GI203: Multifamily Development with Joel Fine

GI203: Multifamily Development with Joel Fine

Joel Fine is a full-time real estate investor and land developer based in Austin, Texas. A general partner in 1,200 doors and a limited partner in over 15,000 doors. Joel is also the principal in a ground-up development project spanning 157 acres in the greater Austin area.

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Announcer:
Welcome to the Global Investor Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host Charles Carillo combines decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now, here’s your host, Charles Carillo.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

New Speaker:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Joel Fine. He is a full-time real estate investor and land developer based in Austin, Texas. A general partner in 1,200 doors and a limited partner in over 15,000 doors. Joel is also the principal in a ground-up development project spanning 157 acres in the greater Austin area. So thanks so much for coming on today, Joel.

Joel:
My pleasure. Thanks for having me. Looking forward to this.

Charles:
So tell us a little bit about your background, both personally and professionally prior to being involved in real estate investing.

Joel:
Absolutely. Yeah. So if we go way back in the, in the time machine, I, I studied engineering in college and worked for high-tech companies for several years after college as an engineer. Moved into management and then program management, also in engineering at high-tech companies. Worked and lived in Silicon Valley for many years and really just focused on my career and my family. Real estate for me was only, Hey, wait, you know, I, I need a house to live in. So that’s real estate. Didn’t really look through it as an investment especially since I was living in Silicon Valley. You know, most of California really doesn’t cash flow. The the numbers just don’t really work for cash flowing investments. So put my money mostly into the stock market and you know, it just has down on a career. So that’s, that’s my background before real estate.

Charles:
So why did you choose real estate as an investment vehicle? You’re being out in Silicon Valley, there’s a lot of other assets to invest into. What attracted you to that asset class?

Joel:
Yeah, so kind of a funny story. My wife and I decided maybe five or six years ago that it was time to move out of California, and we chose Austin as our destination. Couldn’t move just yet. We still had one of our kids in high school, and just for one reason or another, we, we, we knew we wouldn’t be able to move for a little while, so we decided to invest in a, a rental property in Austin. Mm-Hmm. <Affirmative> kind of as a, as a hedge in case something crazy happened with either the real estate market where we lived, or in the real estate market in Austin that would make it difficult to make that move. So we invested in a single family house u deployed it as a rental property, put a long-term tenant in it. And that house for me was kind of the gateway drug to real estate.

Joel:
You know, as I was studying real estate and as an investment, one of the big revelations for me was that a lot of real estate markets are, are really different from California and fundamental ways. Mm-Hmm. <Affirmative>, as I mentioned earlier, you know, there’s no cash flow in California or really hard to find cash flow. But that’s just not true in other markets. And I, I just never kind of explored real estate enough to discover that until I decided to buy that house in Austin. Found out that, hey, you could buy a property for let’s say $300,000 to get you a pretty nice house in the Austin area, and you can rent it out for a substantial fraction of that and you know, cash flow while, while you wait for the property to appreciate. And so, I started studying not just the Austin market, but other markets across the us decided to make a few more investments in high cash flow and market in Ohio.

Joel:
Bought some duplexes, triplexes and quads. Built up a portfolio about, I think 35 or 40 doors at that point. At the same time I was attending real estate webinars and meetups and meeting lots of people in business. Learned about the syndication model where people gathered groups of investors together to buy larger commercial assets. Got into that in a passive way invested in several deals as a limited partner deals that other people that I knew were, were running, were general partners on. And over time decided that that was a really interesting and, and positive model for expanding my scope for, for scaling up into larger assets. So, gradually shifted my focus from the smaller stuff that I was buying. The two, the two, three and four units up to the, the larger apartment complexes went into multi-family. So that transition happened maybe a couple, three years ago where I started looking at doing deals as a general partner found other folks who had more experience than me and signed on with them. First as a, as a key principle. I can explain what that, what that means if your, if your viewers might not know that. Sure. but then when, when it went on and, and became a general partner in several deals.

Charles:
Great. Great. yeah. Can you explain what a key principle is?

