C2 Financial Feasibility Overview

0:02 I will forget.

0:03 Somebody gonna be mad because they're not gonna get the recording.

0:07 I'd be mad.

0:09 Okay.

0:10 Um Okay, let me my view.

0:26 Okay.

0:28 All right.

0:30 All right.

0:31 All right.

0:31 Everybody doing okay?

0:32 You guys doing good?

0:33 You're having a good week.

0:34 Everyone had a wonderful Easter holiday for those who celebrate.

0:40 Um, okay.

0:42 Today we are talking about financial feasibility.

0:47 We're talking about some of the performance metrics that we're going

0:53 to want to look at as we are putting together our development deal,

0:59 our capital stack, and how we're evaluating all of um

1:05 the components of our deal to make sure it makes sense.

1:08 Like I said, you know, I like I said yesterday or not last,

1:11 our last call, you know, it makes sense for us to talk about um you know,

1:20 like the land acquisition and then the financial

1:23 feasibility upfront because those really are the structural components

1:28 to make the deal and they are the hardest

1:31 parts to kind the hardest hurdles to get over.

1:34 um hard because finding the right land that's going

1:37 to work for what we need it to work for.

1:40 Um, and then once we find land that is suitable to build and will allow

1:46 us to use it the way that we want to use it to, you know,

1:49 the big thing is, okay, well, how much is it going to cost for us to take

1:52 this raw product and then have something that's going to be cash flowing,

1:57 earning us money, and giving us enough return on our investment

2:00 that it makes it worth the risk because development is a risk.

2:06 It is speculative.

2:08 And so um you know we go through the steps

2:12 and we do the work that we're going to talk about

2:14 today because at the end we've stress tested enough that we

2:19 feel confident that we can pull the trigger on that risks.

2:23 Um but we're going to talk about how we need to stress test our budgets

2:28 and our feasibility because in development if it can go wrong it will go wrong.

2:34 You know, maybe not each and every time, maybe not to the fullest extent,

2:39 but we want to be prepared for as much

2:42 as the as much as we can be prepared for because um it

2:46 is a very capital intensive endeavor and the more we can

2:49 understand where that risk lies and how we can mitigate it,

2:53 the best position that we're going to be in in our in our development.

2:57 So, um okay, I don't have a I I have like my own notes that I'm using.

3:04 I don't have anything in addition that I was going to provide to you guys,

3:07 but if it's helpful for me to kind of take

3:09 these notes and put it into like a document for you, I'm happy to do that.

3:14 Um, and that way, you know, you can have everything that that I'm referencing.

3:18 Um, I think a lot of it, some of it may have been in the module,

3:22 so maybe I'll just go ahead and do that.

3:23 And then the other thing that I'm going to give you guys is um a calculator

3:31 uh which is actually it's anel an Excel

3:34 spreadsheet that already has formulas baked into it.

3:39 And so you can take your deal right

3:42 your numbers and you can plug it into the formula

3:45 for plug it into the spreadsheet and it

3:47 will automatically start to calculate some things for you.

3:51 uh just to make it easy.

3:52 Um I'm going to give you that and then I'm also going to give you a um a sample

4:01 performer that you have that you can use um

4:07 as you are thinking about putting together your uh your budgets.

4:12 So, and then the last thing that I'm going to give you is I'll give

4:15 you the name of an of an individual

4:17 who I've worked with who does feasibility studies.

4:20 Um his name is Chuck.

4:23 He's like whereas I am not a person like numbers still make me nervous.

4:28 I'll be honest like this is like while this is probably the most

4:31 important part of the of the work that we do as developers

4:35 like this is the part that like I get like h the most

4:38 nervous about because you know you don't want it to get it wrong.

4:40 Um so I use outside help.

4:42 Um, and Chuck is somebody who I use and so I will

4:46 provide you with his contact information and if he is helpful to you,

4:50 um, feel free to use him, but there's a lot of people out in the market

4:53 that do the type of work that Chuck does, um,

4:55 which is really in really detailed and in-depth, uh,

4:59 feasibility studies and he can help you

5:01 to understand kind of how to stress test.

5:04 Um, so all of those things will be

5:05 coming when I upload the recording and but obviously

5:10 if there's more that you need or if you

5:11 have other questions then don't hesitate to reach out.

5:15 All right.

5:16 Uh, okay.

5:17 So, I'm going to start out with a little

5:18 story time and why feasibility analysis is so important.

5:24 Um, so somebody approached me uh at the beginning of the year.

5:28 They had some property up in Lake Lure, North Carolina,

5:31 which actually is in Rutherford County, which is where Popular Creek is located.

5:35 And they had some land up in Lake Lure, and they were they had started down

5:42 the process of doing their own tiny home development.

5:45 And for reasons I don't know, I can speculate why,

5:50 uh, but for reasons I don't fully understand,

5:52 they basically were kind of a jumping ship and looking

5:54 to offload offload the property and have another developer take it over.

6:00 And they had gone through the process of getting um, a site plan drafted up.

6:07 Um, it was going to be a tiny home community.

6:10 um they I worked with the same engineers that I had I've worked with like

6:14 a lot of you know a lot of the same work that I had done and so

6:17 they had sent it over to me in a in a little deck and they

6:21 were like hey we're understand that you do

6:23 tiny home development you know here's a here's

6:25 a development deal that's ready to go is what they positioned it as you know you

6:29 just need to take it over and then you can get going and now you can

6:31 have you know version two of Popular Creek up in Lake and so you know I'm

6:36 always looking for a good deal I'm looking

6:38 for what my next project is going to be.

6:40 So I went through the process that I'm going to talk about now.

6:44 And um and it was in that process

6:48 that at least for me it was not a good investment.

6:52 It was not going to be a good deal based on um you know my total

6:56 development cost and what my um you know

7:00 what my potential revenue was going to be.

7:02 And what really broke the deal,

7:05 at least in my in my opinion for this particular uh scenario,

7:11 the it was like 26 acres, so it was a big piece of property.

7:15 Um, and they had drawn out the site plan so

7:20 that they could fit in about like 48 lots for tiny homes.

7:25 Um, and the more digging that I did, the more due diligence that I did,

7:32 um, and I'm updating kind of my spreadsheet and my numbers,

7:35 like one of the things that was referenced in the health

7:39 department permit because she had gone and she had gotten some permit.

7:41 She had gotten like the building permit to start construction.

7:44 She had started to dig a well.

7:46 By that, I mean she just put a hole in the ground.

7:48 She didn't really like have an actual well.

7:50 Um, and she had gotten the uh permit

7:54 from the health department for her septic system.

7:58 And that's where things started to fall apart.

8:00 The septic system permit that she provided was only for 26 homes,

8:07 not for 48 for the entire development.

8:09 And and that is because and I ran into this issue with Popular Creek,

8:15 there was a prove up stage for how much capacity the septic

8:20 the septic system was actually going to be able to to handle.

8:24 Um and so based on what the health department had permitted,

8:27 they had permitted it as 26 homes or 26 lots,

8:33 you know, so 26 onebedrooms, right, for tiny homes.

8:36 And so I'm running the numbers and the numbers

8:39 don't the math doesn't math with 26 units, the total development cost,

8:45 what the land acquisition cost, you know,

8:48 and we looked at it a whole bunch of different ways.

8:50 Like what if we add short-term rentals?

8:52 What if we do this?

8:53 What if, you know, kind of playing with the deal and playing with kind of what

8:56 we were going to add to see if we could get the numbers to work?

8:59 and we just couldn't get the numbers to work because I'm basing

9:02 this off of 26 units which is what you actually have a permit for.

9:06 You may have a site plan that has 48 units

9:08 but you don't have a permit that can that can accommodate that.

