
Agents Building Cashflow
Surprisingly approximately 80% of agents want all the benefits real estate investing provides, including tax write-offs, and growing their family’s wealth but they never take action. This show will help you take that action so you don't stay stuck trading time for dollars. Since 2009 Randal McLeaird, has been a Broker and investor and had closed over 500 transactions as a principal. Randal and his guests are actually doing what you want to be doing, and they'll show you how. Join us Monday's and Friday's because you're a 6 figure agent who wants the power of passive income. Gain your time freedom back, take that trip to the exotic destination, increase your net worth, and move into the I quadrant.
Agents Building Cashflow
EP 174: 6 Risk Mitigation Strategies Every Real Estate Investor Needs with Brandon Cobb
The Founder of Nashville-based real estate investment firm, HBG Capital, Brandon Cobb, shares his journey from medical device sales to real estate investment and provides deep insights into land development, forced appreciation strategies, and exit options to maximize returns.
You will learn the fundamentals of creating value through entry-level housing and gain actionable advice for building a resilient portfolio. Tune in to discover how to strategically follow the money and capitalize on high-demand housing trends.
Key takeaways to listen to:
- Learning how to leverage forced appreciation in land development.
- Discovering the six layers of protection for safer real estate investments.
- Following the money to target high-growth markets with institutional interest.
- Partnering with municipalities to align developments with community visions.
- Building resilience with multiple exit strategies in volatile markets.
About Brandon Cobb
Brandon Cobb is the CEO and Co-Founder of HBG Capital, a real estate investment firm based in Nashville, Tennessee, managing over $22 million in new housing projects and build-to-rent communities. Known for his innovative approach, Brandon has been featured in publications like Forbes and on the covers of REI Wealth Magazine and Realty 411 Magazine. After a career in medical device sales, he transitioned to real estate, driven by a desire to take control of his financial future. This shift led him to develop recession-resistant housing projects and create lucrative investment opportunities.
Brandon's expertise lies in securing superior risk-adjusted returns for investors by employing a "follow the money" strategy and integrating multiple layers of protection into his deals. Through HBG Capital’s vertically integrated model, he manages everything from land acquisition to property development, while working closely with local communities. Brandon is also passionate about sharing his real estate knowledge and sees business as a means to create meaningful experiences with loved ones.
Connect with Brandon Cobb:
- LinkedIn - https://www.linkedin.com/in/hbgcapital/
- Website - https://www.hbgcapital.net/
- Facebook - https://www.facebook.com/hbgcapital
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[00:00:00] Brandon Cobb: We're basically a land bank. We're going after areas where there's heavy development. So if we buy a piece of land, and there's development all around it, and we hang on to it for a year or two, we've already force appreciated it through that rezone process, but having all that development unfold around it increases it even more, and so we can hang on to it for a year or two.
[00:00:19] Brandon Cobb: And then just sell it to another developer. We've probably got about 650 units right now that we're underwriting to do that under contract, and we're taking it through those processes.
[00:00:29] Intro: If you're a real estate agent earning 200, 000 a year, and you want to grow your passive income, This show is for you learn secrets, other agents use, and hear from experts in our field who will guide you on your journey to investing in assets like apartment communities.
[00:00:45] Intro: So you can take your commissions and turn them into cashflow. Here's your host, Randall. Let's dive in.
[00:00:51] Randal McLeaird: All right. All right. Welcome back. I've got a great guest on today. His name is Brandon Cobb, friend from past. We were in some masterminds together. And so it's great to catch up with him and hear kind of what he's [00:01:00] working on these days.
[00:01:01] Randal McLeaird: He's a CEO and co founder of HBG Capital. They are based in Nashville and they're doing a lot of affordable housing development from either just the land entitlement and sell off. So we cover all the different strategies that he's using, the four different strategies that they use whenever they go into a, to an acquisition.
[00:01:18] Randal McLeaird: And what they're looking to get out of it. We cover his six layers of protection that they're using now since COVID kicked in and how they're make sure that their investors are covered and we talk a lot about land development in general. So if it's a strategy that you're looking to get into, or you are already in and want to just glean a little bit more information on how they're working and how they're running their operations, this episode's for you, for sure.
[00:01:40] Randal McLeaird: If you're getting value out of the show, please go on rate and review helps us bring on awesome guests, just like Brandon. To talk about their businesses so that you can be a fly in the wall through these conversations and learn more. So, all right, let's jump into the episode with Brandon. Here we go. Hey, Brandon, welcome to the show.
[00:01:53] Randal McLeaird: It's good to have you on today, man. We've known each other for a while now from the different groups that we've been in. And so I'm excited to have you on the show and [00:02:00] just talk to you about where you are now, like what's happening in the market. And what you're seeing with the businesses that you're working on.
[00:02:04] Randal McLeaird: So I want to start off first, you have an awesome story coming from medical device sales into real estate. So why don't you kick it off? And just for those who don't know, you kind of high level that, that story, and then we'll dive in and actually talk about real estate. Yeah, man. No, it's,
[00:02:18] Brandon Cobb: it's really good to catch up with you.
[00:02:19] Brandon Cobb: We haven't done each other while I've really enjoyed following you and seeing all the awesome stuff that you've done. You've, you've really added a ton of value to your audience and you're doing some big things. Yeah. If you'd asked me eight years ago, Hey, Did you know you're going to be inventing new entry level housing communities?
[00:02:33] Brandon Cobb: I would look at you like you had eight heads. I had no desire to be a real estate investor. I had no desire to be an entrepreneur, quite frankly. I loved what I did. My job in medical sales was orthopedic sports medicine products. So if you had a sports related injury, usually a rotator cuff tear, labral tear, you know, meniscus tear.
[00:02:53] Brandon Cobb: You know, chances in you were going in and getting that fixed. If I was in the room, that meant that you were probably using my [00:03:00] products. And unlike a lot of people, I don't have this story where I worked in a corporate world, hated what I did, and finally had the audacity to go out on my own. No, I love what I did.
[00:03:10] Brandon Cobb: I never thought that I would leave my job. My boss was somebody that I looked up to. I really respect it. He was a mentor to me. And you know, he was like an idol. Like I wanted to be him. And I would tell him often like, you know, Hey, I want your job. And so, you know, I really felt like he was taking me under his wing and, you know, like a lot of people in their twenties, I was following in my parents footsteps.
