's much more scalable to me than private money.

So this is how I structure my financing. Again, I buy the land with cash, and then I go to the bank, and I say, "Hey, I own this land. I want you to finance my construction," right? They will finance my construction in draws over six to 12 months, and then when my project is built, we lease it out to tenants. Now, I'm already showing you to tenants while ... The last, so we just built three duplexes. We finished them two months ago. We had all six units leased before the drywall went up. I'll say it again. We brought tenants into these duplexes and signed leases while my drywall was going up, right? So we had leases in hand, three months before we finished construction.

So when my leases, when we properties are leased, they're built, my financing rolls over automatically into what's called a mini perm. It's a permanent loan with the same lender, and it's amortized either over 20 or 25 years. These loans typically carry a five or a seven-year reset.

Now, the good thing about this is I don't have to go through an actual refinancing process, right? I get my construction loan, and that loan automatically just turns into permanent financing. The downside to that is whatever equity I ... whatever cash I put into the deal, typically gets left in the deal, right? You guys following me, what I'm saying?

Or once your construction is finished, you can actually go and do an actual refinance out of your construction loan into financing, and if the numbers are good, you can pull all your cash out and use that cash like in the [inaudible] method for the next construction project, for the next development project. Or you can pay off your private lender if your cash came from your private lender. Is everybody following me?

Steve, have you ever developed land that needed septic? No, I don't do anything with septic, guys. Everything I'm doing is kind of in a pretty dense area where we have utilities of the street. All right? Everybody else following me? We're just getting started, guys. Again, I've got a ton, I've got a ton of stuff to share with you. All right? Let's keep going.

Michelle says I'm going kind of fast. Sorry. Michelle, I'll have a replay of this, but I want to cover a lot of ground today. I haven't even gotten to the good stuff. All right?

So financing. Once you go into bigger projects, 2 million and up, usually, there is some additional really cool financing options that start opening up to you, primarily including non-recourse financing, which is really cool. HUD, Fannie FHA. Those are really good sources for takeout financing, but that landscape changes continuously. So again, do your own research on that, right?

So let's get to the case study. Well, let's go through my six-unit project. This is how I ended up buying this land. There was a really rough looking house up for a tax auction a couple of years ago. Most people would tear this house down without thinking twice. You would just get a bulldozer, bring the ... Actually, it was in the city's demo list, and they almost bulldozed it a week after I end up closing on it. Luckily, the guy called me and was like, "Hey, I'm getting ready to bulldoze this house," and I said, No, no, we're going to save it," right?

But the key to getting good deals is seeing what nobody else sees. This was the house, right? I mean this thing had a tree growing in the kitchen. It grew out of the wall into the outside, then over back into the house in the different section. I mean it was crumbling. This thing, again, it's the craziest renovation I ever ended up doing, right? But again, the key to getting good deals is seeing what nobody else sees.

This house sat on the block where there was absolutely no retail sales happening, right? So most people looked at this house and said, even if I rehab it, it's 2,400 square feet. It's big by this neighborhood's standards. It doesn't make sense to flip it. I'm going to ignore this house.

But the first thing I saw, because I looked at the zoning, is that by right, by zoning, you could convert it to a two-unit property, to a duplex, to a rental. So that's what I called Goldmine #1.

Goldmine #2 is I saw that the renovation would qualify for historic tax credits, which are incredibly lucrative if you follow the rules and do it correctly. Historical tax credits, federal and state in Virginia, allow me to recoup 45% of my construction costs back as tax credits. It is incredibly lucrative.

Goldmine #3. The renovation would qualify for a property tax abatement. The property tax abatement is something where I get exempt from property taxes for the next 10 years on the new value of the property. So basically, whatever value I add through the renovation is exempt from property taxes. So I only pay property taxes for the next 10 years on the original value of this house, which is basically nothing because it's in such bad shape, right? So that's Goldmine #3. You got to look for things that other people are not necessarily seeing, but it gets better.

Goldmine #4 is I realized that it came with a crap load of vacant land, right? So I pulled up the zoning, and you can pull up zoning for any piece of property in your local county, right? And so pulled up the zoning, and I saw this is zoned R63, which is the densest zoning that we have. You can see multifamily, urban, and at the time, so right now, this is the current zoning, and there's 4,600 square feet left. But at the time, there was 12,000 square feet surrounding this house. That's a goldmine, guys. That's an absolute goldmine. 12,000 square feet is a lot of land for a duplex, right?

So I pulled up the zoning handbook, and again, in your local county, you can get access to a chart or a handbook of different zoning codes, and you need to learn this, right? So I pulled up the zoning handbook, and I saw R63 zoning right here, allows me to build multifamily. I need at least 4,000 square feet to build multifamily, while I have 12,000 square feet, and I need 1,000 square feet of land per unit. That means that this thing was zoned for 12 units, right?

And then the other things to pay attention to are what I've highlighted in yellow, lot coverage. Lot coverage means that the structure itself can only cover 65% of the lot, right? So you can't cover the entire lot with a structure. Your structure can only cover it on, at most 65% of the lot, right? And height requirements, it's got to be at least 24 feet, but it could be up to 35 feet, which means I could technically build three stories, right? And then permitted principle uses. One of them is multifamily dwellings.

It is incredible to me how many even experienced rehabbers right now, people that I know that are incredibly smart and have been rehabbing for 10, 15 years and are doing a ton of deals, don't understand zoning, right? You have to learn this. You have ...

Somebody says show goldmine #4 again. Let's see. Let's scroll back. What was goldmine #4? Vacant land. That's what we're talking about tonight. Vacant land, CJ. Vacant land. Goldmine.

So here's what we did, right? So this is the survey of the property. You see how the duplex is located? Well, first of all, it wasn't a duplex. It was a single-family home before I converted it to a duplex, but it was located on one side of the lot. Well, all of this is vacant land. Look how much land there is surrounding this duplex, surrounding this house.

So at the auction, there was only one other bidder above $40,000. My winning bid was around 80,000, and people thought that was nuts, right? I actually sent one of my best friends to go bid on this thing at the auction because I was out of town, and people came up to him after the auction, and they were like, "Dude, are you crazy? Why'd you just massively overpay for this property?" And he didn't really have an answer for them, right?

But the land alone at that time, at the time of the auction was worth 80 grand. So I either got the house for free or I got the land for free, whichever way you want to look at it. It's a beautiful thing. So this is the house that we end up renovating. It was the craziest renovation I've ever done. We end up having to tear down the entire back and rebuilt it, right? Look at this thing. We end up reconstructing the entire rear of the house, reframing the entire thing. It was gutted. We reframed the entire thing. We build these huge beautiful decks on the back, right? Brand new windows, everything brand new, gorgeous. Great light fixtures, granite countertops, stainless steel appliances, built, converted this thing to a duplex, two separate apartments, one upstairs, one downstairs, two bedrooms, two bathrooms, each. That historic tax credits on this thing. Again, really nice finishes.

We pay attention to really small details on my projects. I love this stuff, right? I mean simple things like doing two levels of shelving in your closets. Tenants walk in there, and it may seem small, but they appreciate that so much, right? Granite in the bathrooms and the vanity is a really nice style. So the duplex turned out beautiful.

But then what I did was I subdivided this parcel. So I looked at the zoning code, and I said, "How much land do I need to leave for this duplex in order to not basically violate zoning? And everything else I'm going to cut." So this is what we did. This is the new lot that I subdivided out, and they carved out 8,000 square feet because I wanted to be able to build an eight-unit apartment building, right? Everybody with me? We went through the process, and I basically got this land for free. All right? Pretty freaking sweet. And so now, I had a piece of land that was zoned, by right, for an eight-unit apartment building. All right?

So project design. Start with the constraints of the lot and the zoning. How many units max. Max, here, I can build eight units by right. So you start with the constraints of the lot and the zoning. What does the land in the zoning code allow you to build? What's the maximum lot coverage? Again, in this case, by zoning, it's 65%. How many stories can you build? Here, technically, I could go up three stories, but because it's in an historic district, it's a whole separate conversation. But a lot of my development is in the historic area that's protected, and every project has to go through what's called the committee of architectural review. And in this case, they end up not letting me build three stories because everything else in the block is two stories, and so I could only, and I only end up building two stories, right?

But look at other limitations or zoning requirements. And again, this is where a real knowledge that you only gain through experience comes in, right? So even though I could build let's say six units or five units, I learned that if I only build four units, I don't have to pave the parking lot, or I have to install light fixtures over in the parking lot, which is pretty expensive. So maybe by zoning, you can build five units, but you really should be doing the valuation based on four units because it's going to be a lot cheaper to build, right?