9:11 So her numbers she was she was looking at it from a financial

9:15 feasibility of 48 units like assuming that the septic system was going

9:20 to be able to manage the uh you know the the flow

9:24 of the entire property whereas I was looking at it from okay what what is

9:28 it going to be doing from day one and so we were

9:30 at two different spectrums because you know she's looking at it from like here's

9:34 the upside and the potential and I'm looking at it like here's

9:37 the realistic value that I'm going to be able to extract from day one.

9:40 Um, and so the numbers just did not work at all.

9:44 And so I had to walk away.

9:45 And I told her, I said, "Girl,

9:48 you should have signed up for this master class that I have,

9:49 maybe you won't be in this position right now,

9:51 but when you're ready to sell at a at a lower price,

9:56 you know, and maybe I'll, you know,

9:58 then we can have a conversation." Um but basically you know

10:04 the moral of this story is when you are looking at when

10:07 you're thinking about feasibility and when you are thinking about how

10:11 um how to go through this exercise you have got to think

10:18 of it from the worst case scenario because and just like we

10:22 talked about um last week when we said you know excitement is

10:26 is the is the is the enemy of due diligence because You

10:30 want something to work and you finally found this piece of land.

10:33 You're like, "This is it.

10:34 This is going to be great." And so everything is then

10:37 skewed from the perspective of this is going to work out.

10:41 How can I make it work?

10:43 And that is not what we are doing in financial feasibility.

10:46 We are not trying to figure out how can I make it work.

10:51 We are trying to let the numbers to provide

10:54 us with a discovery to determine if it works.

10:58 And if we go into the mindset of saying,

11:00 "How can I make this work?" Then you're going to be projecting,

11:05 "I'm going to be getting this amount of rent

11:08 and my contingency is going to be this much." And you're you're

11:11 going to be skewing the numbers to try to make it

11:14 work versus looking at the realistic picture of what's actually there.

11:19 So your your feasibility process is discovery.

11:23 It has let me figure out as much information as I can.

11:28 Let me have as many assumptions that are going to challenge that as I

11:32 can so that I can decide whether or not this actually makes sense.

11:40 Because I can guarantee you for this woman,

11:43 this Lake Lure woman and for every other person that gets into development,

11:47 they started out with a spreadsheet that looked

11:49 like it was going to work on paper.

11:51 Like no one is knowingly going into this saying, "Oh,

11:54 I'm about to lose all my money." Um, and so just think about that.

11:59 Think think, you know, we we don't this is this is discovery.

12:03 This is not justification.

12:05 Okay?

12:06 And if the numbers work, praise Lord, hallelujah, we got a deal.

12:10 The numbers don't work and we can't and we can't

12:14 and there's not any levers that we have to pull, then the numbers don't work.

12:18 The math don't math.

12:19 Okay?

12:20 We don't we are in this to make money.

12:21 We're in this to generate assets that are going to create wealth.

12:24 And we yes this is a risky speculative endeavor but we have

12:29 ways to mitigate our risk and that's what we're going to do.

12:32 So that's the first thing I want to say.

12:35 The second thing is when we're talking about

12:38 you know how we are are projecting our numbers

12:41 right we are not pulling this out of thin

12:44 air out of hopes and wishes and dreams.

12:47 We are using hard and fast data that is available to us.

12:51 So when we're thinking about your projected rents,

12:54 for those of you that are doing a lease model, a land lease model,

13:00 or you're purchasing the homes and you're going to lease

13:02 the homes or however you're going to do it, um market rent is a fact.

13:08 It is not a hope, a prayer, and a wish in a dream.

13:12 So, we are going to be spending a lot of time when

13:14 you're doing your feasibility and looking at what your market rents are,

13:20 like where you can push, where you may not be able to push.

13:24 Um, so doing your research in your area, and if you're like,

13:27 well, I don't have a tiny home in my market that I can,

13:31 you know, um, that I can call, well, figure out the closest one to you.

13:36 Um, and then figure out kind of what their market rents are,

13:39 what their leases are, and and what they're charging.

13:42 If you can't find a tiny home comp, um, look for a mobile home comp,

13:49 you know, like do the research and figure out like,

13:52 okay, this is realistically what the market can sustain

13:57 for the product that I'm going to be offering.

14:00 Okay, we don't want to guess on that because if

14:03 you put something out there and you've done your perform

14:06 and your budget and you're saying I can get $850

14:10 a month for rent and really your market rent is $625.

14:19 That's not going to work.

14:20 Okay.

14:21 So, we're going to spend time doing research and what

14:25 we can get and in addition what our costs are.

14:29 We talked a lot about due diligence cost uh the last time and um and we'll talk

14:35 more about working with contractors and getting quotes

14:40 and all that stuff um you know later on.

14:43 But for purposes of your feasibility analysis,

14:47 like you've got to be getting quotes from from uh your contractors and you've

14:52 got to be having some really good costs that you can then skew.

14:57 I personally, my view is I'm I'm a skew it on the high end.

15:01 I'm going to say I'm going to run into rock when I start digging

15:04 in this mountain and I know that's going to cost me $50,000 to go through it.

15:08 And so there I'm putting that $50,000 in here.

15:11 And if I don't need to use it, that's great,

15:12 but I don't want to be stuck not contemplating something that again,

15:16 if it can go wrong, it's going to go wrong.

15:18 And so we want to make sure that you understand what

15:21 your hard costs are going to be by talking with contractors, not guessing,

15:25 not putting it in Google Gemini and saying,

15:27 "What are my construction costs going to be for this?" Like,

15:29 you want to get, you know, some good quotes.

15:31 They don't have to be final quotes.

15:35 Uh, but you want to get a couple so that at least you have a good

15:37 idea of what those estimates are going to be

15:40 and then build in your contingency with it.

15:42 So again, we are working with actual hard numbers.

15:46 And then the second thing or the last thing is um

15:49 you know we're looking at this from a couple of different perspectives.

15:52 We're looking at it from the front end like okay how much is this going

15:54 to cost me to do and then we're also looking at it from the profitability end.

15:57 So we're looking at it from both sides of the equation.

16:00 How much money are we going to have to put into this versus what

16:03 is going to be our filter for what we hope to get out of it.

16:07 So if there is like one one back of napkin calculation that I

16:14 would want you to start with um when you are looking at your deals right the the

16:23 gold standard for developers they look uh

16:27 they look at what's called the development

16:28 spread and the development spread takes your the yield build on your costs

16:38 and it bumps it up against what the market cap rate is

16:42 and then it gives you a spread a distance between those two numbers.

16:47 So, this is the cost that I'm going to be putting into it.

16:52 Like what's my ratio on my my yield?

16:55 Like how how profitable am I going to be?

16:58 How much and then how much value am I actually adding into the market?

17:04 And then that's going to tell me like how good of a deal this is.

17:09 And so like by way of an example, how does that work?

17:11 So your your your yield on cost that is

17:15 your projected net operating income divided by your total development cost.

17:22 That's your that we I've seen that referred to as ROI.

17:27 Um so return on investment or your yield on your cost.

17:31 So that's your um that's your NOI divided by your total development cost.

17:37 Your total development costs are what?

17:40 land acquisition, hard cost, all of your construction cost, soft cost,

17:50 everything that's not a hard cost, attorneys, survey, uh, you know,

17:56 all your due diligence stuff, your carrying cost,

17:59 because when you are getting a if you were

18:01 getting a loan to fund your construction, guess what?

18:05 They do not say, "Okay, Dedra,

18:07 why don't you just pay this back once you're done and fully leased up and then

18:11 you can start making payments?" I wish

18:12 that that's the way it worked, but it's not.

18:14 You have carrying costs throughout your development

18:17 and you have to be able to pay those.

