Infill Development with Jared Jones

Episode Transcript
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(00:02):
Welcome to the Real Estate Espresso podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. This is the weekend edition
where we interview notable people from the world of real
estate investing. Today is no exception.
We have a great guest all the way from Riverside, CA Welcome
to the show my good friend JaredJones.
Thanks for having me. Well, Jared, good to have you

(00:22):
here. I can't believe with all of the
years you and I've known each other that you're only on the
show now. So apologize for that, but glad
to have you here. Before we dive in.
You're doing some pretty cool stuff in California.
Perhaps give a little bit of your back story and how you got
to this point in your journey. Yeah.
Well, so I started out in the industry in 2007 right before

(00:45):
the great crash, and I was fortunate to have a little bit
of context for the fact that that was going to happen.
And so made a couple moves with a few of my family members to
refinance some properties, pulled some cash out and had
some seed money to start flipping properties.
So I was in the business of realestate sales and in 2008 got

(01:10):
into flipping, started holding properties, built a real estate
brokerage, and ultimately just started investing in buy and
hold properties. And about four years ago,
everything changed in Californiafrom the fallout in the 2008
crisis. We have had a huge, huge lack of

(01:34):
inventory and we've created thismassive housing crisis in
California. So the state has gotten very
aggressive and they started coming out with laws to allow
for aggressive infill, infill development.
And so we've gotten involved with those kinds of projects and
went from a team of 3-4 years ago to a team of I think we're

(01:57):
at like 44 right now and specializing in that space and
buy and hold micro development. For those that are in the
development game, that one of the biggest costs of adding
additional dancing to the community of course is the
infrastructure building the roads, building the schools, the
water, the sewer, electric, all of that.
And when you do infill, you takeadvantage of all of that decades

(02:20):
of investment and the incremental cost is close to 0
from an infrastructure perspective.
And that's why it's so attractive in established
communities. What was it specifically that
allows for the intensification that you're able to take
advantage of? Yeah.
So the way that I distill it nowis California has done away with

(02:44):
single family zoning. So they've abolished it.
And that's really wild from a conceptual standpoint, like
because, you know, urban planning is just like such a big
deal and being able to go out and see a single family and say,
well, gosh, what does this look like as a four unit?

(03:05):
That's been essentially what's been happening for us.
And so the state changed laws not only that allow us to add
additional density to the singlefamily and multifamily, but also
they've removed a lot of the impact fees and they have speed
up the process by creating ministerial approval, pre

(03:26):
approved plan sets. And so lots of different things
that have come out that have really been able to help us.
And then because of our massive flipping experience over the
last 15 years, we're able to go in originally like when we
started this and see these floorplans and be like, whoa, I mean,
that's big enough to be a one bedroom apartment by itself.

(03:46):
And so we started out kind of chopping things up and now it's
more of a a perspective of what's the vacant land look like
on that piece of property and how can we leverage that.
So the intensification could be,for example, an accessory
dwelling unit within the existing structure, or maybe a

(04:06):
carriage house or a laneway house on the same property.
Yeah. And so right now the the bulk of
the properties that were in process on probably 80% of them
were adding three units to a backyard.
And so you have in in our area you've got a lot of 7500 to
10,000 square foot lots with a 1400 square foot house.

(04:31):
And so there's there's lots of space.
And so that's kind of what we'vebeen focused on.
Yeah. And it, it can be different.
Like there's a lot of new laws that have come out in the last
year that allow us to do townhomes, like 10 unit
developments, cottage courtyard kind of situations as well in
normal single family zones. That's incredible.

(04:52):
Now in the traditional Adu or Accessory Dwelling unit
regulations, that's basically like an in law suite hung off of
the existing home. You keep 1 water meter, one
electric meter. The utilities have to feed off
of the main house. Is that still the case?
Or now are you 4 electric meters, 4 water meters?

(05:13):
How does that play? Yeah, For what we do now, that
is the case with three units in the backyard.
But if you're converting a portion of the house, most of
the time it is off of the same electric and water meter.
There's some nuance to which lawwe use as to what we're able to
achieve right now. Our accounting team may hate us

(05:35):
because, you know, we're basically, I think we have 350
or 400 doors of properties that have split utilities.
And so, you know, we're billing all of the tenants.
And so it's, it's a logistical problem moving forward or kind
of like where we're at now, everything's separately metered.

(05:55):
And so that was progression for us.
But yeah, like there is most of the property that we currently
run is on split meter and it's alittle bit of the pain in the
butt. So are you doing that using the
rubs or you are you? You're not even sub metering.
No, that's right. We're we're using rubs.

(06:15):
That's right. And so looking back at our
journey, a lot of what it had been is looking at things as a
flipper, right. And so it's like, well, what can
be done and what rents come in from that.
It wasn't necessarily it was very violent execution.
And so as we've continued to grow and had more resource,

(06:36):
we've become much more thoughtful about like, hey,
what's the long term implication?
Not what's the cheapest thing todo.
And so moving forward, that's our whole mantra is what do we
want to own in 10 years from now?
Not what's the fastest or cheapest way to get this thing
done. And so that, you know, that's
kind of pushing into that problem.

