From No Savings to Building 60 Houses in 5 Years!

Dave:
Hello investors and welcome to the BiggerPockets Real Estate Podcast. I’m your host, Dave Meyer, and am delighted to have my friend Henry Washington here hosting with me today. But Henry, let me ask you, what’s the biggest investing mistake you ever made?

Henry:
Oh, gosh, man. The biggest investing mistake I made was early on in my career, I bought an eight unit building and I severely under budgeted my renovation. I ran out of that renovation money before we even got inside of the building to do any interior renovations. And fortunately for me, the market picked up so much that I had a big equity bump that I then had to leverage to finish the renovation. But boy, oh boy, was that scary?

Dave:
Oh, I, I bet. And well, thank you for sharing that. ’cause I do think it is uncommon for real estate investors, especially in this age of social media, to talk about some of the mistakes that they made or things that went wrong in their career. But today we’re talking to Kevan and Ayesha Shelton, and we’re gonna dive right into a really massive financial hole that they found themselves in and talk about how they worked their way out of it.

Henry:
Yes. I think one of the best parts about this story is not that they took the loss, but how they took the loss and turned it into a profitable business that is serving their community.

Dave:
And this is gonna be a particularly fun and interesting conversation because as we’ve said, we talk about a big financial loss. And I think that’s possibly one of the most relatable parts of being a real estate investor, is just the fear of taking a huge loss. And if it does happen to you, how to bounce back. We also talk about pivoting from one strategy of flipping into a less common strategy of new construction, and how that can actually be less risky and more profitable than flipping. And we also talk about how to develop a neighborhood and to build wealth while still keeping your community in mind.

Henry:
Alright, and with that, let’s jump in with Kevan and Ayesha.

Dave:
All right. So Kevan and Ayesha, you’ve been investing for seven years as I understand it. And early on, one of the strategies you used was flipping, and I’m gonna put you on the spot right away and just jump right into it. I heard you lost 300 grand. Can you tell us about that?

Ayesha:
Who told you this? Who told you that?

Dave:
<laugh>, I get this little sheet that tells me everything I need to know about you, and they, I just, that stood out to me, and I gotta jump right into that one.

Ayesha:
Yeah. So I like to call it the best lesson, the best l we ever took. Most people call it l uh, loss. And I like to call it a lesson. Um, it’s made us much better business owners and much stronger business owners too. But, um, I feel like in, we’re a married couple, right? And in any relationship with a couple, there’s one person who is the creative and one person who’s the technical one. And so Kevan here, he does all the creative things and makes beautiful homes, and I’m blessed to be able to sell those beautiful homes. But when we were renovating, Kevan made a very beautiful and efficient home. But the area of town that we were renovating in, the people who did renovations in those communities, didn’t really put very much into it. Um, we also care very much about the client, the end buyer of the products that we build. And so if windows needed to be double paned or the foundation needed to be repaired, we did that. Um, and even when we would get a contract for full price appraisal would come in below market value, and that happened to the tune of $300,000 on several flips that we had.

Kevan:
So she always tells a story much differently than I do, I do. So, um, this was spread across about four flips, and literally we had full price offers, sold houses, and these were FHA buyers. So the appraisal sticks with the property. So when we got those low appraisals, and I’m talking about $220,000 contracts on $160,000 appraisals Mm-hmm, <affirmative>, right? And those stick for 90 days. And we were, you know, whether it’s using hard money and private investments at the time. So we couldn’t afford to keep them. Um, looking back now, you know, time is, is is a, a, a great teacher, a hard a great teacher, I like that. But all of those properties, we could have kept them all in. I mean, literally been in, in a great spot today. So time is definitely the friend of those who wait. Uh, but for us at the moment, we had to do everything that we could to just balance our business.

