SPEAKER_03: 0:20

Hey everybody, Ryan Garlin here, founder and chairman of Paradigm. Welcome to the Paradigm Shift. It is my honor today to introduce you to Brian Koons. Brian has some really cool background, not only from the military, and we're going to let him share a little bit of his story, but to really talk about ADUs. And I don't think I've ever met somebody who has gotten so involved in that product or that asset class. And I really want you guys as some of my clients and investors to get to know a little bit about him. And he's created a niche. He's been involved in over 500 projects. He's done his own ADU developments. He's exited it, come back to it. He's had some a really cool uh experience and some, I think some uh scars from it, which is important because you without growth, man, you got to get some scars, man. You got it's the only way you go, right? So Brian, thanks for joining me today.

SPEAKER_02: 1:00

Dude, I'm I'm so grateful to have you know to be here. I'm excited to to rap with you for a little bit and you know, share, share the love.

SPEAKER_03: 1:06

Well, you drove five hours to get here.

SPEAKER_02: 1:07

Uh you know, we uh I woke up at at 12 30 this morning because I had to hit the gym beforehand. Oh dude.

SPEAKER_03: 1:13

Um lucky I haven't I haven't hit the gym yet.

SPEAKER_02: 1:15

It uh so it was mainly for the caffeine too, to to get in, you know, get some caffeine for the for the drive. And it was, yeah. So I'm I'm excited to be here, man.

SPEAKER_03: 1:23

So what did you think when you pulled up to uh the storage unit?

SPEAKER_02: 1:25

I was dude, I was blown away when I saw the gym from the from the get-go. I was just like, there's no way this dude has a gym inside of the unit itself. And then you just drove me, you know, 30 seconds one way and you show me boats, and you drive me 30 seconds the other way. You say those are where the you know the the spaces to live are gonna be above. Like it's just it's crazy, bro.

SPEAKER_03: 1:43

It's good stuff to see, right?

SPEAKER_02: 1:44

I I've never I don't even I've never even dreamed of something like this, right? And so it's it to see it already exist is just like one of the craziest things.

SPEAKER_03: 1:52

And it totally morphed. We didn't we went uh a direction we didn't think it was going to. You know, when and when the pandemic hit, I was I had uh office space, I had uh we had our um our winery, we had all kinds of other different asset classes, and obviously the pandemic really drove certain asset classes well, and then it also shut down like office, right? Retail got hit, certain areas in the country got hit. So really what it did for us is zone in on what asset class was gonna work best for us, and I was already uh in escrow to buy this project. So I'm I've been coming out here for 35 years, so I already knew the demand, right? So I'm like, shoot, if I could buy that, build that, that'd be killer. And then I over time and with the pandemic and everyone being shut down in California and me being here more, I just kept buying more and more land. So now I'm like, all right, well, I guess I'll just make this headquarters and and live here, and that's really what we did to get here.

SPEAKER_02: 2:37

Dude, you solved the problem and you were you're continuing to just more and more uniquely solve the same issue.

SPEAKER_03: 2:42

Yeah, we we're blessed because I think the brand just kind of morphed from there. You know, we just I think what happened is we just put all of our energy in one basket, in essence, and it just took off, right? So we're we feel honored, we're blessed.

SPEAKER_02: 2:52

I think that's so important to be able to just focus on one thing and get really, really undeniably good at that one thing. Yeah, and it, yeah.

SPEAKER_03: 3:00

It's so true, dude. A lot of people, I think they're just they go too far, they're too diverse, and they're and they they need to hone in and and perfect a craft first before they start shifting and bring everybody that's in your team to get to understand that that product well, and then you start growing, you know, separately. But that's the that's the one that's funny you brought that up because I've been trying to preach that to my network, like, hey, you know, pick a lane and do real well at it. And that's what it sounds like you did with your ADUs. Yeah, so let's talk about that. First and foremost, you served in the military. What branch?

SPEAKER_02: 3:28

Uh Marine Corps.

SPEAKER_03: 3:28

And where were you stationed originally?

SPEAKER_02: 3:30

Originally, Virginia and then North Carolina, and then San Diego, uh starting in 2019.

SPEAKER_03: 3:34

And you fell in love with San Diego.

SPEAKER_02: 3:36

Fell in love with San Diego.

SPEAKER_03: 3:37

There's nothing better than Southern dude, Southern California, weather, and then San Diego. I like it's just they keep it clean. San Diego's a really cool spot.

SPEAKER_02: 3:44

Yeah, it's so funny. Like when I got there, I did I didn't even know what's funny is I didn't even know San Diego existed, existed until I was in the military and they started stationing people at this place called San Diego. And I was like, what is that? I had no idea. And I got here and it just I didn't realize this, you know, kind of wasn't in the real estate space at all. I didn't even know what a duplex was when I got to San Diego. And looking back at it now, I'm like, this is literally one of the fucking best markets in the country for you know, X reason, X reason, but you know, it's landlocked is like one of the biggest things where you have the ocean, you have you know parks, you have Camp Pendleton, and you have Mexico. Yep. There is no place to build except up. So the only thing is re-densification.

SPEAKER_03: 4:26

Yeah. And and and it's such a big city as it is, with and it has so much history. So going after some of the old product, tearing it down, building new, or again, going after those slots that are kind of slender, but you know, long, where you can drop these ADUs in there, right? Yeah, I kind of do it. It's funny because I had been lending on ADUs for a long time, right? As a lender.

SPEAKER_01: 4:45

Yeah.

SPEAKER_03: 4:46

Um, and so I really got to know that space well because I did a lot in LA. Um, ironically, I just had a podcast with uh Alex yesterday, and we talked about the same thing. But um, that's where I feel like people saw the value in it as far as the homeowners, or from an investor's perspective, you can add almost immediately additional living space and generate more income immediately or value. And then you're getting that extra bedroom bathroom, which most of the time is more valuable, especially with an older home when they're two bedroom, one baths, or two twos, or three twos or three ones. Just the older homes are just don't their layouts suck compared to the modern way of doing things. Yep. So adding that ADU has added, you know, it does a lot of value for everybody involved, right? So let's talk a little bit about your history in ADUs, how long you've been doing it. Um tell me a little bit about the story too, when how you got into it, because I thought that's that's impressive on how you got into it.

SPEAKER_02: 5:35

Yeah. Um, so started off, I was in the military at the time. I had moved to San Diego and at so I was a drill instructor. Um and so when I come over when I came over there to be a drill instructor, they had somebody come and talk about the VA loan because everyone moves from whatever place and they don't don't actually uh get stationed there until they actually pass drill instructor school because there's such a high attrition rate. So he talks to the people while they're there and says, Hey, once you pass, like when you're ready to buy a home, you know, here's what you can do, your VA loan, and you know, he has his brokerage, he has his lending license, and so like there's a natural progression to you know using him and whatever.

SPEAKER_00: 6:09

Sure.

SPEAKER_02: 6:09

Um, but he had this one little piece that basically talked about house hacking. It was like how to make a hundred thousand dollars in three years when you're stationed here, uh like tax, you know, debt pay down and and saving up, you know, cash flow or whatever. And he talks about renting out the other spaces. And I was like, that that fucking makes sense. And so for me, I was still a sergeant at the time. So we I didn't get uh the housing allowance. So it wasn't wasn't really on in the playbook for me at the time. And then once I, you know, actually became a drill instructor, it was, you know, I was working seven days a week, 20 to 24 hours a day. I got like one night a week that I got sent home until like four in the morning. So there was no time to do anything. But then COVID happened, and that was when interest rates dropped. A lot of things basically I I had read like three books in that time, and I was like, real estate makes sense, eventually, cool. COVID happened, and I went to a supplementary job to a drill instructor, which essentially was way less time. I was quarantining, I was in charge of taking care of all the recruits when they were quarantined before they actually went to boot camp.

SPEAKER_03: 7:03

Got it.

