612: Why Architect-Developers Make 4X What Architects Do with Josiah Maddock of Josiah Maddock Architects | Otter.ai

612: Why Architect-Developers Make 4X What Architects Do with Josiah Maddock of Josiah Maddock Architects

Enoch Sears55min

Speaker 1

00:00

Just go out and talk to people you know, like, they know what they want to do with their money. You don't have to pressure anyone. You can just say, this is what I'm doing. I've got some opportunities like, you know, let's make some money together. Welcome

Rion Willard

00:10

to the Business of Architecture. I'm your host, Ryan Willard, and in this episode, we're joined by an architect with an incredible 20 year journey that spans the globe and touches some of the most iconic building types and locales. Our guest, Josiah Maddock began his career after graduating from Cal Poly, and his portfolio reads like a dream list for any architect, from cutting edge high rise projects in San Francisco and Hawaii to civic landmarks in the Bay Area, luxurious single family homes across California and ambitious high rise and resort developments in China, Josiah has truly done no but the story doesn't stop there. Recently, Josiah launched his own boutique architecture firm, carving out a niche in adaptive reuse and high design residential projects. What's more, he's embraced the architect as developer business model, enabling him to not only design but also own his own projects, delivering work that is not only beautifully crafted and sustainable, but also more efficient and profitable. So join us today as we explore Josiah journey his vision for creating impactful architecture, and how his unique approach is shaping the future of our profession. In this episode, we'll be discussing the architect developer and his first projects, the architects home and how he got started. We'll be looking at investing and working on multiple development projects as an architect for flip. We'll also be looking at how Josiah is scaling this business model. So loads of golden nuggets there, particularly for those of you who are interested in pursuing the architect, developer business model, sit back, relax and enjoy. Josiah Maddock, this episode is sponsored by Smart practice, business of architecture's flagship program to help you structure your firm for freedom, fulfillment and financial profit. If you want access for our free training on how to do this, please visit smartpractice method.com or if you want to speak directly to one of our advisors about how he might be able to help you, please follow the link in the information we are looking for architect developer stories for the Business of Architecture podcast. So are you an architect developer with valuable insights to share. We're always on the lookout for passionate voices in the industry to join us on the Business of Architecture podcast. If you're ready to share your journey, lessons, strategies with our global audience, we'd love to hear from you reach out to us to explore being a guest on our show and help inspire other architect developers on their path. We'd be interested in hearing your story, whether you're at the very beginning of your development story, or whether you have $100 million portfolio of projects already in the bag, completed. We'd like to hear from you if you're working with the developers, or that you've developed a number of small houses, or you're working at a larger scale. Josiah, Welcome to the Business of Architecture. How are you?

Speaker 1

03:10

I am really good, Ryan. It's great to see you here today, and I really appreciate you having me on absolute

Rion Willard

03:16

pleasure. Now, I was very excited to be speaking with you. I think we met online, didn't we? And we did, yeah, I was intrigued, because you're doing one of my favorite things to talk about, which is architect, developer, or you've started to structure your your firm in that way, and have begun the process and have done, you know, you've got a, you've got a fully fledged architectural practice that you've been involved in for a number of years, and now the development business model has has emerged, and it'll be really good just to hear about your experience, pitfalls, flags of danger that you might profess to anybody else. So welcome to the show, Josiah, and perhaps we're talking about your your architecture practice first, and then we can start talking about how that has evolved into architect, developer, and what sorts of projects that you've started to be involved in, and where you are in the in the whole bigger scheme of where you want to be

Speaker 1

04:19

going. Okay, I love it. It's a it's a big question. And I would say the short answer is, the two are so linked, my architecture practice and my architect as developer practice started from the same seed and kind of with the same idea. But to tell that story, I kind of, I think I need to back up a little bit and and talk about, you know, I was at a big firm before this Heller man is architects in San Francisco. We did a lot of high rise work. I worked on some Civic centers, and I spent about a decade in San Francisco working on the high rise lot. Large projects around China, Hawaii, San Francisco, and the time came with Heller menace and I had an amazing experience. There had amazing mentors, Jeffrey Heller And Clark mannich were great. And the time came to probably step up to a principal role in that firm, and that coincided with me feeling a little burnt out with with that type of work. And kind of resulted in in in a moment of me really having to take a hard look in the mirror and be like, is this the life you want? Is this the path you want to go down? Is this the practice you want to do? And there were so many upsides to it that I could really see a future with that firm and stepping into that role, and, you know, working on large projects for the rest of my career, and kind of, you know, taking over a leadership role there, but, but when I really looked at it in the mirror, I kind of had to realize that that wasn't exactly the practice that I wanted to have, and that I had had this dream In the background for many years of starting my own firm, and really from the beginning, of being my own Boss and being entrepreneurial and going that direction so that kind of forced me, I think, to make a decision, and and so I decided to go out on my own, and, you know, took a big risk. And as you and so many people that are listening to and watching this podcast, can you know, resonate with that moment, I'm sure, of like, oh my god, is this gonna work? What are

