Seth: And before I could tell him how great of a day I had, he fired me. The first three hours, all I could think about was, what did I do wrong? We just assumed, oh my gosh, 10 homes, we're buying it for $120,000. Oh my God, this has got to be a steal. And boy, were we wrong.

We ended up spending well over $1.5 million on this particular project. It's worth less than that. It was a million dollar loss at the end of the day.

How much money do you make doing this? Or how much money could a person make doing this? It sounds like a million plus per year kind of income from this. Am I wrong?

Or if you're not going to make at least half a million dollars on the deal, we said don't even bother, waste your time. You might as well focus on the bigger deals because it's the same amount of time and effort.

Hey, everybody, how's it going? This is Seth Williams. You're listening to the REtipster Podcast. This is episode 237.

Today, I'm joined by Brandon Cobb, the CEO of HBG Capital in Nashville, Tennessee. Brandon's journey is anything but ordinary. He went from working as a medical device sales rep to becoming a fund manager overseeing more than $22 million annually in land development for affordable homes.

Brandon specializes in sourcing off-market land, rezoning and entitling properties, and partnering with local communities to bring their visions to life. And Brandon has had his share of wins and losses, including losing over a million dollars on one deal and making $1.4 million on another.

Today, we're going to unpack what he's learned along the way. It's going to be fascinating. Brandon, welcome to the show. How are you doing?

Brandon: I'm doing fantastic. How are you doing, Seth?

Seth: I'm doing great. So why don't we start this off by going back to your early career in medical device sales. So how did you transition from that to real estate development and what made you want to make the switch?

Brandon: There wasn't something that made me want to switch. I was one of those guys in my early 20s out of college, one of the following my parents' footsteps, which was do exactly what they told me. Young guy in his 20s, all you want to do is make your parents proud, get a nice, safe corporate career, save your money, don't spend. I mean, that was me. And I was on that pathway.

It took me two years to break medical device cells. That was my dream job at the time. And unlike a lot of people, I love what I did.

I did not want to quit being in the OR every single day in surgeries, training hospital staff on my product, rubbing shoulders with orthopedic surgeons.

I hit it. I was doing what I loved and what I had dreamed. And then one sunny Friday afternoon around four o'clock, my boss said, hey, come on over to Starbucks. I want to talk to you. And I'd had a phenomenal day as a sales rep, one of the best days you could possibly have.

And I was excited to give my boss the great news about how much money I'd made him that day and on the doctor and the capital equipment trial. And before I could tell him how great of a day I had, he fired me. And I was shocked the first three hours. All I could think about was, what did I do wrong?

Thinking about the Rookie of the Year sales award that I'd just gotten not too long ago, all the blood, sweat and tears that I poured into that job. Right. And I wasn't just losing a job that day. As anybody knows, when you have a dream job, something you really, really care about, a career that you actually love, when that gets taken from you, you're more than losing just a job. You're losing your sense of identity.

So my sense of identity was wrapped up in that career. And all of a sudden, I wasn't good enough to do it. So where did that leave me? And so I was on this journey to just try to figure out what the next steps were for me, honestly, because I didn't know what that looked like.

So I had started several businesses that failed. I was like, well, what am I going to do? Well, I guess I could make courses on how to break into medical device sales. That's what I would have liked to do. There was a need for it. Had a lot of people reach out asking, how did you get into the industry? That failed.

I thought I wanted to be next to Tony Robbins. So I had this big life coaching thing. And Seth, you're not going to believe this, but not many people want to take life coaching advice from a 26-year-old.

Seth: That's shocking right there.

Brandon: So that flopped. And then I had a motivational blog where I was all about motivation. I was writing stuff that flopped. But then I discovered this whole tool called real estate.

Man, when I discovered it, I went all in. I started flipping houses, sold all my retirement accounts, was able to buy my first flip cash with a partner, drove an hour and a half every day. I was the general contractor. I was hiring subs off Craigslist. I made every mistake you could possibly imagine, but built that house flipping business up over the years into doing 30, 40 homes.

Then I transitioned into new construction, started our own general contracting firm, then started our own capital raising firm to really sell it. And through having that background in construction and building homes, we settled into land development.

We figured out, hey, it's really nice to be on the side of the table that Wall Street is cutting checks to instead of competing with them. And I'm talking about competing with the D.R. Hortons, the Lennars of the world, these publicly traded Wall Street funded companies. And we realized, oh my gosh, solve rich people problems. That's the business you want to be in, right? They write big checks.

Well, they had a checkbook that was blank and they could put as much money on it as possible. And so that's how we got into the land development and entitlement game.

Seth: Oh, crazy. So tell me about your first development. Was that your first big break? Like, did it go well or how was the transition going from flipping homes to doing that?

Brandon: It wasn't a night and day transition, right? So we were flipping houses, getting our feet wet with construction, you know, home renovation projects, those gradually scaled into doing these full-blown, okay, let's gut it down to the studs. So you got a foundation and a skeleton and let's redo it. And once you do projects like that, once you kind of build up, it's easier to do new construction than a lot of those projects. And so we had transitioned to doing new construction.

And the problem we had was we wanted to build more houses. And we were dealing with people that had a very dilapidated home where you could tear it down and build two of them in its place here at the downtown core. The city will go, and they will change the zoning on specific areas that they want to see developed. They want to entice and incentivize investors to pour money into it, to rehabilitate it. They'll make it more dense, so they'll change the zoning to make it dense.

Well, that's what was happening with these areas, and all of a sudden, investors were flocking there, tearing down the old crappy houses and building brand spanking new ones, two, three, four, five, sometimes ten in the place. And we realized it took just as much time and effort to talk to one homeowner that owned a piece of land that you could build two houses on, as it did to talk to somebody with a piece of land you could build 40 houses on.

And instead of us having to drive around to 15, 20 different separate job sites, we thought, man, it makes sense why all these big builders build on the same spot. When you can show up to the same area every single day, get the materials dropped off the subs, just have one spot to go. Holy cow, it must become a lot easier.

So that's when we started hunting those types of parcels, and we were putting all the roads, utilities, and the infrastructure into the project when we got a knock on the door one day. And it was from a national home builder. It said, we really like your project. We want to buy it. We said, get lost, not for sale.

And then they came knocking again and said, hey, look, we really want this project. We'd like to buy it from you. We'll give you this for it. And we said, sorry, not for sale.

And then they came knocking again, increased their price again, and said, well, what if we offered you this for it? And my partner and I looked at each other, looked at the offer and said, it's for sale. You can definitely buy it. And do you want the one across the street? Because we're going to develop and build that one too. We'll do it.

And so that was how it happened into development. So it was kind of accidental.

Seth: Wow. So tell me about these properties that are good for development. What does it look like? How many acres is it? If I was out there trying to find specifically a property for this purpose, what should be true about that or what should not be true about that?

Brandon: It all starts with the end buyer in mind. So what we've noticed is a lot of people who flip a lot of these vacant lots of lands, sometimes they'll come across a parcel that's right next to a development. And they're like, gosh, I see what I can sell it for, but I see what the next door person sold it for. How do I get this approved for that development? The wheels start turning.

I'll explain our strategy. Our buyer is National Home Builders, D.R. Horton, Lenar, etc. This strategy works for any niche real estate product, right? So I don't care if you're doing multifamily, if you're building storage units, whatever it is, you start with the end product in mind, and that's going to kind of dictate your area and what you're going after.

So I'll explain it through the lens of the national builders, because these are usually like the largest buyers in the area, right? You want to go where they are. That's it.

See how easy that was? I want to go pick out the areas that the National Home Builders are building, and I want to pick out the parcels that have access preferably to sewer. How do I know that without reaching out to the city and getting the sewer maps and everything, which you're going to have to do during your due diligence?