[00:03:32] Brandon Cobb: My dad was a computer engineer, my mom was a Catholic school teacher, and they taught me, hey, you know, save your money and open up retirement accounts and, you know, be frugal and save your money and save your money. And so that's what I did. So I started, you know, in my HSAs, my Roths. Maxed out my 401ks and started stacking away for this, you know, 50 year journey to try to retire.
[00:03:54] Brandon Cobb: You know, I wanted freedom. I wanted to make my parents proud. Didn't want to be tied down. And, you know, I [00:04:00] just wanted to build this extraordinary life with no regrets. And then one sunny day in June, my boss said, meet me at Starbucks over on West end, I live in Nashville, Tennessee. And I was excited because I had a lot of really good news to share with him.
[00:04:12] Brandon Cobb: I had a great trial with this new doctor. I mean, it was like the best day I could possibly have. I'll never forget sitting down at Starbucks. And some of the first words out of his mouth were Brandon, I don't think that you're a fit for us any longer. I hope that you learn something from this. And those were the last words I heard before I realized that I was jobless.
[00:04:35] Brandon Cobb: I'd just gotten fired. And this was somebody that I'd looked up to, I'd respected, I wanted to be this guy. It was like a Mentor to me as a role model. And, you know, at that time I felt like I was being abandoned and honestly, I kind of, I kind of was at a certain point because I had these awesome sales awards six months prior.
[00:04:52] Brandon Cobb: I was so confused and, you know, after a lot of phone calls to my family and the shock just kind of wearing off, it hit me, [00:05:00] nobody was going to look out for my financial wellbeing, but me, it doesn't matter how hard you work for a company. Doesn't matter how much blood, sweat and tears you put into at the end of the day.
[00:05:09] Brandon Cobb: Nobody's going to look out for your financial well being like you do. And so that hit me like a ton of bricks. And so the struggle really began from that day. I. Like a lot of people who get fired, a lot of times your identity is wrapped up in that role. It's how you see yourself. And so a lot of people talk about the financial stress that comes from getting fired, all the external stuff, you know, lack of money.
[00:05:33] Brandon Cobb: What are you going to do for a job? Not much emphasis is placed on the internal struggle that happens as well. You kind of lose your sense of self, you know, like who you are. It's like, wow, what am I doing? Right. I'm not giving back. I'm not, I'm not doing anything. I'm not being productive. And so I really struggled with that.
[00:05:49] Brandon Cobb: It was a depressing period. You know, over that time, I was trying to figure out who I was and what I wanted to do next. I was going around to a lot of real estate meetups. I had started an online blog. I was like, well, [00:06:00] maybe I can do this motivational stuff. I really liked Tony Robbins. So I'd started a life coaching business thinking, Hey, you know, I want to impact the world and billions of people.
[00:06:09] Brandon Cobb: And I had an online medical device sales course that taught how to get into medical device. I said, well, you know, there's a couple of people who've reached out to me who have expressed interest in getting my knowledge to get into the industry. Maybe there's a business opportunity there. And I didn't make any money for six months.
[00:06:27] Brandon Cobb: I mean, six months, if you can imagine working 12 hours a day for free, that's pretty much what I was doing. And I wasn't getting anywhere. I didn't feel like I was getting anywhere, but then something amazing happened. I ended up getting a property under contract. There was a guy who called one of my, we buy houses signs.
[00:06:45] Brandon Cobb: And so if you can imagine those signs that you see, like up on telephone poles, I had this device where it would like staple a sign, like 10 feet up where people couldn't reach it.
[00:06:55] Randal McLeaird: And I was getting calls. Oh, yeah. Oh,
[00:06:58] Brandon Cobb: yeah, man. Old school. I mean, I [00:07:00] went out and like six hours a day, I was putting those things up.
[00:07:02] Brandon Cobb: I put out thousands of those. And what they didn't tell me was that you're going to get phone calls from the codes department. And I really started freaking out when the police started calling me. Because, you know, I'm this, you know, grew up with a Catholic school teacher. Do no harm. I was a very good kid.
[00:07:16] Brandon Cobb: Throw the book at me. I'll follow it. I was really freaking out thinking, Oh my God, I'm going to go to jail. I'm going to go to prison. What have I done? And, you know, working through all that, it did produce a guy who was facing foreclosure. He really. Needed someone to close quick. So I did some back of the napkin math at a with him and was like, all right, I'll buy your property for 85, 000.
[00:07:38] Brandon Cobb: And so I went and said, well, I need the money sold all of my retirement accounts. In the meantime, I had this partner who I had met doing the real estate meetup stuff and him and I decided to do this flip together. So he put up half the money. I put up half the money and I drove an hour and 10 minutes every single day to this property.
[00:07:56] Brandon Cobb: Okay. As a general contractor, managing [00:08:00] Craigslist subs can't never get subcontractors off Craigslist. I didn't know that at the time though, but ended up making about 30, 000 off of that flip and I'd given myself this ultimatum. I said, Hey, if I don't make any money by myself as an entrepreneur in this time period, I think it was like seven months, six months, seven months, I'll just go get another job.
[00:08:20] Brandon Cobb: That's the worst case scenario. And that's the key. I was comfortable with the worst case scenario of starting this journey. And so I said, I've made some money, so I got to keep going. And that's how I started my whole entrepreneur journey. And today, I mean, eight years later, let me tell you. Real estate's given me the freedom, not only external freedom, to be able to do the things that I want to do.
[00:08:42] Brandon Cobb: I get to take six weeks off a year, I travel, I do an annual mom's son trip, and it's always themed, she loves history, and so we go somewhere historic that she's never had the money to be able to go to before. I do an annual brother sister trip, something on my brother and sister's bucket list that just puts a, like, lights their face up.
[00:08:59] Brandon Cobb: I [00:09:00] do an annual father son trip, and a, and a buddy trip, and obviously trips with my wife. So I've been very blessed with this external freedom, but. The internal freedom as well. I no longer needed to feel like I needed to make my parents proud. You know, like I just didn't feel like I was tied down anymore.
[00:09:15] Brandon Cobb: And I was very comfortable with who I was. A lot of times when you start this entrepreneur journey, you feel like a fraud when people ask you what you do. And over the time period, I was able to build an undeniable stack of proof. That I was who I said I was, and I was comfortable taking that identity as being an entrepreneur and letting go.
