SPEAKER_00 0:00

What is up, my Pro Design Builder family? I'm Sam, also known as the Pro Design Builder. Today I got a very interesting topic for you today. We're gonna be jumping into what are the five big mistakes that developers make. And the reality for me is I wouldn't be here if it wasn't for mistakes, right? As a matter of fact, I made I made enough mistakes I could write a book on it. But it was those mistakes that cost me money that registered and resonated with me to the point where I was like, well, you know what? If I had to do this over again, this is how I would do it. Now, if I had to help some people, this is exactly what I would help them avoid. Right? If you don't know who I am, I'm Sam, also known as the Pro Design Builder. I'm the best in the business, and it's not even close. If you haven't already, please hit that like and subscribe button. It really helps the algorithm. Uh, and we'd like to continue to bring educational content um to you like this. So, like I said, mistakes will cost you money, right? And that's why I got into coaching and consulting, is because I truly understood that because I felt the pain and the gravity of it. And I'll just tell you a little bit about one of the first mistakes that I made. And I mean, I mean, I mean so but uh a bunch, right? But one of the first mistakes I made, and I was just flipping at the time before I got into construction, before I got into developing and building and all of that stuff. But but, anyways, all of those mistakes kind of drove me to where I am today. And the the mistake I made in my first flip, I hired a contractor, I fired a contractor, I hired a second contractor, I fired a second contractor, I hired a third contractor, and I finally got through the project. But at that at that point, it had cost me $40,000 to make those moves. But I really wasn't gonna settle for what I was getting. And I also saw and I understood I wasn't never gonna be happy with the level of contractors I was coming up. Um uh and I was seeing, right? Or the level of execution, level of detail, what whatever it was, I was not gonna be happy unless I was running the project. And then so that kind of drove me to start running my own projects and starting to get my own experience because there's it if you if you hire the wrong person to run your project, it could be the end of you. It literally can, right? And I just gave you a sample, and I've had other experiences too after I've gotten involved in the business where I'm just kind of like, how did I get this? How did this guy come on my job? So I don't I don't settle on the talent that surrounds me. I don't, all right. I analyze it every project. I do a lessons learned, uh reevaluate them. It what what is their grade? All right, can I get uh someone to replace them? I want to be with a A plus uh talent. Obviously, it costs a little bit more, but I'm dealing with a higher price point uh home and higher price point uh clientele. So uh that's what it is important to me, and that's probably how you should be looking at it, right? So we're gonna be diving into the five mistakes that new developers make, and we're gonna be peeling back the onion and and I'm gonna be sharing some stories on exactly how and why that affects them the way that it does, right? So one of the things that that uh one of the mistakes that happens that affects developers um quite often is they buy the deal before really understanding the uh entitlements, right? I'll tell you a little bit of a story, right? So a buddy of mine got really excited, it was during COVID. It was it he I heard about the deal through my brother, right? I'm friends with him too, but I'm not close with him. My brother's friends with him. He said, Hey, we're buying land in Memphis. Um my buddy Whitfield asked me to go in on on some land with him. Da da da da da. You know, right now they're cheap, but the the value is gonna grow, and you know, eventually we'll we'll build something on it. Da da da da da da da. I was like, okay, let me kind of just look into it, right? So then I got on the phone with him, and you know, he told me, yeah, I bought, you know, uh five or six lots in Memphis, this, this, and that. And then I started asking him questions, okay, what about this? And then what about that? What's the plan here? How is it zone? Da-da-da-da-da. And he was like, and I remember specifically what he said to me. He said, he said, Sam, I'm gonna, I'm gonna slice him up into eighths, right? And then I'm gonna put whatever type of project he was gonna put, you know, on on each little sliver of one eighth of a of a uh of an acre or whatever, right? And I was like, okay. Um, I didn't really look too far into it because I wasn't investing, and I wasn't at the point where you know I needed to really inquire because I just really wasn't interested. But I remember I circled it back, circled back, and I asked my brother, I was like, hey, what whatever happened to those lots, or da-da-da. And my brother goes, nothing, and nothing ended up happening with him because the he he couldn't, he couldn't, it wasn't zoned right, so he couldn't do what he wanted to do, you know, uh on the parcel, right? So that's a big mistake, right? So he fell in love with that piece of parcel. He bought it, he executed it. He didn't know the zoning, right? He didn't know understand the zoning and confirm the zoning. So then obviously he he bought, he could still do something with the land, but he can't do exactly what he wanted to do, right? It is a misnomer to think that I can buy a piece of land, and because I own it, I can do whatever I want with the land. It's not gonna happen, right? There's zoning, there's entitlements, there's easements, there's uh approvals, there's permits, there's there's a whole bunch of different uh red tape