SPEAKER_02: 7:03

So I was like working at a hotel.

SPEAKER_03: 7:05

As they were coming in, they go through the quarantine of books and sit for two weeks, right?

SPEAKER_02: 7:08

Sit for two weeks, and then they can go to actual boot camp. So at that hotel, they needed a baby uh glorified babysitter. So I was a glorified babysitter for a year, but that time was this time. So that was uh basically middle of April. They kicked us out, and it was immediately from their uh middle of April, they were like, you need to be out by the end of April. So we had two weeks to go find somewhere to live because they needed our uh barracks rooms to actually quarantine those recruits. About a you know, three days in, they're like, actually, we need you out by the 23rd. So I had like a week to find a place to live. Uh, and I was like, I'm gonna make a shit decision if I like just try and buy a house right now. So I ended up renting with somebody, and then uh about middle of May was when I was like, all right, I'm gonna start like you know, doing this. Um, and then early June, I was in escrow on a fourplex uh with my VA loan, interest rates, all these things. Like I didn't even understand what debt to income ratio was. So I ended up, you know, long story short, I bought that, and then I had no leftover income to support buying another property, but I was like, let's go, this is amazing. And uh bought some, you know, ended up finding out through just meetups and things about this thing called ADUs. And the whole concept was like, you know, you build at 300 a square foot, you sell at 700 square foot. I'm like, that math makes sense to me.

SPEAKER_03: 8:16

Easy easy value add.

SPEAKER_02: 8:18

Easy value add. And so I just as through the through that, just ended up meeting a couple partners who both wanted to get in the space. The one guy said I was like, hey, my dad's a contractor, he's been doing this for a long time, he'll make sure we don't crash and burn. And we're all like sick. So we met in November and we were in escrow on this land in December. So we ended up buying two vacant, vacant lots. It had a house that got demoed. So there was already existing utilities and things. So vacant land, way better than raw land. Um, and the month that we went into escrow was uh the the same month that this program called the bonus ADU program came out, which is a San Diego City specific thing that essentially allowed unlimited ADUs on any property within a set amount of space from a major public transit stop.

SPEAKER_00: 9:01

Wow.

SPEAKER_02: 9:02

And what that actually equated to an application at that time, I didn't really know what it was. We bought this land expecting to put four units on it. And just by me reading a bunch of stuff called municipal code for a month and a half and asking a bunch of questions of the city, we were able to double the unit amount, make eight units. And so that intrinsic just ability to do that paired with this timing in the market just blew my mind, right? Like I literally, I I make the joke all the time. I felt like a Jehovah's Witness spreading the gospel of ADUs because I was like, I was like, this is amazing. Why is everyone not doing this? Like, you just gotta like read this like two-page document and and you know, and I, you know, over time I learned that it's extremely complicated and there's a lot of layers to it, and people don't want to spend the time doing it. Yeah, and that's why you have a a nerd like me that wants to go and and actually you know figure it out. And that, you know, timing in the market, it I just you know, I my brain blew up and I just figured out ways to get in other deals. So I used my owner occupied loan, but I had my buddy, my partner co-sign because he made more money than I did. That was another development deal. We just we just kept rolling it. And and so that was kind of how I got into it was that land, but we ended up selling that land before we even bought it. Or so we bought it for 420 with the intrinsic value we added from being able to double the unit count and then COVID just doing what it did to values. We sold it for a million fifty, like a year and a half later. Holy gee! And talking about a value add. Oh, the value add and just what what a way to get your ego so high up in the clouds where you're like, every deal is easy. Real estate, what are people talking? Like, I got this, bro. So we rolled that into three deals.

SPEAKER_03: 10:37

1031 exchange.

SPEAKER_02: 10:38

1031 exchange. So we basically kept half the uh half the land or half the money for holding costs and things like that. That wasn't taxed. That wasn't taxed, and then the remaining we 1031 into three deals, and we leveraged as much as we possibly could. It was every penny we had 20% solar finance in one of the deals, so we only had to come down with 10% on that, and then just hard money loans on everything. I'm like, ah, interest rate should Mr. Straight, like it doesn't matter. Uh, and we ended up just you know, a lot of learning lessons went to basically managing 13 units of renovation at the same time from managing land. And so just I had no idea, I had no concept of that to begin with, and then I had no concept of the cash flow required for the holding cost.

SPEAKER_00: 11:19

Yeah.

SPEAKER_02: 11:20

Paired with we had some issues with the lender because we had a code violation on one of the properties. So we got about a hundred grand into renovation and then we were like ready for the first job. And they're like, Where's your permit, bud? Yeah, and so just a whole bunch of learned lessons there. And so that was around the same time that I had gotten out of the military and I started working at this company in San Diego that ended up being probably the largest ADU design firm in San Diego and probably one of the largest design.

SPEAKER_03: 11:44

So they were design and building ADUs?

SPEAKER_02: 11:46

They were just designing. Okay. So they started design, basically, the the CEO, the founder had his dad who wanted to do an ADU back in like 2018, 2019, started the process. The architect was like, Oh, yeah, I'll draw this for you. And then he was like, Oh, by the way, we need a soil study, and then oh, hey, we actually need a structural engineer to get involved. That'll be five grand, three grand. And so they got like 20 grand in, submitted to the city, and then they the city's like, you can't build this here. Like there's there's an issue with whatever it was, you can't build it. So six months, 20 grand wasted. And so he just wanted to fix that. He was like, I want to actually give people the tools that they need to understand what they're getting into day one.

SPEAKER_00: 12:21

Yeah.

SPEAKER_02: 12:22

And so that was kind of uh it was a very unique uh company, and that's why it grew so much because it wasn't an architect who was just like, Yeah, the industry standard, I'll draw it, and then I'm not gonna tell you I I have no concept of finances, I have no concept of like how to evaluate.

SPEAKER_03: 12:35

A lot of architects have no idea about the capital stack. Yeah, right.

SPEAKER_02: 12:38

And so there's no, so they didn't know they don't understand that. And the contractors gen generally don't tend to understand from the design side or from the financial side. They just say, Oh yeah, like I'll you know, I can build it. That's how much it cost to build. I have no idea if you can build it, right? Um, or if you if you can get it approved. And so this company was kind of this this you know, framed itself as this buffer bridge between the two. Um, and so I started working there. Long story short, they had like 500 ADU projects while I was working there. I ran development for them. So I was basically the front end of every project. Anyone who came in had a deal, I'm the one who looked at it, I'm the one who underwrote it, I'm the one who determined feasibility on it, helped them determine the scope of work, and helped get them to what we believe was the best thesis project based on all the previous experiences.

SPEAKER_03: 13:21

Did you help them with the finance if they needed it?

SPEAKER_02: 13:23

So that's something I I get I got asked that a lot, right? How do you finance it? Like, how do I finance my ADU? And my easiest answer is buy a fucking good deal. Yeah, right. Like I have people who can't come to me with an owner-occupied loan who have put 2% or 3%, 5%, or 0% down, and they're like, I want to do uh, you know, three units in the backyard or two units, and it's you know, it basically the cost to build because I want to build it on a hillside and and you know, build above the garage because I want to keep the garage and stuff, they're like, How do I find it? So I'm like, you get more equity in the deal by either building a better product or having a house that has ex you know existing equity, you know, renovating the existing house. And so, um, so we, you know, we had partners and uh that do the you know, broke have a brokerage or have different partnerships.

SPEAKER_03: 14:05

Second loan, second mortgage kind of thing, yeah.

SPEAKER_02: 14:07

But it's just it's so hard where it's like if you have a quality deal to begin with, it's it's so easy to find finance.

SPEAKER_03: 14:13

How much were these units typically cost?

SPEAKER_02: 14:15

Um, I mean a one bedroom, you know, a lot of them were like four to four hundred and fifty square feet, probably between one thirty and one sixty. Really? Um, so yeah, they're not, I mean, they're not cheap. Like out there, I mean, you're building right now. Like, I just got four bids for three projects. Every one of them came in between like 350 and 400.