18:21 So, we're looking at all of those all of our total

18:24 development cost um and um we're dividing our net operating income.

18:30 So, how much our revenue is going to be divided by our our development cost.

18:35 That's going to be our yield.

18:36 That's like, okay, this is how profitable this deal is.

18:40 Higher the higher that number, the better.

18:42 Then, we're going to take that and we're

18:44 going to subtract it from your market cap rate.

18:49 Your market cap rate is determined by your market.

18:53 Again, if you don't know what that is,

18:55 that's is something that you can put into chat or you know CB like all

18:59 you know you these get published but you can find like your market cap rate

19:03 for your asset class and you're going to see how well are these types of assets

19:09 performing in my in my market like what's

19:12 that market what's that mark cap rate number.

19:15 So then you're going to take your yield and you're going to subtract

19:18 it by that market rate and that's going to give you a number.

19:26 If that number is low, if it's like 1%, it's 2%.

19:33 I don't I don't we want that number to be like three and a half 4%.

19:40 because that's that is going to tell us here's where here's where the market is

19:46 doing here is where I am inserting value and here is how that value is going

19:53 to then come out in my return so the higher that that development spread is

20:00 the more value you are adding into the market

20:04 and the better returns you're going to get.

20:09 Okay.

20:09 Does anyone have questions about how to calculate this?

20:12 You're taking not net operating income, your revenue,

20:15 how much you're getting for your leases,

20:17 if you have any other revenue streams that you have coming in.

20:20 If you have storage fees, if you have laundry fees,

20:22 if you have whatever whatever fees that you

20:24 have that you are charging your customers,

20:26 that is all your net operating income, okay?

20:30 Minus your expenses.

20:31 That's your net operating income.

20:33 Divide that by your total development cost.

20:35 That's going to give you your yield.

20:37 our yield.

20:38 We want that to be 8 10%.

20:40 That's that's a good number for your yield.

20:42 Higher the better for the yield.

20:43 And then we're going to subtract it by your market cap rate.

20:47 And that spread, which I want to be 3 4%.

20:53 Is going to tell you that the risk

20:55 of your development is going to pay off in the return.

20:58 If you come out with a low number for your development spread,

21:02 then that means you're you're in they're you're in danger, girl.

21:06 you're in danger, girl.

21:08 Okay, so that's kind of like the first like back

21:13 of napkin number that I want you to to figure out.

21:16 And so from that number, again, we've got to know what our revenue cost.

21:19 We got to know what our revenue is going to be.

21:21 We're going to estimate our expenses to be about 40%.

21:26 That's about what they should be.

21:29 We're going to have an idea for what our total

21:31 development costs are going to be based on actual

21:33 contractors that we've talked to so that we have

21:35 a good idea of what it's actually going to cost us.

21:37 And then we're going to look up our market cap rate.

21:40 And if we have a spread that tells us that this is going to be worth the risk,

21:44 then we know that we can kind of do some of these other

21:47 calculations to figure out where we're going to where we're going to land.

21:52 Okay.

21:57 So, we talked about like hard cost, carrying cost, soft costs,

22:03 impact fees, like all of those, all of those numbers.

22:06 We talked about all of that.

22:07 So, all of those are kind of numbers

22:09 that we're determining during our due diligence because again,

22:13 due diligence is telling us is this land going to work and how much is going

22:16 to cost for us to get the product that we want based on what we have now.

22:21 So, we're g gaining all of this information in our due diligence.

22:24 And these are the numbers that we are

22:26 adding into our our sample performer or our calculator.

22:32 And then we're going to add contingencies into our costs

22:36 as well once we determine what they are.

22:40 So, I think 15 to 20% is a good number.

22:45 Again, we don't want to skew the numbers to make them work.

22:47 Like, oh, I'm not going to need this.

22:49 like child, yes, you will.

22:51 And if you don't need it, great.

22:54 That's money you don't have to spend.

22:55 Then your yield and your and your returns are going to be higher, right?

23:00 But if the opposite is true, then it moves in the other direction.

23:05 Okay.

23:12 Okay.

23:12 So when we are thinking about our net operating income,

23:18 so the important thing to know about net

23:20 operating income because this is going to be like

23:22 one of those numbers that you know you're going

23:24 to the banks are going to want to know.

23:27 This kind of tells you like how well your investment is performing.

23:31 It doesn't take into it doesn't take into consideration your debt

23:35 because not everyone who acquires property is going to take on debt

23:39 for it or how the the type of debt that they

23:42 take on and the interest rates is going to be different.

23:44 So we don't look at that for net operating income.

23:47 So it's important to know that like

23:49 your net operating income is before you then have

23:51 to pay any off pay any of your debt service and any of your your loans.

23:56 But it does include those operational expenses

23:58 that you have in order to make that revenue

24:01 number and it also includes um your what

24:06 we call your vacancy number, your vacancy loss.

24:10 And that just presumes that at any given time

24:13 you're not going to be operating at full capacity.

24:16 Hopefully you are.

24:17 That's great when you do.

24:19 Um, but at any given time you'll have someone who's moving out.

24:23 There's going to be on the market trying to get somebody in.

24:26 And so I'd say anywhere between a 7 to 10% vacancy rate

24:30 is a good number to put in for your net operating income.

24:34 So, we're going to take our revenue minus

24:36 our expenses minus that that 7% vacancy rate,

24:40 which is, you know, your um your total if you have 10 lots at 700.

24:47 That's $7,000.

24:50 10% of $7,000.

24:54 7.

24:54 Oh, yeah.

24:55 I'm bad at math.

24:55 That's $700.

24:56 That's $700.

24:58 So, we going to take $700 out of that and that's

25:00 going to be our net operating then our expenses.

25:02 we're going to take that's going to be our net operating income.

25:06 Um, okay.

25:11 So, we've talked about net operating income that measures how how well

25:15 our property is doing after we pay our expenses but before our debt.

25:22 And we talked about our yield on cost,

25:25 which is how much we are actually generating value.

25:31 We want that number to be the higher the better.

25:34 8% 10%.

25:38 Are good numbers.

25:40 And then we talked about our development spread which is taking that yield

25:43 on cost and then subtracting it out from the market cap rate.

25:47 And we want that spread to be about 4%.

25:49 So four basis points.

25:54 Okay.

25:54 Cash on cash return.

25:56 that tells us how hard our money has to work in order

25:59 to give us an investment or give us a return on that investment.

26:04 And so this one is a good one because it it it it shows us um you know how

26:12 well like the cash that we are putting

26:14 into the property like how well that's going to be performing.

26:18 And I would say a good benchmark for your cash on cash return.

26:22 It's a strong cash on cash return if you're hitting it between 8 and 12%.

26:27 And so we're going to take our cash flow, so again, our net operating income,

26:32 but then we're going to but then we also because we

26:35 we're figuring out how well our cash is going to do,

26:38 we do have to take out our debt service for our cash on cash return calculation.

26:45 So, we take our our positive cash flow minus our debt

26:50 service and then we're looking at the equity that we put in.

26:54 And I'll actually yeah, I'm going to give these all to you so that you

26:56 have it in a document so that you can see.

27:00 Um, and this just tells us how hard our money is working.

27:05 The uh debt service coverage ratio is another really important one,

27:11 especially if you're going out to get a loan.

27:14 This is what banks are going to be

27:15 using to determine whether or not they are going

27:18 to get paid back on the the loan that they are giving you for your DC DSCR.

27:31 You have to be over 1.2% for that.

27:38 And that's because banks don't really care how profitable

27:40 you are after you are able to pay back them.

27:44 Like how much revenue you how much how much how much net profit

27:47 you have after you've paid back your loan is really inconsequential to the bank.