Rion Willard

06:43

we doing? It's quite interesting moment, you know, because, because you have the the choice there of, like, the road literally forked and there was a successful career in this direction, versus the unknown of setting up your own practice,

Speaker 1

07:00

absolutely, you know. And it was, it was such a big moment. And in, in retrospect, it helped that I was a little burnt out, I think. And because that kind of forced me to be like, Okay, I need to take stock. Something's not working here. My body, my mind is, you know, my my emotional state is telling me that something's a little off. And, you know, I need to take stock. And so, you know, every every difficulty, has a Silver Cloud, right? Or silver lining. You know, in that moment, I decided to head out on my own, and, and it's very scary and, and that was two years ish ago, and from the get go, I knew I wanted to own my own projects. I knew I wanted to go the architect as developer route, and I'd actually been working towards that in the background for years. You know, Jonathan Segal and some other architect as developers were my real heroes and inspirations towards that journey. And you know, I took his course, and I really recommend it, and and I, as soon as I had heard that idea, maybe 10 years ago, I was like, Aha, this solves all the problems I have with architecture, you know, from from a lack of pay, you know, not making the money that I wanted to make to more creative control over my projects, to to, you know, more control over the process and the places that I practiced. And so having had that moment and kind of been working towards it for many years, it was something where I was fortunate that I had grown to a place where I had done the education, I had done one project, and I was kind of ready to start this for real, amazing.

Rion Willard

08:47

So what, what sorts of things did you need to make sure were in place, both with your own practice, before you felt like this is the time now I can now I can do it. Or were you more kind of able, you know, you had a you had an appetite for risk, and you were like, sorry, let's just go. We'll figure it out as we go along. Or bit of both.

Speaker 1

09:11

It was a bit of both. But looking back on the process, I actually, I like, I'm kind of surprised to myself, because I have quite a big appetite for risk, but I'm surprised in myself of how long I worked towards it and kind of planned this in the background, because I've, I've always, in my 20 year career, I've always done side work. And I did, you know any young architects out there, I do side work like that is like critical. You will learn so much, you will make more money, you'll have more freedom. And so I'd always kind of had work going on in the background. And so at a certain point, about five years before, I went out on my own, I really started working in earnest towards the architect as developer model. And so I started learning a lot. You know, I spent a year. Year, just learning stuff and saving up, you know, spent three years, you know, working 70 hour a week, saving up a little capital, which isn't easy in San Francisco, you know, I think after three years of of, you know, working two jobs, I had 100k in the bank, which was huge for me at the time. That was, you know, I was like, Oh, my God, I've, like, I've hit this goal now I can do a project. And so I, while I was still working, I I started looking for a project, and I ran into this old church in Berkeley, California, and that ended up being my first architectures developer project. I was able to buy that with that 100k that I'd saved back when money was 2.75 you know, money was free, basically back then. And so I was able to buy that and do this really nice, adaptive for use project where I turned that into my home. And so I was working towards that for 567, years, you know, before I actually took the plunge and started my own firm. And so once I had completed that church project, I was like, okay, you know, I can, I can do this. I've done a successful project at this point. I can, you know, I've got some equity built up in this project. I've got all this experience like I can, I can do this more. And so that really gave me the confidence to take the plunge. But you don't have to do it that way. You know, you can also just do some learning while you're at your day job, and then take the plunge. And it

Rion Willard

11:31

isn't in and of itself, just raising 100k you know, no matter whether you borrow it or you you save it or like, and you've got other capital as well. I mean, just putting anything like that up at risk is nail biting for a lot of architects and, and, oh man, like, like, never with, with that first project. What were the, some of the things, what were kind of, some of the key kind of takeaways that you got from doing your own, your own home?