So let's go through an example. Let's say you've got a piece of land that has 10,000 square feet on it. The lot is 10,000 square feet. Zoning allows you one unit per 1,000 square feet, and you can go two stories max. Your max lot coverage is 60%. That means that you can have a maximum footprint on your lot of the building of 6,000 square feet, right? So you take 6,000 square feet times two stories that's allowable, that's 12,000 square feet max. So that means you could build 10 units so they're 1,200 square feet each, if you were to just completely max out your zoning, right?

But then you have to ask yourself questions, and that's where design comes in. If you build this monstrosity on this lot, right, can you fit 10 parking spaces on the site? While you're asking yourself whether you can fit 10 parking spaces because you know that the building code requires one parking space for one unit that you built, right? Does it make sense to build that bit? Do you want 1,200 square foot units or do you want something smaller? Just because you're zoned for x number of units, you may not realistically be able to build that many.

So a case in point is the site, and I'll explain that to you in a second, right? On this site, I was zoned for eight units, but because I can only go up two stories, we end up building six instead of eight because if I had built eight units, they would have been so tiny that they just wouldn't be marketable, right? So the point of what I'm saying is if you base your valuation of land strictly on the maximum that you can build, it's a little bit dangerous because it may not always be realistic to build that many units.

So again, case in point, this is the site map of the building that we end up putting on it. We wanted to have the same front yard setback as the neighboring duplex, and so you can look on the site, right? Eight parking spaces in the back. But if I had build this building to have eight units, you would have protruded into the parking, and it just wasn't realistic to fit an eight-unit apartment building on this lot. So we end up designing six one-bedroom apartments around 700 square feet each, with nice big decks on the rear and eight parking spaces in the back, right?

This is the building. I'm currently framing this thing up. Because it's in the historic district, I'm having to build it out of brick, which is pretty damn expensive. I don't recommend it or don't wish it on my worst enemies because brick is very, very expensive. But this is the building. Six units. There is access on the side of the building to each apartment off the handicap ramp. I tried to avoid doing interior hallways or common spaces because you're paying money to build them, but they're not part of the leasable square footage. So especially on these smaller projects, I like to build basically no common areas and no hallways.

Each one of these apartments is accessible from the outside. They have their own staircase going up or entrances to downstairs. Big 10-foot decks on the back with clear views of Richmond skyline, right? That's the other thing I forgot to mention about this particular lot. It said the views from the rear are clear views of downtown. Freaking awesome, right? So this is a floor plan. This comes directly from my permanent drawings. Each floor has three apartments: one bedroom, one bathroom, living room, kitchen. They're all roughly 700 to 800 square feet. Very efficient designs. Again, no interior hallways. Very, very straight forward, but I try to have bedrooms that are at least 12 by 12. I try to max out my closet space. Again, these are a little bit tighter than they normally like to build, but this is what we were able to design for this particular lot, right?

So now, your design's done. What's next? Deal analysis. And so sometimes, your design will happen before your deal analysis. Sometimes, your deal analysis will have to happen before your design. All right? Am I losing anybody here, guys? Again, we've got a ton of ground to cover, and we're just getting going here.

The rear decks are going to be for the rear apartments. All right? And any questions that I'm not getting to, guys, I'll go through towards the end, but we've got a lot to cover. All right, am I losing anybody? Is everybody with me? All right.

Let's talk about deal analysis. This is where we really start going deep, right? This is where I really need you to pay attention. I need you to take notes. I need you to get your calculator out. Every one of you guys listening to this, for real, get get your calculator out. We're going to do math, okay? All right? Math is good. Math is what separates us from everybody else. Math is what enables you to do good deals. So we're about to do some math, okay? Don't get scared. I just saw one person leave the webinar. Let's do some math. Nobody else leave. All right?

Technically, your deal analysis should come before you buy the land, right? Especially if you're the developer. If you are wholesaling this land, you're not going to go through what I'm about to show you because we're ... this is a level of analysis that only builders and developers are going to do, right? But if you're the builder and developer, your deal analysis should come before you buy the land so that you can properly value that land, right? And your deal analysis will likely come before the level of design that I just showed you. But you can do some basic design just to map out what can be placed on a lot, right?

So like I work with a bunch of different architects, and they can do very basic study for me. I can give them an address, and I can say, "Hey, these are the zoning requirements. Map out for me how many one-bedroom units can we fit on this lot based on zoning." And they can do that from me. It doesn't cost me money usually because I give them a lot of work anyway. They can do a very basic study from you before I close in the land, right? They won't go through the full architectural design, but they can do a basic study from me.

So, that's what I'm saying here, right? For bigger projects, you should do at least the prelim design and study to see how many units you can build. So land valuation and deal analysis. There is multiple methods to do this and you should do all of these methods. The first one is equity method, right? The equity method of land valuation, deal analysis. This is the same valuation method that you would apply to flips and to rehabs and to anything else that we do for any income producing property you build or you buy, you need to follow it to make it a great deal, right? So, these are all of the things that I look for in deals. No matter what kind of deal I'm doing, right? Equity, there needs to be a profit margin. If you're flipping, you want a profit margin.

If you're rehabbing a rental, you still want sweat equity in the deal. Otherwise, why are you rehabbing? Just go buy something at market value. When I build rentals, I want sweat equity from day one. I want to put 50 into it, put another 30, you know, I want to buy land for 20, put another 15 construction and I want it to be worth 100. Right? I want to take land that costs me 20, put 16 to construction and I want it to be worth 100. I want sweat equity. All right? Then there needs to be cash flow. It has to cash flow from day one. When I'm done with the construction, when I'm done with the construction, they have leases, they have tenants living there, and my financing rolls over to my permanent financing, I want it to cashflow from day one.

And then assuming it cash flows, I then look at my minimum. I have a minimum cash on cash return, especially if I'm leaving money tied up on the deal. It's not enough that it just cash flows, right? Because it could cash flow, but the return on the cash that you've left in the deal could be terrible. So these are the three things that I look at. So let's talk about the equity method first. Your basic back of the Napkin Land Valuation works the same way as valuing houses that need rehab, you take your after repair value and you subtract your desired profit margin and that's your maximum cost basis. You guys should all be familiar with this equation, even if you're just wholesaling or learning how to wholesale. So if I want a 30% profit margin, I subtract that from what my property is going to be worth when I'm done and that's the maximum that I can put into the deal, right?

So you take your max cost basis minus your cost of construction, minus your holding and closing costs and minus your financing costs, and that's your max lamp purchase price. So as an example, if my property is going to be worth $1 million when I'm done with construction and I want to have $200,000 in sweat equity and I put $500,000 in construction, I know it's going to cost me half a million dollars to build and I'm going to have $50,000 in holding costs. The max I can pay for land is 250. Right? Is everybody with me? This is pretty simple stuff. We haven't got into the complicated stuff yet. Is everybody following you guys? I want some feedback. I want to make sure I'm not leaving people behind.

We've got a few hundred people on this call right now and I saw five leave when I said we're going to do math, so we already know how successful those five people are going to be. All right, everybody else is still with me. Good. Hope you get your calculators. Very simple, right? If the building is going to be worth $1 million when I'm done building it and I want to have $200,000 in sweat equity, my construction that's going to cost me half a million dollars and I'm going to have $50,000 of costs, the most I can pay for land is a quarter of $1 million in order to make the project successful, right? So if land is zoned for 10 units, I can pay up to $25,000 per buildable unit for the land.

All right. Simple stuff, right? It's simple. This is easy. So this analysis works really well for flips as well. But if your building income property, you've got to do additional deal valuations. If you're building income property, it's not enough to have sweat equity. And it's funny, I just had this conversation yesterday with a couple of buddies of mine that were looking at a deal and we did a valuation in Rehab Valuator and we saw that even though there would be great sweat equity, the cashflow would suck. So I'll show you how to figure it out, right? But first, even to do this valuation that I just showed you, right? How do we get to this million dollars? You've got to figure out the ARV and figuring out the ARV for an apartment building is a little bit more complicated than it is for a house that you're going to flip. To figure out the after repair value for a house that you're going to flip, you have to look at comps, you can pull up comparable sales and you can figure out your after repair value.

To figure out after repair value for an apartment building, you have to create projected income and expenses and do some additional math, right? And as I said, equity itself is not enough. It's got to cashflow, it's got to carry the debt. So let's talk about how you calculate ARV, right? If you haven't been taking notes before, this is where you probably should start taking notes. Anytime you're calculating after repair value of anything, even if it's a single family house, you start at the end, right? So what do I mean start at the end? You start at the end every single time. And what I mean by that is what is this property going to be worth when I'm done with my construction, with my lease up?