(06:58):
We could have spent more money upfront and spent a lot less
capital on employees. When I think about info lots, I
think about logistical difficulties.
You know, you've got overhead wires and getting equipment, you
know back into the someone's backyard is not simple.
To what an extent are you takingadvantage of modular

(07:22):
construction, whether it's panelized or boxes, volumetric
or versus stick belt? You know, at this point we've
looked at it pretty deeply and we have not been able to make
sense of it at this moment. We get hit up for it all the
time and we're always open to looking at the numbers in

(07:42):
general. It hasn't flushed out to us.
And I will say that part of our journey was we established our
own plan design company and thenso now we've got 15 in our
design company and then our construction company.
So we do, we have our A&B license, so we can do all of the
connections to St. and all that stuff.

(08:03):
And from that perspective, when we look at our cost to build
versus what it actually cost us to bring something in, we
haven't been able to calculate the win on that yet.
And there absolutely is a space for it.
And I know people that do it, but with the crews that we have
in our cost of construction, we find it to be better for what we

(08:25):
do. But we are consistently looking
at it. I, I have some people that are
doing a SIPS kind of product outof Indonesia that are really
like pushing that at us and we've looked at it multiple
times. They hit me up again yesterday.
We want to take advantage of things that are innovative in as
much as it makes the most sense,but right now we haven't been

(08:48):
able to make sense of it yet. That's often the case where
things that look good on paper aren't borne out in reality for
whatever reason. When I think about any kind of
development, whether it's infill, Greenfield, whatever it
might be, there's a certain ratio of rent per square foot to
construction cost per square foot.

(09:09):
And that's the all in cost inclusive of land cost, soft
costs and so on. Now when you're subdividing a
property that where the dirt might have been, I don't know,
8-9 hundred thousand just for the dirt.
Now if you're putting 4 units onthat, your cost per unit comes
down considerably. Where's the break point?
Where, where, what areas? Does it make sense?

(09:31):
So really there's two different products that we're running
right now and the first product is like the increased density
with existing unit. That product is at the moment
not separately sellable within ayear.
We anticipate about a year and three months we anticipate that
it will be separately sellable. So condo ization for those

(09:55):
units. And so those units make sense
mainly through the Inland Empirein some of the more moderately
priced areas in Southern California.
However, the 10 unit developmentwhere it's these town home
communities, those make a lot ofsense in both areas.

(10:15):
Definitely the higher rent areasthat we go to, like we have a
project that we close on today in Inglewood and Inglewood is up
and coming, lots of redevelopment going on there.
But from a rent per square foot,I'm paying a lot for the land.
But man, the rents are amazing. And so Pasadena and Altadena, we

(10:38):
have projects up there. Yes, it does cost me a lot more,
but when I get a build 14,000 square feet and rent it out,
like my cost of construction is not significantly more.
So the algorithm works really well for projects like that,
because if it's costing me a couple 100 bucks a foot to build
something that's worth $900 a foot, it works out pretty

(10:59):
famously. To what an extent did the
wildfires over the course of thelast year and perhaps even over
the last decade impact the supply demand situation?
You mentioned Altadena, certainly that was one of the
areas that was hard hit. How was that going?
Yeah, I mean look in their little in the local markets it
definitely there's pain man. Six of the ten highest rental

(11:23):
markets or metro areas in the nation are in California.
So even though that's the case, the context on the fact that
there's fourteen and a half million units in California, the
loss of of, you know, 15,000 units is significant, but from
like. In the big picture.

(11:44):
Yeah. But to those specific
communities, it's devastating. And you do see some rent spikes
in those areas. Our partners actually on that
project in Inglewood lost their homes in the Palisades.
And so that was very devastatingfor them and help them to see

(12:06):
the acute need in some of their surrounding areas.
And so that kind of has pushed us a little bit deeper into that
product in LA. But overall, I would not say
that the wildfires specifically have had a major impact on like
total resource, I think from that kind of perspective.

(12:29):
Yeah, that makes sense. Well, Jared, what you're doing
sounds fascinating. If folks want to connect, if
they want to learn more, what's the best way?
Yeah. So I'm pretty active on LinkedIn
talking about the different legislation that's coming out,
how we're using it and leveraging it to ours and our

(12:51):
investors benefits. And then also on Instagram,
Middle Housing Partners is our Instagram handle and yeah, and
we'd love to connect on there. And yeah, always happy to chat
about what we do. Love it.
Well, Jared, great to reconnect.And for the listeners at home,
definitely want to reach out to Jared Jones and give us that

(13:15):
Instagram handle one more time. Yeah, it's Middle Housing
Partners on Instagram. Definitely reach out to Jared
Jones at Middle housing partnersdot I want it to say.com it's
middle Housing Partners on Instagram and connect with him
on LinkedIn as well. The links for both will be in
the show notes. In the meantime, have an awesome

(13:35):
rest of your weekend. Go make some great things happen
and we'll talk to you again tomorrow.

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