SPEAKER_03: 14:33

Well, that's inflation. Cost of construction right now is insane.

SPEAKER_02: 14:36

Yeah, the the main thing is labor, honestly, out there. And and because they're realizing that ADUs are so rampant, they've somewhat monopolized in a way. And ever since COVID, right? Like that's when it shot up. When we bought that land, we were expecting to build at 200 to square foot. We didn't build it 200 square foot with um, uh, we went up to 300. The issue is even after when material shortages came back down to reality, they're like, I'll just keep charging this. Like, um, and so that's kind of what what's happened is so now that's that's like a big hurdle that we're getting over, is we're figuring out ways to get our construction costs down because that's it's not a a shortage of deals, right? Every single property in California can have four units on it. So there's no shortage of it.

SPEAKER_03: 15:16

Yeah, so single family zoned four units, max. So if you already have a one one dwelling, you can get three more.

SPEAKER_02: 15:21

Yeah, single family is dead.

SPEAKER_03: 15:22

Do they have do they are they uh do they want individual meters?

SPEAKER_02: 15:26

Yeah, so you do individual meters on them. Um, you know, there's nuances of some of them can be attached, some of them have to be detached, but by you know, on a on the right property, you can leverage it the right way and get four units, and every unit is in an independent living facility.

SPEAKER_03: 15:40

And everything's a little different. So setbacks and property lines, all that has to be considered. So everything's unique. You just have to kind of look at what you have to work with and just work around it kind of thing.

SPEAKER_02: 15:48

Yep, yeah, exactly. And that's like that was where my like special sauce was was I was the one who helped you like what are the setbacks? How high can you build? Like, what are all of these little nuances to be able to plug and play? And that's like it started right when I bought that land because I'm like, oh, if we do this thing with the code and then we like leverage this little piece, then we like do this thing with the building and then do this after. Like it was just it, it's a game, it's a puzzle. Yeah, like it's so fun.

SPEAKER_03: 16:08

So let's talk about because I know this is gonna be a little awkward, but I'm gonna pull it out of you. So talk about the uh story how you had a partner that was going through a divorce and you guys were trying to refinance the building. Yes. So what does this which is the project you were just talking about? What was it, 11 units?

SPEAKER_02: 16:20

Oh, yeah. So this one's 11. We're almost done with construction now. Um, yeah.

SPEAKER_03: 16:23

So you finally got over that hurdle, of course.

SPEAKER_02: 16:26

Uh so yeah, so basically, you know, we at the beginning, I was so loose with how I frame my partnerships, with the way that I structured deals. It was hilariously uh, you know, incorrect.

SPEAKER_00: 16:38

Yeah.

SPEAKER_02: 16:39

And so we straight we, you know, did this partnership. We didn't do the paperwork the right way, or basically we f we signed a JV agreement, but we didn't actually go to title and add the JV agreement to title. So there was no record that the the entity was associated with the property because we originally, because it was the 1031, we bought it in our uh you know our personal names, personal names. Um so because of that, uh the wife in the divorce was able to This is your partner, my partner, yes. Um, and so the wife, we needed her permission in order to basically have a set I can't remember the exact terminology, but basically have a transfer of ownership.

SPEAKER_03: 17:15

Was it a tenant in common or a tick?

SPEAKER_02: 17:17

Uh it was just uh or yeah, yeah. It was a tenant in common, yeah, untitled.

SPEAKER_03: 17:21

Got it.

SPEAKER_02: 17:21

So he and you were all both on title. It was three of us, yeah. Got it, okay. So and so yeah, so we were going through this process, there was a lot of stuff going on, and so we essentially were not able to refinance till we got her permission, we were not getting her permission.

SPEAKER_00: 17:33

Yeah.

SPEAKER_02: 17:33

Uh there was yeah, questions that she had, and just you know, there was an ability to make a decision on those questions. And uh we the issue is that if we would have paid the mortgages at the time, which we basically we were so cash poor at the time, like we we couldn't even pay the mortgages, but even if we scrounged up and pulled cash, that would take away the urgency for her to make the decision. So there was it was this taking time bomb exactly. So we went all the way through to where I literally hired a lawyer in Idaho and had to basically sue her to make a decision or to intervene in the divorce to take that asset and make a decision on what to do with it. Got was on Zoom with Idaho lawyers in a in a court and they denied it. They denied not the motion to sell, but the motion to intervene. So we didn't even get to the second part of it. And uh essentially the lawyer was just like, yeah, or the the judge was like, I'm not gonna muddy my divorce with your bullshit because you guys did it wrong. But this also was like awful, and it like absolutely you need like lawyers make a decision today. Uh so we were able to, after months, like literally months, three or three or four months of back and forth trying to push to a decision, um, thousands of dollars in loyal legal fees, we were able to you know get to an agreement and and get her out, and we've been able to push through and get to uh where we're out. So I'll almost get on building it out.

SPEAKER_03: 18:52

Yeah, thank goodness, huh? Oh, yeah, what a nightmare. It's it's actually more common than most people know, though.

SPEAKER_01: 18:57

Really?

SPEAKER_03: 18:58

Yeah. So anytime you have two partners that are managing partners on an entity is as an example, you want to do an interspatial uh um agreement, meaning that, like for me, I would go out and develop projects and I'd have to have my wife sign off on any decision making, and if something happens to her and I, that she can't tie that up. So I had to learn that the hard way in the past as well. And it was all through my first divorce. I had to move assets around and and her attorney was just advising her, don't do it because he'll just pay you out real fast. And it's not like I could because I had I didn't have the liquidity. I had to do something with these assets to be able to give her the freedom that she needed or the cash that she needed. So it was really rough. Thank God I didn't have any partners at the time. It was just kind of my own stuff. But man, I learned the hard way for that. And what's crazy is the larger investors and check writers, they typically have attorneys. And if they're like seasoned real estate attorneys, they're gonna bring that up in the beginning of the partnership. Like, hey, are you married? Have you been married? Have you gone through this? Like they want to know certain things so they can structure the contract appropriately, and then they usually go into the interspousal uh conversation. It's like standard process now, right? Yeah, you know, in these joy joy JV uh contracts. So it's kind of wild, man, how you never think you have to think of that way. Yep. You know, he's like this, me and the partner, and that's like that's you guys. How does she have it? Just whatever you're going through. How the hell is that supposed to have any type of impact on the project that we both have partnerships on?

SPEAKER_02: 20:19

Right. And it's funny because like when we did it, we probably did it just because we were like, oh, we're gonna save the you know 500 bucks to get the lawyer to draft it. Where now it cost me like you know 20 grand a month in float and holding costs for four months. It cost me probably 10 grand in legal fees, it cost me the lost rents from the project, which are about you know$30,000 in rents a month, four months. So you know it's cost me a quarter million dollars just on that one mistake on the project.

SPEAKER_03: 20:44

Just one thing crazy over something that has nothing to do with your yeah, and something unless you ask the question, you just don't even think about it. So I had been really involved in like Beverly Hills and like funding a lot of those properties that you see in like million dollars million dollar listing and so forth. We were getting to a point when they when we would fund the construction loan, we would look at their pro forma and make sure that they have like$250,000,$300,000 in legal fees because what's very popular out there is your neighbors sue you.

SPEAKER_01: 21:07

Oh, yeah.

SPEAKER_03: 21:08

So if you have your construction trucks or you're too loud, or this or materials out there, it's not clean, or the street had this, or whatever, dude, your neighbors sue you constantly. And these attorneys do it on contingency. So you're constantly settling out with your neighbors. In fact, one of our developments, it was a four-year place, it was a big house on the side of a hill, the whole nine yards. That the neighbor sued him three separate times. And dude, he paid out like a half a million bucks just to get this guy to go away. That's not crazy. My uh you can tank you can tank properties that way. So now, depending on where you're building and the culture of the area, you have literally have to put legal fees and for lawsuits into your po your pro forma and budget it.