Or if you're rehabbing a house or if your buyer, if you're wholesaling, if your buyer is rehabbing your house, what's that house going to be worth at the end of the project? Right? What's its market value going to be? So in the case of an apartment building, you have to create what's called a Pro-Forma for what the property will produce in income and having expenses once it's built and stabilized, right? And fully leased out. Once you have your income and expenses projected and you can compute your net operating income, right? Net operating income is your operating income minus your operating expenses, gets you to your net operating income. And then you'd take a market cap rate, what's called the market cap rate, and then you're back into the after repair value. And if your eyes are starting to glaze over, I'll show you how to do this in a second, right?

So once you've computed your ARV, you're going to determine your construction costs and at first, you can just ballpark your construction costs or you can go through a full bid out process. And now you've got your cost of land and your cost of construction, your cost ... Your soft costs, right? And you compare that to after repair value. Is there a profit margin? Right? Use the equation that I just showed you. Are you going to have sweat equity in the deal? So this is the metric number one, this is a must, right? So let's talk about how to actually do that math. Cap rate is a rate of return on your real estate investment based on the income that the property is expected to generate. That's a simple definition of a cap rate. So how do you calculate the cap rate, capitalization rate? You take your net operating income and you divide it by the price or by the value. So your net operating income is your operating income minus operating expenses. All right?

As an example, your property generates annual net operating income of $100,000 and you're paying $1 million for the property, that's 10% cap rate. Same property that generates $100,000 in net operating income, and you're buying the property for $500,000, that's a 20% cap rate. So you want to buy at a high cap rate and you want to sell at a low cap rate, right? Are you guys seeing how this works? I mean, for those of you experienced in commercial investing, this is like a no brainer. This is second nature. For newer people, you may not be familiar with this terminology, so when you're looking at buying and selling properties, you want to buy at a high cap rate because that means you're paying less for the income that the property generates. When you're selling, you want to sell at a low cap rate, so when you're trying to determine the value of the property that is going to have when you build it, you want to look at where similar properties are actually selling.

Are these properties selling at 10% cap rate on average or the 20% cap rate or the 5% cap rate, because that cap rate is going to determine the value that the bank will place on your property. Once you're done building it. All right. Ha, Sterling, you're lost. What? You shouldn't be lost, man. You know cap rates. I know you know cap rates. All right, we'll go over this again. You want to buy at a high cap rate. You want to sell at a low cap rate, and then when you're determining the value of the property that you will build ... We'll get into the math here in a second. We'll get into the software. I'll show you how to very easily do this, right? So the market cap rate is the average cap rate at which similar properties as the one you're looking at are trading.

So again, you're going to build a six unit apartment building. Are similar apartment building selling at a 5% cap rate, at a 6% cap rate, at a 10% cap rate? The higher the cap rate at which buildings similar to the one you're constructing and you're selling, the lower the value of your building is going to be. You want your building to basically be valued at as low of a cap rate as possible. So once you figured out the value, to me, I typically look for at least 15% sweat equity when I'm done with my construction, right? So if my building is going to be worth $1 million, I want my cost basis to be $850,000 at most, preferably better. So assuming there's at least a 15% minimum sweat equity, I move on to the next step, which is how much cash am I going to need to bring to the table?

What's my permanent financing going to look like? How much cash will I leave in the deal? Will this deal cashflow? Am I going to have to leave money tied up or can I pull everything out? And assuming it's going to cashflow, what's going to be my return on the cash I'm leaving in the deal? Again, as I mentioned, having just sweat equity is not enough. You can have great sweat equity in your project, but if it doesn't cashflow, you're just going to be bleeding cash every month, right? Or maybe it doesn't cashflow enough to protect you against the recession or maybe it cashflows, but you're only earning like a 2, 3% return on your money. Well, why would you do that deal? So who did I lose? Are you guys with me?

I'm about to show you how to make your life much easier. All right? Everybody's saying yes, that means you're with me or you're confused people. Good stuff. Easy peasy Good. All right, you guys are awesome. Fantastic. So let me show you how to make this really easy, right? But first, before I show you my numbers, right? Let me make this clear. I'm showing you my numbers. They may not reflect your market. They may not reflect your costs or your project. I'm going to show you the sheet of the project that I'm doing. I'm going to show you my costs. I'm going to show you my numbers, right? But keep in mind what I'm showing you is commercial construction. If you're building duplexes, if you're building anything by residential code, your cost of construction is going to be cheaper.

I'm a huge fan of just building duplexes. Problem is it's not super scalable, but I like building residential stuff because residential code here does not require me to do a lot of crazy stuff that I'm having to do for my commercial projects. But the numbers I'm going to show you reflect commercial construction, right? So my goal here is to show you how to think and approach, develop an ideal analysis, not to tell you what your project will cost or look like. All right, so let's jump into the software here for a second and let me show you how to make this really, really easy. We're going to log in and we're going to start a new deal and most people on this call at least have the free version of the software. A lot of you guys on here have the premium. I'm going to show you how to do the math. You can do that even with the free software. So we're going to call this six unit project. All right, we're going to click save.

Give me a second. I'm going to turn off this thing. I've got the screensaver that basically like lowers the screen outputs so that I can sleep better. Let me disable this thing. All right, good. Now, this should be better, right? The screen should be brighter. All right, so we're in the software. So remember what I said. Start at the end. So forget this. Forget entering your purchase price for your land. The first thing we're going to do is we're going to change this to construction, but forget this stuff, right? Forget financing. Forget your construction budget. Forget all of the stuff. Start at the end. For this apartment building, we're going to click on hold.

We're going to ignore this. The first thing we're going to do is create a Pro-Forma. So we're going to click on projected operating income, and we're only going to say six units, roughly 700 square feet each. Actually, they're closer to 760 and they're on average going to make $1,099 in rent. Now, my bank will want me to model a vacancy. For now, I'm going to leave vacancy alone because I expect these to be fully leased. Now, if I'm working on a project with multiple layouts or you know, let's say I have six one bedroom units, but maybe I have three two bedroom units, I can start filling this in, right? But to keep it simple, this has six units, they are one bedroom each and they're all going to get $1,099 in rent. I'm going to click update. That's my monthly income. Now I'm going to click here and click on enter projected expenses and I'm going to say my management fee is 8%, my insurance and I can switch here and I can say annually, is going to cost me, let's say $1,500, $500 bucks a year in landscaping.

I'm going to switch back to monthly and we're going to say, you know, let's say $300 a month in repairs and maintenance. Even though it's new construction, we'll still have some expenses and then my property taxes are probably going to cost me about $7,000 a year here. My tenants are going to pay utilities, but I'm going to pay for my fire monitoring system because I have to sprinkle this building and have a regular fire monitoring. It's going to cost me, I think actually, $100 bucks and my phone lines for my fire monitoring system are going to cost me about $50 bucks a month. So now I've been through my expenses. So monthly income, monthly expenses, net operating income. Okay, this is my monthly net operating income. So what I'm going to do now is I'm now going back into, I'm going to do some research and I'm going to say, okay, this is a brand new construction apartment building. Similar buildings are selling at a 6% capitalization rate right now.

So you see this number here, cap rate based on ARV. I'm going to tweak this number until I get through a 6% cap rate. Okay? 850,000. Let's leave it. Let's leave it a 7% cap rate. Let's be conservative. That's what my bank will want to see. They'll want to see that I'm conservative, right? So now I would just determine the after repair value because I can tweak this after repair value until I get to the right cap rate. Right? We've just determined the value, the projected value of this building. Did everybody follow what I did here?

Somebody said I entered, under phone lines, I entered an annual number. Let's see. Let's pull this up. Let's see. I'm glad ... See? You guys are paying attention. Good. See? You guys are awesome. Okay, this is wrong. Let's go into monthly. This should be 100, initially 50. See? I was rushing and I understated my expenses. Good. You guys are awesome. Thanks for catching that. All right, so let's tweak this number again to get this 7% cap rate. 800,000, that gets me to a 7.3 cap rate. 825, that gets me in the Ballpark, right? I'm roughly in the 7% cap rate, so that's the exercise. That's how I determine what I project the value of my building will be in. This is the case that I'm going to present to my bank. Everybody follow me? And I'm going to do this for anything that's probably four units or higher.

This is the way I'm going to do it for anything that's four units or higher. This is what I do. So now I know the end. I know what my building is going to be worth when I'm done with construction, and now I'm going to go now through the process of what's it going to cost to build? Well, we're going to click on budget and if you guys are familiar with our detailed budgets, you can get really fancy here, but for now we're going to keep it simple. I'm going to say it's going to cost me $110 a foot to build this, times 4,600 square feet. It's going to cost me, let's call it $510,000 to build. I'm going to enter that here. It's going to cost ... It's going to take me 10 months to build it, and then another 2 months to lease it. And so I'm basically going to back into what my land is going to cost, right?