that has to happen before you can get the green light to do what you want to do with it, right? And I look at it at from the standpoint of highest and best use. What is gonna be the highest and best use of that parcel? How are you gonna improve the land and maximize it to the highest and best use, right? So falling in love with land before you truly know the entitlements or you control the entitlements, right? So missing uh overlays like setbacks, heights, limits, you know, parking ratios, etc., not knowing a clear path to execute on what you need to execute on is a big red flag, big mistakes, right? So there so here's the reality: if you don't control the entitlements, you don't control the deal, right? So if you need to change the zoning on the on the particular land, now you're going to know how to maximize that piece of parcel, right? So by controlling the entitlement, the the the height, the usage, the setback, the you know, the zoning, you're gonna know exactly what you can and what you can't do on that piece of land, right? Very important. So here's the solution uh do zoning and land use due diligence before you buy. It's absolutely important that you do your due diligence with the land before you buy. And I got another story on this one, it's actually gonna come up in the next number two, right? So, second biggest mistake that people make is underestimating soft costs and time and risk, right? So, new developers obsess over hard costs, right? Which is very important. That's the actual sticks and bricks, that's the actual uh hard cost construction to build the project, but they sleep on the soft cost, right? And your soft cost has a way of changing depending on the size of the project, right? I'll give you a brief story, right? So there was a church that owned like this 40-acre lot, it's uh it's a prime location in um Southwest, Southwest Ranches, Florida, right? Um the houses are are massive multi-million dollar homes. Oh, but this this particular lot was owned by a church for a long time, but you know, they had uh cows on it. So now a investor bought the lot, right? So the investor bought the lot with hopes of getting an approval and rezoning. Now he bought the lot, didn't fully do the due diligence, closed on the lot, and then what happened was when he bought it when he brought it into the zoning board, they they gave him the bad news, right? And here was the bad news. The bad news is you cannot break it up into one acre lots and build a single family home because it's a single family area, right? What they will allow you to do is break it up into two and a half acre lots, right, and build from there, right? So then you do the math, and and I think what it what it equated to was like 16 different lots. That is a very different construction type. That's a very different community, very expensive. If your house is on two and a half acres, this is not in in in Connecticut, this is not north, northeast or or out west, where you could have lots and lots and lots of. This is South Florida, this is prime location, right? Two and a half acre lots. You're talking about homes that are that will probably cost anywhere from seven to twelve to or fifteen million dollars, depending on the build out uh of the home, right? So it is a completely different, it's a completely different deal, right? Now, if I could break it up into one acre lots, then now I could build I could say modest type homes, five, you know, six thousand, five thousand square feet, you know, homes, you know, for two and a half million dollars and that, and then that'll kind of make sense as far as as far as the land cost. But when you when you factor it into being two and a half acres, then now the homes have to be massive, they have to be big for the prime location and the cost per dollar that you paid for the land, right? So, you know what what did he miss? All right, well, here's here's some of the things that he missed, right? Uh architect and engineering uh iterations could increase your soft cost, right? So oftentimes what happens is you can have a pre-form plan in your head of what you could do on a particular parcel, right? But then when the city gives their ruling on what the zoning is gonna be, then you're gonna have to modify those plans, right? And then once you modify those plans, then guess what? The the price of admission goes up. The cost for the engineering, the cost for the changes for the architect, the redraw, the cost for the you know, um civil engineer to modify plans and stuff like that, all of those costs are gonna increase, right? So if you don't have your buckets in in in order and you don't have your the right proportion um uh allocated for soft costs, then guess what? Now you're starting underwater and then now you're already uh over your head in in soft costs, right? Civil traffic, environmental studies, right? So for example, in that same city that I referenced, there's quite often a you know a avian species, all right. So those those are birds that need to be relocated or be um planned for that you know um you might need to make some modifications for, right? So if you're on the ocean, right, there's there's restrictions for turtle lights and the type of lighting that you could um you know placed if you're right next to the water. So these are the types of things that you need to modify to be aware of, right? Legal impact fees, impact fees are going to change and increase depending on if there's been a parcel or a house on the land before, or are we running all new electric, all new plumbing, all new city water connection to the location, right? Your impact fees are gonna be massive, right? You you need to be thinking like this, right? So, one of the most important things is uh, especially if you haven't launched a project before, knowing and