I call it hunting the large puzzle pieces among the small puzzle pieces. So I'm sure everybody in your audience listening knows what the GIS map is. They probably use LandGlide. They probably use LandID. All I'm doing is I'm identifying the areas that the national home builders are. And this is very simple.

You can go to Zillow, type in new construction, right? Put 2024 or newer, show you where all the new homes are.

Or you can go pull a list of your top 10 national home builders, go to their website. It has a map of where all their home communities are. They're usually in the same areas. You can do it that way. Or you can simply go to chat GPT, plug in a prompt, ask for all the new communities in an area and a list of national builders and they'll give it to you. So that's an easy way of finding it.

I want to go after those parcels that are surrounded by density. So it's like a bunch of tiny little bitty parcels like a neighborhood. And then boom, it's a big piece of land right next to it. That's the first step.

Seth: Now, how many acres would you say the typical property is? Like it's X number of acres and up.

Brandon: typically six acres and up, but that's only if you can get a townhome community on it because townhomes, we typically see about 12 units per acre. That's like the maximum density that you're going to be able to get. And so if it's five acres, six acres, that's somewhere around 50 homes.

The reason 50 homes is important is we typically won't see our buyer, national home builders, want to do any projects that are not at least minimum 40, 50 units. We prefer up to 100, but that's why we go after that particular type of deal.

We're not focused on the land that you can build three, four, 500 homes are. That's what the nationals are going after. But if you bring them a deal that's ready to go for 50, 100 units, they'll still buy it.

Seth: Yeah. I actually discovered a little hack to this kind of. So if you're using real estate data service like the land portal, for example, I actually just made a video explaining how you do this, but you basically figure out once you narrow down an estate and county or even a zip code, you can say, okay, I want properties that are between X and Y numbers of acres, and I want them to be owned by corporations, so not individuals.

You could even put keywords in there that you want the owner's names to have in them, like development or builders or construction and that kind of thing. And you can actually pretty quickly find out who these local builders are, whether it's like a mom and pop shop or a larger developer. So I'll include a link to that video in the show notes. If anybody wants to check it out, just go to retipster.com forward slash 237.

You've had great successes in this and some not so great experiences. Tell me about some of the things that fell apart. Like what's a bad story that you had to live through and what happened?

Brandon: I know we're talking about it before hopping on how we lost seven figures on a deal that we did. And I'll explain that. That was not fun. That was not fun at all.

We had a particular parcel that we're very excited about. It was in a community where we had already built a lot of homes and we could build, I think it was 10 townhomes on this particular parcel. And man, we were just so gung ho and excited about it. This was when we were new to the whole development game.

So we were buying lots and building houses. We weren't doing development. And I like to nuance development here. Development to me is doing the grading, the infrastructure, the sewer, water, utilities, the roads.

Building is when you're going vertical. So we were doing a lot of vertical stuff where the roads and everything were already in, and all we had to do was build the houses. This was probably our first ever land development project that we did.

And we made the number one mistake that we teach others not to do, which is we bought it before we had the entitlements in place. We bought it before we had our budgets. We just assumed, oh my gosh, 10 homes were buying it for $120,000. Oh my God, this has got to be a steal. And boy, were we wrong.

It was a lot of grading. It was a lot of dirt removal. We ran into a lot of redesigns. So we had hired a bad civil engineer, unfortunately, lesson learned there, who just did a poor job of designing it, had to fire him, hire somebody new. And we ended up having to put a half million dollar retaining mall in this project. It's like the Great Wall of China. It was huge.

And we ended up spending well over $1.5 million on this particular project. And it's worth less than that. It was a million dollar loss at the end of the day because we did not follow what we should have. We were very new to it. We should have waited to get all the entitlements in place, looked at our civil drawings, bid out our civil drawings and got all of our budgets together, our costs together. Had we just done that, we could have avoided the whole seven-figure loss. So not fun doing stuff like that.

Seth: It's really interesting what you say about the civil engineer. I had not a bad civil engineer, but one that I think I could have selected better when I was doing my self-storage facility. At the time when I was doing it, I kind of just figured a civil engineer is a civil engineer. They know better than I do. So I got to just do what they tell me.

But I remember as I was going through it, finding them making seemingly little mistakes that were actually very expensive mistakes if I hadn't caught them and kind of redirected and that kind of thing. I remember thinking throughout that process, like, man, I wonder if I could have selected somebody better who just like saw things in a different way and just didn't make these mistakes.

Do you know of any ways that you can tell a bad civil engineer from a good one before it's too late? Like, how do you know until you just start working with them and you see their work? Is there like a series of tests you run them through or you get referrals or how do you figure out and make sure that you're getting a good one?

Brandon: That is a great question. And yes, I've got an answer for you because your civil engineer can make or break it to you.

There's a few things you can do. Number one, civil engineering is very localized. So for example, we were working with a seller who brought us a lot and he's like, hey, look, I got this thing done for 66 lots. And he had hired a national engineering firm that put biopond, enormous amount of grading on here. I mean, they made it beautiful and perfect to national standards. You didn't need to do that. They over-engineered it.

You didn't need a $150,000 biopond or the grading to be 10 to 1 or whatever it was. You didn't need all that. So start local. The local guys know what the local challenges are.

And you can find highly recommended local civil engineers by your city planning department. So go find out who the planning director is. Figure out, hey, who do you guys work with? Who's recommended? Who does a good job? Because they know the civil engineers that screw stuff up to start there. That can reduce the risk.

The second is we interview multiple civil engineers. And what I'm looking for is the engineer to start talking about all of the local projects that they've done, the local nuances. We're working with a seller in Georgia right now. And I was showing him this because he had some proposals from some civil engineers.

And I said, look, we're going to go to the city. We're going to see who they recommend. We're going to interview those guys. And the interview was night and day from what he had received from these guys. We interviewed one guy who, oh, yeah, I've been here for 30 years. And this section over here is right next to this development that I did. You're going to run into this problem. Oh, yeah, that's a jurisdictional wetland above. That's a non-jurisdictional wetland below that. We'll be able to design around the non-jurisdictional. You're going to need to do this.

He knew the whole process start to finish. So I'm looking for that localized knowledge when I'm interviewing these civil engineers. That's going to be really key.

The other tip that I would give is build in deliverables by certain dates when you do the proposals. Because these engineers are working on a lot of different projects. And the biggest pain in this industry is, number one, the city working with them. But number two is the time frame it takes to design these developments. Have your engineer build in deliverables per date on their proposals. That's a tip that I wish I had known when I first started, because that holds them accountable to the process and delivery dates.

Seth: Those are great ideas. One thing I had learned, and maybe it depends on who your general contractor is, but my general contractor had said, hey, whenever you do this again, come to me first and we can use my civil engineer. Because I work with them all the time. We understand each other. They're local. in hindsight, like I totally would have rather done that. I don't think that alone solves every potential problem. I like your idea as well about talking to the planning department and that kind of thing, but great ideas.

Brandon: One more tip that I'll give, because engineers tend to be very proud of their developments. And unless you've done them before and you know how to value engineer them, I imagine if you're kind of new, you don't know how to value engineer a set of plans because you're not really sure what you're looking at. Go hire a third party audit to audit and review their plans. And then you can come back with those suggestions.

I wouldn't have the other engineer communicate to them because they're kind of proud. Like one engineer tell another engineer like your work sucks it's not going to go over but the customer can come back and be like hey look i think there's some areas we can save money here don't tell them you went and audit the plans but you can hire third party to go and audit the plans and give you some feedback on it so that will save you multiple six figures.