SPEAKER_02: 21:45

It's so funny you mentioned that. My my partner has another project with some other some other guys, uh buddies of his, and it's in a very nice neighborhood in San Diego, and they're building uh nine ADUs on it.

SPEAKER_00: 21:56

Wow.

SPEAKER_02: 21:57

Uh so very unhappy neighbors. Sure. And they're doing that right now. They they try have tried to shut down the project since day one they're building right now, and they're actively suing them. One of the one of the things they're suing them for is the added carbon emissions from more cars in the neighborhood. I don't know if you've never seen that.

SPEAKER_03: 22:11

Uh but yeah, these attorneys make money, dude. The only people that make money are these attorney. Oh, I learned I learned that during the divorce. How can you someone sue you for the admissions? But they do, and they take it on. Like it should be a frivolous lawsuit. You know what I mean? But who who are you what attorney are you gonna find to sue another attorney? It's like a cop pulling over another cop and giving them a ticket, like you just don't do it.

SPEAKER_01: 22:29

Right.

SPEAKER_03: 22:29

You know, so attorney, a lot of attorneys, it's just frowned upon to sue other attorneys for malpractice. You have to find a male practice attorney that simply does not care and is willing to go after attorneys like that. But how for like what grounds? Like, is that even is there any codes, legal codes about suing somebody for admissions? Like, come on, dude.

SPEAKER_02: 22:45

No, it's crazy. And and on these projects are they're they're ministerial, right? So they're they're buy right and they just they just keep trying to fight it.

SPEAKER_03: 22:52

And it's like like what a nightmare, man. Yeah, so that it's it's funny because we do that too. Most of our legal fees out here, we don't have to deal with it because we're just this is still kind of like the good old boy area. We don't highly have, I mean, look at my neighbors. Right. No, I have my I'm my I'm I'm one of my own neighbors. I'm my own neighbor, you know. So you out here I get a lot more flexibility. So we don't have that type of legal. Uh we have legal, but it's more for just contracts and so forth. It's not any litigation legal buried into our pro forma, but there is something in there, if God forbid something happens, we do have a little bit of playroom. But man, it's uh it's crazy kind of how the world works. It's really bad.

SPEAKER_02: 23:25

Yeah.

SPEAKER_03: 23:25

So thank God you got through that though.

SPEAKER_02: 23:27

Oh, and you know, learning lessons and like you said, battle scars like that was that was just like one that had nothing to do with the property. And yeah, just gotten gotten all the learning lessons.

SPEAKER_03: 23:36

So, what's your big vision? Where do you want to go? What's your this what's your five-year play?

SPEAKER_02: 23:40

Yeah, so the uh I left that job where I'd seen you know that many ADU projects. I left there about six months ago. It was just it was just time. I more or less, like I don't like the term inherently, but like kind of became the subject matter expert of ADU development in San Diego. And uh I love I love doing my own developments. And so what I do now is that we're we're working on creating and really diving into this development company. So we have, I mean, we have about 40 units in the pipeline right now.

SPEAKER_00: 24:07

Red.

SPEAKER_02: 24:07

Um, and and just you know, it's funny because because of the the volume we saw, and because of the volume and you know, and strategically partnering with my my partner on this company, we have bandwidth. And it's cool, you know, it's a fun problem to solve because it's like there's so many deals. If you find the right money and you find the right way to structure the deals, like I said, every single single family home is a four-unit or can be a four-unit if as long as the lot fits. Like single family is dead. And so it's a matter of solving those little issues and the structuring things, and then just finding the capital to to do the projects because there's it's such a great pocket.

SPEAKER_03: 24:44

I would almost bet that right now a lot of guys like you are getting pretty bullish because rates are coming down, homes are coming down in some cases. Um, I have a house that I listed in Marietta, and I just dropped the price to move it. Not by a lot, but a little bit, right? And I'm I'm at a point where I don't necessarily need to, but if I want to get it off my balance sheet, I can. And I'll just drop the price a little bit. So you're seeing you know price reductions across the board. Um, and I think if you were to find additional value by just doing a like a square footage play, you're doing really well. And if you could find, you know, maybe an older home that had a three-bedroom, one bath house, and now you're adding an extra bedroom bathroom, that's a big deal.

SPEAKER_02: 25:24

Yeah, we we literally just did that. We bought one in September. Uh, we're doing a we turned the two one into a three-two, and we're doing a big 1200 square foot ADU, which is almost heard of in San Diego. God forbid somebody builds something above 400 square feet.

SPEAKER_03: 25:38

Yeah, uh it's basically almost as big as this garage here. Yeah, yeah.

SPEAKER_02: 25:41

And so it'll be 1200 with a garage underneath. Yep. Oh wow. And so yeah, we're like, we're doing it because they actually just legalized the conduitization of the so you're not doing one stories, you're doing also two-story ADUs.

SPEAKER_03: 25:50

Yeah, yeah.

SPEAKER_02: 25:51

I have two the 11 units are three-story, three-story build.

SPEAKER_03: 25:53

Really? Yep, good for you. Three-story products is hard to deal with.

SPEAKER_02: 25:56

They're they're crazy.

SPEAKER_03: 25:56

People don't understand how hard three stories are.

SPEAKER_01: 25:58

Yeah.

SPEAKER_03: 25:58

I have a three-story apartment so I'm finishing right now in San Antonio. We did stuff in Denver, all three-story townhomes, shared wall. That was rough. And then our our uh our barn caves are all three stories. So we have a big garage like this, and then we have two stories above of residential, right? So or living space. It's three-story products, it's different. It's a niche in itself. People don't know. They're like, oh, it's a one-story, two-story, it's a little bit of a difference. Three-story, it's a whole nother level of engineering.

SPEAKER_02: 26:21

It's so weird, it's so interesting how it changes so drastically, which is the extra story. But yeah, it's it totally changes. You need soil, you know, that's where you're like you soil studies in and just everyone starts to get involved and ask more questions.

SPEAKER_03: 26:33

The city, everything else. So once you start going vertical, that they people want to know. Yep. Especially like three-story product, and would depend on what you have around you. If you don't have a lot of other three-story products around you, you're you're you have some headwinds to get the approvals. If you have a lot of stuff around you that there is three-story or even four-story and you're doing a three-story product, sweet. You know, like one of the big movements, like in Long Beach, I did a lot of loans in Long Beach where guys would buy like a like a two-one that's an old house, but it had a huge lot where you could build a six-unit or a five-unit or even a beautiful four-unit, and they would tear it down and they would buy it for a picket number 800 to a million bucks. They'd tear it down, they would build, put two million into it, but they'd sell for four and a half, five million. You know, they're making coins. But it'd take them a long time because the approval's just in that area. But it was nice because there was already other product that is very similar, new, built, CO'd, sold. So we had a lot of comps, but that's a big deal right now. You know, especially LA high dense areas, uh, San Diego. I mean, we do stuff in Nashville, all pretty much anything that's more of a primary market that you have the ability to find old homes and do that. It's it's booming right now. Yeah. And that's really the only way to do it. Again, square footage. If you're gonna, if you're and that's why builders are doing so well. Did you see Warren Buffett just invested$800 million into D.R. Horton and Lenar?

SPEAKER_01: 27:41

Yeah, it's crazy.

SPEAKER_03: 27:41

Well, he was he moved into treasuries, and I think we had$286 billion he pulled out of stocks, stuck it into, in essence, JP Morgan, generating 5%, right? Waited for the for to to see where the world was gonna go, and then boom, dumped a bunch of money into a home builder's right.

SPEAKER_02: 27:58

Yeah, it's it's this missing middle, right? Like it's the middle market, multifamily, so small, urban and vill, and these like I said, being able to just look at any property in California and being like, yep, you can do this, this, this, and add, add the square footage, add the density to it. There's just there's an unreal opportunity.