[00:09:33] Brandon Cobb: So real estate really afforded me the freedom to do some
[00:09:36] Randal McLeaird: pretty amazing things. That's an amazing story, man. In the sense that it covers, I mean, you touch on the fact that you got into real estate and then how your identity shifted, right? or just solidified who you were. So, don't talk about that much on the show, but I want to dig into that because I think it's a, um, it's just a topic, right?
[00:09:55] Randal McLeaird: So, when you first got into like the six or seven months [00:10:00] where your identity was attached to medical device, I am the man, like I'm out, I'm crushing it, um, how old are you at this time? I think I was 27. 27, okay. So, And you skipped over something you're like, Hey, I was doing life coaching and then all of a sudden I had a property in a contract.
[00:10:13] Randal McLeaird: So if there's a portion of that, right, that again, I want to kind of touch on just a little bit, but you had saved some money, I guess, from the medical device. And you had gone into, okay, so again, anyone who, cause I've talked to guys recently, a lot of agents are going through, they're struggling right now because they are finding it difficult to, they're not getting spoon fed deals like they were recently if they were on a team or anything.
[00:10:37] Randal McLeaird: And so what advice would you give someone who is, is like kind of going through that transition of maybe having sold houses on a team or been with real estate? As an agent and now it's difficult and they're either trying to reposition themselves or they are maybe going into a completely new industry.
[00:10:56] Randal McLeaird: Like, how did you overcome that? And like, what advice do you have? Yeah, [00:11:00] it was tough. I'm not going to
[00:11:01] Brandon Cobb: lie because again, my identity was attached to that and all of a sudden it was stripped from me. So I was pretty depressed, quite frankly. There's something interesting about being passionate and feeling like a productive member of society when.
[00:11:16] Brandon Cobb: I lost that ability temporarily. I was struggling to get up past 8 AM every morning. I've never, ever struggled to get out of bed. I was getting up at four or 5 AM to go. I had to be in surgeries at like 6 30 AM and I'd go work out. And you know, like I was excited to wake up. I literally could not get up past 8 AM in the morning.
[00:11:35] Brandon Cobb: It was the weirdest thing in the world. My body was having a physiological reaction to the stress and the, and the. Lack of feeling like a productive member of society. And so I was watching like shark tank four or five hours a day. Cause I was like, well, maybe I'll get a business idea from this. And I'll, I'll tell you, it was kind of funny.
[00:11:53] Brandon Cobb: I watched this shark 10 episode. It was a guy. Who had a business selling messages on [00:12:00] a potato. I kid you not messages on a potato to people. And this was a successful business that got investment. I remember thinking if this guy can do it, if he can potato message, man can make money as an entrepreneur. I better be able to do that.
[00:12:16] Brandon Cobb: And so there's this interesting concept of the feedback loop. What really worked for me was. Taking action, just some kind of action because there's negative feedback loops. And there's this concept of positive feedback loops. The negative feedback loop is inaction. Leads to you feeling a certain way. And those feelings lead to more inaction, which leads to no results.
[00:12:41] Brandon Cobb: And there's no results lead to bad feelings, which lead to less action. And so you just kind of get stuck in this loop. I started taking massive action, like everything. Like, like I said, motivational blog, force and medical device cells. Wanted to be like a life coach. And then I was doing this real estate [00:13:00] thing too.
[00:13:00] Brandon Cobb: I was massive action. I did not have time to think about how things were not going well. It was just massive action in a direction. And I noticed that real estate was the first thing that started to take off and show potential. And as soon as that happened, I cut everything off. I love the pumpkin plan by.
[00:13:17] Brandon Cobb: Mike Michalowicz talks about to grow a giant pumpkin, you first have to identify the strongest pumpkin early on on that vine, and you immediately cut off all those smaller pumpkins so that all the nutrients can float at one pumpkin and allow it to grow. And that's what I did. So the short answer is taking some kind of massive action and seeing what plays out.
[00:13:42] Brandon Cobb: When I was taking action, I at least felt like I was in control and that allowed me to manage my mental state, which was the most important thing to do at the time.
[00:13:51] Randal McLeaird: Yeah. Fantastic advice. Yeah. It's one of those things. Cause I've gone through those periods as well. And every time it is like, I have to do something, I have to [00:14:00] get active, have to go work out, do this, do whatever it is you're taking action, moving in a direction.
[00:14:04] Randal McLeaird: So solid advice. Let's talk now. Right? So you, you got that one house, flipped it, made some money on it. You're like, okay, I'm stuck in real estate for the better. What does it look like today? Like, what are you working on today? And what is your business looking like? And I know, but I want to hear it. And then we can dive down that path and talk about how you've structured things.
[00:14:24] Randal McLeaird: Yeah. Absolutely. Absolutely.
[00:14:24] Brandon Cobb: Yeah, so today everything we do is focused on Entry level housing, affordable housing. And when I say affordable housing, I'm not talking about section eight or government funded housing. I'm talking about first time homebuyer housing. You've got less than 10 percent of the homes that are being built today or what they call entry level or affordable.
[00:14:44] Brandon Cobb: And when I say that I'm talking about a, about a 2, 500 per month mortgage. That's about what the new family who's looking to buy their first home can afford right now on average as a nation. So you have 10 percent of the homes being built that are affordable. Do you have over 33 percent of the home [00:15:00] buying population, specifically millennials that are crime home buying agents are looking for this opportunity and it's just not there.
[00:15:06] Brandon Cobb: So there's huge supply and demand imbalances. So that's where we're at, where we capitalize on this opportunity. We focus in middle Tennessee. There's a variety of reasons why we like middle Tennessee, but. No income taxes. There's over seven billion dollars of institutional money that's moved in here.
[00:15:21] Brandon Cobb: That's actively investing It's one of the top 10 fastest growing cities in the United States and has been the last seven years There's just tons of opportunity over 100 people moving here per day And so we focus on this area because we like the macroeconomic factors and we like the microeconomic factors For the entry level housing communities that we invent where we add value Is by working with the local municipalities in and around Nashville, Tennessee, where we pull up a chair on the same side of the table as the planning commission, rather than trying to shove some new idea or concept down their throat, we'll meet with them [00:16:00] and go, what is the vision for the community?