Kevan:
It started off with really auditing our business and seeing that, you know, these deals weren’t profitable. And we had a couple of new constructions at the time that we were starting, but these flips were kind of our bread and butter. We ended up having to liquidate our portfolio. We had 32 properties, uh, to cash out all of our private investors. Um, and honestly, it was one of the, like Aisha said, the worst, best times, uh, best times now, but worst times then we were pregnant. We had just went full-time in our business. Um, it was, it was,

Ayesha:
It was a disaster

Kevan:
Storm. It was a perfect storm. Um,

Dave:
Truly, I’m not laughing at you. It just sounds like a comedy of errors almost like, you know,

Kevan:
And it was, and, and we had to work through it. It’s funny at the time, Ayesha’s like, we’re going bankrupt. We need to like <laugh>, we need to, we talked to two different bankruptcy attorneys, uh, and they all told us, she said, you have the skills and the assets to build out of this. You are not bankrupt. You have to keep going. Thankfully. Um, one of our private investors actually rode the ride with us for an additional two years so that we didn’t have to sell off our, our prized uh, rentals, which was her first home and my childhood home. And a lot of the, the properties that we just hold really near and dear to our heart, and, um, we wrote $140,000 check two and a half years later. Um, and he actually came down from Austin and we had dinner and he was like, I am so proud of you guys for riding through this and how you showed up. Um, and we made sure everybody was whole and everybody was good. And we kept going.

Dave:
Unbelievable story. And I, I really do. We, I promise we’re gonna let you guys tell the cool story of how you bounce back for this, uh, ’cause I think that’s what everyone wants to hear, but I also think it’s super important to help everyone learn from what you, uh, said, Ayesha is one of the most important lessons that you’ve ever learned. So I just wanna ask a couple clarifying questions about what happened, uh, when you lost this money. What, what year was this?

Kevan:
This was 2019.

Dave:
Okay. And so you had been investing, it sounds like you’ve been investing for a couple of years. You just quit and you were, you, your full-time jobs, and so you were scaling up, so you had a bunch of these projects going at one time, is that right?

Kevan:
Yes. That’s one of the reasons why we were scaling is the company had gotten big enough where we had a team, but I was traveling for work building across the country. So I’d be on a plane four days a week building in California, and we’d have a team here that wasn’t very experienced. So managing it was very hard to do.

Ayesha:
And I think, you know, when is the right time to, and we get this question all the time because of what we do now. When is the right time to like quit your job because everybody wants to quit their job and go into real estate. Um, I think what we, what we imagined it would be is that we said, you know, when the amount of projects that we had would exceed, you know, our salaries, and it just kind of made sense. If we didn’t transition over to full-time into the business, then we would lose out on opportunity and money. That was kind of like our, okay, let’s jump in kind of signal. Um, if we could do it over again. We always say that we would do it different. And when we talk to other couples that are in the same place that we were like, Hey, we want to quit our jobs and go into real estate, we’re like, okay, wait, hold on. Like,

Kevan:
Stop. But see, I, the one thing about it is I don’t know now I, and I know we’ve always said that, yeah, I don’t know if I’d do it different now because the lessons that, and the tenacity that we need now and scaling our business up even more Yeah. Without those challenges, I could not take the level of, of, of work and stress in our business now is 10

Ayesha:
X. Yeah. What does any, what do the entrepreneurs say? Like, what, what’s the best way to like start your business? It’s like fail fast. Yeah. Go so that you can, you know, learn the lessons and keep going.

Dave:
So we just heard about how Ayesha and Kevan took a huge $300,000 loss and handled it with incredible grace. But if you’re like me, you’re probably wondering how they managed to bounce back. We’ll hear about that right after the break.

Henry:
Welcome back to the BiggerPockets podcast. We are here with Ayesha and Kevan, let’s get into it. Yeah. This is, uh, a truly inspiring story for people. Um, and there’s a few things that you said that I think are really, really important for people to understand. Um, it sounds like there were at least two different sounding boards that you went to, to seek advice about this current business situation. And if you have the wrong mentors or the wrong sounding boards in your life and in your business, that could have led you down a totally different path, right? But your sounding boards were able to properly advise you to pick you up and show you and tell you that, hey, these are things we’ve seen before. You’ve got the skills and the assets to recover and you just need to go figure out how to do that.