Speaker 1

12:00

Well, I think, I think one of the key takeaways is, is that's a really good place to start for anyone that is wanting to go down this path. And I think it's probably the best place to start, as far as I am concerned, to start with your own home. And you know, I did a big, crazy adaptive reuse project, but you don't have to do that. You can just buy a nice old house somewhere, or, you know, and build a adu on the back of the lot, or buy a four unit building and, and, you know, it was kind of a combination of house hacking, which is a concept and development where you somehow get income streams from the house that you're living in, right? And and adaptive reuse was what I did, but, but I think for anyone that's starting out to start with your own home, leverage that to make it an asset more than just your own home, right? So build an ad on the back and rent that out and have that adu pay your mortgage, or buy a small home and build a big house on the back of the lot, or buy a four unit building and live in one and rent out the others. Or do an adaptive reuse. You know, a really good project type I think, for architects, would be to buy a commercial building, put your house in and have your office downstairs, right? I mean, Jonathan Segal did that is one of his first projects. And, you know, kind of get income streams and so that, I think I would really recommend leveraging your own, your expertise and your own home to start down this path.

Rion Willard

13:41

Great way of actually, kind of, you know, even just the simplest of strategies there, of just building an adu on the back of the property and renting it out, or designing a different entrance way into it so you can let out a room, or something like that, just thinking about designing an asset which can cash flow. Something is such a good it really de risks as well. The whole, the whole process of you're doing it with your own personal property, you know, it's great on so many levels, because this is the property as well that you get to showcase for your architecture practice, and then to actually be thinking about it as a business as well, and kind of integrating that great that is, that's I very, I'm very much a fan of the simplicity of that, and it's not to be overlooked. And many of the people I've had on the show before in the past, where we talk about what was their gateway drug into their architect, developer, it was doing the house, but they did something like that, where the house was able to generate a little bit of extra revenue, whether it's, you know, you know, the adu that just pays for the property taxes, that's that's coming, enough for how? Okay, great. You know, you've enhanced the value there. And starting to think like a developer,

Speaker 1

14:56

yeah, absolutely. And it can be really overwhelming to know where to start. Are right when you're starting in this journey. And so that's just a very manageable chunk to take on for any architect. And you can force equity into your house that way, and that shift in thinking of like, okay, here's this kind of, you know, this house that I have that's almost a liability, kind of an asset, but to shift it into an asset that's working for you, like, force that equity and that then you can take that equity for your next project, and you've got that experience, and you've got some cash flow, and it just makes everything a lot easier.

Rion Willard

15:34

So let's talk about like, where you're at now, and where how you moved on from that initial project your own home that obviously wetted your appetite for it, and you completed that whilst you were still working full time for this other practice,

Speaker 1

15:50

correct? Yeah, and you know, that is also, I think, a way to really de risk this process is, you know, keep your day job, keep that income, you know, until you have done a project or two, and kind of has their income streams coming in from them. And then, you know, learn some lessons. Also, you know, I learned a lot, and obviously, and doing that, and and then, you know, then go out on your own when you're a little more ready to and that's what I did. And so completed that project, you know, lived in it and enjoyed it. It was this big four story church. We have a hot tub up on the roof deck, you know, it's just this beautiful, beautiful space. And so we lived with that for a while, and, you know, hosted our community there all the time, and just had some really nice memories there and then. And then we moved out. We monetized it, we rented it out, so I still own it, you know, it was very successful, but now I've got that income stream, you know, paying for future projects and and I have access to that equity if I want it. So okay, so now remind me of the question where

Rion Willard

17:03

we did that first project. You actually ended up living in it and then rented it out, and you were doing that whilst you were working. And then how did you start to Yeah, what you're doing now, what was the kind of the

Speaker 1

17:17

So, okay, so then I decided I've completed this first project. It was successful. I've got some equity built up. I've got an income stream so I can do this, you know. So I decided to go out on my own. I hung my own shingle, and I had, I had some client facing projects too. And I would say the first year, it was about 5050. Is where my energy was at client facing projects and and architect as developer projects. And that, that first year I did two projects down in LA, I kind of split time between San Francisco and LA. And now, by right now, I'm actually at Napa, so we're kind of mobile. They were mostly based in the Bay Area right now, but so built two projects down there that first year, and those did great. And so now we are more 25% client facing work, and 75% architect is developer work. And I think my goal is probably to get to, like, 8020 I'll still do some client facing work if it's a really good fit. But the architect is developer work pays about 4x more. First, it's kind of hard, like, and it's, it's just, I have all the great control. It's like, you know, and it is just, there's so many bonuses to it that I that I really am focused on that right now. And so that first year was about, like, still ironing out some wrinkles and making sure I, you know, the first year was really about learning how to raise money and put these projects together, you know, because that's the thing I hadn't done yet with my own house, and that's the thing that we're not taught as architects, right?