And what I'm going to pay for the land building is worth 825. It's going to cost me 510 to build. What can I pay for the land? Well, in my case, I had the land for free. So that's what the deal looks like, right? So I got the land for free. It's going to cost me 510 to build, the building is going to be worth 825. In reality, what I really did in my true performance is four of these units are actually going to get 999 in my performance and two with the big decks are going to get 1,099 so I'm going to adjust that down. I'm going to adjust my value down to $750,000. So here's what I see, right? This is what I paid for the land. This is what I paid for construction, this is what the building is worth. This is my cost basis. I'm going to have 32% sweat equity before taking financing into account, right?

So let me exit out of this and I'm going to show you what this deal fully modeled up looks like. All right? Is everybody following me so far? Max, it didn't cost me very much to split the lot and I mean it was a couple of hundred bucks. So it's not a material expense here necessarily. So let me x out of this. I'll show you. I fully modeled up this deal. Let me show you what it looks like. All right, we're going to go back to my deals and this is what, because I'm actually doing this deal. This is what it fully looks like. I went to the bank and they said, so this is my true construction budget. You'll notice I don't have any closing costs here because I already own the land, right? And I don't have any holding costs here because it's in my budget.

I'll show that to you in a second. I actually put my holding costs into my budget, into my soft costs, but I went to my bank and I said, "I want you to finance 65% of the after repair value. And I'm going to be conservative and say it's only worth $700,000." And the rate that I negotiated with my bank is 4.6% for a year. And so this is what my deal looks like. Now here under exit strategy two, I've got the ability to basically say yes, once it's done, once the construction is finished, I'm going to refinance it. And because this is rolling over automatically, I want to make sure that my new loan amount, re-fied loan amount is the same as my construction loan amount and the same interest rate as my construction loan. So this is what the deal looks like. The bank is giving me a loan for $455,000 this is how much cash I have to bring to the table.

I'm going to have 22% equity in the deal and based on my new loan, when it's fully amortized at 20 years, I'm cash flowing. So our first requirement was will there be equity? My total cost basis is 78% of value. That means I have 22% sweat equity on this deal, right? That means I'm adding 22% equity to my balance sheet. And when it rolls over into permanent financing, I have $245,000 in equity on my balance sheet. Out of that 91,000 came from my cash, everything else is sweat equity, and then will it cashflow? Yes, I'm cash flowing $1,200 a month.

And so second question is will it cashflow? But it's not enough to ask whether it's going to cashflow because my next question is, well, great, $1,200 bucks a month. Is that good or bad? Well, I left $91,000 in a deal, but that's 16% cash on cash return on my money. Right? So that's the third question, is their equity? Yes. Will it cashflow? Yes. Great. It cashflows, but I left money tied up on a deal. What rate of return am I earning on my cash? Makes sense?

So, those are the three important questions and so this is my sanity check to know that I can get this loan, is the debt coverage ratio on this new takeout loan. So this is what I sent to my bank. Let me show you guys this. You go to view reports and you click on cover page, executive summary and marketing sheet for hold. This is what I send to my bank. I sent them a three page presentation that looks like this. Let's generate this presentation. This is what I sent to my lender to get the loan. This is the cover page, right? This is my executive summary where I tell them a little bit about the area. A little bit about the project, right? Six bedrooms, six baths, 4,700 square feet. I thought it was going to build in 2017. We didn't break ground until 2018 because permitting takes forever and these are the financials that I send to my lender.

Hey banker, this building is going to be worth $700,000 when I'm done building it. This is what it's going to cost me to build. I owned the land for free. I owned the land free and clear. I want you to lend me $455,000. This is how much cash I'll contribute. You're only lending me 78% ... No, sorry, my cost basis will be 78% of value, but you're lending me less than that. This is my projected net operating income. Let's enlarge this for you guys. This is my projected net operating income.

I'm using a seven point, you know, I'm using roughly 7% cap rate to determine my value. And when it rolls over into permanent financing, the debt coverage on the loan that you will give me, assuming a 4.6% rate and a 20 year amortization will be 1.42, which in banker speak, means it's a very healthy loan. This is what I sent to my banker to finance this deal. Does this make sense to everybody? We're going to talk about project management in a second here guys, I'm going to show you some stuff that we haven't got through. It's going to blow you away. All right? Does everybody follow these numbers? Now what I'm not showing you here is if we close this out, the other thing that I included with this is my income and expenses report that has my Pro-Forma.

So let's click show PDF and let's generate that presentation. Debt coverage ratio means let's talk about debt coverage ratio, guys, I'm glad you're asking me this question. Debt coverage ratio is calculated by taking your net operating income and dividing it by your mortgage payment. So it shows the bank how much income you have coming in versus how much you have to pay monthly on your debt. And so if your debt coverage ratio is 1, that means you're making $5,000 in net operating income and your mortgage payment is $5,000. That means you have no cashflow. And that means if you've cut your rent or you have a vacancy, you can't pay your debt anymore.

So banks typically look for at least a 1.25 to 1.3 debt coverage ratio because that tells them that you're bringing in more in net operating income. Right? After all your expenses than what you have to pay on your mortgage. That means you have cushion to the downside. You have cushion against vacancy, you have cushion against decreasing your rents. So they typically look for at least a 1.3 coverage ratio. So you take your net operating income and you divide it by your mortgage payment, and this is your mortgage payment, not including your escrow, your real estate taxes or insurance. This is just your mortgage payment. So does that clear it up? I don't have a vacancy rate included in here and I can typically get away with it because we literally have zero vacancy, but most of the time your bank will want you to model a 5 to 8% vacancy rate.

All right, so again, a debt coverage ratio should be, usually you should be over 1.3. That means you're bringing in more in income than what you have to pay on your debt. If your debt coverage ratio is 1, that means you have zero cashflow because every dollar that you're bringing in in income goes to pay your mortgage. But this is the other report that I included. This is my Pro-Forma, that's automatically generated that I send to my banker, right? This is my Pro-Forma. Here's my operating income, here are my operating expenses.

Here's my operating income. Here are my operating expenses. Here are my assumptions. This is how we get millions and literally millions and millions of dollars in financing on a regular basis. All right. So guys that's deal valuation. Let's talk briefly about ... Let's talk about project management, right? So now you know the deal will work. You've got your financing lined up, let's really budget the deal out. Let's get permanent and let's start building. So when it comes to project management, there's a saying that you've probably heard before by Mr. Abraham Lincoln. "If I had six hours to chop down a tree, I'd spend the first four hours sharpening the ax."

In case of project management, that means that the more you prepare and the better you prepare prior to the project, the smoother your project will go, all right? So go over your architectural plans very, very carefully prior to submitting for permitting. Look at your layouts, make sure they're ideal. Look at your location of plumbing, right? Make sure you have a few plumbing lines running on the outside walls, otherwise they will freeze. Things like that, right?

I mean there's a lot of nuances that go here. Look at the placement of your HVAC units. Make sure you have parking allocated to the property, et cetera, et cetera, et cetera. Go over your plans before you submit because then you can get permanent quickly and you can start building. And then get multiple bids for everything. I like to get multiple bids lined up all my, what I call stage one contractors materials. To me what I call stage one contractors and materials is everything through when we get done with roughing in electrical, plumbing, and HVAC. That means that I line up my foundations, I line up my framing, and I line up my electrician, HVAC technician, and plumber. All of those are ready to go and I know what all of those are going to cost. And they all have a schedule in the timeline for me. All of that's lined up before we break ground.

And if you can, you should really budget out the entire project prior to starting, especially now. Again guys, you have to know your numbers and you have to understand we're in an environment where construction costs are rising, interest rates are rising, and projects will pencil out less and less. So budget out your entire project prior to starting to make sure that the deal makes sense. Right? So let's go back to the software. This is how to make it super easy. We have been investing very heavily into developing this into a project management tool. So this is my construction budget for this deal. I went in here and I built out a detailed budget, line item by line item. And by the way, for all of you premium users, let me show you something. I went ahead and saved this as a template.

All of you premium users or those of you that want to become premium users. If you go to my deals, project management, and click on the budget templates, I've made this six-unit budget available to you. Now again, I'm just giving you ... this is not what your costs are going to look like, unless you're in Richmond, right? Unless you're one of my buddies here or one of my competitors, and typically this is not what your costs will look like and you may have some of these items in your budget. Some of you may not have some of these items on your budget, right? I mean, I have to go and I pay for architectural plans and I typically pay a certain dollar per square foot. I have to do a soil study and that typically costs me, five to $600 bucks. I have to go get a civil drawing that outlines where all of the utilities are going to go, and I'm typically paying about a buck 50 for that.