Seth: yeah that's a great idea how much do those audits cost about like five ten grand you know kind of at most so it's not a whole ton of money to get an audit done they might do it for as little as like three thousand dollars sometimes too. It just depends on how in-depth it is.

Well, it's a really good point though. I mean, you talk about that half million dollar retaining wall. I remember dealing with very similar things where like just one little design tweak easily costs you six figures, maybe a lot more than that. And having another set of eyes to like, just say, no, you don't need that. 10 grand is a steal. If they can find even a single thing like that to resolve.

Brandon: Yeah. It's important to get an extra set of eyes. This is when industry where you don't want to go fast. Do you want to cover all your basis.

Seth: You had mentioned earlier, just in passing, finding properties where the sewer is available. So I totally understand why you said that. But I'm curious why you specifically pointed out that in no other utility, like availability of water or electricity or anything else. Is the sewer like the most expensive to put in if it's not there? Or is that like the biggest deal killer if it's not there? Why do you say that specific one?

Brandon: You want electricity and water, obviously, stuff that the home's going to have. But those are usually very widely available. Like a lot of times you have water available in very rural areas that there's no sewer, right? Because you got homes out there that need it. So that stuff's pretty widely available. The reason for the sewer is the density.

So your ability to add as many units as possible to a development influences its value. And if you have to do a septic system or like a step system, you're not going to get as much density on that project. Now, I'm not saying that's a deal killer because we have a county here, Rutherford County, that just doesn't have a lot of sewer. But homes are selling with step systems and septic systems, and there's a lot of land. And so builders still want to buy it from you because homeowners want to buy the home from them.

So that's going to play a role in how valuable the property is. But most of the time, if you can get that sewer access, you're able to do four and a half single family residential units per acre. So those are usually like 8,000 square foot lots is what you can put on there. That's a typical size that we'll see for a very basic, affordable, entry-level house type of products that we design. That's what's going to allow you to get that density on there.

Seth: Yeah, that makes perfect sense. So we talked about the deal that didn't go so well. What about one that did go really well? Tell us about the one where you made $1.4 million on it and what made that deal so successful?

Brandon: A couple of things. It was a very simple, straightforward deal in a really great area. We were developing 36 townhomes and it was a great project. We were getting ready to go vertical. So we had like the roads, the sewer, the infrastructure, and we're feeling really good about it. We were about to submit to the vertical financing and we got that knock on the door.

We were probably all in on that particular deal for around $45,000, $47,000 a lot, somewhere around there. And we ended up selling it for $65,000. We were making about $20,000 per on it. And across the street, we owned a parcel that we could do not townhomes, but single-family residential homes. That was going to be like our phase two.

So they were kind of like the same deal. We're going to develop phase one over six months, phase two over the next six months. And the builder ended up just buying the whole thing from us. It was roughly about 70 units. And we made over $20,000 per unit at the end of the day on that deal. So that was a really good one. That's the kind of stuff that you like to see.

One of the reasons why I really like doing the land development and working with these national builders are the terms that they give you. These nationals do everything cash. And again, it's Wall Street, right? They got an unlimited bank account.

They're giving us a 10% to 20% deposit towards the purchase price. So, for example, on that deal that I just told you about, I can't remember what we sold the entire project for, but I want to say it was probably somewhere around $5 or $6 million.

We were getting a deposit for, I think it was 10% of the total project value. So they gave us $500,000, $600,000 up front to be used towards the development, free money, no interest. They just secured it via Adita Trust in second position behind the first position note. And that helps a lot with your cash flow and your IRR. I think it was like 20% of the project cost. Those terms help out significantly with how we structure these deals.

And we've got a whole thing on how we reduce risk on the development. You know, maybe we'll kind of get to that, but that's a big part about what we do. If we're going to do the development, we want to make sure that we've got the right buyer, the right deposit lined up.

Seth: Yeah, totally. So I'm assuming with all these projects you do, your involvement starts with finding the right property and then getting it rezoned if necessary, getting it entitled, all the plans and everything. But then you're out once you sell it to that home builder, right? Or do you ever stick with it all the way through till construction is finished?

Brandon: Yeah. So we've got multiple exit strategies and that's what I like about what we do. The first is the land entitlement. So we have deals where, and I'm going to try to simplify this. We line up a buyer during our due diligence period. We get them under contract. If we like the spread, we move forward with the land entitlement. If we don't, we don't move forward with it. I mean, it really is that easy.

I think a lot of people don't realize how easy this is. If you're out there and you're flipping land and you come across something, you're like, How do I approach this thing? We tell people, start with a concept plan. You know, a civil engineer can do it, but you got people on Upwork. You got people on Fiverr that can create these concept plans. Go to the city.

Go meet with your planning council, get that verbal, get that interest from them first, and then go to your builders and say, hey, look, I got buy-in from the city. Get that done. And if you've got your AB contract with your seller and your BC contract with the builder, that's kind of our permission to move forward with it. And so that's called just the land entitlement. So that's one phase that we do.

The second is land banking, where imagine you've got this parcel, we call it islands, kind of in the middle of all this development going on. And you know that once all this development finishes, all the land around it's going to be worth a lot more money. So we'll take it through the approval process, force appreciate it. That's part of our value add strategy, right?

When you take a piece of farmland and you turn it into a proof community, you add a lot of value, you force appreciate it. We might, instead of just selling it, know, hey, if we hang on this for a year or two, it's going to be worth even more money. So we'll just go to investors and we'll buy it and we'll hang on to it and we'll sell it. So that's kind of exit strategy number two.

And the third is we'll go find a builder that wants to buy the ready to build lots and we'll develop it for them. The builder, they like building. They prefer to build. So we'll put the roads, utilities, the infrastructure in and we'll sell off the individual lots to the builder. And so those are our different exit strategies that we have.

Seth: On that land banking thing, how are you so confident that the value will go up? What if there's a situation where interest rates suddenly spike and now nobody wants to buy it or it's too expensive? And how do you get really confident that if we hold on for another year or two, we will end up in a better spot than we are now?

Brandon: You're always going to have market risks, right? There's no getting around that. You're going to have your COVID events. You're going to have your black swan interest rate rises. The market might freeze up for a more valuable, right?

This is why my grandparents' home was $5,000 when they bought it. And your average home was $300,000 now in the United States. It's going to go up over time. So the key is not figuring out how to prevent those events from happening. We know they're going to happen. We know they're going to affect the value.

It's what de-risks or what levers can we build in to control the value of the asset? So lever number one was taking it from farmland to approved community. We had a lot of equity during that process. So that force appreciates the value. And every time we force appreciate the value, we're increasing our safety net, our downside protection. Because we know at some point the value of the asset is going to fall. But if it's gone up 100%.

Based on my entitlement, and it falls 25%, I'm not really worried about that. So in an area where you have a ton of homes being built, or maybe there's some apartment complexes, or maybe there's a large business that has moved in town and set up shop, and there's going to be a lot of jobs flowing into that. I look at it from money. Is money going to continue to pour into this area, or is money going to flock out? right?

Like when COVID happened, horrible event, but if your money was in toilet paper, you're fine, right? That stuff was flying off the shelf. So I think about it like that. Like, how do I be in an area where money's going to continue to go to? And if you have all this development, if businesses and people are planning on moving there and you see it, you know that money's moving to that area. It's going to make that area more valuable.

Again, no guarantees, but it's a very high likelihood that that piece of land is going to be worth even more money after all the development settles around it.

Seth: I mean, on that whole issue of selecting a property and knowing whether to sell now or hold, that kind of thing, a lot of this has to do with the market that you're in and whether money will continue flowing there in the future or whether it appears that that will happen. So what is your market selection process?