Rion Willard

19:06

So yeah, to walk us through that, and what you ended up having to do and and when you went out on your own, then was, was your priority to win traditional architectural services first, and then kind of get on getting, get stuck in with these architectural development projects. Or, you know, you were pretty you were pretty certain you were going to go straight for the architecture, the development projects, and just figure out how to raise cash in the process.

Speaker 1

19:33

So I was certain I wanted to go in that direction. Architect is developer, and then the client facing work was, was was nice, and it really helped you risk that having multiple income streams is something that everyone should focus on, you know, as an architect and and, but I knew I wanted to go towards architect as developers, so I was all in on that. So I, you know, I kept doing a bunch of learning, and I kept doing a bunch of learning to. Towards raising money and networking and putting deals together, and that was kind of the last big piece of the puzzle that I was super afraid to do. And I'm sure a lot of other people feel that way too, like, Oh my God, how do I go out and raise money? So I did, you know, the specific steps I did, because I think people might appreciate hearing about this is I went and I networked with a bunch of developers, I networked with a bunch of real estate investors. I spent a lot of time in rooms with these people, and they were incredibly friendly and helpful. And I took classes, and I had mentors and and I made it an incredible amount of contacts. And I think networking is like, should be like, 15% of your time or 10% of your time. I mean, it's like, incredibly important to have a strong network and, and so they, the developers in the real estate investors, really taught me how to raise money in a way that networking with architects was never really going to do and and so kind of branching out and networking with with across, you know, across the aisle, I think, was really helped me learn that. And so they taught me how to put these deals together. And, you know, at first I was really afraid to go out to my friends and family and be like, Hey, here's what I'm doing. I need to raise some money for these projects. But it actually ended up being a fairly trivial, simple thing. And and you know, people have seen me work over the last 20 years, and they, you know, believe in in my skill set, and enter, and I'm paying 15% you know, returns on secured capital, right? So I can go out and I can say, hey, I've got a a great return in real estate. So you can, you know, get some money out of the stock market if that's, if that's what you're wanting to do, and a lot of people do want to do that. And so now we've got more money than we can put to work. It's we've kind of like, the bottleneck now is finding the projects and not finding the money. And so, you know, I would say, for anyone that feels nervous or kind of afraid of that, part of it is, don't be just go out and talk to people, you know, like, they know what they want to do with their money. You don't have to pressure anyone. You can just say, this was what I'm doing. I've got some opportunities. Like, you know, let's make some money together. Super

Rion Willard

22:31

so what were the first projects then that you got involved in once you set up your own practice?

Speaker 1

22:39

So the first projects, you know, in the client facing side, it was doing luxury residential stuff, and then on, on the on the development side, also luxury residential stuff, but a little little less luxury, or, like, little more humble projects, and which I also think is kind of a great aspect to being able to do this work, because you don't have to do ten million homes for super wealthy clients. So you can kind of get in the trenches a little more and provide someone a really nice million dollar home, right? And, and in which in California is, you know, kind of an affordable home, crazy to a lot of people, but that's the fact of the matter over here. And, and so, but that's an aside. But, you know, I, I my first projects were, you know, a little more, I kind of went down to my a little more humble level, and just started doing some flips, because money is expensive right now. I wanted to be in and out of a project in six months, you know, so I would find a really cool house that had some way to make it kind of a cool architectural project. And, you know, buy it, rehab it, sell it, keep keep the timeline short, and kind of keep things simple. And I, I kind of had to to, you know, take a little bit of a step back after doing a big, you know, adaptive reuse project. And, you know, on this church and all this, like, that project probably wouldn't work so well today with money being, you know, private money is 15% hard money is 11% like, I can't hold on to that money for two years or have a project pencil out, you know. So I kind of took a step back and was like, Okay, what's a manageable chunk of work that I can do to get this started? And it was these smaller projects and not holding them for too long. So I did a couple, like, very cool residential projects that were fairly simple and really, you know, ironed out the case to the business model. And so now we're starting to do some ground up development. We just started our first ground up development Napa, and so now I'm like building up to bigger projects and doing more complex things that you know that is where I want to go, but I think it's kind of important to to. To take on a manageable chunk of work to start that process, because it can be really overwhelming if you're only trying to do boutique resorts and projects that are you know, these require $5 million worth of capital and things