Then they have MEP drawings and for commercial projects, mechanical, electrical and plumbing engineer drawings. I typically pay about a dollar a foot for those three. Right? Then I've got my building permit. I inevitably will have resubmittal fees. I have electrical permit, plumbing, mechanical permit, ENS, right? Erosion and sediment control and storm permit, right. So I'm giving you this as an example, right? Just to kind of show you guys some things that you should be looking for. So these are all my soft costs, right? Then I have my survey engineering fees, initial survey, staking footers, right? Brick points.

All of these are terms that have to do with construction and we're going to do separate training. I can walk you through the actual construction project, but that's going require hours, right? And then hard costs, utilities, dumpsters, site work and foundation, framing. So you guys have access to all of this, but it's meant as a guide. It's meant as an example, but you can go under project management budget templates and you can pull up ... we've just rolled this out. It's really slick, right? You have my duplex budget here for my residential construction, and then a couple of rehab templates that we gave you, right? Just guidance. Here's the thing. A lot of you that are newer, reach out to us all the time and say, "Hey, will your software tell me what my construction costs are going to be? Can you help me estimate?"

I can't tell you what your construction costs are going to be. They're different, not just from city to city, from market to market, from state to state, but they're different. I can bring five guys into my office tomorrow that work in my hometown of Richmond, Virginia, and we will compare notes and our costs will all vary widely because I may have different suppliers than the guy next to me, right? I may have subs that charge me $3.50 a foot to frame and the guy next to me is paying $5 a foot to frame. I can't tell you what your costs will be, but I can give you amazing tools that will help you figure it out yourself a lot better and create framework in order to help you estimate your costs really easily going forward.

So this is my budget. Before I started this project, I went through and I got bids. And so you can go in here and you can click show bids, and three new columns appear. Bid one, bid two, bid three and in an ideal world you should be getting three bids for everything. And so now, what our software allows you to do is you can go in here. So let's say for labor for plumbing for example.

I got one bid from this guy, and I can now upload a copy of his bid. Another bid came from this guy. Here's a copy of his bid. Another bid came from this guy. Here's copy from his bid. And based on these bids, this is actually what I'm budgeting because I know I can get ... I've negotiated a better deal, right? So I can click on this little attachment icon and here's a copy of all of my documents that I can now store in the software. Here's just my bid documents and my invoices. So we already started doing this project, right? So this is my full budget. Now here's the other cool thing that we've just added. Most of you probably haven't seen this yet.

Yeah, dude. If you've been premium users, we've been hooking you guys up. It's crazy and we're just getting started. We added this to save you time, right? So everything here feeds through from total property square footage. So if I'm estimating, let's say my building permit, I can collect total square footage. A dollar a foot, right? Which is too much. I'm not paying a dollar a foot for permits. Right? But maybe like 25 cents a foot. But now I can go in here and I can fill in how many square feet is my concrete? How many square feet is my porch? How many square feet of hardwoods do I have?

And then when I'm estimating, for example, hardwood floors, right? I can just go in here and instead of having to remember how many square feet are my hardwoods. Oh God, is it a 1,000? Is it 1,500? I just click here and enter the dollar per square foot and here's my budget number. Are you guys seeing how powerful this is? Right? And so for me ... and you can do the same thing. I've got this built out. I only have to build this out once. I can now click save as template and save this as a apartment building construction template, right? And I never have to do this again. All I have to do on the next project is change my square feet. And all of this gets pre-populated for me. Is everybody seeing this? Is everybody with me?

Again, this is just the beginning. I started doing this project and so again, for those of you that haven't seen this. The way the software works is we've created basically an accounting system for you. Every line item in this particular budget becomes a general ledger item for your accounting. The idea is every dollar that you spend on your project should be tied back to some row here. Some row. So as I'm doing my project, I go in here and I click add transaction, and let's say I paid my framer today $5,000. I click in here and I type in framing, lumber. Under framing, labor, framing. And now I can go in. I've got my list of vendors here that I set up here under project management. Here are my vendors, and I can upload their W9s here by the way. And they said I paid this too, right? Let's say this guy. And under my payment methods, these are my payment methods.

So now I just tied my payment to my budget item. Now I can go in here and I can search, framing. What did I pay for framing? You know, who did I pay? So I use Massey Building Supply in Richmond. Here's every dollar I paid to Massey Building Supply, and I could upload invoices here and of course I can ... Here's my list of invoices, right? Now it gets cooler, right? What's the point of doing this? Well, in real time during the project, I know exactly where my project stands because I can click on here, track. Let's hide the square feet for a second. Here's my budget column, and here's my actual, and here's my variance.

Every dollar that I spend gets tied to some row here. So I know exactly where I stand in my project, right? And here's the cool thing. This is a lot of data, right? But I can see, okay, on my permitting I budgeted this much, but I ended up spending this much. I'm already over budget by $1,600. On my foundation. I budgeted $7,000 to dig the footers. I paid seven grand. Good, I'm 50 bucks ahead. If this is overwhelming, you click this little button and you collapse everything, right? Let's see, we've been working out a few small kinks here. Let me show you this.

We go back, we click on track. I can collapse this whole thing, and then here's my groups, right? So now I can search and say, okay, let me go find masonry. How am I doing masonry? Okay, here's my masonry items. Okay, let's see. I budgeted ... Okay, I haven't done that work yet. Good. Okay, let's look at my site work. All right, scraping lock. I budgeted 2300 bucks. Holy crap. I already paid $5,200 for scraping a lot. I'm over budget by $2,800. What did I pay? Here's my list of transactions, so I can get to this data and I can see in real time exactly where my project stands. Am I over budget? Under budget? Do I still have left money to pay for a certain contractor and I can track my project in real time. Now the other thing I can do is I can click on reporting and by the way, if for financing, the other thing I could've included with my presentation would be my construction budget. Check this out.

We'll click show PDF, and guys I'm going to look at your questions, but I want to cover a few more things and then we'll look at your questions, okay? So this is my presentation cover page, executive summary, my financials, my pro forma, and hey, banker, this is my budget. This is what I'm going to spend your money on. You think you're going to look credible when you send them something like this? Are you going to get financing? Do you look like you know what you're doing when you send somebody something like this? Here's my budget. I can send this budget to my partners, to my lenders, to my contractors.

I can go into my budget here and instead of printing a budget, let's say I've just created all of these line items. I can print a scope of work. Check this out, I go here and I click print scope of work. Actually, it's supposed to give me something that doesn't include my budget here. So I think we just rolled out a new release. That's something we got to update. Oh no, sorry, I'm showing you the wrong thing. Click print blank scope of work. It's been a long day, guys. Check this out. Here's my blank scope of work. I can send this to my contractors and they can fill this in for me. Right?

Is everybody seen this? CG says my cursor is going too fast and making it. Yeah. I'm want to get through a bunch of things here, guys. This is is incredibly, incredibly, incredibly powerful all right, but let me show you the reporting. That's where I was going. We've added four new reports here. Construction budget, budget versus actual by group budget versus actual by item, and post-construction project summary. So check this out.

You've seen my construction budget. Here's my budget versus actual big group groups are the bigger categories. So under framing, I may have materials, labor, staircases, et cetera. My group is my framing, right? So I can go in here and I can sort this, hey, what's my biggest budget item? Oh, holy crap. Framing, right? My, my budget is too high. What do I need to go negotiate? Well, I'm not going to go negotiate my insulation first. I'm going to go negotiate my framing because that's probably where I can cut the most. That's my biggest expense right now. Where am I already over budget the most, right? Here. So that's by group. If I want to get more granular, I'm going to go here. Oh, by the way, I didn't show you a pretty grass. Who likes pretty graphs? Check this out. Woo.

Hello. All right. It's freaking cool. Budget versus actual by budget items. This is where we get more detailed, right? And again, I can sort this. What's my biggest budget item? What's my smallest? Where am I over budget the most? Where am I under budget? This is a great report to send to your partners or to your lenders after you're done. Let me show you what this looks like for a finished project. Let's save this. Let's go to my deals. Let's pull up one of the duplexes I just finished. This is what the report looks like for a finished project and they have more content to get through, by the way. So if you think about leaving don't even think about. Post, let's change this to construction.