Henry:
And having the wrong people a lot of the times, right, will only, a lot of investors will only have their, you know, their family or some, some friends they grew up with who they can talk to about these things. But if they’ve never been through something like this, it can, it sounds devastating. And I’m not saying it wasn’t devastating. It abso I mean, all the while what Dave didn’t mention is you also had a baby on the way too. We did. So like, that’s, that’s terrifying, right? But at the end of the day, what’s cool about real estate, especially single family and small multifamily real estate, is that you’re right, time will become your friend. If you can figure out a way to hold on, sell whatever you need to sell, hold onto the rest at some point, those become good deals. Nobody’s dying out here, right?

Henry:
There’s there like, it’s, it’s, you’re gonna be okay. You just have to figure out how to weather the storm. And I think you guys showed excellent, both poise and strength, uh, as a couple and savvy in terms of having the right people around you. I think that that’s just what people need to hear is you gotta, you gotta get the right people around you because you’re gonna deal with something you’ve never had to deal with before. And it sure helps to have somebody in your corner who either has dealt with it or knows who to talk to.

Ayesha:
Yeah, totally. I remember when we talked to mentors and people that are just light years ahead of us when we were going through it, and they go this and they say the same thing, oh yeah, wait, no, you’re in the right place. And we’re like, no, you don’t understand this. It’s all burn.

Kevan:
Said in a great,

Ayesha:
You’re in a great place. And we’re like, I’m not gonna pay my mortgage because I’m not, you know, you’re in, this is, you’re in the right place. This is a really good place. And, and

Kevan:
They would laugh, they laughed, just like you laughed right there. They’d say, oh man, you’re in a such a great place. And I said, what are you talking about

Ayesha:
<laugh>? But now that we made it to the other side of that, we understand and also say that to the same people, like, oh, oh, yeah, oh yeah, you’re exactly where you’re supposed to be in this phase of your business. Look, it

Kevan:
Was a great place. It

Ayesha:
Was now, I mean,

Dave:
But don’t you wish you learned the lesson for like 30 grand instead of 300

Henry:
Grand <laugh>? Well,

Kevan:
I’ll, I’ll say this and it’s, it’s funny, I’ve, I’m a student of history and I also studied success. And one of the things that I look at is your ability to handle stress and pressure and your, uh, essentially trajectory. So when I look at people and, and we just had a meeting with, um, a very large home builder, national home builder, and I’m telling ’em about our business and literally I’m like, yeah, you know, we have about a million dollars in debt. We need to figure out this. He said, we have $800 million in debt.

Dave:
Oh my god,

Henry:
<laugh> levels, there’s levels to this game.

Kevan:
So, you know, for the $30,000 loss, I get it. And we’ve taken those, I remember our very first loss was $5,000 and at the time we couldn’t afford to take it. And, and Aisha was like, do not lose this $5,000. And we definitely lost the $5,000

Henry:
<laugh>.

Kevan:
That does not feel that bad. <laugh>.

Dave:
Well, it’s almost like, you know, to really put you in this like, uh, zero base, like we’re gonna start from scratch. We need to really think, rethink everything. Sometimes you kind of have to feel a maximum amount of pain. Like if, you know, if you’re gonna take a five grand loss and you can afford that, it might not teach you anything. You know, because you know, it stinks. No one wants to lose five grand. But if you’re super successful and it’s not really gonna change your day to day situation, it won’t hurt. But you guys went through maximum struggle it sounds like. And it sounds like it really just made you rethink the entire process, your entire goals and everything.

Kevan:
We still recover from that today, and it’s only the relationships that help us now. It’s having these conversations, talking to banks, talking to investors, and telling them our story. And honestly, that has been, even in the, the darkest times of our business, it’s been us having those transparent conversations with people saying, this is what happened. This is how we responded, and here’s what we did after the fact that bridged those gaps in our business. Yep.