Joel:
Yeah, sure. So a key principle is basically, but with commercial financing, the, the lender is gonna want to have people signing on the loan who’s net worth adds up to an amount that’s greater than the loan amount. So if you’re buying a property, let’s say for 10 million, getting a loan for 7 million just around numbers the lender wants to see the signers on the loan have a net worth combined of, of 7 million or more. A lot of general partners don’t have substantial net worths or, or at least not yet. And so they look for other folks to sign a loan, but otherwise not be involved in the deal, not be decision makers or, or active asset managers who have substantial net worth, who are, who, who believe that the the investment is, is a worthy one and are willing to put their their net worth on the line to invest in, in an exchange. Typically the, the signer, the key principle will get us a, a piece of the deal and, and that will vary substantially from one deal to the next. But that’s a way that both group, both parties can bring value to each other as a key principle. I’m bringing value by signing on the loan and helping the transaction to close, and my partners are bringing value by giving me a piece of the deal.

Charles:
Yeah. And that key principle, if the deal doesn’t go as planned that lender might step in and have that key principle, take out some of the general partners and kind of put you in charge of running it since you’re the person that had the money that signed. So it is a, it’s a great cash flow option. It’s a great way of building wealth without doing all the work, but there’s also, you know, they have to really vet who they’re working with as well. So,

Joel:
Yeah, absolutely. And the key principle is taking on some risk because mm-hmm. <Affirmative>, you know, signing on the loan isn’t a trivial thing. Yeah. If, if things do go sideways, the key principle is potentially at risk for the loan. So you know, as a key principle, I wanted to do my due diligence on the general partners, on the deals, on the markets and so forth. So you know, it’s something I went into with a lot of thought but it, it’s a, it was a way for me to connect with general partners and become more involved in deals than just as a limited partner, as a passive investor.

Charles:
So, Joel, I see you on your website. You guys have acquisitions, you’re doing a huge development project in greater Austin area. What is your current investment criterion strategy where we are right now in the market?

Joel:
Yeah, so I’ve, I’ve shifted my focus over time. Initially I was doing all value-add multi-family and I’ve connected up with some folks who do development and found that to be a really interesting diversification play. And also just, it, it’s development is, it’s got different challenges and, and it’s kind of fun actually. So so yeah, I’m, I’m involved in, in several different development projects. Most of them are in the Austin area. There’s one up north closer to Waco which is about an hour and a half north of Austin. But and it, and it’s a variety. We’re, we’re working on one large multi-family asset that’s gonna be over 300 doors ground up development where we’ve got a 37 acre residential subdivision that we’re just gonna carve up into lots, put in roads and utilities, and then sell those lots off to builders, let the builders take out it from there.

Joel:
We’re working on a 20 acre town home development project in, in a town called Lockhart, which is about half an hour south of Austin. And then most recently, the one in Waco is a large master plan community. We’re working out the, the land plan now to figure out what’s the highest and best use of the land. So doing a mix of, of value-add multi-family and development deals now. And in fact more recently I, it probably isn’t on the bio that I sent you cuz it’s very recent. I’ve, I’ve started doing my first air Airbnb. So that house that I bought five years ago in the Austin area as that initial investment, had a long-term tenant in it for about four years that that tenant left and we decided to switch it to a, a short-term rental Airbnb model. So we just did a ra, a major remodel on it furnished it and now have it listed on, on Airbnb. So, so just another way for me to diversify and, and get another income stream going.

Charles:
Interesting. So tell us about some of the, some of the different challenges that your now you’re, you’re now getting from being in construction versus when you were in value add.

Joel:
Yeah, so construction’s very different in a lot of ways. I we’re, we’re raising money from limited partners on the construction side to but I make sure to tell my investors that it’s, it’s a, it’s, it’s a risky proposition. Mm-Hmm. <Affirmative> there’s a lot of variability to the outcome. And we’re, we’re making a lot of predictions about the future in terms of you know, not just the cost of doing the development and how that development will go, but what the demand will look like when we’re done. You know, these developments are multi-year projects, two to three years from the time we acquire the land to the time we expect to have, you know, tenants in in, in buildings. And over that time, a lot can happen, you know, as we saw in 2022 that was a pretty eventful year on a real estate perspective with interest rates spiking in an unprecedented fashion.