Post construction project summary. So when I'm done, here's what I want to know. Was this project successful? Did I make money? What are my actual costs? Because I'm going to take my actual costs and modify my template so that when they estimate my next project, my costs are accurate. So this is my post-construction project summary after a fair value square feet. This is what I paid for the land. These were my soft costs. These were my hard costs. This is my dollar per square foot. Hey Daniil, what does your land costume usually? This is what my land costs me. Almost six bucks a foot. Soft costs, my hard costs, I paid $85 a square foot to build this duplex.

Percent of costs, percent of value. 68% of value was my cost. My estimated equity was 31% or $111,000. What part of my actual construction costs? This is what I'm going to use to estimate my future projects. These are my actual construction costs per square foot. Hey Daniil, how much does installation costs you an average per square foot? Boom, a buck 25. Hey Daniil, what does drywall cost you materials and labor on average per square foot? Boom, $4 70 cents. How much brain headache do I have to spend to estimate my next project? If I have this data at my fingertips very, very little.

You guys with me? I've got more content and then we'll get through your questions. I told you we're going to go for a while tonight. All right? But again, everybody wants the easy button, right? Everybody, you know, a lot of new people are like, just tell me what things are going cost for me. I can't. The best thing I can do for you is make you smarter. The best thing I can do for you is make you more educated. The best thing I can do for you is teach you how to think and give you amazing tools to organize your data and make you more efficient.

That's our goal here. That's what we do, right? I'm going to teach you how to fish. I'm not going bring you a filet and stuff them in your mouth, right? But this is my post- construction project summary. So then what I'm going to do, what I've already done is I take these actual costs and for this deal I go back to my budget. I go back to my budget and I modify my budget based on my actuals and then I create a new template with with my real costs and so next time I do a project, I click new deal and instead of having to estimate this all over again, I click detailed input, select from template and load my duplex template and all I have to do is go up here and update my square footage, and update these numbers.

And my cost estimation is done. Are you seeing this? How many square feet of concrete? 1000 Square feet, porches and another hundred square feet, 1200 square feet of hardwoods, 200 square feet of tile. The roof based on my architectural plans is about 17 squares. Front porch roof is another one, one and a half squares, et cetera, et cetera, and my budgeting is finished.

It just took me two minutes to estimate a new project. You following me? All right. I got a little bit more content then we'll do Q&A. Right? I wanted to show you pictures because we're actually doing the ... We're building this sixth unit right now.

So a couple of weeks ago, my footing digger came out so my surveyors came out and with flags marked where the foundation will go. My footing digger came out, dug the footings right based on the soil report. The soil report told him how deep he needs to dig based on the markings from the surveyors and based on the soil report. He dug down to the right depth, then put rebar into the footing, into the holes, poured concrete, and then built the foundation.

He built the foundation. The foundation is the block that goes on top of it. And again, in your market, like you could be living in Alaska and you build completely different, right? Like you're building Igloos, right? So this is how we built. You may be in a different market so I can't, I can teach you how to build in your market. I'm sorry, but this is how we build, right?

We pour the footers, we build a foundation on top of it, and then either it becomes a crawl space or a concrete slab. In my case, I like to do concrete slabs. So after this is done, we back fill this with dirt and with stone, my plumber comes out and does the groundwork, right? He does all of the plumbing before the concrete gets poured. Then this guy comes out with the pump truck and pours the concrete slab and then it looks like this.

And then we actually stain the slab, right? And now my foundation and my concrete slab is done, this was actually my finished flooring for my ground floor apartments. Then my lumber gets delivered, which you can see in the back, right? This is what the slab looks like and then we start framing. And so right now we're getting ready to frame up the second floor today. Well, tomorrow. Tomorrow, they're framing of the second floor on top of this. So that's the project. And I freaking ... again, like I do a lot of stuff, but this is what I love. I love seeing this come out of the ground, right? I designed it.

I designed every inch of it, every apartment, every layout, every finish, everything. And I came up with something in my head with the help of my architect and now it's going to be real and people are going to live here and people are going to drive by and see it for decades. It's cool. Of course I think it's cool.

All right, so I know we covered a ton of ground. Let's go through questions. First of all, tell me if you're confused, if you're inspired. Oh, let me know. Let me know if this was majority of the people that started this call are still with us. We started doing math and we lost a couple of people. That's normal. It happens.

Some people are math allergic. Hussein says he's overwhelmed. Don says your software is remarkable. Thank you, Don. Ulius is inspired. Mike Dixon, what's an acceptable cap rate to buy? Again, so cap rates are useful for comparing similar properties to each other in similar areas with similar fetishes. Typically you can go into a rough neighborhood and buy properties at a higher cap rate because along with a higher return, you are going to spend more time managing, you'll have higher vacancies. So, so really there is no standard cap rate, right? In a high end area, you may be buying at a 6% cap rate. In a rough area, you may be buying it at a 12% or 15% cap rate. It really varies, right? So here's what I'm going to do and I'm getting killer feedback from you guys. Software blows me away. it'll take a little time to master.

Yeah. So look, if you do not have premium yet, it's freaking stupid affordable, right? And you can use it for wholesaling. You can use it for raising private money. You can use it for getting, as you can see from, for project management, but the thing is if you're developing, you have to be able to do this deal analysis, right?

Whether you're doing it with a spreadsheet or with a calculator, but please do the level of analysis that I showed you. It's very important, but if you guys for some don't have the software yet, go to we RehabValuator.com/upgrade or go to RehabValuator/pricing and you can upgrade and still lock in a very low rate for the software and if you go to /developers that's where we have our our content. All right, so I want to make sure I get to some of your questions.

We do. Ramell, we do have a mentoring program, but it's like a group mentoring program, right? We do a call once a week. It's called inner circle. If you go to the RehabValuator.com/Inner-Circle, you can get details on it. We do a call once a week. It's either a content call where we do this kind of teaching or we do Q&A and we talk to you live on the call or we do deal analysis where we actually look at your deals and analyze your deals with you and help you figure deals out. And then we have a special kind of private Facebook group as well for inner circle members where you can get direct access to me on a regular basis and my partner in inner circles. So yeah, highly recommended and it's also pretty damn affordable.

So yeah, in southern California, Max. Yeah, 4% cap rate. It doesn't surprise me, which is crazy because right now you're buying at a 4% cap rate and your financing probably the five to five and a half percent cap rate, which means unless you're bringing a lot of cash to the table, it's negative cash flow.

Okay. Let me scroll, guys. I want to scroll to the top and get to some questions that I didn't get through in the very beginning and now I'm going to go in that order so I know it's late, but if you stick with me I'll stick around at least for another 20-30 minutes long enough to hopefully answer most of your questions. All right, so let's see.

I'm learning great information. Very good. Roosevelt, how long would you expect wait time for build and sell? I mean, our construction, once we break ground, usually takes for a single family four to five months for a commercial building like this, they usually allocate eight months to build it because there's a lot of moving pieces. So it really depends. Jerome, you asked me about-

So it really depends. Jerome, you asked me about what my approximate wholesaler's assignment fees are. It depends. Sometimes I'll buy a single family lot for like $17, 18, 20,000. I may only be paying a thousand bucks. Sometimes I'll be buying a much bigger piece of property and I'll be paying $10, 15, 20, 30, 40,000 assignment piece. I want wholesalers to make money. I want nothing more than to pay nice, big fat assignment fees because I want wholesalers to bring me more deals. As long as the deal works for me, I don't mind paying those fees.

Let's see. Robert, you asked me, "Please expand on build By-Right." Building By-Right means that I have the right to build this based on the zoning today. What we didn't really cover today, because we didn't have time is the rezoning. We didn't cover today, going through the process of changing the zoning, and I've gone through that process many times. Right now I have two special use permits in process and I have seven different zoning variances in process to allow me to build something that zoning doesn't currently allow. It can be very lucrative. But By-Right means if I want to apply for a permit to build six units today, the zoning allows me by right to build six units. All right?

Let's see. [Palabi], you asked me do I do all these solar reports inspections? Yeah. Every single piece of land I buy I get a solar report.

Let's see. Christopher asked me, "What's wrong with just going on Zillow and MLS and buying land?" Again as I mentioned, nothing. The problem is lately you're not really finding a lot of good deals in Zillow or MLS or publicly available sites, but I still look because occasionally you find something that other people overlook.

Let's see. Jerome said, "You made a believer out of me. It's amazing what you did. Thank you."

[Ikam] you asked me, "Where can we go to learn how to understand zoning?" Very good question. Go to your local county, go to your zoning office. They will have a zoning handbook or a guide and there are zoning officials there that you can speak to. So guys, if you're looking at a particular piece of land and you can't make heads or tails of it, go make friends with your local zoning officials because you should be able to walk in there and say, "Hey, this is a piece of land I'm looking at. Help me figure out what can I build there By-Right? Is it a build-able lot of record? And help me figure this out?" Unless you have total assholes working in that zoning office, they're going to help you.