Henry:
So to recap for the listeners, it sounds like what you were able to do was go back through your existing portfolio and because you had bought some properties and had some equity and some, you were able to sell off some or all of your portfolio to cover your debts. Is that what we’re hearing? That is

Kevan:
Correct. Well, and I’ll, I’ll say that that’s in majority that saved the private investors. We still took a brunt to our credit and to our personal savings. So our life savings was also in the business and that was also lost. So for us, um, our protection, our goal was to protect the people, um, and take the burden of that on ourselves. ’cause we knew we could recover from that. And

Ayesha:
It’s integrity, right? Like the easiest thing would’ve been to say to our investors, like, oh, this didn’t work out the way that we thought it would and keep it moving. But the one thing that Kevan and I were very clear on with each other in our businesses, that we wanted to have integrity and your, your word is your bond, especially when it comes to investors. And so we literally were ready to put up our, my my, the first home I bought, like

Kevan:
Our personal home,

Ayesha:
Personal home in order to make these investors whole. Luckily we had what we like to call friendlies that were like, I can’t let you guys do that. Like, I know that you will build your way out of it. And we did. We stayed in close communication with everyone. Every time we closed on a home, we gave some money until everybody was paid out. And that very last payout was like a celebration. It was $140,000. And honestly, he put a hundred thousand dollars with us two and a half years later, he walked away with a hundred, you know, with 40,000. So I don’t think that’s a bad investment at all.

Kevan:
And here’s the crazy part, still beat the

Henry:
Stock market I’d, I’d make that investment. <laugh>,

Kevan:
The craziest part about it is we were still actively building at the time, and this is our livelihood. So we had to raise more money in the midst of taking this loss to finish the projects that we had under construction. And it was private investors that we like, look, we just took this loss, here’s what we did. We still need some money to finish this stuff and then keep going forward. So we had to do all of that at the same time. Yep.

Henry:
And that’s an important point because what I’m hearing from you guys is you did everything the right way when it comes to someone who’s borrowing funds, especially borrowing private funds, you always have to make your investors whole a b you always have to be completely transparent. If your investors are investing with you, they understand that this wasn’t going to be a risk-free investment, right? And so I think where a lot of people get in trouble is they start hiding facts or trying to cover things up, make things look better than it is. And then now not only do they lose their business, but they lose the relationships that come along with that business. And we all know that the relationships are arguably the most important part of a business. And being honest and transparent about what’s happening, about what your plan is and about, and then giving a little bit every time you started to sell something off it’s building trust.

Henry:
And what you did, it sounds like, is you maintain those relationships. And when you think about still being in projects where you’re needing to raise money, and now having a business where you’re probably continuing to raise money, your investors are probably more comfortable with you now than they were before you had the problems because they know these guys ran dead into a brick wall, they bounced off and they pushed through and they kept going and they made sure everybody got paid even when they were going through it. Like, if I’m gonna lend money, you’re the kind of people I would wanna lend money to. And so I appreciate you coming on this show and being so vulnerable with this story because this is honestly, every real estate investors, every new investors worst nightmare. This is the thing they’re all so scared about when they’re commenting on posts and, and, and, and looking on the BiggerPockets forums and you’re, you’re here showing them exactly how to execute through something like this. So thank you for doing that. No, thank you. One more quick break, but stick around because we’re gonna find out how Aisha and Kevin are building new construction and doing it very cost effectively.

Dave:
And we’re back with Ayesha and Kevan Shelton and we’re about to hear about how they rebuilt their business using new construction. So let’s, let’s turn to the fun part. Well, this is fun too, but let’s hear about what specifically you all did to change your business. So you had these conversations, people said, keep going. What, what were, what was some of the advice? What were some of the tactical changes that you made to grow out of it and hedge against some of the risks and, and challenges that you faced in your first iteration of your business?

Ayesha:
So let me tell it. Okay, <laugh>, so, so

Dave:
<laugh>.

Ayesha:
So, so at the time we were doing flips and then we came into an accidental new construction project. So we purchased a home that basically imploded. It

Kevan:
Didn’t implode, it fell down while we were lifting the factory

Dave:
<laugh>. Oh, oh. Like, it literally like almost imploded, like it <laugh>, my story

Ayesha:
Is way more colorful. The house was up and then it was inside of itself. Okay. And that’s an implosion. So there, so the house, we had to rebuild it basically. And because Kevan had a background in new construction homes, that was a, it wasn’t a very hard thing to do, right? Well, we had renovations and then we also had this se this new construction house too. Well, what we found and liked was that we knew what the foundation was like because we poured it, we knew what was behind the walls because we erected them. And so with the renovation, it’s like you buy it and then you find out all these problems and it chip away chips away at your revenue, right? Well, with the new construction, we had so much more control. And so it was like, well, why don’t we just do this?