[00:16:03] Brandon Cobb: What's lacking? What are the citizens complaining about? Who are some developers that have done a good job of collaborating with the city? What did that collaboration look like? And so we want to try to help create the vision that the city has for itself. And again, we work with a lot of municipalities in and around Nashville.
[00:16:21] Brandon Cobb: And so our strategy is to identify those parcels of land that are not optimized and best use, and we do a value add strategy that happens before we buy it. So once we've identified these parcels of land, our goal is to take farmland and turn it into entry level housing communities, 50, Under 200 plus homes.
[00:16:41] Brandon Cobb: And so there's a lot of value that you create there. It's a forced appreciation strategy, very similar to, you know, multifamily or, you know, flipping houses where you might buy a multifamily unit, fix it up, increase the rents, force appreciate the property, or you buy a house and you renovate it and you force appreciate it, [00:17:00] we force appreciate the land.
[00:17:02] Brandon Cobb: By turning it from farmland into a housing community and we do it before we buy it So we're rezoning that land or we're entitling it and entitling it is just a fancy word for saying Getting all the approvals with the city and state in place to build a community there Once we've taken it through that process while it's under contract, then we purchase it.
[00:17:22] Brandon Cobb: Once we purchase it, we've got four different exit strategies, and that's like one of the six risk mitigation factors that we're really utilizing right now after interest rates have come up. And that's exit strategy. Number one. We're basically a land bank. We're going after areas where there's heavy development.
[00:17:41] Brandon Cobb: So if we buy a piece of land and there's development all around it, and we hang onto it for a year or two, we've already force appreciated it through that rezone process, but having all that development unfold around it. Increases it even more. And so we can hang on to it for a year or two and then just sell it to another developer.
[00:17:58] Brandon Cobb: We've probably got about [00:18:00] 650 units right now that we're underwriting to do that under contract, and we're taking it through those processes. Strategy number two is we will contract with a builder. This is usually a Lennar or a DR Horton, a national home builder. And we will pre sell the lots that we will develop.
[00:18:18] Brandon Cobb: And so another force depreciation strategy, kind of like a step one is a rezone, that'll force depreciate it. Step two, to add even more forced depreciation, is we will put in the roads, the utilities, the sewer, the water, the streetlights, and we will create this blank slate of a neighborhood that a builder can come in and he can actually build the homes on.
[00:18:43] Brandon Cobb: And what's cool is there's no. You don't have market risk or time risk because all of these lots are pre sold to a national homebuilder. It's going to build these entry level housing communities. And so we really liked that strategy. That's probably where we see the most opportunity right now, just because all these national homebuilders [00:19:00] stopped buying product from July of 2022 to about spring, June of 2023.
[00:19:06] Brandon Cobb: So we've probably got, I think 75 lots right now that were developed and we're we're slated to develop another 200 here shortly. That's exit strategy. Number two, the third exit strategy is actually. Developing the land and building the housing communities itself. And this allows us to obviously make even more money, but we can introduce that as a third layer in the event that that's the best option.
[00:19:31] Brandon Cobb: So we're picking, we're kind of cherry picking the best pieces of land for the best exit strategy. And then the fourth, and this was one that we really started to aggressively pursue in 2022 before interest rates rose. Was we want to be able to build, hold these housing communities for the long term tax appreciation, et cetera.
[00:19:50] Brandon Cobb: Those are what we do. And those are the four exit strategies that we're focused on.
[00:19:54] Randal McLeaird: So, all right, let's cover some of those. Let's go back one. You said you have a seat at the table, like when you're sitting [00:20:00] around planning zoning commission and talking to these guys, one, how did you get to a point where you were able to get that seat at the table?
[00:20:06] Randal McLeaird: Is it like. Hey, I'm a new guy. I've never done a development and I want to sit down or we've already done X, Y, and Z. We'd like to do this here. Like, how do you get that seat at the table? If anyone's looking to do this.
[00:20:16] Brandon Cobb: Yeah. So they'll meet with you and just so you know, it's much, if you live in a city like New York, much more difficult to go and actually just like meet with planning commission.
[00:20:26] Brandon Cobb: Larger metropolises like, you know, New York or Los Angeles, it's going to be more difficult to actually go and like speak with the planning commission. You can go down there. They more or less have like a rule book and they're going to follow that rule book. If you're in a major metropolis area, there's less politics involved and it's more, do you fit into this buy box?
[00:20:46] Brandon Cobb: We're going to the suburbs. So within 45 minutes of downtown Nashville, and so those local municipalities and even big metropolises like New York, they have districts where you can go meet with the district councilman who's in charge of that [00:21:00] district. They're in charge of running, you know, the neighborhood meetings, et cetera.
[00:21:04] Brandon Cobb: And you go meet with them and say, Hey, you know, is this something that you would support? So there's a decision maker that you are always able to get in touch with no matter what, whether or not you've done a development before, or you're new to it, you can go meet with those people and say, Hey, I'm new and I want to be an ally.
[00:21:21] Brandon Cobb: I want to be a resource. I want to collaborate and I want to help the city build what it's trying to. Okay. What does that look like? Pull out a map and they'll tell you. Every single municipality has a master plan of, you know, what they want to see and in what areas. And they'll share that with you. Cause again, that's the city's incentive.
[00:21:39] Brandon Cobb: They want to build this thing and they need developers like you to
[00:21:43] Randal McLeaird: help them go and do it. Solid. Okay. Yeah, there's a lot of that. I mean, in San Antonio, it's kind of the same. But then you go out to go to some of the other neighboring counties and it's you sit down you're talking to the guy, you're like, Hey, guy, you run the entire tax department [00:22:00] and you are the head of it and I'm talking to you, you know, so yeah, get out, have those meetings.
[00:22:04] Randal McLeaird: So let's talk about the different strategies again, and I want to kind of break them down and as to when you see it's fit, so land banking, you know, when you guys are going out and targeting these, these properties in general, how are you pricing? Like, I want to talk nuts and bolts about dirt and land development.
[00:22:18] Randal McLeaird: So how are you pricing those acres for and how much since you have the whole thing vertically integrated, you know, how much a percentage of the total project can be allocated towards the dirt. Right? So like, Break that down for me. And again, anyone who's looking to develop even small parcels, like how much should they be putting into the dirt on the overall cost of the project?