CJ, you asked me, "In what instances do you start with design before deal analysis?" So in this particular example I showed you, I did the design before deal analysis because I can't do deal analysis without knowing how many units I'm actually going to build. So again, it's one of those chicken or the egg questions, most of the time you're going to do deal analysis before you do really detailed design, but what I normally do is I have a piece of land where I think I can build ten units. I do a basic study with my architect and I say, "Hey, map this out with a 60% lot coverage ratio at two stories and one bedroom apartments an average of 600 square feet. Can we actually lay out ten units on this lot with sufficient parking?" And we do that study, which is not that hard to do, and then I do my deal analysis now based on ten units because I know that I can build actually ten units. Does that make sense?

All right, let's see. I'm just reading through your comments here guys. Jerome says, "This is fascinating for me. I'm a retired real estate agent for ten years and this brings back lots of good memories from the past." Good. A lot of you are asking about the replay, y'all. I'll make a replay available to you guys. You know I like to take care of you.

Let's see. Who was next? What is the target cap for multi-family? Again, I kind of trust that [inaudible] it really varies. The real question is again, what is the market cap rate for this specific property? What cap rate are similar properties in a similar area with similar finishes and similar quality and condition, what are they selling at? That's really what you need to be looking at. All right?

Sweat equity. By sweat equity I mean not how much I actually cash out out of pocket. What I mean by sweat equity is simply if my total cost basis in the project was $800,000 and it's worth $1,000,000, my sweat equity is $200,000. Sweat equity means how much value did I create through construction or through renovation? If I took something that's worth half a million dollars, I did a renovation that cost me $300,000. Now it's worth $1,000,000. I just created $200,000 in sweat equity.

How do you manage all of your tenants and your projects? I have an in house property management company. I have full time property management employees that manage all of our properties. I don't outsource it.

Greg, the software cannot work in metric measurements unfortunately, but, well, I mean you can't change the language to square feet, but yeah, you can absolutely use metric measurements in there. Right? Because it's all about the number of measurement times your rate. So it'll still say square feet but you can absolutely enter meters, square meters, linear meters in there. No question.

Greg, you also asked me can it work in weekly time periods or month per year? No, right now it's just built based on months. We don't plan this thing out in terms of our projections based on the weekly basis when I go for financing or when I estimate my project costs. We do it on a monthly basis.

Lester, cost of an architect and design. Again, I typically, for my architectural plans for residential I pay about a buck a foot. For commercial I pay up to three dollars a foot because it's a lot more involved. And the commercial projects, again, I have to pay for mechanical engineered drawings, plumbing engineered drawings, electrical engineered drawings, sprinkler, like fire suppression drawings, civil...once you get into commercial, it gets fricking crazy. I mean it's a lot more involved and it's a fun learning curve but your costs go up tremendously. Like the three duplexes I just built, I built them on average for $85 a foot. The six unit building is going to cost me, when all is said and done, $110-115 a foot. That's a huge difference. Huge difference.

Marty, can you get non recourse financing from community banks? No. Community banks typically will not give you non recourse financing. They're smarter than that. Non recourse financing, for smaller projects under a couple of a million dollars, is going to be very hard to find. You really only are going to start seeing non recourse financing from bigger projects.

Phillip, do you use a general contractor or do you act as your own GC? I found both Phillip. If I have the time, or if the numbers in the project are tight where I really don't want to pay a general contractor because it's going to hurt my profit margin too much, I'm the GC myself. So this six unit, I'm GC-ING it myself. A bunch of projects I've built in the past, I've hired a GC to build them because I only have so much time.

Max, you asked me, "What percent of ARV max land or lot cost for your projects?" Again, it varies and it's going to vary in your market. That's why you kind of have to know your numbers and create the rules of thumb. So for me, I know that if I'm looking at land, I want to pay $15,000 or less per build-able unit per land. But in your market it could be something completely different. Right?

Hussein, we do have a single family rehab template in the templates here. Again, the templates is something that we just rolled out so we're just building it out for you guys. And I am going to add more in more templates here. But just keep in mind, again, these are meant to be guidelines. These are meant to be guides. These are not meant for you to go off of them and assume that that's what your costs are going to be. The idea is really more to give you a guideline of what to look for. So here's a simple rehab template that all of our premium users have access to. I can even give you the numbers here. This is a simple renovation template but these are items that you should be looking at and budgeting out.

All right, let's go. A lot of great questions guys. A lot of people on this call tonight so this is awesome. Bum, bum, bum, bum. Okay.

Can we use this for flips? Timothy, a hundred percent. A hundred percent. If you go to Exit Strategy One is flip. Right? So this duplex, if I had flipped it, I could have sold it for $375,000. That's my projected profit. My cash and cash return and I can create reports around it. Absolutely you can use this software for flips. A hundred percent.

Adrian, let's see. "I like it a lot. I like the ability to track the materials by name and SKU too." So you can track it, you can enter that into the notes in your transactions. And again, that's something, the project and entrance side of the software is something that we're going to be continuing building out and making better and better for you guys.

Ned, yes, we absolutely provide theory detailed training on every step of the software when you sign up. If you're here in the software, you can go to help, tutorials, case studies. You can reach out to our support and then we do these kinds of calls on a regular basis. Under my resources, you've got access to additional content, wholesaling, private money, rehabbing and new construction. And of course there's a couple of additional resources that we make available to you.

Yeah, Jay, I'm tracking insurance. So for my six unit, I've actually added all of my holding costs under my soft costs. So if we go back to my deals, my insurance. I have two separate insurance policies on this project, and I've added them under my soft costs, here. So my holding costs are real estate taxes, builder's risk policy and I have a separate liability policy, and this is when I budget it out. And my insurance agent already balances these but I haven't paid for them yet. So I haven't entered them in the transactions. But yeah, I have two separate policies in this project.

Gordon, you said, "I logged into my premium account. I'm not seeing this template." It should be in there Gordon. When you log in, if you go to project management, budget templates. You should be able to see four templates in there. And if for some reason you still don't, send me an email to daniil@support@rehabvaluator.com and I'll make sure that we help you with it.

Mike, red means a negative variance, which means a cost overrun. All right?

Guys, tons of qu. I am going to try to get through as many of these as possible. Is it possible to group each line item by project phases? Absolutely, Hussein, these budgets, you can do whatever you want with them. You can group them, organize them any which way you want. You can do whatever you want with these budgets and make them fit your own deal and your own methodology.

Bom, bom, bom, bom. I'm just going right down the list in the order in which these questions came in guys, so I appreciate your patience. Jamal says, "I'm ready to tear down the building and rebuild it just to use the software." Good stuff. That sounds good. Let me know how it goes.

And yes, Michelle, you can duplicate each template. You can modify each template. Again, ton of time saving here.

Jay, estimated profit doesn't factor in financing or selling. No, it absolutely does. Estimated profit, if I look at this, my total cost basis here has all of my financing costs already in it. This is my total, complete cost basis. So my estimated profit of 22% has every penny that I'm going to spend on this deal already factored in. As you mentioned, except for selling costs because I am going to hold this building. I am not going to sell it.

Phillip, "For the six unit, what was the time frame from date you closed until permanent financing put in place?" I'm projecting ten months to build this thing until it rolls over into permanent financing.

Janice says, "Awesome info Daniil. I've got to log off but I love this. I'm already a premium member but if I wasn't, I would definitely become one." I appreciate that.

Michael Rogers, nice to see you on here Michael. Says, "Looks great Daniil."

Anto, "Just curious on your PM, how much time do you spend to enter individual costs? If you go to Lowe's and spend $10,000 there then you need to go home and enter individual costs?" No, I mean you can go in and if you have one receipt from Lowe's for $10,000, you can enter that as a single transaction. The question is, how granular do you want to break it out? If you spend that $10,000 on five different items in your budget, you'll want to break it out so that you can accurately allocate your costs to each budget item so that you can see whether you spent more money than you budgeted or less. Also, don't spend $10,000 at Lowe's. Completely serious, by the way. If you guys are doing large rehabs, or new construction, I don't buy anything from Lowe's except for little accessories. There are supply houses that give me far better pricing where I get lumber, windows, doors, interior doors, exterior doors, roofing, I don't buy anything from Lowe's almost.

All right, I want to try to get through as many of you guys as possible. We've been at it for awhile and I appreciate everyone. We're going two hours plus strong so, "I think the software is great. Great content Daniil. Very inspiring."

Terrone says, "Came in late so I'm a little confused. My fault. You're great." Again, I will post a replay for you guys.