Ayesha:
Like you can do this, we can just do this and we can predict better what our expenses will be. And so there’s, there’s that, that was happening. And then there was an area of town that’s near the medical center here in the Houston area. Kevan also did medical, um, construction as well in the largest medical center in the world. Is it the world? It’s in the world. Craig the largest medical center in the world. Anyway, because he did construction in on the medical center, he knew what was coming in the next couple of years, right? So the path of progress. So there’s this dilapidated, blighted land and Kevan said, this is gonna be a very hot spot. It’s very close to all of the things that are hot in the city of Houston. And he took me on a ride through it and I couldn’t see it. I, I just, I didn’t see it. And then we took banks through 20 banks said, absolutely not. No one is gonna wanna live here. So we crowdfunded the funds to build a 16 home community in this community. I’m making sure Kevan likes the story still.

Kevan:
I’m, I’m just letting you ride. Doesn’t wanna fill in all the gaps.

Ayesha:
<laugh> 16 home community and uh, we use a combination of private investors and hard money and banks to do this development. And did we make a gangbuster amount of money? Nope. But it gave us credibility and it also was kind of like what put us on the map. It’s, go ahead Kevan.

Kevan:
Alright, so to add, so to, to explain Rose, I’m on the operational side, <laugh>. So I do all the, the backend stuff that she gets to, to set the plan and say, Hey, we could do this, and then I gotta figure it out, right? Yeah. That’s how our skillsets running in our business. So my background is in construction for over 18 years. So this is what I’ve done since I was 19 years old. Um, and what my degree is in, what my specialty is in. And I’ve built for some of the largest companies in the world, uh, and some midsize companies here in Houston. When we started our company, um, what we really saw, what I really saw was the opportunity in the areas that I grew up in, in the south side of Houston because I built in the medical center for seven years.

Kevan:
I saw the bigger master plan in the path to progress and that let me know, hey, this is where we want to be. But there was no new construction homes, uh, at the time that we were looking for homes for ourselves. And that inspired us to start investing, to provide housing for, you know, families that look very much like us young, upwardly mobile, you know, people who want to be close to the city, close to the action. Small families, maybe one kid, no kids. Um, new construction takes longer on the onset, but it’s way more efficient on the back end. So the reason why it’s a better investment is the comps. The difference between flipping a new construction is if you build a house and not build a house, sticks and bricks cost about the same. Now what you put in, it might change your sellability, but it doesn’t necessarily change your cost base.

Kevan:
Everybody’s cost base is roughly about the same. Uh, and the comps are about the same, right? So it just goes into competition on the sales side. So it’s way more efficient. And I can build a new house in four months compared to a flip that might take me a year if you have unforeseen things, right? So it really just depends on the area and what the safest investment is. And in this particular area, new construction was way safer to do than flips, but it’s more cost prohibitive. It’s slower to get into. Um, you know, there’s a lot of hurdles from a regulatory perspective if you don’t know what you’re doing. So that’s where that team and advisors kind come, kind of comes in. We use that to partner with people because we didn’t have money

Ayesha:
And or credit

Kevan:
Or credit. So we partnered with people who brought money and credit to the table. We were able to privately raise with those partners over $700,000, uh, to build. We, we have 30 homes in this now. Uh, and we’ve built about 60 homes in the general area in the last five years. But literally that started with 1, 2, 3 houses at a time. Um, and doing what we can to just get the message out and build our company kind of from the bare bones.

Henry:
Okay, so let me recap a little bit. So first of all, 60 60 homes over five years. That’s impressive. I don’t care who you are, so congratulations on that. It, so it sounds to me like you did an accidental new construction because your house imploded slash exploded and I thought that was a, uh, I thought you were just using it as a phrase or a figure of speech, but you literally meant that it, uh, it imploded and so you built a new construction and then you started to realize some of the financial benefits, meaning that, uh, the cost to build and your cost basis is all going to put you in a better position, come sale time. And you’re what I’m sure, I’m sure your first appraisal of your first new construction, you were holding your breath until you got it back and you realize, okay, okay, now I can, I can see how we’re kind of setting our own comps. And I, and seems like from there you went full bore into this new construction. It seems to me that you had taken banks through a potential new project in a part of town that maybe they weren’t comfortable with and that’s why they were telling you No. And so that forced you to then raise the private money. Did you raise that private money from the same investors you built the relationship with when you had the, uh, issue from your first generation of business?