Joel:
So, so there’s, there’s a lot of risks that can go with development. But but it’s, it’s a really interesting process because you get to explore some degrees of freedom that you don’t with value-add multifamily value, value-add multifamily. You really, you, you know, the product you’ve got, you may be improving it in some way, but really the improvements are, are limited to mostly cosmetic stuff. You know, maybe you’re fixing a roof or doing a parking lot, but mostly it’s, you’re making the place look nicer. But if you’ve got, let’s say 52 bedrooms and 51 bedrooms, you’re really not gonna change that. That’s what you’ve got at the beginning. That’s what you’re gonna have at the end. And so your range of motion, your, the, the kinds of outcomes you can have are very, very limited. Whereas with development, you know, we’re looking at a bare piece of land.

Joel:
One of the pro projects we’re working on, we thought about doing a retail strip center on a piece of that land explored that from a market perspective, decided that the road frontage really wasn’t suitable for retail, and so we switched to multifamily. So the, the use of the land changed in a very fundamental way early in the project. And, and so the, the range of outcomes can really vary widely. And likewise, the range of possible returns on investment can, can range very widely. You know, things don’t go well. Investors can lose their money and they make sure that it’s, it’s clear to people upfront as they’re investing that that’s a po that’s a potential outcome. Obviously, we, we try our best to avoid that. We underwrite very carefully to anticipate possible problems and you know, hitches in the process so that we don’t lose our investors’ money. We like to make them money but we, we like to make it clear that this, you know, there’s, these are not risk free investments.

Charles:
So with the impact you mentioned inflation or rising interest rates, but the impact what is the impact really of the inflation and rising interest rates where we are now. And how does your firm really, I guess, mitigate risk when doing development deals? Because like, as you mentioned, three, four years plus from the time that something’s, you know, you see the, the land to the time that it might actually have tenants in their paying.

Joel:
Absolutely. Yeah. So yeah, that’s a great and relevant question because that’s exactly what happened in 2022. And so, you know, we, we very carefully underwrite, we try to anticipate I wouldn’t call ’em worst case scenarios because you just never know what the worst case is. But we try to anticipate a, a range of possible scenarios of interest rates and inflation and changes in market demand and market conditions so that even if things don’t go particularly well, even if, if a few things go very badly we can still make a decent return on our investment. And if things do go well, if, if conditions are better than we expect, then, you know, we’ll, we’ll all make more money and be perfectly happy with that. So in particular with inflation and interest rates there’s kind of offsetting effects there actually, because as inflation increases the tendency is that rents will also increase.

Joel:
There’s also a little bit of a tendency for potential homeowners, let’s say first time buyers who want to get into the real estate market to be priced out. And so they end up having to rent instead of buy a home. And so you could potentially get increases in demand for rental properties as a result of increasing inflation. So that can somewhat offset the effects, let’s say, of inflation’s increase in development costs. You know, wood goes up metal electric conduit pipes, those all go up in price. And so the development, the cost of development can also increase. And so those, those can offset one another. Again, we, you know, we try to underwrite for what we consider to be a fairly conservative scenario so that we can anticipate the possibility of you know, things not going to plan.

Charles:
Interesting. So you’re a passive investor in 15,000 plus doors. And what, what key factors should passive investors consider when evaluating a ground up multi-family project? Maybe they’ve never invested in one, maybe they’re not, you know, I, I talk to a lot of LPs and it’s really, they’re waiting for, you know, a quarter or two quarters till they get their first distribution on a value add deal, and that’s really what they’re waiting for. I have other ones that aren’t as worried about that. So how are you presenting and like, how should a passive investor really consider and evaluate a ground up deal if they’ve never done one before?

Joel:
Yeah, that’s a great question. So first off, yeah, you point out a a a very relevant fact. When people are deciding between different classes of, of asset with ground up development, you’re not gonna get cash flow. You know, you’re, you’re spending two to three to four years putting money into the project to buy the land entitle the land get permits, and then of course, do the construction itself, which is, you know, can be hugely expensive. And so there’s no money coming in, there’s no tenants, there’s no renters, there’s no cash flow. And so we like to make sure that, and is another expectation we set very clearly with our investors is, Hey, if, if you’re relying on cash flow, if you’re, if you’re relying on this investment for current income, then grounded development probably isn’t for you mm-hmm. <Affirmative>.