If you were to just hit the reset button right now and go out there and try to find a market to do one of these deals, what are you looking for in that market? What comes to mind?

Brandon: We break it down into macro, big picture, and then micro. And the micro has to do with the strategy. Okay, what asset class do you want to be in? We like affordable housing. Not big A, affordable government section 8. We don't do that. We don't want to be in that. We're in little a affordable, which is that entry-level home product, right? That $2,500 or less mortgage, that's what most first-time homebuyers can afford. So we're inventing new neighborhoods like that.

So we know what product we want to be in. If we're trying to pick out the market, I call it the follow the money strategy.

So first is, well, what kind of money flows are there? Well, you've got institutional. These are your Black Rocks and your big family office type partners. They've got lots of money. Then you have your large corporations. These are like your Amazons or your Facebooks, right? They can go build skyscrapers downtown to house their employees. You've got your small businesses and you've got consumers. So those are really the four types. That's how money is going to flow into an area.

And so you've got to look at, okay, what's the story behind a particular market? And how are those four types of money flows being affected? So let's look at institutional for a second. COVID sort of revealed this environment that we all knew was there, but it made it very relevant, which is you've got business-friendly states and you've got non-business-friendly states, right?

We had certain states, Cough Cough California, New York, shut everything down, shut the businesses down. I'm sorry, rent controls are in place. We're not going to let the market do anything. And then you had states like Florida, Texas, and Tennessee kept everything open, didn't shut everything down, business-friendly. I can't tell you how much capital has started to move here institutional-wise in Tennessee since COVID happened.

From 2010 to 2020, we had about $5 billion of institutional money building downtown. And it's really easy to figure out if institutional money is going downtown. Just go to like Crane Watch Houston or Crane Watch Nashville. If there's cranes building stuff, like you've got institutional money. Go look at hotels being built. That's all institutional capital, right? And so you can very easily see if institutional money is moving into a particular market. That's going to be your flag. Like, okay, this money is moving in there.

So we start with very business-friendly states for that reason. The second, you can go grab a copy of your local business journal, Nashville Business Journal, whatever market you're in, business journal, and see what large corporations are moving. ChatGPT is a great tool. We have Amazon, Oracle, Alliance, Bernstein, some monsters that have moved their headquarters to Nashville, Tennessee from places like California because they're sick of it. So if you've got large corporations moving here, they're bringing jobs.

Jobs bring money for the small businesses. Go look at the local commercial lease rent rate over five, 10 years. Look at what it's doing. If it's going up, that means you've got small businesses coming in and small businesses bring people, people bring money.

And then lastly, you've got your consumers. This is very easy. What's the population growth for this area? We like Nashville because it's been one of the top 10 fastest growing cities the last six, seven years, whatever you rate it. And so if you have people moving into an area, people bring money. So these are all factors that we look at when selecting market.

And we just happen to be in Nashville, Tennessee. So it's been a really great market for us because it hits and checks all those boxes.

Seth: Now, I know you pick affordable housing. I can think of reasons why you would do that. But what were your reasons for picking affordable housing as your niche to focus on?

Brandon: It was kind of funny. We had started with that when we were flipping houses. So we're doing a lot of these entry-level housing at these low price points. And things were just moving, man. They were flying off the market. And as we started doing more research and developing our thesis to go out to investors and raise money and do more of these projects. The narrative became very compelling around this particular niche.

So over the last four and a half years from 2020 to a little over halfway through 2025, two of those years, nobody built anything. That was COVID 2020. And that was late 2022, early 2023 when interest rates went up. I mean, complete halt. Two of the last two and a half years. No construction. Two historic events that have affected housing supply significantly. Tack on the logistical constraints on the availability to get products within a year after COVID. It reduced the ability to get supply into that market even when construction started again.

Now, if you go back a little bit and go research new construction starts, and just go back to the 70s. If you go to, I think, like the St. Louis Fed and look at new construction starts, you'll see that we never really recover from the 2008 and 2009 lows. New construction starts are just not caught up because so many builders and developers went out of business there.

And we're at a point now where millennials are at prime home buying age. So I'm a millennial. I'm the product of the baby boom generation.

So in the 1960s, a lot of babies were born. After the World Wars, you had this huge, massive population that was introduced. It had a lot of very positive economic repercussions. Well, that baby boom is now having children. And 33% of the home buying population is need an entry-level house. They need that $2,000 to $2,500 less mortgage, but less than 10% of the homes being built are little a affordable.

And so I don't need to be a genius to see, okay, we have 33% of the home buying population that needs this type of house, but they can't get it because only 10% of the homes are being built and they're being forced to rent. And so it's just basic supply and demand math.

This particular niche looks like it has a fantastic runway for the next three to five years.

Seth: Because I remember earlier when you're talking about solving rich people problems, but affordable homebuyers are not rich people, right? So I guess the rich people you're talking about are the homebuilders.

Brandon: Yeah. Wall Street. That's right.

Seth: When we say affordable housing, paint a picture of what type of house we're talking about here. Is this like double wide mobile homes or is this just like a small single family house or is it like duplexes or what are these residences that look like exactly?

Brandon: The word affordable, people have different perspectives of it. Some people think, well, that's Section 8 or government housing, right? The government subsidizing it. Some people think like, oh, mobile homes, that's affordable.

Trailers, kind of same thing. So there's a lot of different contexts people use it in. I use it side by side with entry level housing. That's where I have it. So people are trying to buy their first property. And that's usually what I'm talking about.

So what is that? It's usually a $300,000 to $380,000 home. Because if you look at rates and where they're at, that's like a $2,500 or less mortgage. That's what your typical blue collar combined income working family is. They're making somewhere around combined income, $7,500, maybe $8,000 a month. And again, most mortgages are one third or less of your income. So $2,500.

Times three, but your average monthly income of $7,500, $8,000 a month, that's where I'm getting that number from. And these houses are on the low side, 1,200, 1,300 square feet. Usually, they max out at about 2,000 square feet. You'll see a mix of products in these neighborhoods, different elevations or different floor plans that you've got. Again, it's usually builder-grade product. It's to get you in your first home.

Seth: Going back to this entitlement process, because that's one of the big things that you do. Do you take title to these properties before or after you bring them through the entitlement process? I'm assuming it's after, correct?

Brandon: Yeah, that was our big mistake that we did. The only time that I wouldn't is if the value of the land and the ability to move it without getting the entitlements is already there. In other words, the entitlement process could completely fail and I could sell it and at least to get my money back. That's the only time I would buy it before, but we never buy anything without those approvals in place. We put it under contract contingent on that outcome.

And again, one of the things that we do is we take the concept plan to the city, no engineered plans. We're not spending a ton of money on it. We're not doing any kind of studies or what a civil engineer might advise someone to do. We just want to get some feedback from the planning director or some of the council members on that. And if we get that buy-in, then we'll go shop it to the builders, get a contract, and we'll take it through.

And so what a lot of people don't realize is one of the tricks that you can do to really set yourself up for success and one of the things that we teach is go to the city beforehand.

Go to the city planning director. Sit down with them before you have something. Get to know them. What are the needs of the communities? What's something that developers have done to create a win-win for you in the city? What are the citizens complaining about? What type of products are you wanting to see?

And the reason why we teach to do that is because if you bring a townhome product to the city, but they're sick of townhomes, you just wasted all your time to bring them something that they don't want. So if you take the time to go visit the city and understand what it is that they're trying to accomplish their vision and how developers create win-wins, and you design something around those needs, and you're showing up with something later on and not a new face going, hey, look, I met with you guys. Y'all told me what you wanted, and I put it on here.