Kevan:
Yes. So we did, we went back to those same investors and the majority of them reinvested. Uh, and we also brought in new investors. So it, it grew our investor pool quite substantially to do more projects. ’cause at that point we went from three to four projects at a time to 20 at a time. And it was, it was scale at that point.

Henry:
Perfect. So you raised the money, but I think what people really want to know is you, you flipped houses, everybody kind of understands what your margins are, can be on a flip, right? So what are your margins like on the new construction compared to the flips? We understand it takes, well you said it takes a little less time ’cause you can build a house in four months. So what, what money are you putting on the front side and then what kind of returns are you getting when you finally get those things sold?

Kevan:
So pre-development is what takes that time. The building process is shorter, a flip. You can buy a house tomorrow, start renovations almost immediately with a new construction, you have about a four to six month half life where you’re planning, permitting, all those things. When you actually start building, it’s more efficient on the margin side. New construction has a smaller margin for flips, but it’s a more stable margin. So our blended margin, uh, from all of the product types that we build, it’s about 20 to 25%. But on a flip you can get 50, 60% because you’re buying something at a, a discounted value and forcing that appreciation. The hard part is those margins can slide if you run into appraisal issues or if you have any kind of additional things that you can’t foresee in the construction, uh, like when your house falls down. So it makes, it makes holding those margins harder to do and way, uh, less predictable than new construction. The benefit of new construction is, is tried and true, right? You’re not reinventing the wheel. So there’s only so much wood, there’s only so much brick, there’s only so much siding and those amounts don’t change. And what we did was create a suite of plants so that we could build the same plans on repeat. So we have a production builder model, we’re not building a custom home each time we’re building the same plans and we design maybe one to two plans a year in addition to what we already have and build those on repeat.

Henry:
That was, it’s like you read my mind. That was gonna be my next question. The, the only detail I need there is talk to us a little bit about like what that means. Bedrooms, bathrooms, square footage type of house.

Kevan:
So, got you. So I, average square footage is about 1700 square feet. It goes anywhere from 1100 square feet to about 2,600 square feet on the high end. Uh, and 1100 square feet would be more of an affordable, uh, but on average you’ll find ’em at be about 17, 1800 square feet, three bedroom, two and a half bath, uh, before land costs got so crazy. We were building more single family, so a little bit wider on a 5,000 square foot lot these days. The land cost is crazy. So we subdivide lots and we build a townhouse style house, which is on a 2,500 square foot lot, two story. Typically a-frame, high pitch, um, lots of bells and whistles on the inside to make it sexy.

Dave:
And what do those run for? How much do you sell ’em for?

Kevan:
Uh, it depends on the product type. Anywhere between like mid threes to high sixes.

Dave:
And how does that compare to the rest of the metro area?

Kevan:
So the metro area is actually for the first time in probably a decade, Houston is almost continuous where every hot area in town has some product in that three to, to $500,000 range. So, and everybody’s building very similar things, right? So, um, our affordables are the fastest moving, they’re in the low twos, but our market rate stuff that’s in the mid threes and that’s on par with everybody else. So the way that we compete is product. We just build a nicer house.

Dave:
Well that sounds like a good strategy <laugh> just build a good nicer house <laugh>. But I wanna ask you about something because a lot of, um, people who I talk to, economists and builders to just say it’s very difficult, if not impossible to build affordable housing right now. But you’ve said a few times that you build and successfully it sounds like sell affordable housing. Can you tell us a little bit about how you do that? Yeah,

Ayesha:
So it, it is difficult to build affordable housing if you don’t have affordable land. And so one of the things that we have been, uh, successful, successful at is building relationship with governmental and nonprofit entities to be the builder for them. And so we get the land add either a, a highly reduced cost discounted rate, and then we’re able to pass those savings onto the buyer.