Joel:
But if it’s money that you can put away for a relatively long time and you’re okay with no cash flow, but the potential of a, of a nice big equity pop at the end then you can consider this. And, and we, we also tell people, you know, make sure, make sure this isn’t your only investment. Make sure you’re diversified in other things so that like I said, this is not a risk reinvestment, so if things don’t go well, it’s not your whole net worth that’s at risk. It’s a, a, a fraction of your net worth, and hopefully other investments can make up for it. But it can be a, a nice supplement to an otherwise healthy portfolio. So, so that’s, that’s among the considerations I, I’d make sure that people are aware of is that hey, don’t anticipate any cash flow.

Joel:
The other thing is just as with value and multifamily, but maybe even more so, the timeline is uncertain. Mm-Hmm. <Affirmative>, you know, we, we project out what it’ll take to do the acquisition entitlement and build, but things can happen along the way that not only affect the cost and the financial returns, but also the timeline. For example on the multi-family project we’re doing in Austin we learned a few months ago, not, not that recently, but somewhat recently, that one of the agencies that’s going to review an element of our plan called the Traffic impact Analysis is backed up and is gonna take several months to provide feedback. And we need to go back and forth with this agency a couple of times because it’s likely they’ll, that their feedback will require us to make some changes to our, our plan and go back for more feedback.

Joel:
So this traffic impact analysis, you know, when we’re adding multi-family, we’re adding 300 families to a, an area that didn’t have those families before. And so the folks who are responsible for maintaining roads and figuring out how many lanes each road should have and where the turn lane should be, and traffic lights and so forth, they wanna know this so that they can figure out what, what their plans need to be and whether the, we need to partner with them to improve any roads. There’s a lot go that goes into these traffic impact analyses. And so when we do one you know, it’s an an, it’s an essential element of getting permission to build what we wanna build. And, and so the fact that these folks are backed up in this government agency has an impact on our shovel ready date and then over our overall schedule when, when we think the, the asset will be ready to deploy. So that’s one of the risks we’re facing is, hey, you just don’t know what the timeline’s gonna be. You can pre predict based on past experience, but there’s uncertainty there, and we’ve gotta anticipate that uncertainty.

Charles:
Yeah. I had a developer friend of mine that would say that development in real estate is like the venture capital of real estate, so you’re gonna higher potential, higher returns, but there’s more risk. So as you said, it’s a great way of supplementing your portfolio. Mm-Hmm. <affirmative> agreed. So you’re, you’re doing multiple deals. You’re doing a huge 160 acre deal in Austin, Texas now development, you’re partnering with co-sponsors, I imagine, to do these deals. I mean, how do you build trust with your partners to handle different parts of different deals that your group is working on?

Joel:
Yeah, that’s a great question. So my partners and I, I, I’m partnered up with different sets of people depending on which project you’re talking about. And so the, the partners that I’m working with, I’ve gotten to know over the years since I moved to Austin a few years ago. And you know, first we might connect, let’s say at a meetup or over coffee or something and just sort of chat and get to know each other. You know, we, we share past experiences, our track records maybe we’ll work together on something where there’s relatively little risk. There’s a couple deals I did early on where I was a relatively minor partner in the, in the deal. You know, fir the first deal I did as a gp I really wasn’t doing a whole lot for the deal.

Joel:
I raised a little bit of capital, I sat in on meetings with property managers but I wasn’t a, a major decision maker. I was really just a bit player. And so that was a way, a way for me to connect with that, that general partner, that investor and work together on a relatively limited basis, almost like a, I don’t know if you call it an internship, but, you know, I was, I was kind of interning under him learning the ropes, learning about asset management and so forth. And so that helped me get to know him. He helped him get to know me. In that process I connected with other general partners who were also involved in that deal, and it sort of branched out from there. So over time, we just, you know, people get to know each other. They, they become aware of one another in, in the, in the community. It’s a relatively small community of people especially in the Austin area, folks who are, who are working on, on significant sized multi-family deals, whether on the, on the value add side or the development side. So people just get to know each other and get to know their track records, and, you know, that’s how you develop trust.

Charles:
What are common mistakes you’d see real estate investors make, Joel?