Your chances of success go up drastically. Go meet with your local city director. Go try to get a couple council members to go with coffee with you and just interview them and get to know them and get to know their needs. That'll go a long way for you.

Seth: That's a great suggestion. I remember when I did this, I was going at it from the standpoint of, okay, I bought this land and I want to build a self-storage facility there. And in my mind, like, that's what it's got to be. And that's a different conversation than going to them and asking them, what do you need? And figuring out what they need and then working with them. Even if you don't end up doing it, just showing them that like you care and you're not just like doing your thing, it speaks volumes. It's a great suggestion.

Brandon: A lot of your success has to do with what you do before bringing the city something rather than after. I'll give you another tip. Big mistake I see people make when they're first getting started. I probably get one of these once a month where someone realizes what we do, they know we're a serious buyer and they send us something. And I saw Platt, I think he had 43 townhomes on it.

And so he had taken this away. Like he had done some traffic studies. He had done some engineering on it. Like he got, I think the preliminary plat approved and was looking for someone to take it over there. Well, he spent all his time and money on it. And I looked at this and I noticed that it was an 11 foot wide townhome product.

And instead of having green space in the middle, he just shoved more townhomes there.

Seth: 11 feet wide?

Brandon: 11 feet wide. So he did what every developer who's new does, and he just tried to shove as much product on there as possible to try to make it as valuable as possible without any thought about how the community would lay, the people living there, how it would feel. And as a result, I knew that he wasn't going to be able to sell this to anybody because one of the other things that we teach and push is going and sitting down with your buyer and understanding what their product is, right? How big are the homes?

And if you do that, if he had done that, he would realize that these national homebuilders, they have a 20-foot wide by 50-foot wide product. They have a 22-foot wide by 45-foot. He would have designed it with their product in mind.

Because now he's got something he can actually sell. Nobody has an 11-foot-wide townhome product. So that's one of the biggest mistakes I see people make is they don't understand what their buyers want first and design the product to actually fit on it when they do it. And as a result, I mean, this guy was going to have to go back. And I'm sure he probably lost some money on it because he's going to have to cut the density in half and go through a full redesign. That's what you don't want to do.

Seth: Do you find that when you hear what the municipality wants, is that pretty much always in alignment with what the market wants? Or has it ever happened where it's like, no, the planner wants you to build this, but the market doesn't want that. Like if you build that, you're going to have a hard time selling it. I guess, is the planner a good predictor of success or not necessarily?

Brandon: No. And this is one of the pains about working in this industry is the people that are on that planning council. They're not developers. Now, some of them are, and I see why it pays to be on that council because you know what's getting approved and where, and you can kind of go buy land ahead of time and get ahead of that growth curve, and you can make a lot of money. That's why people sit on these positions.

Now, a lot of them are retired. You'll notice that it's usually older people, and they just want to give back to the community and make a difference. It doesn't mean they understand development. And so a lot of the times you're having to deal with council members that don't even know their own bylaws and they're trying to be like, no, we don't want this development, not in my backyard.

And their attorney's going, hey, it's zoned for this. You actually have to approve something. You can't just not approve it because you don't want it. And they're like, oh, OK. So you're dealing with people that are not the most sophisticated, that don't even understand what the process is. And that's very frustrating. But no, they don't.

And this is your job as a developer to sell them and show them the benefit of the highest and best use of a particular piece of land, because what they had in mind may not work at all, but they don't know that.

Seth: We've talked a little bit about how to de-risk this entitlement process. For example, don't take title until after the entitlements are done. What other risks are there? Another risk that comes to mind is maybe paying for all of the work to put together plans and all this stuff, and it still doesn't get entitled or something happens. What are some of the hurdles or roadblocks you've encountered? And in hindsight, how would you get over those things and avoid them altogether?

Brandon: Yeah. So we covered having your buyer lined up. That's really important, making sure there's a nice spread in there. We talked about the area to make sure there's demand for that area. We talked about how to select the right type of product. You're not going to go and try to pick a piece of land. You want to build a Ritz-Carlton 45 minutes from downtown. So we've done a lot of that.

Next is, well, what could possibly go wrong? So I'm a big fan of Charlie Munger and his advice is to invert. So write down what could go wrong and what would have to happen to make that happen. So let's think about it. Your buyer could walk. How do you prevent that? Make sure that you work with the right buyers. This is why we like to work with national homebuyers.

They have to buy it. They're a publicly traded company. They need the stock price go up. How does stock price go up? You build more homes and grow. If you don't build more homes and grow, stock price go down. Stock price go down bad, right? It's not rocket science. So working with the right buyer, but they could still walk. That's going to be a risk if you have COVID or interest rate rise.

Some of the things to do that is just be ready to buy it. If it's still a good deal, be ready to take that down and purchase that property.

This is why having that skill set to raise capital is so important. You need to be able to raise the capital on demand to be able to buy that project. So that's number one.

The second is understanding all the gotchas. So we had a project where the Tennessee department, they were in charge of all the roads. You've got to go and you've got to get every department to stamp it. So entitlement was this elusive thing to me. I want to try to take a second to really paint this in the easy light for your listeners.

I traveled to a third world country. I was over in Turkey. And it wasn't until I traveled over there that I realized why we have all of the entitlement processes that we do, all the ones I like to complain about. Because over there, there's so much corruption and there's no departments that are in charge of the signing ordinance. Anybody can put a sign up everywhere and it looks awful. There's not a stormwater department that is regulating stormwater for like a development. And as a result, you can see the difference in a third world country, not calling Turkey third world, but that in America.

And so think of it like this. When you're entitling something, you have all these different departments in the city whose job it is to make the development safe. So what are those? Well, you've got stormwater. You don't want it to flood and water to go in people's homes. And so their whole job is to make sure water flows through that community and doesn't hurt anything. You've got your fire department.

Looking at it, making sure that the houses are a certain distance from the power lines, making sure that there's ways to get in the homes in case there's a fire. You've got your water department, making sure you've got fire hydrants within so many feet that they can get to a home in case it burns down. You've got your public works, making sure that the curbs and the slope of the road are good.

So all these departments need to stamp your development and say, I approve this. It meets my standards. And that's why we have these amazing communities that we have today. So that's the big picture behind it. It's getting every department to approve your development and make sure that it is safe.

And so if you go through that process, you're kind of de-risking it anyway, right? But from an investment standpoint, if you've got your buyer lined up and you're willing to take it down afterwards and you've selected the right area, you kind of de-risk that a little bit.

But if you know all the different departments who need to sign off on it, you go to them ahead of time and look for any deal killers. We did one where they got us this highway department I was telling you about. Initially, they told us that the turning lane we were going to put into it was fine. And then later, they changed their mind and said, no, this turning lane needs to extend 1,100 feet down to the other turning lane. And that was a $900,000 cost.

Now, what could we have done? What's the lesson learned there? We should have got it in writing because if we've got something in writing, we can now do something about it, but we didn't. So these Otter AI, these Firefly AIs that automatically record all your Zoom meetings, that is going to be key to you when you're meeting with these city officials. You want to save all those meetings because we didn't have anything in writing. We didn't have it recorded. Had we been able to do that, we could have had some ammunition to go back and be like, no, guys, you told us this. This is what we did. We're at the end of the project now.

So meeting with all those departments ahead of time and recording it, that's another way that you can significantly reduce your risk. That's the big thing. We talked about the civil engineer too, right? You know, kind of screwing it up, go with one that's recommended by the city. There's a few dominoes that if you push those over, you've removed a lot of the risk.

Seth: Yeah. Your quick note there about using Otter AI or a Fathom is what I used. I agree. It's awesome. Like it's a super helpful thing. I don't know how I ever live without it, but it makes me wonder, should you not meet with people in person and insist on meeting on Zoom so that you can record these meetings? Is it that important that you should go out of your way to only do it on Zoom?