27:52 Like you could be making two cents over and they're like,

27:54 "All right, well, we're getting paid." You know,

27:56 I mean, I say that, you know, kind of tongue and cheek,

27:58 but that's what your DSCR number tells you.

28:02 how how quickly or how um how how able how are you able

28:07 to pay back that loan from the bank and then what's kind of left over.

28:13 And so if you've got 1.2x for your DS DSCR, then you're doing good.

28:19 But again, the higher that number is, the better.

28:24 And so that 1.2 is for every $1 that you pay.

28:29 Every every $1.2 2 that you have, one of those dollars is going to the bank

28:34 and two of those dollars is going in your pocket.

28:38 If you have a 1.4 for every $1.4 $1 is going to the bank,

28:44 40 cents is going in your pocket.

28:47 So the higher that number, the higher that ratio,

28:49 the more attractive you are to the bank.

28:53 But typically they'll have a um like the threshold is like 1.2 1.2

29:00 25 and you can't get a loan if you can't beat that number.

29:06 Okay, so NOI, yield, spread, cap rates,

29:13 cash on cash, DSCR, those are the big ones.

29:21 So now that we have our rough estimates and our rough numbers and our performer,

29:30 we're going to stress test it.

29:34 So what that means is we are going

29:37 to run different scenarios based on different factors to see

29:43 how our numbers change and what that does to our NOI what that does to our yield

29:52 like what that how that impacts our profitability

29:56 and so when we're running stress tests that means we

30:00 are projecting based on our market research that our lot

30:04 rents are going to be $700 a month.

30:09 We didn't pull that number out of thin air.

30:10 We pulled it through research that we've done.

30:14 But in 6 months from now, we're going to go through a huge recession and people

30:19 are not going to have the money that they have.

30:22 Vacancy rates are going to go, you know, are going to go up.

30:26 And so our now our our situation has changed.

30:29 And so your stress test, you're going to take that market rate number

30:32 for your rent and you're going to say,

30:33 "If I don't get 675, if I end up having to get 650,

30:38 like what is that going to look like?

30:39 If I end up having to, you know,

30:41 so we're going to we we have confidence in the number

30:43 that we're plugging in, but we're seeing like what

30:46 happens to that number if external factors impact it." And we're

30:51 going to do the same thing with our vacancy rate.

30:56 you know, we're expecting the vacancy rate to be 10%.

31:01 But maybe because of our location, maybe because again external factors,

31:07 that vacancy rate is a little bit higher.

31:11 So what does that do?

31:12 If we have to if we have to anticipate having a higher vacancy rate,

31:15 our ramp up period, maybe it's not six months, maybe it's not nine months,

31:19 maybe it takes us a year and a half to get our village fully leased out.

31:22 Like what is that going to do to our numbers?

31:26 What about our expenses?

31:29 Like we again, we know like we're going

31:31 to estimate what those expenses are going to be.

31:36 Our taxes, we know what that's going to be.

31:37 That's not going to change much.

31:40 Property management cost, like what's that going to be?

31:44 trash, um, landscaping, you know,

31:50 we're going to, so we're going to get all those operational expenses lined up,

31:55 and we're going to say, okay,

31:56 what if I end up having to to spend more money on X, Y, and Z?

32:01 What if, you know, I live in an area where there's drought,

32:03 so I know that like my capex expenses are going up in the summer

32:07 because I'm using more resources to water my landscaping or whatever have you.

32:13 So, how can we challenge that capex number?

32:17 Um, you know, so that we aren't um we aren't surprised if there's any changes.

32:23 I mean, we should we don't you know, like I said,

32:25 40% for your operational expenses is is a good target.

32:29 Um, you know, so again,

32:30 if you're like finding yourself like maybe on the higher end

32:33 of that and you don't have any way to cut it,

32:35 then you know, let's look at some other numbers because

32:39 we want to have a little bit of flexibility there.

32:42 Um, and then the other thing that we're going to stress test is

32:46 our um our financing like are like what what are our financing terms?

32:54 We anticipate that we're going to get 6 and 12%.

33:00 That's really good.

33:02 But what if we get seven and a quarter?

33:06 So, we're going to look at stress testing our amortization and our financing

33:11 cost because that's going to have a direct impact on our numbers.

33:16 And so, you have like your best case scenario and then you go

33:21 in and then you say how like worst case scenario if this happens,

33:25 how does that number change?

33:26 And you're going to do that for all of those different categories.

33:30 And then we're going to see like does this does this really work?

33:34 like where where where is my biggest risk here?

33:40 Is it in my vacancy rate?

33:41 Is it in my ability to get my market rent?

33:46 Is my biggest is my biggest risk and based

33:48 on the type of financing that I have to get?

33:53 Like so where where are those hidden variables that we you know

33:58 again are hoping you know based on information not hopes and dreams based

34:03 on information that we have like this is what we're expecting but like

34:05 if things go wrong then like how do we write that ship?

34:12 So that's what we're going to do in our stress test.

34:16 And then all right let me get through the rest of this stuff.

34:24 So, here's where things go can go wrong,

34:28 and we've already covered some of this stuff,

34:30 but this is where things can can fall off the rails.

34:35 Number one is when we're making

34:36 projections that aren't based on actual research.

34:40 Our costs tend to be different than what we expected them to be.

34:44 So whether that's our market rents, whether that's our construction costs,

34:48 whether that's our impact fees, like we are guessing and not researching.

34:56 That can throw everything off if we aren't thinking about all

35:01 of the different categories of costs that we're going to have.

35:04 And again, for me, I think the biggest one that I see people not thinking about,

35:08 it's the carrying cost.

35:09 if you're going to have a loan.

35:14 Um because again like you got to pay that money back even

35:17 if it's interest only which a lot of construction loans aren't interest only.

35:22 Like girl the interest is where all the payments go.

35:26 It's like the principal payments on these loans are less

35:29 like this much and the rest of it is interest.

35:32 So, you think that you're like, "Oh, I got an interest only loan for 12 months."

35:36 Girl know how much is that cost going to be?

35:38 And have you factored that into are you going to be

35:39 are you going to be able to meet those carrying costs?

35:43 Um, you know, have you have you contacted the municipality

35:47 and understood what your impact fees and assessments are going to be?

35:51 You know, how much are your lawyer costs going

35:53 to be if you have to get lawyers involved?

35:56 Like how much are your s how much your permitting costs going to be?

36:00 you know, um because for every job, every construction job,

36:03 you've got to pull permits and most of the time you got to pull several of them.

36:07 So, like what are those permits that you need

36:09 to pull and then how much are they going to cost?

36:14 The other big big red flag or the things

36:18 that people miss is they don't go through that sensitivity analysis.

36:21 They don't do that stress test.

36:23 And so, again, they're projecting in a perfect world scenario.

36:26 And we rarely live in a perfect world.

36:31 The other thing that people tend to do is that they think about it.

36:34 Okay, from day one I'm going to be my 10 lots

36:38 are going to be leased out the day that I open.

36:42 I hope that happens for you, but realistically it probably won't.

36:47 There will be a ramp up period.

36:49 There will be a stabilization period.

36:52 What that is is going to depend on your market.

36:54 It's going to depend on your product.

36:55 It's going to depend on your marketing.

36:57 all of those things.

36:59 Um, and so we want to have a stabilization.

37:02 You know, nine months stabilization is good,

37:06 but we are not going to project that we

37:08 are going to be fully making all 10 lots, you know, rented out day one.

37:13 That's just not realistic.

37:15 And so, what does that ramp up period look like?

37:19 And again, how are we meeting all of those expenses?

37:23 How are we covering our debt until we

37:27 get to that stabilized point down the road?