[00:22:41] Randal McLeaird: Yeah, great
[00:22:41] Brandon Cobb: question. So this is why I love the rezone process, because you, there's so much equity that's created when you take a piece of farmland and rezone it to other houses. That's going to correct any future risks if you do it right. So let me kind of just give you an example of a current community that we've got.
[00:22:59] Brandon Cobb: Our [00:23:00] Maple Crush community, for example. So we went in and we rezoned this piece of land. It was 20 acres, had one house on it. And we resented the 75 houses and we bought that at probably the worst possible time we could September of 2022, right? When all our buyers flocked and interest rates went up in the market froze for an entire year, basically.
[00:23:22] Brandon Cobb: We had rezoned that to 75 houses. The house was probably worth 360, land on it. Our conversation with the homeowners, Hey, if we could pay you 700, 000, would you be interested in that? He's like, well, yeah. How are you going to do that? And so that was our compelling value proposition to get her on board. And it works really, really well.
[00:23:43] Brandon Cobb: Funny how if you pay people double what they know their property is currently worth, they're going to do business with you. And so we ended up purchasing that land for about. 9, 000 per lot, something like that. So 9, 000 per potential home. And we knew that that was a really [00:24:00] good deal because we knew at the time our development costs were probably going to be around 50, 000 per lot.
[00:24:07] Brandon Cobb: So our all in cost on this community, we knew was going to be somewhere around 61, maybe 62, 000. And at the time we knew lots were going somewhere between 80 and 85, 000. If you look at that, that's a potential profit of about 20 to 25, 000 per lot. And if my all in costs are about 60, 62, and I'm making 2025, I'm over 30 percent gross profit margins on that.
[00:24:35] Brandon Cobb: That's a lot of runway. And if you look at it from a downside protection standpoint, The value of those lots would have to go from, you know, 80, 85, 000 down to my breakeven point, which was 60, 000. They hadn't been 60, 000 in a very, very long time. So that's like a 25 percent reduction in value. That's a pretty significant runway.
[00:24:56] Brandon Cobb: There's a lot of commercial real estate right now that had a 20, 30 [00:25:00] percent reduction in value after interest rates went up. And a lot of those operators are having to hand the keys back over to the bank. Because of that reduction in value. I can take that blow because of all the equity that I've created.
[00:25:11] Brandon Cobb: And what I love about doing these types of deals with our private investor partners is we own these deals outright. And so we bought that deal in September of 2022, but we were not in a distress situation. We just hung on to it with our investor partners. And we waited a year and a half, the market bounced back, the buyers came back, like we knew they would.
[00:25:32] Brandon Cobb: And now we're, we're probably halfway through developing those 75 pads and we've got a builder that's lined up for it. So those are the kinds of margins that we want to see somebody who's kind of new to this. It's a reversal strategy. You want to start with what is the finished pad price? So what are you seeing builders pay for a finished pad price in the area?
[00:25:53] Brandon Cobb: And then speak to some developers and get a range of about what the development costs are going to be. So if you take that finished [00:26:00] pad price, Just subtract your costs. Same thing, like, hey, what's the house worth after I fix it up? Fix it up, back out all your renovation costs, and then build in your profit, and then that's your offer price that you want for the land.
[00:26:13] Brandon Cobb: That's how much margin you want to have built in.
[00:26:15] Randal McLeaird: Yeah. Solid. Okay. So, walk through the process of contracting dirt. You paid double, right? Again, that was an arbitrary number. You doubled it or you said, look, I know that I can pay 9, 000 per lot. And as it was going to cost, we knew that we'd go up to probably, you know, 15,
[00:26:32] Brandon Cobb: 000 per lot on this gig.
[00:26:36] Brandon Cobb: So the value of that dirt, once we entitled it, we bought it for seven, but honestly, dirt was going for about 18, 20, 000 per paper. A lot. Paper lot just means it's approved, it's raw land, you can build 70 houses on it. So if you multiply like 20, 000 times 75 homes, you get a pretty good number right there, [00:27:00] right?
[00:27:00] Brandon Cobb: That's like probably worth 1. 4 million, somewhere around there. And again, we bought it for 700, 000. So that's a lot of equity that you've got baked into that deal. So looking at what we're all entitled land is going for in an area is a pretty good idea of how much room you can bake into your offer price.
[00:27:19] Brandon Cobb: And so we knew in this situation, we could have doubled our offer and it still would have been a good deal for us, but we knew we didn't have, we didn't want to do that, we knew that, Hey, let's offer them double what it's worth. And we know they'll probably go for that.
[00:27:33] Randal McLeaird: So, all right, let's break that down then, because that's, that's kind of what I want to touch on.
[00:27:36] Randal McLeaird: Sorry, I got sidetracked there. All right, so you offer double, right? And then the process of getting it entitled, what you say, look, we're going to pay you double, but we need a year to get this thing entitled, right? And then, hey, we need you to sign off on all the documents that are going to go to the county commissioners or whatever it is, right?
[00:27:51] Randal McLeaird: And so then you guys get effective control of the property. What does that look like as far as money going hard? Are you guys putting a lot of money at [00:28:00] title to keep that? Or is it, hey, your benefit is coming in the, in the two times price that you want. So just give us the time we need at, you know, five bucks.
[00:28:09] Brandon Cobb: That's right. We do whatever we negotiate with earnest money. We've done as little as a thousand bucks. We've done as high as like, you know, 20, 000. It just depends. And yeah, I mean, there, there is a significant waiting process, you know, a year, year and a half is what they're going to have to wait, but they understand it because we've explained that process to them.
[00:28:26] Brandon Cobb: And so they're, you know, getting a big payday on the backend and they want to cooperate because they know that they're not going to get this kind of offer. From a consumer or somebody buying the property as is.
[00:28:37] Randal McLeaird: Yeah. Okay. Awesome. Yeah, I just want to break that down on the how to. And then, so you mentioned a development cost in there just for listener.
[00:28:45] Randal McLeaird: That's the horizontal development, right? That is the infrastructure going in, putting the sewer septic, whatever you're putting in for those lots. To get it to the 60. So how did you decide on what is that? Number two, that's exit strategy. Number two of contracting with the builder to build out, [00:29:00] how did you guys decide on that exit on this one compared to just banking it or holding it and then selling it as a fully entitled lot?