Joel:
Well, so I think the two fundamental mistakes that I made, I, i, I dunno if I’d call ’em mistakes as opposed to limiting beliefs, but the, the, the things I had to overcome to get into real estate investing and really understand it was one was not all markets are the same. So as, as I said earlier, I’d lived in California and just sort of lt to this invalid assumption that all markets are like California. So, you know, I, I wanted, I wanted cash flow, so didn’t, didn’t think real estate was interesting to me. And so when I discovered that different real estate markets acted differently, had different numbers, that was a revelation and helped me to really break through that barrier. The other limiting belief I had was that whatever I do, I have to do on my own. So if I’m gonna buy a property, I’ve gotta come up with a down payment.

Joel:
I’ve gotta be able to make that, that the loan payment. I’ve gotta be able to manage it. You know, I just had this image of myself doing these deals by myself. And that also is just fundamentally invalid especially with the syndication model. You know, I’m partnered up with 20, 30, 50 people on a deal some of whom are general partners making the decisions. Not all of them, you know, they can’t have 50 people in a committee making decisions, but you can have four or five with the rest passive investors. And that was also a revelation to me, a a a great learning to discover and understand the syndication model. You know, lots of folks have, have tons of experience in syndication, and it’s sort of old hat to them. But when I was first getting into it you know, it was really a, a discovery for me to say, Hey, I, I can get into commercial real estate with relatively little of my own money. And by doing this thing, by partnering up with people, by adding value to partnerships maybe doing the work, finding the deals and so forth. So those were the two limiting beliefs I had that once I overcame them, really helped me to move forward in my real estate investing career.

Charles:
Great. So how, how has your relationship towards money changed over the years?

Joel:
Oh, that’s a good question. I’ve always had a perspective of deferred gratification. I, I like saving money and not spending it. I like seeing my, my bank balances increase over time. And I love the time value of money, you know, knowing that if I put money into a, a decent investment and leave it alone for a while, it, it can potentially grow and become a bigger piece of money that I can then roll into a another investment. And eventually, if I decide to, I can take it back out and spend it on something that entertains me or, or gives me pleasure. But in the meantime, I, I really like I like saving and I like do, you know, delaying gratification on the money that I, that I’m saving. So that’s just always been the case for me. I guess really what’s changed over time for me is, is the kinds of assets I go into.

Joel:
You know, early on I was investing al almost entirely in stocks, mostly in index funds. You know, I’d put money into a, let’s say an s and p 500 index fund, and those do, well, you know, there’s a over, over long periods of time, stocks generally return about 10 or 11% minus inflation. But once I discovered real estate and discovered, you know, how I can use that to my advantage to get both cash flow and appreciation that really changed my perspective and, and changed how I wanted to allocate my, my savings and, and my, my assets.

Charles:
Yeah. And the, the tax tax a little bit more tax efficient with real estate as well. Mm-Hmm. <affirmative>, good point. Yeah. What do you think are the main factors that have contributed to your success over the years?

Joel:
Well, let’s see. I think being willing to partner up has really changed. You know, my ability to scale up and, and do different and bigger deals. Again, my, you know, my limiting beliefs was I gotta do everything on my own. And so once I figured out that, hey, that’s not the case. I can partner up with people in different ways that really opened a lot of doors, opened a lot of potential investment opportunities to me. And so that’s been, I think the most fundamental way in which I’ve you know, changed my trajectory is, is by partnering out with people.

Charles:
So how can our listeners learn more about you, your business, and the exciting development projects you have going on, Joel?

Joel:
Oh, thanks for asking. So yeah, I’ve, I’ve got a, a website, lakeline properties.com. That’s l A K E L I N e lakeline properties.com where people can go and, and, you know, check out my, my portfolio, my experience a little bit about what the, what, what things I’m getting into. They can also email me directly, joel@lakelineproperties.com. Happy to chat with FE people. Always looking to partner up with more people on, on different deals. So that’d be the best way for people to reach me is, is either go to my website or, or drop me an email.

Charles:
Well, thanks so much for coming on today, Joel, A great time and looking forward to connecting with you here in the near future.

Joel:
Fantastic. Appreciate you having me.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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About Joel Fine

Full-time real estate investor, syndicator, and land developer based in Austin, TX. General Partner in 1,200 doors; Limited Partner in 15,000+ doors across fourteen states. Principal in ground-up development projects spanning 157 acres in the greater Austin area. Acute business expertise developed over a 30+year career in high tech as business owner, entrepreneur, executive, program manager, and engineer. Father of four phenomenal young adults and husband to a fantastic supportive wife.

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