37:36 Um, okay.

37:38 So, now let's talk about um let's talk about capital

37:47 stacks a little bit and then we can go to questions.

37:52 So your capital stack essentially is how the different

37:56 components that you put together to make your deal work.

38:04 That includes primarily two buckets, debt and equity.

38:15 Your equity are your owners.

38:19 So, it's you, it's your investors,

38:24 anyone who is putting cash into the project in order to make a return,

38:32 those are your equity partners.

38:35 And uh that equity has to come from somewhere.

38:43 So, it's either going to come from you personally or again,

38:48 it's going to come from you raising money with investors

38:52 because even if you go and you get a loan,

38:55 a construction loan to cover your to cover your construction costs,

39:00 you're not going to get a loan for 100% of your development.

39:05 You have to have skin in the game.

39:08 I think a good rule of thumb, it's going to depend on the bank.

39:11 It's going to depend on, you know, a lot of different factors.

39:15 I think a good rule of thumb is if you are contemplating you're

39:18 going to go out and you're going to get a loan that you can

39:21 expect the bank to loan 75% of what it is you're going to need

39:25 and you're going to come to the table with the other 25% in equity.

39:33 So, the good thing with with equity investors is

39:35 that they um that's cash that you're going to need,

39:43 but if you're taking on external investors,

39:45 not I'm not saying this is a bad thing.

39:46 In fact, it can be a really powerful tool.

39:49 If you're taking on external investors,

39:51 know that they are cutting into your overall profits.

39:53 They own a piece of the pie.

39:59 And then you have to be very clear and what that structure looks like,

40:09 what type of investor they are,

40:12 how they're going to get paid back,

40:15 like what type of returns that they are going to be looking for.

40:19 I would I would venture a guess to say

40:21 that if any of you are going out to do fundraising.

40:25 Um that it's probably going to be more friends and family type deal than

40:30 it is like going out and like trying to get like true equity investors.

40:33 But there is definitely a path for people to do that.

40:36 I haven't done that.

40:38 That's something I'm trying to figure out how to do because while I have

40:45 spent a lot of my own money in Popppler Creek and that's been good,

40:52 I only have so much money to spend and so

40:54 I can't keep putting up my own money to do this.

40:58 So, how can I find investors that buy into the idea,

41:02 buy into the vision and then give me their money to do it?

41:06 And you got I think I personally believe you

41:08 have to have a track record to do that.

41:10 I don't believe the internet hype that you can

41:12 go out and just get free money from anybody.

41:15 Maybe you can.

41:16 Um so that's your debt.

41:19 I'm excit no matter what you're going to have to pay them back first.

41:29 They're the first people you pay back before you

41:31 pay back any of your equity investors, anybody else.

41:33 before you yourself see a dime, the bank is going to get its money.

41:38 And so again, that's where that DSCR number comes in because the bank is

41:45 going to be looking at how what is your ability to pay me back?

41:49 If I loan you a dollar,

41:51 are you going to be making are you making at least a$120 to pay me back?

41:57 Um, and so there's different types of and I have and hold on, I have

42:03 a another document that I may be able

42:07 to give you guys too that talks about Yeah, I'll I'll give this one to you too.

42:16 Um, that talks about different types of um capital.

42:25 So, equity capital and um debt capital.

42:30 I'll I'll give this guy to you.

42:31 I have to format it, but I'll I'll give this to you.

42:33 So, I may not have this one to you today.

42:35 Um but there's a lot of different different types of institutional debt that you

42:41 can get um you know from your traditional loans or your traditional banks.

42:47 You can get loans from credit unions.

42:49 I personally think that working with credit unions

42:51 and small banks is better than working with some

42:53 of the larger institutions because they credit you with being

42:57 able to file and how they get things approved.

43:00 Um, you know, obviously every institution is going

43:05 to have more flexibility when you're dealing with smaller institutions.

43:15 specifically in my um saying the other type

43:22 I'm sorry we can't hear you too good.

43:26 It's been going in and out for like two or three minutes.

43:29 Oh, okay.

43:31 Can you hear me better now?

43:33 Like an internet buffing.

43:38 Okay.

43:38 Is it better now or no?

43:41 Yeah.

43:44 Wait, hold on one second.

43:45 Let me tell the kids just came back in.

43:46 Let me tell them they have Let me tell them they

43:48 have to turn the TV off for a second, I think.

43:50 Hold on.

43:50 Give me two seconds.

44:14 Thank you.

44:22 Okay.

44:24 All right.

44:25 Sorry about that.

44:26 Um, okay.

44:27 So, I was talking about uh institutional debt

44:31 investors and working with credit union, the smaller banks.

44:36 The other thing that you other the other type

44:38 of institutional funding is with uh CDFIS community funded development.

44:51 What is it?

44:52 What does CDFI stand for?

44:53 I always CD community development financial institutions.

44:58 How to write it out.

45:00 Um those they get their monies from big banks and what they

45:08 are able to do is deploy capital in more creative andor missiondriven ways.

45:21 So you can find CDFIs that operate across the country

45:25 and they say we our focus is on rural development.

45:29 our focus is on affordable housing.

45:31 Our focus is on whatever their focus is on.

45:35 Um, and they their underwriting requirements sometimes are not as strict

45:43 as you what you find with a large banking institution.

45:46 Um, so there's more there's more flexibility there.

45:51 The same is true for loans that are backed by like SBA or USDA.

46:00 With SBA and real estate, there's a whole bunch of rules.

46:04 I'm not don't purport to be an expert in SBA loans,

46:08 but when you're dealing in real estate,

46:11 you like the type of SBA backed loan that you can get is

46:14 very limited unless you are deriving

46:18 the majority of your profits from short-term rentals.

46:23 And then there's also if you're buying a a an asset that's already operational.

46:31 So, like if you're like, I'm going to buy an RV park and I'm going to convert it

46:33 into the tiny home village as it's still operating as an RV park,

46:37 like that could be something you can get an SBA SBA loan for.

46:41 But if you're like, I'm buying raw lands and I'm going to develop it,

46:45 likely chance you can't get an SBA loan for that.

46:49 USDA loans, again, governmentbacked, just by a different agency.

46:56 That's where you can start to target to see what's going to be available

46:59 to you in more rural areas because

47:01 they want economic development in those areas.

47:03 So you may be able to get infrastructure loans like we'll

47:07 give you a loan to put in your your septic system,

47:10 we'll give you a loan to connect to this, we'll

47:12 give you a loan for for that or whatever.

47:15 Um so USDA back loans are really good.

47:17 And if you anytime you can get a loan that's backed like again these banks,

47:22 they're not here for us.

47:23 They're here to protect their bottom line.

47:25 Um, and so a a government a loan that is backed

47:29 by the government agencies is more

47:31 preferable because again that mitigates their risks.

47:36 The other thing that we um sometimes you can look into is uh depending on when

47:42 you're op depending on where you're operating

47:44 and what the need is in that market.

47:48 Do you have any type of um um you know

47:54 grants or tax credits that can be applied to your deal?

48:00 I'm not going to get into low income

48:01 tax credit deals because those are very complex.

48:06 They are highly regulated like where the compliance

48:09 requirements for those are are pretty detailed.

48:15 Um, and they're very competitive to get like if

48:19 you I think tax credit deals can be really powerful,

48:21 but I can't teach you how to do that.

48:24 Um, but that basically is you if you're off if you're offer

48:29 if you're offering affordable housing

48:31 that meets the definition of affordable housing, then you can get a you know,

48:37 basically like the the taxes that you would be paying on the finished product.

48:40 like you don't pay those and you get tax

48:42 credits and then you take those tax credits and you

48:44 sell them to institutional investors and then they give

48:46 you the equity that you then use in your project.