[00:29:07] Brandon Cobb: Yeah, so on this deal, had we sold it as is, we would have probably made somewhere around, you know, 000, somewhere around there, which is really good money, but we knew we could make, you know, 25, 000 per lot times, you know, 75 lots, so more than double developing it. We had like five letter of intents to purchase from five builders, three of which were national home builders, so there's a lot of interest in this area.
[00:29:34] Brandon Cobb: Yeah. And we had the right investor partners lined up already. And so if we're going to decide to either develop a community or build a community, you know, the two things we look at first is do we have the capital and do we have the capacity? And those two things first dictate whether or not we're going to, you know, develop and sell something versus just entitle and sell the paper for entitling and selling the paper.
[00:29:57] Brandon Cobb: It's usually because we don't have the capital, or we [00:30:00] don't have the capacity, or it's just an area where we don't have the right relationships in. And that's what dictates whether or not we do that investment strategy. So because this was an area we'd already built a lot of houses in, we'd already had boots on the ground.
[00:30:12] Brandon Cobb: We'd literally just developed 150 lots around the corner and sold them, you know, over the last two years, we felt very comfortable with this area due to the demand for these finished pads. We felt comfortable doing that. And so these were the factors that played into us deciding to raise money and then develop it.
[00:30:28] Randal McLeaird: Got it. Okay. So let's talk about that then. I don't know how much you can talk about. I don't know what kind of raise you did, five or six B or C or something else. You know, JV, I'm not sure, but when you're talking about bringing on partners to do a deal, what type of returns, if I'm like, Hey, I want to get involved, you know, what's the juice, what am I getting out of this deal if I'm putting some money with you, man,
[00:30:48] Brandon Cobb: we
[00:30:48] Randal McLeaird: do two
[00:30:49] Brandon Cobb: different
[00:30:49] Randal McLeaird: types,
[00:30:49] Brandon Cobb: right?
[00:30:50] Brandon Cobb: So banking, the banks have kind of stopped lending on these pure land development plays. So in the 50 percent equity [00:31:00] from investors. And the remaining funds through the project would be debt. And so in that case, it's a 50, very, very low, you know, LTV value compared to some of your other real estate stuff, not a lot of leverage.
[00:31:12] Brandon Cobb: And so in that case, we were doing an 18 percent press to investors. And so as the lot sell off. Bank would get paid back first, investors get paid back their principal, plus their 18 percent IRR, and that worked out really well. When things kind of started to dry up and become more difficult to get bank financing, we now move to a model where I've had to raise 100 percent equity from investors.
[00:31:34] Brandon Cobb: And we've basically done a 12 to 14 percent private equity split right there. So it's a first position type loan where we own it outright with our investor partners. You know, we've done an equity structure. We've done a debt structure before, but it's a first position. And so those are kind of what we do.
[00:31:49] Brandon Cobb: It's either a, you know, we can come to the table and get all the money and own it outright with our investor partners, depending on the economic conditions. Like right now, I feel very comfortable. Owning these [00:32:00] assets outright with our investor partners. I give away more of it, but I've removed that market risk, right?
[00:32:05] Brandon Cobb: I can afford to hang on to it long term. That's what we're doing right now. I'm sure at some point we'll reintroduce the debt model where, you know, we bring in some kind of, you know, private equity, probably some kind of like private equity debt, most likely. We want something where we're able to control that debt for at least three years.
[00:32:24] Brandon Cobb: So I don't want people, I don't want the clock running out and, you know, 18 months or whatever, and, you know, then potentially calling the note due or having to get extensions. Like I want a three year debt term if we do introduce that, because that allows us time to move through whatever market economy we're in.
[00:32:40] Brandon Cobb: Like when interest rates rose, you know, it's, it hasn't even been three years yet. And we're already seeing the market kind of bounce back. And so, you know, three years is kind of enough time to do something if we do get some kind of, you know, black swan event like we've seen recently.
[00:32:53] Randal McLeaird: All right, break that down for me.
[00:32:54] Randal McLeaird: And you said you went from 18 per F to 12 to 14 per F on a partnership deal. Is there a back [00:33:00] end split? Like what am I, because it seems like your equity costs have gone down.
[00:33:04] Brandon Cobb: So when in the first scenario, 18% pref equity, right? So bank gets paid off first. Then you've got the 18% pref, and it's just straight 18%.
[00:33:15] Brandon Cobb: So we do a 100% waterfall to investors until they get their principle plus their 18% IRR, and then they're pretty much out of the deal. So there's no split above that. It's very simple. It's very straightforward, very strong pref. And so our company is able to profit on the remaining homes or the remaining lots that are there.
[00:33:33] Brandon Cobb: So once they're out of the deal, we profit on the remaining. It's a true incentivization with us and investors. So we literally can't make any money until the investors get all their money back, plus their 18 percent craft. Yeah. Yeah. That's if they're doing a debt equity structure. If we've got to raise 100 percent of the cost of that project, just from investors, In other words, we've removed that risk of the debt money coming in, goes to the investors [00:34:00] first.
[00:34:00] Brandon Cobb: You know, we aim for 12 to 14 percent IRR for that deal. Same thing for F equity. We're going out, they're getting paid first. Once they're out of the deal. And we profit on the remaining lots that sell or the remaining homes that sell.
[00:34:14] Randal McLeaird: Okay, let's cover then, I know you talk about the six layers of protection that you guys are in now.
[00:34:19] Randal McLeaird: We haven't really touched on that all the way and or the follow the money strategy. Those are two things that we can touch on and it sounds like One of the layers of protection are the number of exit strategies that you have going into a deal. So why don't we cover all six of them and we can either dive into them or just, just at least lay them out so that listeners know and they can put this to work in their strategy that they're working on as well if they can.
[00:34:44] Brandon Cobb: Sure. So we've, we've touched on a few of these and so we'll kind of go into a little bit more of the ones we haven't. But number one is multiple exit strategies, right? We've already explained how we can go and just sell the entitled paper, develop and sell lots, build and sell homes or build and rent homes.
[00:34:59] Brandon Cobb: That [00:35:00] second is the controlled debt, right? I'll talk about how we really want to have debt that. You know, it's three years out, or it's some kind of privatized debt where it's our basically investor partner debt, where we own these outright with them, or they're coming to the table with the full amount needed to do the project.