SPEAKER_03: 28:13

Yeah, and there I know there was a couple lenders out in San Diego, I forgot the guys' names, but they were literally focusing on financing people who wanted to add ADUs to the property. So, like it's a movement.

SPEAKER_02: 28:22

Yeah, there's definitely more capital coming into the space, uh, as partially, you know, they realizing that a lot of people have these low interest rate loans or they're kind of locked into what they have, but an ADU just adds cash flow, it adds equity. There's there's no reason not to do it, but they don't want to get rid of that first loan. So there's looking no, there's more strategic seconds that are coming into play. Yep. But then simultaneously, the issue is that City of San Diego kind of revolutionized something with the bonus ADU program of multiple ADUs. Banks didn't understand that, and so they didn't have good financing products for it. You're only playing with the SER at the end of the day. Now they're starting to make more sense of it and they're starting to get a little more mature in the space, and so now there's more lending products at the same time. So there's this whole headwind with the legislation. Like I said, they city of San Diego in August just finally allowed the conduization of ADU, so now you can conduize the ADU. Killer. And so I've like, I'm like, name another industry in in the country right now in real estate that is legislation is making it easier to do. There's more finance coming, or there's more finance coming in the space, and also like there's so much confusion at the low level because all the homeowners are now the developers. The homeowners can be the developers. So being able to fill that role, and that's really what we do, is like we're, you know, we're a development company, we're a development manager. Cause at the end of the day, like that's what's missing is the person that can help them actually be a developer.

SPEAKER_03: 29:43

Yeah, that's cool, man. And I think a lot of people are starting to realize, especially boomers. Most of my investors are boomers. And when you look at what they did, well, they're the first responders. Yeah, they had a great 401k and they retired, but where the value of the real wealth came from was in real estate. Some of them had maybe two, three homes, they're 1031 exchanging, they're starting to move their assets around because they want to repurpose it, get max cash flow or accumulation. And these are where my podcasts do well. People love to listen to what we have going on, but being diverse is important. You know, I love when investors I had yesterday. I was telling you the story. I had a guy call me, I got a million bucks, right? And I'm like, okay, well, you could park in all of here. Here's all the options that we have. And he's like, Well, maybe I should dip my toe in the water. I'm like, yeah, you probably should. You know, don't put all your eggs in one basket. You got to kind of shift it around. So I love to build awareness for this because I personally think that ADUs, dropping ADUs is an easy play. It's much easier than doing what I do. Yeah. You know, this is a whole lot more moving pieces, approvals and you know, planning and kiss, shaking hands, kissing babies with the city. Like it's a whole nother conversation, right? But ADUs are great because again, it's a quick value. It's like flipping homes. It's just a unique way of flipping the home.

SPEAKER_02: 30:48

It is. And and the cool thing with the ADU play is, you know, when when we started with this, especially with this bonus ADU thing, it was you could do so many units, you could do, you know, 10, 15. There's somebody trying to do 126 ADUs on a property. And it's cool, but it it takes longer.

SPEAKER_00: 31:02

Yeah.

SPEAKER_02: 31:02

Where what the re I've kind of shifted my model to, like I said, the cash flow on paper is not as good, but the product so much better. And so doing these small single family duplex add two, three units to it, ending up generally between like four and and maybe eight units max, it's so much quicker. I'm in and out. And yo, uh right now I'd I'd say, you know, we're estimating 18. We're we're gonna hit 12 on most of the projects.

SPEAKER_03: 31:25

So are you guys building them from scratch? Are they basically buildings that are coming and you're dropping them down?

SPEAKER_02: 31:30

We're building them on site most of the time. So most of them are custom builds. Obviously, I I have there's a couple of people that have done these prefabs on a couple of them. Most of the time, those don't make sense because the value reduction from not being able to customize it in the right way.

SPEAKER_03: 31:46

Right.

SPEAKER_02: 31:46

And also the multiple stories on it, because prefabricated, you can only do one story. Uh it it just doesn't have the intrinsic value.

SPEAKER_03: 31:54

It doesn't connect with the house.

SPEAKER_02: 31:55

Yeah, and so it makes more sense to build custom. It it costs more, but you can get more square footage, you can get a better product at the end of the day. Where there are certain neighborhoods, generally lower rent with these larger lots, not as high a density, that actually do make a hell of a lot of sense for these. And so if you can find the right lot in the lower income neighborhoods that large flat lot and then just stack, you know, multiple kind of do that cottage style. The the ones that I've I've seen my buddies do rushed.

SPEAKER_00: 32:22

Rubbing.

SPEAKER_02: 32:23

Um, so like that's a whole plane itself.

SPEAKER_03: 32:25

So, you know, and it's probably even better if you're able to do two or three ADUs on one shot because you're doing you're tying into the same sewer line and water lines, and it's a little bit, yeah. So that's what builders do, right? Home builders are just build multiple homes and tie into the same lines.

SPEAKER_01: 32:38

Exactly.

SPEAKER_03: 32:38

So you actually make more, definitely make more money because you're adding more square footage. But if you look at it, it's cheaper to build you know, two or three on a lot.

SPEAKER_02: 32:47

Yeah, it well, exactly. And and so, you know, when you think of things like water lines and the uh just solar and things like that, you by building more units, you will get a lower cost per square foot inherently because you're still only doing one water line upgrade, whether you one unit or three. Right. And those costs are crazy compared to the the cost to build. And that's one of the things when you know somebody asks how what's your cost of cost to build per square foot. I'm like, how about we figure out what you're actually building? Because all of those things can can shift depending on what you're trying to build. And so yeah, the model, the model is building you know, a few units on a property in a very tasteful way, not just shoving them in like sardines just because you can, building a good product. And five, 10 years from now, like that's my that's my play. And that's why that's where I'm I'm bullish right now, is not these multifamilies where cash flow is killer. It's these small single family neighborhoods that you're building a couple units and you've now monopolized a product and there's parking everywhere because it's not as dense. Like you don't have to worry about any of those problems.

SPEAKER_03: 33:45

Well, you and if you're let's say you're you know you're somebody maybe struggling a little bit and you have a little bit of coin and maybe your IRA or 401k, you can liquidate that, build an ADU, generate some additional cash to cover your overhead on your own mortgage. That's why so many people love fourplexes or you know, triplexes is you can buy one, live in one, rent out the other units, and get enough cash flow to cover your own overhead.

SPEAKER_01: 34:04

Yeah.

SPEAKER_03: 34:04

Now that's so it's it's I bet you that's a really common practice right now.

SPEAKER_02: 34:07

Yeah, exactly. The the biggest thing is, you know, ADUs and development as a whole, it's expensive, time consuming, and confusing. Right. So a lot of people, they they don't know. I mean, I think uh there's like 56% of people who don't even start the project based on a study in Seattle that they asked because they just are confused. They don't even know where to start. And then from this point of I've decided to put in a permit and go through that headache and that process, over 40% of those don't actually get built. And it's because either it's they built the wrong product so they can't get it financed, or they can't figure out how to you know do the construction. Like there's just there's so many pieces to it.

SPEAKER_03: 34:43

Yeah, and then and all the way down to like who you're gonna use as your GC, like that's a whole nother stress in itself. Like, do they are they are they good guys? Is this do they have they done this before? You know, what's their their labor base look like? And they what trades are they gonna outsource? Yeah, what charge what trades do they have in-house? You know, that's that's usually another pain point, if you will, right? How have you how have you have you had bad contractors in the past?