Brandon: I have not thought about that before, but as I'm sitting here with you right now thinking about it, depending on the type of meeting, yeah, it's better to meet with them over Zoom and get it recorded. Now, when you're first trying to build that relationship, I've talked about, again, let's say you're flipping a piece of land right now and you're wanting to do an entitlement project and you're like, man, you know, I think I've got something that's good here. Branded, it's six acres. There's a national builder in the area. There's density around it. I really want to see if I can make this deal work.

I want to simplify for you. Just get a concept plan created, take it to the city in person, find out who the planning director is and see if you can get that approval.

Bonus points is if you do it before. So go meet with them before. If you've got the piece of land, bite your tongue. Don't try to bring them anything and make it about me, me, me. Go meet with them beforehand in person. Build that relationship with them. Do what I said earlier about how do we create win-win solutions? Interview them. Build rapport. Their guard's going to be down because you're not bringing them asking for something. You're just trying to build a relationship with them. That is going to be huge. And then a week later, be like, oh, look, I found something. Can I meet with you again? You're going to have a lot more success if you take that first step. Do that in person. That needs to take place in person, face-to-face.

But if it is a project crucial step, if I'm meeting with the Tennessee Department of Highway, you know, whoever about this, if they're going to approve this turning lane as is or tell me I need to do something else.

That's when I would say, let's record something. That needs to be recorded. When you go to these planning commission hearings or the planning council members, they take the minutes. And so those are automatically being recorded. Like that's a public thing. Sometimes they even film it and put it on social media for the town to see. So you don't have to do that. But yeah, as you're going through each department and you meet with them, very important that you record all those.

Seth: Yeah. I hear a few different things that should happen as soon as possible. For example, finding the buyer, knowing who that's going to be. But then there's also meeting with the local planner and talking to them about what the community needs. But then there's also finding the deal that can work in the first place. So I'm wondering, what is the sequential order of these? What must happen first? Is it talking to the planner first or is it finding the buyer first or do you not do any of this until you have a deal? What comes first for you?

Brandon: Yeah. The biggest pain that people feel just starting out is not picking the right areas. So we talked about lining your buyer up. So I don't care if you're doing multifamily or storage, whatever, make sure you got your buyer first, right? And you understand what product they're going to put on it, right? For us, that's how wide do the lots need to be? How long do they need to be, right? I need to know what kind of density so that when I design this and I bring it to the city, I'm bringing something with my end buyer in mind, Right. That's step number one.

Step number two. And the reason we talk about going and meeting with the planning director is you want to find out.

Are they developer-friendly? Maybe there's a moratorium. Maybe there's been so much development in that area, they're not issuing any more building permits.

I'm going to stay away from that area because they need to upgrade their sewer system in order to get more houses. That's important. That's going to help you in identifying which areas to avoid and which areas that you want to go after. You've also got pro-developer councils, and you've got anti-development, where they don't want to see development. It's going to be harder. That's the next step.

So if we are in the area that our buyer is and the city wants development or the right kind of development, that tells us, okay, this is an area that we want to be in. We tell everybody to start in your backyard, right? Like that's a great place that you can kind of see, touch, and feel. There is a way to do this remotely, but it's more difficult. You're going to need some partnerships in place.

But those are typically the first two steps that we take is interview all of our end buyers, figure out what products they want. And then it's area selection, going meeting with the planning director, figuring out if they're pro-development, figure out if there's any moratorium, something that's going to kill a deal. And then from there, we can say, okay, this area is good. Let's focus on it.

Seth: Yeah. This step of finding a buyer, how do we know we have officially successfully found a buyer? Is it because they're committing to buying the property? Like, I will sign this commitment to buy it if you find it. Or is it just like, yeah, maybe. I might be interested in that. What level of certainty do we need to have to know that we have officially found a buyer or two or three?

Brandon: That's a great question. You don't have anything until you have a contract, right? That's going to be a pretty important part to it. We gauge it a little bit differently. And again, if you're first starting out, I would argue until you've got a feel for this contract is solid to tell you, you've got a buyer lined up.

We gauge it based off interest. We already know because we've interviewed our buyers, what they want, where they want it, their product. If I bring them something and I'm getting like five or six LOIs, LOIs is just a letter of intent and the sales reps following up with me every single week, they're texting me. I have a lot of interest on it. That tells me I've got something. right? Because I might not want to contract with somebody initially because I can make more money if I take it through and sell it once it's done.

But I can gauge my ability to liquidate that deal if there's a lot of interest on the project or if I'm getting crickets when I send it out and no one's feeding back. Well, there you go. So we base it off of how much interest we get when we send that concept plan that we've already gotten the verbal from the city on out to the builder buyers and seeing how aggressive they are with us.

Seth: If I wanted to contact D.R. Horton, for example, who exactly am I talking to there? Like, is there a job title at D.R. Horton that's in charge of buying fully entitled developments? How do I find this person?

Brandon: Yeah, there's two. So there's the land acquisition trip and there's the VP of land. I like to get in touch with the VP of land because they a lot of times have a lot more experience and they're the actual decision maker. Their decision to contract on it. There's a board that every national has to submit to after it's under contract and get their approval. But the VP is kind of the guy. So if you can get in touch with the VP of land for that particular area, that's your guy. That's who you want to get in touch with.

And I'll tell you a really great way to find those that we kind of teach is you've got LinkedIn. You've got all your social media stuff. A lot of times it can still be difficult to get in touch. If you Google, let's take DR Horton, for example, and you know that every email address at DR Horton is at DR Horton. dot com.

And you look up a couple of people that work there and you know, oh, like Lauren Henderson works at D.R. Horton. She's in the development department. Right. I don't need to speak to her, but I see that her email is like L. Henderson. I know how they format their email addresses. If I know the rep's name because I've found him on social media or Google, whatever it is, but I can't find his email and his name's Brandon Cobb. Well, I know that his email is probably bcobb at drhorton.com. And so we've had a lot of success with finding sales reps that way.

Another is you can call the sales rep at one of their communities. They have different sales. They have the sales reps that are in charge of land and the sales reps that are in charge of selling the houses, right? This is where the consumers get in touch with them. You can call that sales rep that does the home sales and just ask to be put in touch with the land acquisitions department that's another way that you can do it.

Seth: sure let's talk about the money quick so. Where are you getting the money to do this stuff? Are you using banks? Are you using private investors? Are you using your own money? I guess when we're talking about money, we're mostly talking about the money required to put together the plans, do any improvements like infrastructure, roads, that kind of thing if you're doing that. How often do you own these properties before you sell it to the builder? Does it happen instantaneously or is it like you hold it for six months and then you sell it to them?

Brandon: It depends on which stage. So stage one, if we're just entitling it and selling it, We line up our builder, buyer. We get a contract during the due diligence period. We get the earnest money deposit.

We're literally just selling it to them at closing. So we might double close on it where we go to our investors and literally I walk into an office. We buy it. Paperwork's done. Honestly, I don't even change rooms. They give me the paperwork to buy it. I sign it. They go record it. They do the transaction. They give me the paperwork to sell it. I sign it, do it, and boom. So that's a double close. I mean, you're literally immediately buying it and selling it. You could also assign it if you want, but a lot of nationals don't allow that. You actually have to close on it and then sell it to them. So that's one way when we're just entitling it.

The next is if we land bank it, we're going to investors saying, hey.

We're going to buy this property with 100% of your equity. There's no loans involved. There's no banks. It's 100% equity owned. Our monthly payments are $0. We have de-risked it completely, right? I can sit through COVID. I can sit through the interest rate hikes because we own that property with 100% investor equity and we can just sit on it through whatever. That's land banking.