understanding, buy buy a house, knock it down, it already has the connection, your impact fees are gonna be a lot less, your impacts to the environment is gonna be a lot less, and then that's what impact fees truly truly are. And obviously, you if you start with one, or you know, if you if you do a couple multifamily, that that's fine as well, but start with one and lessen your impact with buying a property, buying a piece of land, knocking the house down, and it already has a lot of things already established, including roads. All right, so you know, carrying costs from delays in this process is going to increase, you know, so things like interest, interest uh on the money, taxes, and insurance, especially in South Florida. South Florida is is literally the mecca right now of high taxes and insurance costs, right? And also construction costs. We have one of the highest um in construction costs per capita. I know California is number one, um, but we we're right there too, because we have hurricane codes and the way that we build homes here, that they're solid, right? The home is not going anywhere, even if a cat five comes, based on how it's built, right? If you haven't seen some of my videos in this group, uh obviously uh I'm building a new construction project, um, townhome community, and I start from from the start to where we're at right now, and I've shown every aspect of it. So if you really want to kind of do a deep dive into that, just ask me to um I just just look in inside the group, right? I have all the videos of every step of the way from the start of the of the project. So I did that intentionally for sure. All right, so the solution is having um you know your soft costs anywhere from 20 to 30 percent of the project, and then also having some uh money and reserves to make sure that those things are covered if there was ever any changes, right? So let's talk about uh mistake number three, all right. So weak weak capital stack, right? So um funny story, all right. So I'm in a different group, right? And in always looking to grow, right? And we had to talk about one of the most challenging times or experiences in our life and and stuff like that. And I I remember this girl says, Hey, listen, I just filed bankruptcy, right? When I tell you stories like this, this should be, you know, your ears should perk up, right? Because you hear a lot about people saying business funding, you know, get you funded for your business and stuff like that. All right, business funding is great when you have a specific plan to do a specific thing. I would not, and nor would I ever recommend for the life of me that you go get some business funding for an idea that's not proven that you've never, you know, really uh done or accomplished before. I would get business funding funding for a specific plan and a specific deal that I'm looking to get off the ground. Right? So this girl explained how she had to file for bankruptcy because her mentor recommended that she got you know business funding, and obviously she didn't fill in the blank with the rest of the details on where it was allocated or how it happened, blah blah blah. But, anyways, her exit is she had to file for bankruptcy um to exit you know that particular uh situation, right? So that should be a a a red flag to you to understand if you don't have the capital position the right way, it's going to be a problem, right? So here's some of the challenges too much high interest debt, right? So you uh took out the loan, right? You're paying too much interest interest on it, and here's what it says in the Bible the debtor is enslaved to the lender, right? And I've I've been in this situation before where I needed to close a deal, and when I close the deal, at the end of the day, I look at the lender statement and I look at what was paid out, and I was just like, I just worked for I just worked for them, right? I'm thinking I'm working for myself, which I am, but I just kind of worked for them, right? And you don't want to be in that position, that's not the position you want to be in, right? So, you know, no contingency uh on your capital, all right. Always always have the uh capital contingency planned inside of any and all of your deals. Um it's it's a lifesaver for you to have that, so not having that. Investors who don't understand new development risk, all right. This is a risky business, right? And if you don't understand the risk involved with it, you're gonna get in trouble, right? And then also, too, uh no clear uh waterfall or exit strategy. So waterfall is multiple uh exit points in your in your process, multiple um um ways to uh to get capital throughout the deal, whether it's you know developer's fee, whether it's you know, through the construction, whether it's however you structure your deal, and then also too looking at it with the end in mind first with your exit strategy is also going to save you at the end, right? So patient uh patient equity and understanding the timeline is gonna be the way that you solution you you you find a solution to this problem. So having realistic timelines. I remember I did a I took a I took a course, so I took two courses actually, and this guy was a PhD, and he talked about construction um timelines, right? And he and he broke this down, and and I I have this this saved, and he talked about how long a project takes, and then what the cost end up being, with how long it takes, and then how quickly you get a project done versus how much it ends up costing. It was eye-popping, all right. So having your project stay on schedule and end on schedule is gonna be a big money saver to you. And if you don't know what the right process is, you're gonna be uh uh up a creek, so to speak. All right, so here's one that people you see online a lot, which is you know, I I