SPEAKER_02: 35:07

Oh yeah. I've had I've had my experiences that same time we went from the land to 13 units of renovation. Uh, it wasn't it wasn't all the contractors' fault. We uh managed poorly. We were managing cash flow, not the project. So it was just we weren't paying them on time because cash was tight. And it just there were so many things going wrong. Um, but there was there was a level of craftsmanship that was not where it needed to be. Um and and so yeah, I just had a lot of a lot of rough times there and then you know, a couple other projects, and so you started to learn how to manage these guys. What I've actually learned is my best partners are contractors. My my skill set is putting the deal together, building the right product, making sure that what we're doing is actually gonna be a fucking good product at the end of the day. Um, and and then taking it through permitting. Like permit is like my secret sauce, like getting it, getting it to the to the permit. That's where I like that's my superpower from from day one to to there. And so what I found is like my partner on the development company, he is probably the best contractor I found in San Diego. And he's on multiple other projects with other partners because and all developers, like developers, not just the guy who like needs to hire a contractor, because they see like he's a fucking good project manager. He gets it.

SPEAKER_00: 36:18

Yeah.

SPEAKER_02: 36:19

Um, and so that's where I've kind of found my my skill set was you know, this the first half, find the partner who's good on the second half, and all of a sudden, you have probably one of the most solid, most experienced development teams for small urban infill development in San Diego.

SPEAKER_03: 36:35

I love it, dude. I'll especially, especially focused on ADUs. You just you're strategically positioned yourself on a product that makes sense that you know. And you know that's another thing to give you um, you know, a lot of recognition on is establishing a relationship with the city and getting through permits. That's another, again, that's another language in itself. Um and now you're probably submitting more permits for ADUs than anybody else in the city. So as you're submitting permits and seeing your name go over, they're like, There he is. Brian Koons is coming back through on another project. That's what was happening for us. When they the city sees that we're submitting stuff, they're like, well, they're probably having it in a nice little bow. They know what they're doing. Let's just kind of fast track this. We just got uh one of our uh one item and one of our projects approved in two weeks when it was supposed to be a 90-day turnaround, you know. So I think they're just realizing, no, these guys are pushing and they're doing it well. So we've gotten lucky there too. But it took time to establish that and earn the trust. Yeah.

SPEAKER_02: 37:26

You know?

SPEAKER_03: 37:27

So kudos to you.

SPEAKER_02: 37:28

Thank you. Yeah, it's it's something where I think the more you get the reps in with a specific spot, like this, the more that they're gonna recognize you, but the more that you're gonna recognize how to work with them. I think that that's a very undervalued thing is, you know, I get I get asked all the time, like how to like literally I just got asked, like, how do you pay school fees? And it's like they've they've been sitting on that for a week at the end of their project because they just like don't even know where to ask and figure it out. I'm like, oh, do you you have to go? And it's like, it's like they're only open Mondays and Wednesdays at this time, and you have to go and bring a check. And it's like a super like just wild way to do it. But it's like these little nuances, like, hey, when you're submitting to the city, here's how you check like where you're at. So the day that it comes back from the city, you can go hit up your architect and be like, hey, like it's back from the city, let's get working on it.

SPEAKER_03: 38:09

Yeah, or or red lines, let's get that thing cooking.

SPEAKER_02: 38:12

Exactly. And so, yeah, so that's that's a big piece is you know, when I just getting so many reps in the same city, you know all these little leverage points to push the pro and I call it like pushing the project forward rather than just going through permitting because no one is cares about your project as much as you do. So your architect doesn't give a shit. Uh you know, he's got the three other developers yelling at him to push their project through. So it's like you have to be the squeaky wheel strategically, not to not to make, you know, to annoy them, but to hold them accountable.

SPEAKER_03: 38:39

It's consistency and consistency.

SPEAKER_02: 38:40

And yeah, I like joke, like being a developer is like 90% emails.

SPEAKER_03: 38:44

It's it's babysitting. It's babysitting, and you're just trying to keep that needle moving, but not piss anybody off at the same time. Exactly.

SPEAKER_02: 38:51

It's it's the the level of emotional intelligence and psychology that goes into it is I I very understated as a developer. Because yeah, you can burn a bridge real quick because inherently designers, architects, the team, you know, a lot of pretty much every single person is never going to make a deadline the actual day that you think they're gonna make the deadline. So you can either be mad about it and and or say, like, hey, like, here's how we need to fix this, let's work on it together. And it just it can, you know, if you say it wrong, like they they probably have other projects or other people that that want to develop with them because there's so much development going on right now.

SPEAKER_03: 39:21

Absolutely. All right. So I have a question for you. What do you what is the biggest lesson and the hardest lesson you've learned so far in the real estate space? ADUs, selling, dealing with contractors, what like what's the worst? The the worst what's the big worst thing that's happened to you so far in your real estate uh venture?

SPEAKER_02: 39:42

The worst thing was thinking that I had it figured out before I did. So I've been very much a person that just dives in headfirst, builds the parachute on the way down, like literally from I'm gonna buy real estate to like I bought a$1.2 million property was two weeks. So it it's it it I'm and same with land. I'm gonna buy land November, in December, we're in Asgrow. So it's like I I'll I'll fucking move, right? But to think that you know, you move intentionally, yeah. Get the right team around you. If you like not don't go big, but get the right team around you to make sure that when you're going and you can give up equity to do it. I think that that's where a lot of people stay small is because they want the biggest piece of the pie, right? Where like you said it, we were talking about before. I've done it on I get I have so many, I've I have probably too many partnerships at this point, but I have so many partnerships because I know that it's okay to give up a part of it to make sure that it gets executed well.

SPEAKER_00: 40:38

Right.

SPEAKER_02: 40:38

And that's something that I'm happy I've done, but also I think where some of the biggest mistakes were that I didn't bring in the right people for the right pieces.

SPEAKER_03: 40:47

Yeah, I've been down that road, dude. I can tell you until I'm blue in the face. I've had so a lot of my relationships, partners, employees, it's 19 to nover. So I usually have to kiss 19 frogs to find my prints, bro, is really what's going on. Yeah. So uh bringing as you know, especially with my firm, I I am I am not a normal employer. You'll get like the most best friend in the world, but then there's like a massive amount of respect that I require. And I also require that you're gonna work to my level. And not, and and it's hard because in reality, no one's gonna work as hard as I will for my own company. But I want people to take pride in ownership because if they do, they get a position within this company that gives them equity. It's almost like we're literally in the same boat with the same row. Here's your lane, stay in it, go hard. My lane is over here, I'll go hard, and we're equally yoked, but you have to operate at my level. And it's not because it's not because I demand it, it's what the requ what the world demands. This is what it's gonna take. So it's not it takes a lot of that emotion out of it, right? Having good partners can make or break you. Could be the same thing in marriages, could be in dating. It's just the way it goes across the board. It's really hard to find people that have integrity, and when they say they're gonna do something, they do it. You know, but it's true. If you can have the right partners, you can scale and you can go big. That's why we brought on the executive team that we have. These guys have a track record and background and they're pulling their weight on certain departments, and it's allowing us to get to where we are today.

SPEAKER_01: 42:13

Yeah.

SPEAKER_03: 42:13

So I tell everybody this has nothing, this, yes, I'm a visionary and I have a lot of relationships and I deal with the acquisitions and time, you know, legal and fund uh structure and capital structure and raise capital, right? The whole thing. But once I get it to a point where we're in escrow, now I offload it to my team and go, okay, guys, it's it's it's go time. And you know, our marketing's on a whole nother level. So that alone is like its own problem child. Then it's bringing everybody up to par to understand what we're trying to do. So now the amount of coaching internally goes through the roof, right? Because I never want to bring people in until we know what we're doing. Otherwise, it will I thought we were doing this. Yeah, well, it shifted. Oh, well, shift, then it shifted again. So until I know exactly our direction, we got our engineers, architects, all the fun stuff kind of circled the wagon. Then we know exactly what our direction is. And okay, team, we got it. Here's what we're doing. Well, let's go. Right. And once you, when you're able to articulate something and you have enough homework done, everybody's bought in, they see it too. And when they when they see the vision and they're bought in, it'll do well. So having good partners is absolutely key for me, man, and for you.