The third, which is where we actually put the roads, the sewer, the infrastructure. We contract with a builder and we have them purchase to finish redeveloped lots. We're typically using the equity we've created by buying the land outright, plus the forced depreciation when we get it approved from farmland, new housing community to go and get a loan on the property. I'm not a big fan of bank loans. I know that they're very affordable. I would rather go to private sources and get the terms that I want to de-risk it. instead of using a bank loan. Because a lot of these bank loans are like 15 months or less. I want to go on a project that's going to take me 12 months. And I want to get a loan that's 24 to 36 months. Because I would rather have that safety net built in where during the banking crisis we had just a few years ago where all these original banks were going to solve it. They were calling the notes to a lot of their stuff. And you don't want that. You don't want your project sitting in the bank calling your notes. So we pay more for those type of loans.

But we roll all the interest payments into them so that we don't have these monthly payments for two or three years.

And we can afford to hold that project in the event that something happens. Perfect example, we had a 74-home project we bought in September of 2022. I don't know if you remember what happened in September of 2022. That's when everybody ran to the sidelines and freaked out because of interest rates. But we bought it with 100% investor equity.

So we didn't have to worry about the note being called due or these monthly payments and servicing the note. We just held it, waited a year and a half, market bounced back. We developed it, sold it, and everybody was good to go. So those are a couple of tools that we use.

Seth: No, that's super helpful. And when you're working with these private investors, what do they expect? What should you propose to them? If somebody is looking to do this, get money from friends and family or whoever, private money, what should they be ready to offer those people in exchange for using their money?

Brandon: Yeah. Everything's going to be on a deal by deal basis. I'm assuming you're talking about what terms to offer. So if you got a deal and it's going to be a first position, so you're going to make them the bank. There's no bank. There's no lender on it. They're going to be the bank on it. Typically, people are very, very happy with 10%, 12% returns.

That's what they would not get in the stock market on average. And it's secured by real estate. That is a typical return profile for the types of deals that we see. Now, obviously, past performance is no indication of future results, but I'd say that that's probably a healthy mark right there.

If you're going to raise equity and use that equity to go and get a loan on the property, big difference there. So now they're in second position to another loan. There's more risk there. That loan has to get paid off first before they can get paid. So you're going to have to offer them a higher return to accommodate for that risk. And so typically in development, we've seen anywhere from 15%, 16% all the way up to 25% for equity. It just depends on what you're building, which market, what the returns are. But yeah, you're going to pay them more.

But you got to think about it. If you're offering a 18% return on a million bucks, So you're gonna have to pay him $180,000, but that million dollars allows you to go get $4 million dollars. And that $4 million allows you to do a $7 million deal with $3 million of profit on it, okay, $180,000 to pay them is not a lot of money. So you got to look at it through that lens.

Seth: Yeah. Backtracking a little bit to earlier in the conversation. So if we're talking about an entitlement-only project, so you're not building roads, none of that stuff, you're just getting the entitlements and then selling it to a builder. For projects like that, How long do you need the property under contract to get that work done? Like how long does the seller need to agree to just sort of be on the hook for you? Is it like six months or longer or shorter?

Brandon: Yeah, we typically see 15 months or less as our successes. So we build that timeframe in. And then very important, we build in extensions. So we need to be able to buy more time. And so we typically like to at least build in another six months in those type of deals.

Seth: Is there any earnest money deposit or do you have to pay them anything while this is happening?

Brandon: Yeah, that's a great question. So this can get very expensive, but I want to talk through how we put down as little money as possible and the reasons why. We like to do $3,000, $5,000 on earnest money deposits. I don't like to have a whole ton of money tied up in deposit. And the reason is because we're going to spend money on traffic studies or geotech or phase one environmentals or the CDs. And I'm telling the seller, that is my earnest money deposit. That's my skin in the game. If I'm having to spend all this money to make your property more valuable, I need capital freed up to do that instead of give you $50,000 earnest money deposit. I can't afford to have $150,000, $200,000 tied up in this deal, Mr. Seller, on your million-dollar piece of land. I'm not going to give you a 20% deposit. That's ridiculous. I need the money to be able to do this. and I will release to you these studies as I do them. And that will be your earnest money deposit. I just did a $10,000 traffic study. Here you go. That's the same thing as 10 grand. I just did a $6,000 geotech. There you go. That's the same thing as six grand. Here's the CDs that I designed. It cost me six figures.

That's my deposit right there. That's six figure deposit. So those are the conversations we have with the seller.

Seth: Are there ever times where that owner needs to be involved in any way? In either the rezoning or the entitlement process, or can you just Act like you're them because you have it under contract.

Brandon: We've had times where they've had to sign off on some things. It's very, very rare. But most of the time, they're showing up. And that's one of the reasons they like this, to convince them to do this. One, you offer more money than their property's worth. And that's where the forced appreciation comes in. But they're showing up to these planning commission hearings. They're seeing the property go through. They're getting the feedback. So they have a sense that something's being done. They're not just kind of left hanging, per se, with no updates. They see that work is being done on this thing. That makes them feel like they're a part of this process. And there's not a whole lot that they have to do to get sign-off on.

If you go through this whole process and they don't want to sell it to you, they change their mind. You have a big, big problem there, right? Because they do need to sell you the property. But a lot of times, they don't have to show up and sign off on a lot of these approvals. Technically, you might be able to go away with getting somebody's property completely entitled, them not know about it, but they don't sell it to you, then that's going to be a big problem.

Seth: Yeah, totally. How much do you explain to the owner what you're doing, what your future plans are, all the stuff you're going through? Do they have to be pretty well in the loop on that stuff? Or do you almost want to not over-explain it to them?

Brandon: We explain everything, but we simplify it. My magic formula is to explain things as if they're three years old. Don't talk to them in that voice, right? Don't patronize them.

Seth: I'm glad you clarified that.

Brandon: Yeah. But we want them to understand how long it takes, right? What's involved in it. So like when I'm explaining civil drawings, they don't really know what that is. I'm like, well, do you know what architectural plans are for a house? They're like, oh yeah. Can a builder build a house without architectural plans? And they're like, no, probably not. Yeah, they need a blueprint to do that, right? Okay.

Civil drawings are the architectural plans that we need to develop the community. It's the flat underneath the ground, everything that happens. So I need that before I can close on this property. So they're like, okay, architectural plans for a house, civil drawings for the ground. That kind of makes sense. All right, gotcha.

And then we'll explain the approval process, right? Like right now, what's your property zoned for? Zone agricultural, okay? Go look up the comparables. What's agricultural land selling for? You probably already know, okay, I'm going to give you this price, which you like. Here's why and how I'm going to be able to do that. In order to give you this price, I need to get this approved for a community and make your land more valuable. And here's the process to do that.

And Mr. Seller, you're going to be invited to every single one of the hearings and the meetings so that you know that I'm actually doing what I said I was going to do.

Seth: Yeah. How do you find these deals in the first place? Are you just finding these on the MLS or something, or are you finding these off market? What is your process for seeking out these deals? You contact the property owner directly or let me understand that.

Brandon: Yeah. One of the things that we teach and there's a kind of double bar, I have yet to find the perfect piece of software where you click a couple of filters and it spits out this beautiful, perfect list of land that's ripe for development. There's some great tools out there. I think land portal is one of them. You can kind of scroll parcel by parcel really quick and have like a VA sort of pull out and do some light due diligence on the stuff that has like the wetlands of the streams running through it.