Dave:
That’s very cool. So the, the pr the the actual building cost is pretty similar like on a, on a square foot basis, obviously not finishes and stuff, but you know, framing all that stuff is the same, but you’re able to get the land, uh, cheaper and I assume finishes and stuff for a little bit. You choose slightly less expensive stuff there.

Kevan:
Exactly. Okay. We design to it, yeah. And the land offsets that cost so that we can pass on that affordability. And this is all to, um, the higher end of the affordability spectrum. So, uh, it’s about 120% of the area meeting income. So for a family of four, our buyers can make up to like 104 $4,000.

Ayesha:
No, for a family of four. Yeah, it’s not

Kevan:
104, it’s like 1 0 4, something like that.

Ayesha:
There’s a chart.

Kevan:
There is a chart

Henry:
<laugh>.

Dave:
And is that, but is that actually set by the government or the local area? Like the chart. Okay. The

Kevan:
Local area. It’s set by

Dave:
Hood. Like it’s based, based on the, the area in average household income and what the price sells for. Yes.

Henry:
Yep. So as a point of clarification, you’re getting the land cheaper because you are buying it with these government or nonprofit entities. So are you, are you partnering with them on the front side? Are you buying it like are they buying it and selling? Like how is the, how is the dynamic of that work?

Ayesha:
So there’s land banks that buy land that, that is a government entity that purchases land with tax dollars. So usually tax, uh, delinquent properties, um, vacant land that, you know, nobody has taken ownership of. And so they will buy that with tax dollars and then sell it back to developers to redevelop the land, right? And so because they got it at next to nothing, um, they’re able to pass those savings onto them and that’s done through tax dollars.

Kevan:
And even if they pay more for it, because it incentivizes them, it decreases the tax base <laugh>. So, um, this is something that started about 20 years ago, a little bit more now, where governmental entities and nonprofits, um, essentially started assembling land in these urban areas to protect housing for future residents, right? So if you go into a lot of the major cities, uh, across the country or even some of the smaller cities across the country, you’ll find that cities or land banks own a lot of land, right? And they’ve been assembling this land for the future growth of the city. And as a developer, our goal is to create a relationship with these entities so that they can give us access to develop on it. Um, in addition to that, what we’re trying to do is build products that compliment the communities that we’re building in and not displace the existing residents, but make it a cohesive, complete community. Um, and that also allows us to interlace our market rate products. So if we have 10 affordable lots and then one lot that maybe we’ll overpay for slightly because we know we already have scale with these 10 lots and we can make higher margins on our market rate stuff. So you can pay a little bit more. It’s a horse slide either way.

Henry:
This, this is what it’s about, right? This is what I call revitalization versus gentrification because you’re figuring out a way to acquire the property at a price point that allows you to service the existing community and not price the existing community out. And that takes work, it takes a lot more effort and I feel like a lot of developers are so focused on profits, they wanna do it as quickly as possible so they don’t put in the work to find these great types of deals to service that community. ’cause arguably what they’re finding to do is probably more profitable from them. So it takes someone who has the heart, the work ethic, the care and the understanding to be able to do this and, and affordable housing can be solved, but if it takes more people like you, thank you.

Ayesha:
Yeah, I, I think that, um, because we are a for-profit business, like let’s start there. But also we, we care and we care because a lot of the residents of this community look like us. Like they’re black and brown people. They, they’re my grandmother and my aunts and my cousins. They, they remind me of my family. And so to go into the community and extract the value and move on to the next project for profit, obviously it needs to be profitable or I wouldn’t be a business. Um, but I wanna make sure that there is profit. But I also we’re also very conscious of the product that we put into the community because we do care.

Henry:
There’s, there’s profit, but there’s also purpose behind it because most people who are looking for profit would acquit when 25 banks told them no. Yeah, but your purpose told you to find a way because you had a purpose to build this and that’s what we need.