SPEAKER_02: 43:17

Yeah, it's it's been one of the the biggest realizations is getting the right guys in in the room. Like it it everyone hears it the who not how, but it's like tangibly, I think you're saying it is you have to find people that do what they say they're gonna do, have a track record of that. Yep. And I and aren't the same as you either. Like that's I think one of the biggest things is I have found people that just have other skill sets. They what like my my partner, he's an engineer by trade. He is so much different in how he thinks than me.

SPEAKER_03: 43:48

Barely laughs, that guy.

SPEAKER_02: 43:49

Oh my god, it's it's it's comical. Um, but it it it is so every like all of our conversations are just so they move forward everything so much faster because I think it just we build off each other in such a good way. And I think that that's one of the biggest things. Don't find, don't find your buddy per se. Find you know the person that's gonna you know work with you and and and compliment you.

SPEAKER_03: 44:11

So it's the best when you do find the right people. It's it's because they become family. You know, a lot of times we talk about it, you know, internally is we spend more time with each other than we typically do our own family. So you kind of have to genuinely like each other. And then if everyone's doing their job, you really love each other because everyone's making money together. That's when you're really loving each other, right?

SPEAKER_01: 44:28

Exactly.

SPEAKER_03: 44:28

So, okay, so let's uh let's kind of wrap it up from here. So you guys are expanding your ADU vision.

unknown: 44:34

Yep.

SPEAKER_03: 44:34

And right now you're looking to raise capital. Yep. You haven't opened up a fund yet, but that's your kind of your next play. So you've had what, one, two investors per deal.

SPEAKER_02: 44:41

Yeah, it's it's been scrappy. We've gotten, you know, we generally have been raising, you know, quarter million on a deal. Which isn't much.

SPEAKER_03: 44:47

Is it much?

SPEAKER_02: 44:49

No, it's I mean, deal by deal basis. If somebody understands the product, they understand the returns. Like I said, the the products are there. And we the the real value is that we know how to execute them really, really fucking well. Um, and that's the most exciting part. And so yeah, it's just finding the right capital for the deals that believe in the product. Right. And we're yeah, we're we're ripping them.

SPEAKER_03: 45:08

So rule of thumb, when you're right, you're opening up uh a fund or you're raising capital, you typically want, you don't want more than seven investors involved into one project or on one LLC without having a fund. That's kind of legality, but rule of thumb. Yep. Now that you're scaling, the only way to scale is go get more money. Right. So therefore, protecting you and the investors by having a fund is important. Because really, a fund is to protect you and individual investors that are in the fund from other investors going rogue. Not saying that they will, but people go through divorces, right? And when you have a 56% divorce rate, you kind of have to go, well, are you guys all married? Okay, well, 50% of these people are gonna go through a divorce, right? Not really, but you know, you kind of have to think that way. And since you've got the experience, it's really important. So that's really what it is is a disclosure package of your overall business model, your strategy, your projections. And people do their own homework to verify that they have done their homework in essence on what you're doing, looked at your track record, maybe you've seen your properties and understand it. So when they sign that document, say, I'm in and here's the money, they're not sitting there going, Oh, I didn't know what I get myself into. No, you did know what you got yourself into. We've we've met, we've walked properties, you've met other investors, you've seen my projects. Like you absolutely knew. Don't tell me you didn't. And that way, other investors don't get hurt, right? Because that's the whole point to having a fund. So I'm here to help you anytime you want to scale that side, man. I feel so it's funny, I'll tell you real quick story. So, you know, Grant Cardone. Yep. So the attorney that wrote his offering originally, her name was Gillian Sedotti with the crowdfunding attorneys. Me and Gillian ironically live in the same town. So she's in Marietta, and I was introduced to her by a friend of mine that had not opened a fund, but it was like, hey, this attorney lives in your town and did Grant Cardone's first reggae fund. So it's a non-accredited fund. So I engage with her, we we hang out, we meet up, we're going to the wineries in Temecula, totally getting to know each other, love her. She still to this day, I just spoke at one of her coaching events because she still brings me on. And this is by this by the way, this was bro, this was like 2017, 16, 17. So we uh so she sends me this this offering, uh, and I'm filling this out. Well, mind you, I've never created a fund before. And if and a reg A is it it's a public fund. It's a mini, they call a mini IPL. You have to submit your business plan to the the SEC. The SEC has to sign off on it. So it's not a PPM or private placement memorandum. This isn't a 506C reg D accredited investors only. I can go after anybody basically. So she sends me all this questionnaire and I'm filling all this stuff out, and I'm like, I have no idea what the hell we're doing. I have no clue, right? Well, I was having a really hard time getting her to go back and forth with me on strategy, and she's getting tired of my shit because I'm like, I want to try this. Okay, I want to add this. Okay, well, this is how big my portfolio is. And she's basically trying to tell me do one thing and one thing good when you do a fund. Don't try to be too diverse and open it up to everybody to invest and just all these different assets, like hone in on it on one asset class. So I said, Well, I so I kind of go back and forth. She's like, I'm gonna send you Grant Cardone's fund. Mind you, it's public, but she's I'm gonna send this, I'm gonna send you Grant Cardone's fund. I want you to read it. So I read it and I was like, you know what? I'm gonna write my own fund. I literally wrote my first fund. Oh my god. Yeah, I sat at the it's funny because my son at the time, so I had three kids. My youngest son at the time had like one of those little like um, put your feet in the chair. He was like two, put your feet in a little, he has like your little food tray in the front and it's on wheels and you kind of wheel reel around the house. He's not quite wal walking. Well, he was walking, but not fast yet. And uh, and so he was going around the island. I sat at the island for 14 hours one day straight, like on a Saturday with all the kids going crazy in and out of the house, and I just buckled down and I literally drafted my very first fund.

SPEAKER_02: 48:40

And this was before ChatGPT.

SPEAKER_03: 48:41

Oh, by far, dude. And I didn't I don't even think I Googled anything at that time, dude. So I literally read Grant Cardone's fund because he raised hundreds of millions of dollars by this point. So I read his first fund and I literally catered and drafted my fund to his fund, but with certain verbiage, and I adjusted my my, he was more in apartments, I was doing other stuff. So, but I I understood the flow of what they're trying to create. So yeah, I ended up writing my very first fund and my securities attorney like that's impressive. We had one round of comments, and then I got approved right after that. It took her and I originally like eight months, and she's like, Ryan, you keep changing your mind, and that's why comments keep coming back. So I was like, all right, give me, give me, you know, give me something because I couldn't understand what she's trying to tell me. So I was like, give me a fund. She's all here's Grant Cardone's fund, read it, and then get to know absolutely every inch of this. There's 180 pages. And when you're done, let me know. So I wrote, I think I wrote probably about a hundred of those pages because most of it's just kind of copy and paste disclosures. But yeah, I ended up opening my running my first fund and opening up my own first fund and writing it.

SPEAKER_02: 49:41

That's that's so funny. Cause I you like just described something that I think is incredibly understated is that being able to know what the leverage point is for your time is more important than anything else. Like, so for for you, yeah, for you it it was reading all that and just doing it yourself. Right. Like for me, it was I realized like I didn't have money, I didn't have any stuff. I just read municipal code all day.

SPEAKER_03: 50:03

Like I just read the But that's where you found the the bodies, man. You're able to find and then you created a model around it.

SPEAKER_02: 50:09

Right. And you create value very quickly. And and yeah, I in a niche. In a niche. And I love that. I love the fact that you're able to synthesize that and just just get it done. And it's like it's the boot job, it's the it's the thing that no one wants to do, but it is 99% of the time, it's the thing that will move things forward. It'll add the most value.