[00:35:16] Brandon Cobb: The third is going to be the ability to hold. And so I talked about how we'd bought this piece of land. Worst possible time, September, 2022, but because we bought it with our investor partners and we didn't have any risky debt introduced to it, we owned it outright with them and we had the ability to hang on to it and that paid dividends because we were never put in a distressed situation, right?
[00:35:39] Brandon Cobb: So that, that's very important. You want to be able to hold on to whatever asset it is. The fourth, and we've kind of touched on this is you want to be able to force appreciate the value of that asset. You want some kind of control. Over the value of it. And so we do that through that rezone process. And again, we talked about how you can fix up a house.
[00:35:56] Brandon Cobb: That's a way to force appreciate it. You can fix up and [00:36:00] increase rents on an apartment complex. That's another way to increase the value of that. You want some kind of forced appreciation play. So that's the fourth right there. The fifth, and we've touched on this a little bit, you want to be able to control time risk.
[00:36:13] Brandon Cobb: The longer that asset sits on the market, waiting for it to sell, the more risk is introduced. And so what I really like. about introducing these build to rent funds, build to rent funds that will purchase these houses that we built or builders that will purchase these developed, ready to build landlots is you've eliminated the time risk.
[00:36:37] Brandon Cobb: You've got it sold before you even stick a shovel in the ground. And so that helps mitigate a lot of the risk having that end buyer lined up. So that's the fifth one. And then the sixth, which we've touched on is the downside protection. How far can that assets value go down before you break even on the deal?
[00:36:55] Brandon Cobb: And that's really what I hammer home with a lot of investors who [00:37:00] hop on calls with us. And one of the things that it's a, some of the astute people ask is at the end of the call, they go, was there anything that haven't asked you that I should smile? And I say, you can always be asking no matter whose deal you're evaluating.
[00:37:14] Brandon Cobb: What would have to happen for a breakeven event to occur? I mean, just to get the capital back. Not make any money, just breakeven. And so, with this land development play that I was explaining, You'd have to see the value of those lots drop from 80, 000 to 85, 000 per lot down to about 61, 000, 62, 000. It's a pretty significant drop in value.
[00:37:36] Brandon Cobb: I think, you know, 25%, something like that. And so, you don't want to be in these deals where if you get an 8%, 10%, you know, 12 percent drop in value, you're breaking even. Like, that's just not enough leeway. That's why people are getting completely wiped out. With their real estate investments right now is because there was no downside built into the [00:38:00] underwriting of these deals.
[00:38:00] Brandon Cobb: They just thought that operates, we're going to keep going down and interest rates were going to keep going down and the market, we're going to keep chugging along. And then we get this black swan historic interest rate event and boom, all of a sudden you got 2 trillion worth of distress debt hitting the market.
[00:38:14] Brandon Cobb: And all these articles coming out about San Francisco, downtown buildings, going back to the bank. Texas portfolio is going back to the bank and I think that we're going to see a lot more of that. So that's number six is you want to make sure there's plenty of downside protection built into that deal.
[00:38:29] Randal McLeaird: Yeah, solid. Great advice, man. Let's talk about follow the money because you alluded to this earlier and like we're in this market because X, Y, and Z so many factors are coming into your market where you are. So how should we follow the money? Yeah, so this is a way to
[00:38:46] Brandon Cobb: simplify an investment strategy because there's so many things that are thrown out there.
[00:38:52] Brandon Cobb: There's so many different types of investments, stocks, bonds, real estate. I mean, in fact, in real estate, you've got multifamily, [00:39:00] commercial self storage, single family, small multifamily. There's so much confusion because people are getting thrown all these different ideas on what's best and all these gurus telling them what's best.
[00:39:12] Brandon Cobb: The reality is what's best. Is going to be whatever you're able to focus on and whatever asset classes and areas the money is moving into. There's no right or wrong answer here. I, I joke that the, the best investment advice I've received is invest in things, you know, and understand or things that money are moving into.
[00:39:32] Brandon Cobb: So what, what are the money? Like what's the follow the money, Brandon? There's four different types of money, right? You've got your institutions, you've got your large corporations, you've got your small businesses and you've got your consumers. That's where the money is. And so you've got to look at it from a very holistic, high view, macro level, like what areas is the money moving to?
[00:39:55] Brandon Cobb: And then you've got to look at it from a more micro level, more [00:40:00] ground level approach. What asset classes are money moving into? If you can do that really well, it doesn't matter what economy you're in, you're going to do okay, right? I joke that restaurant industries and hospitality got hit very hard during COVID.
[00:40:15] Brandon Cobb: Had, you know, there's money coming out, right? People were not booking hotels. People were not in Airbnb. They were not vacationing, but man, were they buying toilet paper? Like if you're from toilet paper, you were good at the time. If you were invested in zoom applications, online meetings, you were doing fine.
[00:40:31] Brandon Cobb: That's an example of money moving from one area to another. And so if you're looking at the United States and you're wondering, okay, what areas are benefiting most from this movement of money, where the institutions going, where the large corporations going, where the small businesses going, where are the consumers going?
[00:40:50] Brandon Cobb: First step is. You've got this new playing field. COVID revealed an environment that we all knew was there, but it just made it very evident. You've got business friendly States and you've got [00:41:00] non business friendly States, right? People like California, New York, New Jersey, highly regulated, shut everything down, and that squeezed a lot of money in those areas.
[00:41:13] Brandon Cobb: And so what's happening in, there's been a huge migration to States like Florida, Texas, and. And let's see very business friendly states that weren't highly regulated, that were very business friendly. And so Nashville, Tennessee, for example, we had about 5 billion of institutional investment from 2010 to 2018.
[00:41:31] Brandon Cobb: And now, right now there's over 7 million of institutional capital that's invested like right now, you know, like. Being built downtown. If you want to get an idea of how institutions are moving into an area, go Google Nashville, Tennessee skyline before and after, and you can just see the number of skyscrapers double.
[00:41:51] Brandon Cobb: Go look at the hotel costs for a city. There's night hotel costs, and there's a ton of new hotels coming to market. It's a great indication that [00:42:00] you've got a lot of institutional money moving to that area. If you want to see if large corporations are moving to an area. All you got to do is just go grab a copy of the local business magazine.