Kevan:
No, for sure. It’s it to tell a quick story. That house that fell down, the neighbor next door was a 90-year-old lady who had lived in that neighborhood for 60 years and she told us the entire history of the community. She was like, you know, such and such down here, worked at g and such and such down here, worked at Texas Instruments and she was so happy to see somebody rebuilding the community that they worked so hard to build up in the first place that that made it almost worth it. And, and honestly that’s our most impactful project to date because to see the smile on her face, to see a house re-erected when it was vacant for 20 years, it was over 220 tires were in that house, the tire house. Um, yeah, it was a tire house. You could see it on our Instagram. Uh, but it was blighted in the neighborhood that she worked so hard for. If you look at her house, it’s well manicured, well taken care of. ’cause she had a lot of pride in it. So we were able to restore that pride in that neighborhood by building that one house. Yeah,

Dave:
This is a, this is an incredibly inspiring story and uh, it’s it’s super cool and thank you for sharing it. I would imagine that there are other investors out there who want to create this type of mutual benefit that you both have created, which is building your own business and building wealth while also helping a community. Do you have any advice for people who want to do this because your story is so unique. Is it scalable or, or transferable to other people?

Ayesha:
I think that it is. I think that there, there’s big decisions being made for cities, large and small in city council meetings, in, uh, tax in with council. Your council member has access to things as well to land and property as well that they have the ability to make decisions about. And so while there are RFPs, a lot of business is relationship. And if anybody who’s who does business understands that it’s about relationship. And so to know what’s coming next, to know the path of progress in your city or in the city that you wanna invest in, it’s important that you are aware and that you’re present and you know what’s happening in the city. So by the time the, there’s a highway expansion or some new development that’s happening in your city, it’s already too late. The conversations were had three years ago or five years ago.

Ayesha:
And so just making sure that you have the ear, you’re ear to the ground and that you are building relationships. It’s not, it’s not for everybody. Not everybody is gonna get these slam dunk deals with cheap land, but everybody wants it. Um, we really put in the work and we really are very intentional about the work that we do. It’s a passion, it’s a purpose, but also we wake up and our business is to be at community meetings. It’s to meet people, it’s to be connected because we know what the ultimate goal is and how we want to change and affect our community for the positive.

Kevan:
And I would say for any investor who is just interested in getting started in every, every community, no matter if it’s rural, no matter if it’s suburban, there’s empty land, there’s blighted land and somebody owns that land or somebody has access to it. So providing housing or partnering with them to provide housing is the key in the first step. We have a 7 million home shortage across our country and the biggest builder in the world builds 82 to 85,000 homes a year. So if you look at the numbers, we’re not gonna build ourself out of this gap without help. And since World War ii housing affordability has never been, uh, higher like the or lower, the ability to actually afford a home, it’s very hard for people to do, especially with interest rates. And we need it. So every investor out there, if you drive past an, an empty lot, that is your opportunity.

Kevan:
If you, you know, drop past that house, that is a little bit too far gone to renovate, that is your opportunity as well as partnering with these community groups and everything. Like Ayesha saying, because they’re a dollar set aside, the, you know, the texts we got just before the phone was like, Hey, somebody has $80 million for affordable housing. Those are the types of things that are out there programmatically. Um, they want to see development. And the good thing about new construction is from a risk profile, it’s majority on the front end. You partner with a good contractor to actually build the house, but the hard part is actually getting access to the dirt and then planning out the construction and there’s plenty of resources to do that.

Dave:
Well, Ayesha and Kevan, thank you so much for sharing your really unique and inspiring story and sharing your advice to other investors. So what this show and being a real estate investor is all about and really appreciate you joining us here today.

Kevan:
We are so grateful to be here. We started our career with BiggerPockets, so thank you for having us on. Uh, and everybody can invest in new construction. You know, the message that we want to have is that new construction is available for everybody and it’s one of the oldest things, um, that has built this country. So we inspire and encourage everybody to go out and try, uh, and do it and, and invest in your local communities, build the housing that we so desperately need.

Dave:
Amazing. And if you wanna learn more about Kevan and Ayesha will make sure to link to their social media and all their information in the show notes below. Thank you all so much for listening to this episode of the BiggerPockets podcast. We’ll see you all back here real soon.