48:50 Um so it's a powerful tool.

48:52 If you know how to use it,

48:53 I would recommend you get like a consultant or somebody

48:55 who can guide you through that process because I don't know,

48:57 I can't tell you about that.

48:59 Um but you may be able to talk with your municipalities and see, hey,

49:02 what incentives do you have that you can offer me

49:05 if I'm developing some land here that's going to provide housing?

49:09 Can you put in my my water taps?

49:12 Can you put in my sewer taps?

49:14 Can you give me some money for my roads?

49:17 Like, what type of economic development is that municipality engaging in?

49:22 And how can you then take advantage of that?

49:25 That's another good question to ask.

49:31 So, anytime you're putting together that capital stack,

49:35 right, for these smaller scale development deals,

49:38 you generally are going to have some mix of equity, some mix of debt.

49:45 I'm going to say you want to be 20 to 30%

49:47 in the equity button bucket and then you want to be,

49:52 you know, around 70 70% in the debt bucket.

49:57 So your question is how do I get enough equity?

50:01 Where is that equity going to come from that I'm putting in the project?

50:03 Is it going to come from me?

50:06 Is it going to come from other investors?

50:07 If it comes from me, where is it is coming from my personal savings?

50:10 Is it coming from a personal loan that I get?

50:13 Is it coming from home equity lines that I have access to?

50:17 Is it coming from other investments that I have?

50:20 Do I have an opportunity to trade one

50:22 investment for another investment through a 1031 exchange?

50:26 That's when you sell a property and purchase another like

50:28 property and you don't pay the capital gains taxes in it.

50:31 That's a powerful tool.

50:36 So, where's that de where's that equity going to come from?

50:39 And then once you have your equity and you

50:41 have your performer that demonstrates that you're able

50:43 to be profitable and pay the bank back

50:46 the money that they're going to get paid back, that's where your debt comes in.

50:52 And don't take no for don't take no when you when when

50:56 it comes time for you to approach banks and talk with banks.

51:01 You got to talk to a lot of them especially, you know,

51:04 because this type of model is different if you're doing tiny homes specifically.

51:10 Um it's not always going to fit into a specific bucket.

51:16 Um, you know, so you got to do a little bit of educating.

51:20 You got to do a little bit of convincing and you got to talk

51:22 to a lot of people until you can kind of they understand and say,

51:25 "Okay, well, so oh, it's like a mobile home park with tiny homes." Exactly.

51:28 Yes.

51:28 That that's how you want to classify it.

51:30 That's exactly what it is.

51:32 So, understand that you're going to have to talk to a lot of lenders maybe um

51:37 and that even even with even with the the equity

51:40 that you're going to be bringing to the table,

51:41 like there's going to be a personal,

51:43 you know, financial underwriting that's going to be involved.

51:45 You're probably going to have to be a personal guarantor.

51:49 You know, you're going to have to have good credit.

51:51 Like all the things that you would need just for for a loan.

51:53 All that's going to apply here.

51:56 And so again, depending on your own personal financial situation,

52:00 depending on whether you have a W2.

52:02 If you have a W2, that's like hold on to that.

52:06 If you don't, like I don't have a W2 and I got a loan.

52:10 It's not impossible.

52:11 that's a little more challenging because you don't have that guaranteed,

52:15 you know, paycheck that's coming in every week.

52:18 Um, so those are good to have or good 1099.

52:22 Um, so just think about like how you're

52:24 going to position yourself to to be favorable

52:28 when you talk to banks and you may have to talk to a lot of them.

52:36 All right, what questions do y'all have?

52:42 you were saying something.

52:43 Um, I'm sorry, Carla.

52:44 Go ahead.

52:45 You got your hand up.

52:48 Yeah.

52:48 Yep.

52:48 Go ahead, Carla.

52:51 Oh, okay.

52:52 Thanks, Terry.

52:54 Um, last week, uh, you put in the chat that you did Popular Creek

52:59 as taking over a current like RV park and that you had a construction loan.

53:08 So just looking at this module two where you

53:10 look at sample development cost um if you start with a mo RV park it takes out

53:18 a lot of cost like the um electrical water septic.

53:25 So then how much would you potentially

53:30 get a construction loan for after that point?

53:35 If you're taking over like a current RV park that let's say

53:40 it does have mobile homes and it has the hookups and stuff,

53:43 then what else are you constructing and how

53:47 much what does that look like at that point?

53:50 Because I'm considering that type of option.

53:56 So, okay.

53:57 Yes.

53:58 Um, so that's where your site design is going to come

54:05 into play because you may the mobile homes are bigger than tiny homes.

54:11 So, the number of mobile homes you can fit on the same plot of land is going

54:15 to be different than the number of tiny homes

54:16 that you can fit on that same plot of land.

54:19 And so you need to think about what is

54:22 your what's your vision for how you want your community

54:26 to be organized and understand that even if you

54:29 already have that infrastructure that's already there and in place,

54:32 you're likely still going to have to have

54:36 you're still going to have construction costs.

54:38 Like unless unless you have 10 unless you have 10 hookups for mobile homes

54:42 and the only thing you're doing is bringing

54:43 in 10 tiny homes in the exact same locations.

54:48 um you know, and even then you still may

54:50 need to do construction on how you're how you're hooking

54:53 up your water and how you're hooking up your septic

54:55 or your sewer based on what that county requires.

54:59 And so I wouldn't so so your your cost savings

55:03 come in because you aren't having to bring that on site.

55:05 It's already on site.

55:08 But that's not to say that you won't have any construction

55:10 costs once you take what's on site and you retrofit it

55:13 to what you want to retrofit it for so that you

55:15 have a site plan that works for what your vision is.

55:19 So compar comparing phase one and phase two of Popular Creek.

55:25 Phase one of Popular Creek I had this existing infrastructure.

55:28 I had some things that I already could leverage.

55:31 My construction cost was about 50% of what it is,

55:36 maybe a little bit less than what it is for phase two.

55:42 Yeah, my construction costs for phase two are more

55:45 than double what my construction costs were for phase one.

55:47 And that's because for phase two,

55:49 all of that was infrastructure I had to bring on.

55:51 I mean, I had I had power on site.

55:54 Yeah.

55:54 But I have to bring that power from location A where the transformer

55:58 is over to location B where the homes are going to be.

56:01 And the same for the water.

56:02 I already have a main water line.

56:03 I didn't have to bring that on or that already.

56:05 I brought that on the first time,

56:07 but I still got to get that water line over to where those taps are going to be.

56:12 So even if so, so so you're saving money because

56:15 you're not having to bring this on site and then

56:17 going in and kind of running some additional lateral

56:19 lines for your plumbing or going underground with your electric.

56:24 Like that's not that's going to be a less expensive

56:27 endeavor than having to bring everything on to raw land,

56:30 but that's not to say that you won't have any construction cost.

56:33 It's all that's going to be depending on what your site plan looks like,

56:37 what your existing infrastructure services,

56:40 and how you're going to get that existing infrastructure to your specific lots.

56:47 Okay, thank you.

56:51 Go ahead, Tara.

56:51 You had a question.

56:54 Um, you were talking about credit unions versus large

56:57 banks and you were um buffing a little bit.

56:59 So, can you go back to that?

57:01 I think you were saying that maybe credit unions are better um for loans.

57:06 I personally, that's my belief.

57:09 Nothing against the chases and the Wells and the Bank of Americas in the world,

57:16 but when you're dealing with larger financial institutions,

57:19 like you have to very squarely fit within one of their buckets

57:23 and you have to very squarely manage to their risk profiles.

57:29 And I credit unions have more flexibility

57:34 than your larger federally regulated banks do.