Valerie says, "Lots of new info. I'm inspired. Your software is the bomb."

Steve says, "Great stuff. Presentation was fabulous. I appreciate it. Software is awesome compared to what I've seen."

Thomas you ask, "Can I get a construction loan for 4 1/2%?" Not anymore. I locked this rate about nine months ago at 4.6%. I think if I went to my lender right now with the same project, I'd be paying in low fives. A lot of you guys have probably seen mid fives right now out there. Rates are creeping up.

Okay. Timothy says, "I have a deal. I am going to need help with it." Cool. "Rehab value program now is much more user friendly." Yup, I agree. "Software blows me away. Will take a little time to master." All right. I want to get to as many of your questions as possible.

Michelle says, "I had a dream we developed condos in Florida and this helps me so much with implementing the vision and dream." That's awesome Michelle. I'm glad we can help you.

Calvin, "structure insulated panels." I've looked at that stuff. It's interesting, we don't use it here but I'm looking into that type of construction.

All right, who else had questions? Greg, "Are you going to have or sell a course in this?" No Greg, we're primarily in the software business. I'm putting this education out there for free. I could be charging money for this. I mean I could create a whole course around it. Maybe, I don't know. Maybe one day I will but my goal, right now, is just to educate you guys and to add value to your lives, and if you're using our software, great. My secret sort of motivation is that, and I will never tell you what my secret motivation is. I'm just kidding. Wait, it's to get more of you guys to use [inaudible] at a premium because we're making it better and better and it's an incredibly powerful tool. And if you're doing complex deals like new construction or repositioning, you really have to use a tool like this because again, as I showed you, it's not enough to know that you're going to have pocket margin. You need to know what's your cash flow going to be? How much cash are you leaving tied up? Are you generating a good cash and cash return?

Here's the other thing that I forgot to show you guys. Oh man. Okay nobody leave. I completely forgot to cover this. So I showed you this deal and let's say on day one I'm earning %16 cash and cash return. Well, first of all, that's a very good rate. But let's say that number was kind of not great. Let's bump up my financing and say I'm earning 10% cash and cash, or let's downgrade my financing and say I'm earning 9% cash and cash return. Here's what I was going to show you guys.

First of all, a couple of things. We look at an initial cash and cash return as a sanity check. I want to make sure I'm generating a good return on my money from day one. But whatever you're generating in year one, that's just the beginning. The power of holding real estate. I've created this very simple table. Look at this. If inflation is zero and your rents don't grow then your income expenses don't grow. Right? If nothing grows, everything stays the same. You're generating $10,000 in income a year, $3,000 in expenses. Your net operating income is $7,000. Your mortgage rate if five grand and your cash flow is two grand and it stays flat. Right? Make sure you guys are following me.

If your rate of inflation is %2 and if the only thing that happens is that your rents and your expenses grow in line with each other at 2% a year, your rents grows 2% every year, your expenses grow 2% every year, your net operating income grows 2% every year, but because your mortgage payment stays the same, your cash flow grow at 7%, 6.7%, 6.4%, 6.9%. So in five years, with a 2% regular inflation, even though your rents and expenses grew in line at 8%, your cash flow grew 29%. Do you guys see how powerful owning real estate is?Now if you can grow your rents by 3% and your expenses by 2%, look what happened. Holy shit. Your cash flow in five years grew by 50%.

This is the other thing that I am going to give you guys if you don't already have it as a thank you for sticking around. This is an amortization calculator. If you go, so here's the other beautiful thing. I've had a loan for $455,000 in the six unit building and a 20 year amortization at a 4.6% interest rate. Look at this. In the first five years, not only am I generating cash and cash return, but in addition to that, look at how much my tens just paid off in five years of my mortgage. 17% of my note. Everybody can have this for free guys, if you go to rehabvaluator@com/amortization-worksheet. You can download this amortization calculator.

But in addition to the cash flow that I'm generating and the depreciation I'm taking, look at my amortization. So I mean this is next level stuff. So not only did my cash flow grow in five years by 50%, but my tens just paid off 17.15% of my note. Are you guys seeing how powerful this is? That's why you got to own real estate. You got to do smart deals and this is why this is all about long term wealth building. Long term wealth building. Generated cash flow, generated good cash and cash return, and then this is why I love 20 year amortized financing. In five years, I just paid my note off. A 20 year amortization erases a lot of mistakes because 78 grand in the next five years of wealth, my tenants created for me in addition to my cash flow. Are you seeing this?

I've got a lot of questions here guys and I'm probably not going to get to them. I mean we're getting a ton of feedback and a ton of awesome questions. Yeah, if you're in the inner circle, yeah, we'll put this in there as well probably if you're a part of our inner circle, and I will make this replay available for all of you guys because I have a feeling most of you will want to revisit this. But I will just say, do smart deals, use our software, and build wealth. Flipping is great. Wholesaling is great but I'm all about the monthly checks. I'm all about the monthly cash flow and you don't need a lot of deals, you just need smart deals. But I'm glad I remembered to show you this because this is so powerful. This is one table that single handedly illustrates the power of owning in real estate. Even if your rents and expenses grow at the same rate, just at the rate of inflation, your cash flow will out pace that rate of growth, and your tenants will build all of this equity for you.

In ten years almost 40% of your note is paid off. Look at this. This is why owning real estate is so powerful and the way I like to act on my real estate portfolio now is by doing new construction because we can build a beautiful, sexy product that's low maintenance, that's easy to lease. Again, I just finished six units and we had leases on five out of six before drywall went us. Tenants walk through there and they didn't even see the finishes, but they signed leases at top of the market rents.

All right so guys, we've been at it for two and a half hours. I'm going to wrap up. If I didn't get to your questions, I'm sorry. Send me an email. I will answer your questions via email. Daniil@rehabvaluator.com. I hope this has been valuable for you. By the way, we're going to do a webinar next week on Airbnb. Totally separate topic but a killer, killer concept so stay tuned for that and I'll probably put this replay out in the next couple of days. So again, thank you so much for being here. Most of the people that started this call are still here which means we're doing something right. Five people left. I am going to remember those five people. When we started doing math, those five people left. Not proud of you guys if you're one of those five people. Amortization worksheet is available at if you just type...here I'll pull into the chat box. Hold on a second. Hold on.

Rehabvaluator.com/amortization-worksheet and you can download this. It's an excel document. Here's the cool thing. You can go in here and you can even have a balloon. You can model on ours, so if you go under term and you go here, you can do an interest only mortgage or you can do an ARM and if you select an ARM, it's going to give you all these other options and please, for the love of God, if you're actually getting ARMs, make sure you model this out. So if your beginning rate is 4% and if you think your rate will jump to 8 at the end of five years, look what happens to your payment. Let's scroll down to the end. So see, your payment went up. It's actually not that bad. But model it out and you can download this worksheet. It's yours. All right?

Guys, I am going to wrap it up. Thanks again. I've really enjoyed our time together. Thanks for all your questions. Thanks for all your participation. This has been fun. Be on the lookout for the replay. If you don't have the premium software, I think you're crazy. Go get it. You go to right here. Those are the links. You either go to slash upgrade or slash pricing. You get a ton of bonuses, by the way, with the premium account. There are a bunch of legal contracts. You get a bunch of bonus training and then we are freaking nuts about support. If you've been with us for any period of time, you know our support is amazing. We don't just sell you something, we take very, very, very, very, very good care of our clients. So all right? Guys, have a good night and if you have any additional feedback or any additional questions for me, just email me. Daniil@rehabvaluator.com. I answer every single email I receive unless it's ridiculous. So I'll make sure and reply to you. All right? Good night.

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15 responses to “[REDP] Land Acquisition, Development and Project Management Training Webinar”

  1. tony says:

    What is the number to the support team

  2. Jason Thompson says:

    This Webinar is absolutely awesome. Love the premium software. Can not wait until payday to get the upgrade. We are so excited to get this and start putting it to work for us. Thank you so much for the training.

  3. Nykeil says:

    Send me the next class dates please

  4. Rosy says:

    Great presentation !

  5. Tim ver schage says:

    I’m nere

  6. Ben says:

    Can you add a Gantt chart schedule to this? That would be great.

  7. Mark Compton says:

    Hi Sir, your plan sounds good. BRRRR. I’ve been looking into, but I need a way to get getting started,

  8. Jason Keeling says:

    When we get bid estimates should we be asking for detailed estimates from contractors to be sent/forwarded to us and then upload them into the software?

    • Daniil Kleyman says:

      Hi Jason. There is not directly way right now to upload the bids into the software so you’d have to enter them manually inside your Budgets.

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