But we do everything by hand. We can build the lists. And this is not a spray and pray method. We've worked with a lot of people who flip land and they come to us and they're like, I want to learn entitlement. And my first thing is like, don't stop flipping land. You need cashflow for this business, right?

Like people who want to get started in development entitlement, whatever's bringing cashflow into your business, this is a supplementary type of transaction. This is where you can build a lot of wealth because the average deal that we do is a seven-figure deal, but it takes 15 months to pull off. You need cash flow for your business in order to survive through the timeframe that it takes.

So we teach going and handpicking the parcels in the particular areas that for us, like the national home builders are and you literally reach out to them directly.

And a lot of times you're getting a lot of great feedback because you're highly localized, right? It's not some VA in the Philippines reaching out to them. You might call 20 landlords and get a couple of meetings from that because it's very highly targeted.

It's, hey, this is Brandon. I was driving down Bell Road. So you're probably on 177. We've actually got a development in the area. We're kind of calling the neighbors and saying, hey, look, you know, things might get loud for a little bit. If things get loud, this is my phone number. Give me a buzz and let me know if we're being too loud. Cool. Hey, do you know anybody else in the area that might want to sell their land for development?

Something like that, right? I'm opening up the conversation. I'm not coming across as some spammer or somebody that's not in the United States. It's a very, very hyper-focused sniper approach.

Seth: So it's like cold calling them, like you're literally picking up the phone and talking to them yourself?

Brandon: Yeah, that's what we do. We use batch skip tracing. We pull their phone number. We go door knock too. So we go in the areas, we go knock on the door, nothing beats showing up, like somebody on your doorstep ready to do a deal.

Seth: Are you ever trying to get these properties at a discount or is that not really how you're thinking? It's more like no full market value or possibly even above full market value because I'm gonna make it worth more.

Brandon: Everything we do is above. That's one of the pitches, right? That's why we get so much interest. It's not this spray and pray giant marketing funnel or having to fill phone calls and look at hundreds and hundreds of deals per year. That's not us.

We're offering them so much more than the property is already worth because we're taking it from farmland to approved community. You're adding multiple seven figures of value a lot of times to those types of deals. That's why we get so much interest is they're like, well, how are you going to pay me that? And then we explain it.

Seth: How much more than market value do you offer?

Brandon: We have a little formula that we use and I'll share it with you right now. And again, this is kind of to ballpark it. This is not a set in stone formula. Every area is going to be a little bit different. Every market's different. What I'm telling you right now probably won't work for multi-gajillion dollar homes in California. I'm looking at this through the lens of like your first time home bar housing product.

Take the sell price of the home multiply by 25%. So if you have a $400,000 home, you're left with $100,000. That is probably what a builder is willing to pay for a developed lot that's ready to build. So let's say the builder is going to be the developer on it. They're going to want to make a little bit of money doing the So take 80% of $100,000 to the builder if they're going to buy this development from you. They probably don't want to be into that lot for more than $80,000 if it's worth $100,000.

Now, take your development costs and subtract it. So let's say your development costs are $50,000 a lot. But Brandon, how do I know that? Because you sat down with all of your builders and you interviewed them. And one of the questions you asked was, hey, what kind of development costs are you seeing? Give me a range, a flat piece of farmland versus something with a lot of topo and rock. Give me a range. And you're building that. So let's say it's $50,000.

You take 80, subtract 50 out. That's $30,000 a pad. That's what that builder's willing to most likely buy it from you for. So now let's just subtract our profit out. We want to make $10,000 per pad. So we offer the seller $20,000 per pad. Let's say it is a 50 acre farm and I'm able to get four units an acre on it. That's 200 homes at $20,000 a pad. That's $4 million.

I promise you that 50 acres isn't currently worth $4 million. Right? It's probably worth what? 10, 15 an acre, something like that. If they're lucky, that's how we do it.

Seth: Sure. No, that's super helpful. It makes total sense. It's just a very different mentality and mindset than what a land flipper is going to do when they're not doing anything to the land. It's just throw that all out and do this instead, if this is your plan. So it's helpful to know.

Man, I've got so many more questions, but we're like kind of up on our time here. So this has been awesome and a fascinating conversation. I am curious, just one last question. How much money do you make doing this? Or how much money could a person make doing this? It sounds like a million plus per year kind of income from this. Am I wrong? Or like if somebody's interested in doing this and they're wondering how lucrative could this be if I do everything right? What are we talking about here?

Brandon: So in our program where we teach this stuff, If you're not going to make at least half a million dollars on the deal, we said don't even bother, waste your time, because it takes just as much time and effort to take a 50 to 100 home community through the process as it does to do a 15 home or 20 home community. Right. So it's like you might as well focus on the bigger deals because it's the same amount of time and effort. The approval process doesn't change. Right.

And typically on the low end, we're making five thousand dollars per unit. We prefer to make about $10,000 per unit when we're just doing the entitlement. So we've got a 43-home community that we're taking through right now. We're making I think it's $12,000 per pad. We're right at that half a million mark. That's on the small end.

When we're developing, that's a different animal. We're going to see at least 20% gross profit margins on that deal, preferably 25%. So we've got a $10 million deal. We need to be making at least $2.5 million on that deal. So if it costs us $7.5 million, we want to make $2.5 million to get to that $10 million revenue number. That's what you'll kind of see.

Highly recommend people just start out with entitlement, though. Don't jump into development on your first deal.

Seth: Yeah. And on that entitlement thing, so I know we talked a lot about how to de-risk the deal. One more risk that comes to my mind, and maybe it's not a risk depending on how you do this, but say you have a national home buyer and they tell you what they want and you do all the entitlements, you provide the product that they want, and then you're just like, oh, I'm out. we don't want it anymore. Could that happen? Or do they sign a contract and pay you a chunk of cash before you start spending any money on entitlements? How do you make sure that nightmare scenario wouldn't happen to you?

Brandon: You can make money on deals that don't work out very easily. As long as you have their earnest money deposit is greater than your earnest money deposit, and they choose to back out of that deal.

And let's say that you can't come up with the money to buy it for whatever reason, and you got to back out too, you just forfeit your earnest money. They forfeit theirs. And there you go. You can actually make money on deals that don't happen, but it's very rare in the event that that's going to happen. It's going to be like a COVID type scenario or an interest rate rise. Like again.

Your buyer, they have to buy, they have to grow. So selecting your buyer is very, very important.

Seth: Sure. No, that's awesome. Well, Brandon, I'm just going to keep asking questions if I don't stop this now. So I know we're up on our time. If people want to connect with you or learn more about what you do, what's the best way to do that?

Brandon: There's two people that we service. One are investors. We work with a lot of successful business owners who want to invest in these types of projects. I think adding land to their portfolio is a really good idea. If you're trying to build a legacy, if you want to create passive income from stuff like this, you can go to hbgcapital.net. It's pronounced Harry Bob Gary Capital.net. We have a free ebook, 100 Questions Business Owners Ask Before Investing. You can grab it. It's free. It's designed to prevent you from losing money on your deal.

The other type of audience that we serve are people who want to learn this type of stuff. We've got a free course to get started, Land Development 101.

If you go to learnlanddevelopment.com, it's learnlanddevelopment.com. You can click on the button below the video. It says Land Development 101. You just enter your email. It's a free course, three hours on how to do these entitlements. And there's another three hours on how to raise capital for your projects. It's completely free, no strings attached, so you can grab those resources there.

Seth: That sounds awesome. I'm going to check that out as soon as we hang up here. So I will have links to all of that stuff that Brandon just mentioned. In the show notes, again, you can go to retipster.com/237, because this is episode 237. Brandon, again, thanks so much for talking with me. It was awesome. And listeners, thanks for hanging out with us. We will talk to you next time.