57:39 And so therefore, you may have opportunities in order

57:42 to kind of fit in in more gray areas.

57:45 And you have loan officers and banks that are geared, again,

57:49 credit unions are going to be geared toward a certain, you know, um,

57:53 you know, type of bank customer or or or type of um,

57:58 you know, maybe their mission driven, like all of those different things.

58:01 And so I find that it's it can be a little easier um to have more flexibility

58:08 when you're dealing with a a smaller credit

58:10 union versus when you're dealing with a larger bank.

58:15 I would talk to both,

58:17 but I mean my conversation with Wales was like 0.25 seconds and I used

58:22 to work for y'all too and I was like y'all treat me like this.

58:27 Um, so you definitely can talk to them and c and you can see,

58:31 but I think um I think I think generally

58:34 speaking you may have better luck dealing with smaller institutions

58:39 that have more flexibility and more of areas to kind

58:43 of pivot and understand the product that you're bringing to market.

58:48 Thank you.

58:52 So I wanted to just ask about kind of sequencing.

58:55 It seems like it's a chicken and egg thing in terms of, you know,

59:01 when you buy a house, a lot of the time the process is you get pre-approved

59:06 for a certain amount and then you go shopping for your house.

59:10 But it seems like with this you need to identify

59:16 um at least you know a a couple few

59:21 parcels of land or what your project is to be

59:24 able to come to a lender with some numbers.

59:28 So, I'm that's what I was trying to figure out

59:30 like what what should come first and you know this seems

59:34 like you it's absolutely not like buying a piece of residential

59:39 property but you but I I'm just trying to understand

59:42 how to think about it like going to see a piece

59:46 of land that you know is going to be well

59:49 above what you're probably going to get approved for even

59:53 if you have a you know looking at your capital stack.

59:56 So is it something that you kind of do in parallel

1:00:00 scope the financing and the land or what would you recommend?

1:00:04 I would I mean it's you definitely have to have um you

1:00:10 definitely have to have what your like you have to have enough

1:00:15 to go to the bank with right so it's not enough to go

1:00:19 to the bank with this with an I well let me take

1:00:22 that back I mean if you have a good relationship with a financial

1:00:25 institution if you've dealt with them in the past if you can

1:00:29 get you know a a letter from them that says hey we'll

1:00:32 give you money for this project like yes do that if you can.

1:00:37 However, um I think I think a lot of lenders are

1:00:42 going to be expecting you to come to them with, you know,

1:00:46 the exact details for a specific project and how that's going to play out.

1:00:52 And so, so that's going to Olivia, stop.

1:00:57 Turn it off.

1:01:07 I'm sorry y'all.

1:01:07 We're on spring break.

1:01:09 These kids don't know how to act, right?

1:01:11 Um, you're going to have to you're going to have to have enough details

1:01:16 around the deal for them to know whether they're going to loan to it.

1:01:19 And so, and that's why we want to negotiate like

1:01:23 as long of a due diligence period as we can, right?

1:01:27 Because the longer the due diligence period that you have,

1:01:31 the longer time that you can get the asurances that you need,

1:01:34 I'm going to be able to get through county or city with my resoning.

1:01:38 Like that's not something that I'm going to be guessing.

1:01:40 While you're going through your due diligence period,

1:01:42 you're collecting all of the market

1:01:44 research that you need about the demographics,

1:01:46 about your rents, about, you know, all of your your costs,

1:01:50 hard hard cost, soft cost, operational cost.

1:01:54 and you're doing all of that on the front

1:01:56 end before you actually purchase the property.

1:01:58 And so I was like, I I have a performer that I know that works.

1:02:02 I know based on like a rough capital stack split how

1:02:07 much I'm going to need from a for a construction loan

1:02:10 and what those carrying costs are going to be and how

1:02:12 I'm going to make those carrying costs throughout my construction period.

1:02:16 And so you kind of like the more information that you have because

1:02:19 a bank is going to ask

1:02:20 for your a three-year perform your three-year projections.

1:02:24 A bank is going to ask for your construction cost.

1:02:27 Like what does that look like?

1:02:28 Who are you paying?

1:02:29 How are you paying them?

1:02:30 A bank is going to ask for all of that stuff.

1:02:33 they're going to go out and they're going to get the appraisal on the property

1:02:38 that you have versus what the property is going to be worth once you finish,

1:02:42 you know, and all of that's going to be

1:02:44 factored into whether you get approved for the loan.

1:02:46 So, all of this information is really stuff

1:02:48 that you have to be doing within due diligence.

1:02:51 And so, you know, you want to so it it is a I mean,

1:02:55 it is a little bit of a, you know,

1:02:58 kind of a chicken or an egg game because, you know,

1:03:01 you you don't want to pull the trigger

1:03:02 and move forward until you have these asurances,

1:03:05 but you don't know you're going to have

1:03:06 these insuranceances until you go through all this work.

1:03:09 Um, and so the longer of a due diligence period that you can

1:03:12 negotiate or the more you can kind of check off that you know, okay,

1:03:17 I I know I can do this, I know I can do that, I I know I'll be

1:03:20 able to get through this hurdle like get through

1:03:22 those the gates that we talked about the last time,

1:03:25 like the better position that you're going to be in, you know,

1:03:28 when you um, you know, when when you buy.

1:03:30 And then the other thing is,

1:03:31 and I think we talked about this last time a little bit is,

1:03:35 you know, having a plan B.

1:03:37 you know, we want to begin with the end in mind.

1:03:39 And so, we want to know, okay, this is what I'm building.

1:03:41 This is what it's going to cost X, Y, and Z.

1:03:43 But if that falls through for some reason,

1:03:46 something happens and that now your plan has to change.

1:03:50 Like, what is your plan B going to be?

1:03:51 What is your pivot going to be?

1:03:53 Is it going to be I can develop this into something else.

1:03:55 I can sell this to someone else because this is going

1:03:58 to be a desirable piece piece of land for X, Y, and Z.

1:04:02 So if something goes wrong kind of how can I think about like what's

1:04:05 my exit strategy going to be you know if for whatever reason life happens.

1:04:14 No thank you.

1:04:15 That makes sense.

1:04:16 Um I'm gonna hop because I got to get to another meeting.

1:04:19 But thank you.

1:04:19 I got it.

1:04:20 I'll see y'all next week.

1:04:22 We'll see you next week.

1:04:23 Bye bye Domierre.

1:04:24 All right.

1:04:24 Hi Diane.

1:04:29 Hi.

1:04:29 This is all great information and I'm definitely going to have to look

1:04:33 at the recording again to make sure I have it all in my mind.

1:04:39 But you started with the name of a of Chuck

1:04:44 as the feas providing a feasibility study like

1:04:49 what percentage or how how much impact does that study

1:04:54 have on what you've already shared uh with us?

1:04:59 I is there more is it more comprehensive?

1:05:04 Is it like 65% of what he does and then we have to do the other third my my

1:05:11 talk to someone who can help do this for you and he

1:05:15 will walk you through the and you can do this on your own

1:05:17 and with the spreadsheet that I'm going to give you

1:05:19 and with the information that you have you can run these numbers yourself okay

1:05:25 and you can do this you can do this analysis

1:05:27 yourself working with somebody like Chuck is just having

1:05:30 an expert or a consultant on your side to kind

1:05:33 of help you to, you know, to to stress test go through the okay

1:05:38 and to go and to go through the process.

1:05:40 It's not required.

1:05:42 Um, you know, if you if you want

1:05:44 to have some of those additional asurances, you can,

1:05:48 but this is something you don't necess you don't have

1:05:50 to hire someone to do your feasibility analysis for you.

1:05:53 You can.

1:05:54 Okay.