SPEAKER_03: 50:27

I realize that the less I understand it, the longer it takes for me to get the job done. So a lot of times I'll just buckle down and go, okay, how do I understand what I'm trying to accomplish, right? Or understand what new venture I'm trying to get into. And I try to go, you know, meet the right people. Books, which you've nailed it. You said you wrote you read three books before you got into real estate. I love that, man. A lot of people don't, I don't know why they don't do that more often. If you can find a couple of really good operators that have also written a book, that tells so like I've written, I'm on my second book. And the first book was really actually I launched it right in the middle of the pandemic. I think I let I think I released it like middle of 21. So I had I was writing it before, and then I shifted it with the pandemic and all the PPP loans and money getting pumped in how politically and things changed so quickly from how politics really made an impact on a lot of different stuff. And how did that correlate to real estate and then investing and making the right decisions and investments? I started showing the level of transparency that operators need to have for their investors and really kind of how to create the um, I would say, the vision of what you see and how other investors can see and understand what you're trying to do. It's really about articulating and providing information and data on how to get there. And then always, obviously, after the investment's made, how to create the right reporting, how to show transparency, how to just keep those relationships tight, because the market shifts all the time. And people are scared when Trump got shot. Dude, I I called a mandatory meeting immediately for my entire team. I text, I said, everyone get on a call right now because I was like, we need to tell you what's gonna happen for about a week, dude. My investors were blowing me up. Like, what's that mean? What's this gonna do? What do you see? What do you hit now? And so I ended up releasing statements. So it really sucked because I didn't want to lean onto the political side, but I had to explain to people what I think is going to happen. And my first book, I literally predicted exactly what was gonna happen in the real estate market, and that's why I'm writing a second book because I was so right on the first one that that's why a lot of my investors are like, dude, how did you see that? I'm like, it's a gut. Like the writing's on the wall, though, too, right? You have every book, cost of stuff in California is going through the roof, politics suck. Yes, people are gonna migrate. Boomer, baby boomers, you know, are getting older and getting more frail, and healthcare is the fastest growing industry because boomers are getting that's the largest generation, they're getting older. They need healthcare. It's not rocket science. You know, you look at you look at uh uh lifestyle, right? You can RVs, boats, they're selling like crazy, not just from boomers, but multi-generational. You look at, you know, the way the world's working with Instagram, like it's not rocket science. And so I tell people tell people this is how it works. And if you could paint that picture of why it works, your investors are like, I'm in. Because it makes sense to them too. Yeah, I'm like, have you ever been to Havasu? Oh yeah, do you know how big voting is here? Yeah, great. You want to write a check? Because then you know people need storage. It's like just that simple. Yep. But really, the idea is just to be able to articulate exactly what you're doing, show a business model, proof of concept, that track record's everything. Yep. And being honest, that's why I love that that I brought that out of you here is to tell people what you've done wrong. Because no one really believes all the pretty masks. Dude, you gotta bring that down because your investors have gotten kicked in the teeth as well, personally in life. It's the relationship game. They're gonna invest into you, not necessarily the deal. Yes, the track record's there, but it's you that matters. You know, they're gonna invest into you and they're gonna believe that you know how to operate because without you, it's not gonna work, right? That's why when you get bigger and bigger and bigger, and we'll talk about this later, key man insurance. How to create an insurance policy off your management fees. So if something happens to you, like you die, when you get larger check writers, their attorneys are gonna get involved. And they're gonna ask you, well, what have who okay, who's in who's in who's in the face? Yeah, who's in line if you were to die? And it's funny because I've had that obviously in the past, how I learned. I'm like, I'm not gonna die. And they're like, okay, you're even dumber for saying that. You know, you could get an accident today after this phone call and die. And then what's gonna happen to my three or four million I've invested? And I started thinking of that, going, like, yeah, man, we need to be more institutionally structured to go after those larger check writers, but even it protects the smaller check writers, it protects everybody involved. So I through time and trial and error, I've we've gotten to where we are today, but we didn't get here by you know soft knocks. We've got here through hard knocks. You had to learn the hard way. A lot of people say, no, you're not ready for this. I have a lot of money, but I don't trust you guys yet. You know, whatever the case may be, need a bigger track record. It just you got to keep going. So I would say if you're if you're at$200,000,$250,000,$300,000, dude, investors can write a check for$50,000, get in, dip their toe in the water, see how you do. And if you're if you're doubling their money or whatever the case may be, they can go harder and harder and harder with you. But it's great for accumulation.

SPEAKER_00: 54:56

Yeah.

SPEAKER_03: 54:57

And if they have an IRA, which is I'd say 60% of our clients are investing through IRAs, dude, that's a good, that's a good target market for you. Because that money will just come out of their IRA. And then once it comes back with profit, it's tax-free. It's until they take that money out personally, is when they get taxed, right? So they can roll with you and stick with you for five years, 10 years, and you can make them tons of money. They started off with 50 grand, now they got 250, 300,000,$500,000 with you. And they're like, dang, Brian, I gotta keep I gotta keep going with you. Thanks for making me so much money. How much do you want? Give me 100 grand. I need it right now, right? Where we talked about before. So yeah, man, I think it's great. You're on the right track. Yeah, I think your next play would be maybe do a couple more deals the way you're structured now because it's still safe. Until you have a lot of investors, you don't need a fund, but a fund will protect everybody involved. So I'm here to help as much as anybody.

SPEAKER_01: 55:43

Dude, I appreciate it, man.

SPEAKER_03: 55:43

So touche, thanks for coming out, man. I really appreciate you. I I it was an honor to meet you in Tulum. Um, you know, being a part of uh I feel like everybody that was a part of Rich's network and that was at that event were great people.

SPEAKER_02: 55:55

It was it was the most I I don't think there'll be a meetup like that. I don't know how I made the money for that. Yeah, like it was, but I was, yeah, I was so happy because I almost didn't go.

SPEAKER_03: 56:03

Yeah, you know what's funny? I almost didn't go too, but we paid money to be the one of the sponsors. Yeah. And I was like, uh, we'll see how this goes. But I think I just enjoyed more than anything, just why actually, so like I was saying before, when people actually take the step and do that, they really want it. They want it, they want to grow. You know, they're take they're spending money to get there because they need to gain knowledge, they really want to make something of themselves. And I hear it all the time. I say I feel bad at people, I'm I'm hurting for money, I'm hurting for this. And yeah, everybody is too. Let's be honest. I'm still like balling on a budget, right? But it's at this point where you're like, if you want more, then do it. If if you but you have to put in the work, you have to make you have to make time, you gotta make sacrifices. And everybody that was in that room, I had private conversations, have made a lot of sacrifices either to get there or in their personal life to grow, and they're there because they are really serious about growing. Yeah, so man, I I really I really appreciate meeting you and uh your girlfriend, right? Now you're not married yet? Correct.

SPEAKER_01: 56:56

Yeah, not married.

SPEAKER_03: 56:57

When are you gonna pop the question?

SPEAKER_01: 56:58

Oh, that's uh she's here by the way. I just have to pull it. I have to pull it out on them.

SPEAKER_03: 57:02

She's sitting there listening.

SPEAKER_01: 57:03

Within one to one hundred years.

unknown: 57:05

Oh gosh.

SPEAKER_03: 57:06

I'll just see you walking down the street by yourself here deciding to like. You want to ride? Oh, yeah, no, we're yeah, I'm already I'm yep, there it is. Go. Well, thanks for joining me today, brother. For every uh how can people reach you? What's the best way to reach you?

SPEAKER_02: 57:18

Instagram, uh or the builderbrian is the easiest way, or Brian at the BuilderNation.com.

SPEAKER_03: 57:24

And Brian at the BuilderNation.com, it's your website? Yep. Is your contact information on there?

SPEAKER_02: 57:28

Uh yeah. Or it's not, it's contact at the builder nation. Yeah.

SPEAKER_03: 57:31

Well, we'll put it on the podcast on all the platforms so people can reach you. Yeah. So thank you for joining me. Let's go have some fun today.

SPEAKER_02: 57:35

Absolutely.

SPEAKER_03: 57:36

Cool. Thanks, bud.

SPEAKER_02: 57:37

Appreciate it. Appreciate it.