struggle with this one, right? And I've encountered it so much, and I stri I struggle with it, I'm gonna struggle with it, and there's ways around it, but let us just dive right into it. People trying to GC it without systems and experience, right? Now, can you absolutely right? I GC'd it without you know the the proper experience, but I kind of gained experience along the way. I was gaining, gaining, gaining experience, gaining experience before I got there, right? But the one thing I encountered quite often, more often than not, is you know, as a builder, right? I encounter a client, and the client goes to me, okay, yeah, well, we're we're just gonna do it on our own. I see what you guys do. You guys, you know, you just call some people and da da da da. I'm not gonna lie, my job is very hard as the builder, right? It is, right? A lot of logistics, a lot of relationship, a lot of red tape, a lot of a lot of permitting, a lot of architecture, a lot of just a lot of a lot of things that I know you don't have those relationships. And if you try to walk into that and you don't have the sequencing, right, and you don't know all of those things, right? Your project is gonna be delayed, right? And guess what's gonna happen? When your project gets delayed, it's gonna cost you money, right? To the tune of 10. So one person had approached me, right? This is as as a builder, right? And I like to follow up with people just because I kind of like to see what their process is and stuff like that. And I I remember them saying that they were going to just do it themselves, right? I was like, okay, and I think it was probably like two years later, I followed up with them, but I was like mainly just. Kind of looking at addresses and looking at permit history to see if I could get the whole story on kind of like what happened on this particular project. And what happened on this particular project is the house sold, but it sold as a shell. It's sold undone. Right? What does that tell you? This is very hard, right? This ain't this ain't this ain't this ain't Legos, right? Can you do it? Absolutely. If you have the right relationships, if you have the right sub and trade partners, if you know the right sequences, you can do it, right? So I'm not gonna say that. But when you try to take take it on as the GC and have never had experience, you know, you you really are leaving yourself susceptible, and then guess what? You're gonna cost yourself some money, right? And that that's why that's this is a big one from there. And I and I told you my story in the beginning, right? Hired, fired, hired, fired, hired, fired. This is this is not necessarily uh a place you want to be, right? So, you know, here's the reality: poor scheduling, weak contractor control, missed inspections, change orders, all of these things that come along with the process that you've never done before is going to cost you some money. All right, that's the reality, right? So, solution, all right. So, partner with an experienced GC or builder, hire a consultant, hire someone that knows what to do, they can just give you guidance, right? You know, so like I said, the the first the first mistake of hiring, firing, hiring, firing cost me 40 grand. So, get guess what? I I made more mistakes and it cost me more money. Like, not having certain line items in my budget, and guess what? That's an instant loss. Like just little things like that that you want to absolutely avoid, right? And and you don't have the the eight years that it took, or almost nine years it took for me to kind of acquire you know all of this experience. So it's best that the game changed for me when I got around very experienced uh entrepreneurs, right? And what happened was two years in, I told my wife, I was just kind of like, I don't know if I'll ever be happy in this business. And what that drove me to was finding some experience, and I now found my first mentor, and I flew out to Phoenix, I went to this conference, met him, and he dropped the biggest nugget on me, which he said, Sam, I don't sell a custom home build, I don't sell a remodel, I sell a system that gets me to that custom home, a system that gets me to that, this is this and that. Right, and I just remember writing that down, and I was like, This, I maybe I've been looking at this all wrong, right? So having the right systems in place to get you from start to finish is what's truly the pro design builder is all about, right? Start to finish. As a design build firm, we take clients from start concept to completion, right? And I have no problem doing that for real estate investors because I know the stakes, I know, I know what's involved, and I know what's gonna happen when you're not prepared, right? So make sure that you uh hire the right GC or hire you know the right consultants to help you kind of get through that process when you when you launch your first project, right? So, mistake number five: no clear exit strategies from day one. You need to have the the end in mind from day one, all right. So, start with the end in mind, make sure that you have those thoughts walking in on how you're gonna exit it. And if you're not gonna be able to exit it the way that you want to, have a plan B and have a plan C. Right? So, those are the five big mistakes that developers make when they're launching their first project. Hopefully that helped you out. Hopefully, some of the solutions that I provided really helped you out and it and really got your wheels turning on what you need to do and what you need to not do when you launch your first project. Outside of that, make sure you hit the like and subscribe button. If you have any questions, feel free to hit me up at any time on an open book and see how we could help you out with your system. Outside of that, have a great day.