[00:42:09] Brandon Cobb: You know, Nashville, Tennessee, for example, we've got a 5, 000 C suite executive building that just got finished downtown for Amazon, Oracle, you know, Alliance, Bernstein. There's these large corporations that said, Hey, we're picking up and we're moving to Nashville, Tennessee, because the local government has done a very good job of incentivizing businesses to move here with, with tax cuts.
[00:42:34] Brandon Cobb: So that's how you can see if large corporations are moving to an area. The third is small business owners. Go look up what the average dollar per foot commercial leasing is doing. Go look at the commercial leasing market and see how much demand there is, how much inventory is available on the market, what has commercial leasing pricing done, you know, over the course of three years, four years, five years.
[00:42:56] Brandon Cobb: That's a great indication of whether or not small businesses are moving to an area. [00:43:00] And then finally, we've got consumers. What does the population growth look like? Very easy to get data on this. You know, Nashville, Tennessee, for example, we have over 110 people moving here a day. Population growth has exploded because Nashville has very attractive demographics.
[00:43:18] Brandon Cobb: Very similar to San Antonio. San Antonio is a big boondock. I love that city. I visited two years ago and it was like my favorite city in the United States. I visited in the last 10 years. It was so cool. It's like a hidden gem. I don't think that people know how awesome San Antonio is. And so being able to follow that money from the consumers, if you approach it and you're investing in those areas that money is moving into, your portfolio will be insulated.
[00:43:44] Brandon Cobb: And so that's the macro approach, right, deciding what area. And then the next. Is asset classes. You know, I joked about the toilet paper and COVID being invested in toilet paper or zoom applications when that happened, it's the same thing. Different real estate classes perform well at different time [00:44:00] periods, right?
[00:44:00] Brandon Cobb: Single family struggled in 2008, everything struggled, but single family particularly struggled 2008, 2009 now. You've got struggles in the commercial world. You're seeing that. So depending on the, the sector and depending on where we're in the economy, different real estate products do well, right now, we've got a housing shortage, we've got an inventory problem.
[00:44:25] Brandon Cobb: And specifically it's that first time home buyer housing product that we seem to be very, very short on, right? I touched on the large supply and demand imbalances there. You've got. 30 percent plus of the home buying population facing 10 percent of the houses that are being built out there. Huge supply and demand imbalances.
[00:44:45] Brandon Cobb: And so for us and our firm, if we can focus on those areas that money's moving into and focus on an asset class that we think has a fantastic runway, like entry level housing, then we feel like that's going to give us some [00:45:00] insulation against future market volatility.
[00:45:02] Randal McLeaird: Solid. Look, man, I want, I want to wrap it with talking about.
[00:45:06] Randal McLeaird: Some of the specifics, I guess, on how you're able to, I know you're vertically integrated and you guys can take it from dirt to vertical production, right? If you guys go vertical, how much are you guys, one, I guess, what's the resale value that you guys are targeting? Is it less than 300, 000, less than 400, 000 like in your market?
[00:45:23] Randal McLeaird: Like what is that median home price and what are you guys targeting? Yeah,
[00:45:26] Brandon Cobb: mid 300, 000 is what we're
[00:45:28] Randal McLeaird: targeting in our market, right? Like I said, 2,
[00:45:29] Brandon Cobb: 500 per month mortgage is what we're trying to focus on.
[00:45:33] Randal McLeaird: Okay. So if you're hitting that, then what does it cost in today's market? Because cost to construct has gone up.
[00:45:43] Randal McLeaird: How do you guys keep your costs down and like, what is your vertical costing you on a per foot basis in your market?
[00:45:48] Brandon Cobb: Yeah, it depends on if it's a townhome product or if it's your, just your standard. So different markets will require something different. But you know, right now our cost to build a single family home, you know, again, [00:46:00] entry level is 1400 square foot all the way up to 2000 square foot, you know, three bed, two bath.
[00:46:05] Brandon Cobb: Is somewhere around 140 per foot is what it's costing us to build. And that might go up or down depending on what the impact fees that the city charges. So we kind of look at our cost per foot, like we bake it all in together. So a lot of the, the impact fees that the city charges kind of built into the cost to build.
[00:46:24] Brandon Cobb: And so that's what we're seeing right now for our, our single family houses. Is that inclusive of the dirt? So that's all in.
[00:46:33] Randal McLeaird: That's just materials, labor, and what the city's charging. That does not include the dirt. Got it. So that's after you guys have the infrastructure in place in your streets, and you're just tapping into that sewer that you put in.
[00:46:43] Randal McLeaird: Yeah, that's right. Okay. Okay. Yeah, it's interesting. So we've gone back and forth. I've been looking at that number for a while because we've looked at some developments and we have, you know, my brother and I, we had that, uh, townhouse development deal that we were working on and trying to get that number down as low as you can, obviously, because that's where your spreads being made.
[00:46:58] Randal McLeaird: So your price per [00:47:00] foot is around 200 bucks. Retail is 210. Like, what do you guys selling those things for? That's a, that same product, 250, 350, 000 for 1500 square foot house. Yeah.
[00:47:10] Brandon Cobb: Uh, I don't have a calculator in front of me, but yeah, you know, 350, 000 house, you know, around 1, 650 square feet. I'm not sure what the
[00:47:21] Randal McLeaird: math works out to there.
[00:47:22] Randal McLeaird: To something. I'm just curious again, for my own knowledge, what you guys are selling for. Anyway, that's the weeds. We don't need to go down that road. I was just kind of curious because again, we've been looking at stuff like that. Hey, look, man, I appreciate you jumping on sharing your knowledge, information about development and just all the things that we've covered today.
[00:47:38] Randal McLeaird: So I'm going to throw your info in the show notes and I'd encourage anyone listening to go and reach out to Brandon and talk to him directly because he's obviously crushing it and doing some amazing things and your business is growing, man. So. Again, appreciate you sharing your knowledge with us today.
[00:47:52] Randal McLeaird: Hey, thanks for having me on. It was a pleasure. Yeah, for sure. All right, guys, catch you on the next episode. Did you know that 80 percent of the agents we speak with got into real [00:48:00] estate in order to gain passive income so they could obtain financial freedom and become work optional? If you want to stay up to date, the best way is to make sure you're subscribed.
[00:48:08] Randal McLeaird: So if you haven't done that, go ahead and do it now. We'll catch you on the next episode.