1:05:54 Um, and and it may be, you know,

1:05:58 once you get to a point and once you feel like, okay,

1:06:00 I'm really comfortable and confident in the numbers that I've

1:06:03 put out in the in the formulas that I've done,

1:06:06 like I just need someone to kind of gut check that for me or to sec,

1:06:10 you know, get get a second eyes on it.

1:06:12 Then like you can use somebody like Chuck to do that, too.

1:06:15 Um, but he's he's someone who just kind of will will build a custom

1:06:21 uh study for you based on what it is that you are what you're doing.

1:06:26 So, if you come back and like, hey,

1:06:27 I and and in my analysis, I'm going to be having, you know,

1:06:31 a couple short-term rentals here and I'm going to be like,

1:06:33 if it's more complex than than the spreadsheet that I'm going to give you.

1:06:37 Um, then how do you factor in all of those costs and how is that all

1:06:41 going to impact your bottom line and get

1:06:43 something that's a little bit more custom?

1:06:45 Like you can definitely do that yourself.

1:06:46 You can hire somebody like Chuck.

1:06:48 You don't have to.

1:06:49 I mean, I I personally I

1:06:53 And the other thing is you'll when you're talking to lenders,

1:06:57 when you're talking to brokers, you know,

1:06:59 brokers don't necessarily work for one specific financial institution.

1:07:02 and they go out and they'll find whatever lender

1:07:05 is looking to lend for your type of product.

1:07:09 They're really good because they know what banks

1:07:13 want to see and they will help you

1:07:16 to position yourself and tell your story the way

1:07:20 that banks are going to want to see it.

1:07:23 Um, and so when you're working with those partners,

1:07:26 like they like leverage them as much as you can.

1:07:29 I mean, they are motivated because they want to get

1:07:31 you the loan because that's how they get paid.

1:07:33 Um, and they can kind of help you to understand like what's important,

1:07:37 what maybe, you know, you need to work on.

1:07:40 Um, so you can use that as a partnership versus using

1:07:43 it using that like as an end like an enduser like,

1:07:46 hey, this is what I'm thinking.

1:07:48 What am I missing?

1:07:49 Like where, you know, where where can I improve this story?

1:07:53 where does the risk, you know, lie based on the lenders that you're going to be

1:07:57 talking to and the type of products that they, you know, can offer me?

1:08:01 Like what do I need to focus on versus like what?

1:08:03 So, use those people as partners to kind of help you to flush out

1:08:09 the story and make sure that you are presenting it in the best way.

1:08:14 But folks like Chuck, you don't have to use them.

1:08:16 You definitely don't have to use them.

1:08:18 You can, you know, just like any consultant.

1:08:21 Okay, great.

1:08:23 Thank you.

1:08:25 When you say broker, you mean real estate broker, commercial lending broker.

1:08:33 Okay.

1:08:33 So, yeah, they work they don't work for one lender.

1:08:36 They don't work for Credit Union USA.

1:08:41 They have relationships with several lenders,

1:08:43 institutional lenders, private lenders,

1:08:48 you know, they have access to capital from different sources.

1:08:52 And what they do is they basically take your deal that you already have

1:08:59 pencled out.

1:09:00 And then they will shop it around and say, "Hey,

1:09:03 who can give me money here and who can give me money there

1:09:06 and where where can I find the right financing that I need?" Um,

1:09:11 and again, you know, having a couple of different brokers and you can find I can

1:09:21 give you a I'll give you all a couple of contents for brokers.

1:09:24 Um, you know, they they can kind

1:09:26 of operate in different markets at different thresholds.

1:09:33 you know, some of them like, "Oh,

1:09:35 I I can only find you a lender if your deal is $2 million or whatever." So,

1:09:39 sometimes you can kind of run into different capabilities

1:09:44 with what that broker the type of deals that broker brokers.

1:09:47 But, um, commercial lending brokers are very helpful

1:09:51 because they can take what you have and then

1:09:55 try to go and match you with a lender that that is going to lend to that.

1:10:15 Okay, I'm going to give you guys it's going to I'm

1:10:21 going to I'm going to upload the recording with the calculator,

1:10:27 the performer, the information Chucks information and then a couple brokers.

1:10:35 I will follow that up later in the week with some

1:10:40 of the specific calculations we talked about on this call and then

1:10:44 on the and on the debt and equity side because I've got a document

1:10:47 that's just I got to get my VA to form to format it for me.

1:10:51 Um so I'll get her to format that and then I'll give that to you

1:10:54 as well as the um the notes that I was referring to today.

1:11:00 Once you get your calculator,

1:11:04 go in and start playing with the numbers and seeing like how things can change.

1:11:11 And again um you know the other thing is is on the on the on the um

1:11:18 on the developer spread like take that number like

1:11:23 try to try to reverse engineer that number you know.

1:11:27 So, let's start with your um let's start

1:11:31 by looking for your market cap rate in your area, what that is right now.

1:11:36 Let's say that's 7%.

1:11:40 You know, then let's add our four our 4% onto that for our spread and, you know,

1:11:48 start to then think about like what kind

1:11:50 of numbers are going to get you to that threshold.

1:11:55 And that will start to kind of tell you

1:11:58 like where you need to be at a high level.

1:12:00 It's not going to give you all the information that you need,

1:12:04 but it will allow you to kind of reverse engineer and say,

1:12:07 "Okay, if I'm making these types of, if

1:12:09 my target is to make this type of a return,

1:12:13 then like this is what my operating expense,

1:12:16 this is what my net operating income is going to need to be looking like,

1:12:18 this is what my total development is going to need to look like.

1:12:23 And if I have an idea for like what those development costs are going to be,

1:12:30 now I know how much I can afford to pay for the land.

1:12:32 Do you see what I'm saying?

1:12:37 Take take the equations and kind of break it down and reverse engineer them.

1:12:42 Okay?

1:12:42 We want to start with our returns and then how

1:12:44 can we backtrack a way to get to those returns.

1:12:46 And again, we can play with those numbers a little

1:12:48 bit based on how much we're paying for the land,

1:12:50 how much we're paying for our construction costs.

1:12:52 what our expenses and all that stuff are going to be and just start

1:12:56 to kind of figure out like what ballpark are we going to be operating in.

1:13:03 So the proform is the calculator or that's separate.

1:13:06 That's separate.

1:13:07 The performer is where you go in and actually put your numbers in.

1:13:11 The calculator Well, I mean, yeah, it's they're it's the same thing.

1:13:14 The performer is just a more of a baseline document that's not meant to change.

1:13:19 The calculator is a dynamic document that changes

1:13:22 based on the numbers you put in it.

1:13:25 Okay.

1:13:28 Okay.

1:13:31 Look for I'll try to get this up today depending

1:13:34 on this Wi-Fi if it wants to work for me.

1:13:37 The recording up today.

1:13:38 Go back and take another listen and put your questions in there

1:13:43 so we can answer those because I know that this part is important.

1:13:46 And again, my brain turns to mush when I start thinking about numbers.

1:13:52 So, if you're anything like me,

1:13:54 we can we can go back and we can answer additional questions that you may have.

1:14:00 Okay.

1:14:01 Yeah, this was helpful.

1:14:03 Okay.

1:14:03 Very much.

1:14:04 Okay.

1:14:04 Good.

1:14:04 Good.

1:14:04 Good.

1:14:04 Good.

1:14:05 Very good.

1:14:05 Yeah.

1:14:06 So, we're going to pick up next week zoning because now at this point,

1:14:11 we've gotten a deal.

1:14:15 Now we just have to, you know,

1:14:18 get through zoning and we'll talk about that the next time.

1:14:23 So module three.

1:14:24 Yes, we need like bye everybody.

1:14:34 Have y'all got any more