Rion Willard

25:14

like that. Tell us about one of the projects that you've you did as a flip like and what did you need to take into account to do that? How did you find the site to begin with? What kind of, you know, preparation, how did you raise the finance as well for the construction, and what was the kind of the debt stack like? What was, you know, where was the different money coming from? And,

Speaker 1

25:39

for sure, yeah, no, I think, I think that's a really good exercise. And I'll get into, you know, specifics with it, because I think it's super helpful for people to know the specific steps. So I, I found this project in Silver Lake, which is an incredible neighborhood in LA

Rion Willard

25:56

and, well, it's lovely around there. You know, silver like,

Speaker 1

25:58

yeah, it's beautiful. And you know, this project is two blocks from era one grocery store, which is, like the fanciest grocery store in the world. And, you know, two blocks from intellijncy, a coffee shop. And so it's like, in a good spot, you know. And the location was great, solid, great neighborhood in LA and I was, I'd been looking at a lot of different projects, and this one was actually off market. It came to me through my network of real estate agents and wholesalers. And so I went and looked at it, bought it the same day, which you can do with off market properties. And I think I had a 10 day close on this, right? So it was in bad shape, but it was this great, small project. It was about 1000 square feet when I bought it, and it was 850k so, and it was uninhabitable. It was a, there was actually a dead rat in the corner of one room when I bought it. So, you know, I think a lot of people would be scared off.

Rion Willard

26:57

These are the houses that are property developers. They love the look of when it's all kind of, you know, disheveled and decrepit and

Speaker 1

27:05

exactly, and it's not going to be a bidding war over it. And it's, you know, LA is hot market, man. And it's, so I got it. So it was 850k to buy it. So I went out and I raised, typically, on these projects, I'll raise, say, on a million dollar project, I might raise 20% of that for from private money lenders. So about 50k was mine. I raised another 150k from friends and family, and then the rest was a hard money loan. So a hard money loan of about, you know. So the hard money will cover 90% of the purchase price, plus 100% of the rehab and then the holding costs and and the down payment and all the other costs are going to be about that 20% number. So I had to come up with 200k which, you know, like I said, I brought some in, and then I went out and raised some. But you don't have to bring any of your own money in, if you can go raise that 200k but a lot of people like to see you bring money in. So bought it for 850 we ended up putting about 300 into it. We actually were able to do the project in four months, if you can believe that. And we took it down to studs gut rehab, turned the garage into a little Adu, made this beautiful Mediterranean backyard, you know, in indoor, outdoor living, just really, really made it nice and and it was a small lot, but we had this great front yard, great backyard classic like LA style, we're able to make some really nice architectural moves to give a curb appeal on one thing or another, and then after about five months, and, you know, I think that timeline is important too, because that's not something that you can do unless you're the architect, the client and And and, you know, you're in charge of that whole thing. It's like the design process when you're the client also is incredibly efficient, and you can just go for it, you know. And so at that point we had, you know, when 850 plus, 300 into it, and then we, we sold. It sold in six days on market. It sold for 1.45 so we made a great return on that project. And it was very low risk, because it was in such a great,

Rion Willard

29:32

amazing and so did you need to go through an approvals process? Was that part of the five months, or was it just, that's just a construction

Speaker 1

29:40

it was mostly construction. And the permitting in LA, they're very pro building. They're very pro housing, very easy to work with. So the permitting was was pretty quick, and we were able to kind of phase the way we did permitting, to just keep everything going fast, quickly. So

Rion Willard

29:56

then and so within five months, you were you were out. Yeah, it sold.

Unknown Speaker

30:01

We, yeah, five months we put on the market. And, you know, it

Rion Willard

30:04

closed in amazing days, amazing. So you, so you took a nice little profit out of, out of what you put in. Got

Speaker 1

30:11

a great profit, great. We gave extra money back to our investors, you know, in and because we did that. And you know, they're all investing with us again, they just all rolled their money over, you know, so it's and now we're, you know, off to the races up here in the bear. We've bought five houses this year already. Three of them are going to be ground up, and two are rehabs, and we're starting to look at buying an office building in San Francisco residential. So,

Rion Willard

30:42

so that's really interesting. So we've got the your private home first, which you did, and you had a kind of, sort of financial strategy involved in that. And then you did this flip, essentially of the first project, but you were using a mixture of like kind of private finance from people that you'd that you've met through your networking. What makes a good investor? Who are you looking for in these sorts of projects? Who's a good investor? Who would you say, No, I'm not taking your money.

Speaker 1

31:12

That's a really good question. And I think it's someone that has to be very comfortable with putting 50k down right? Like, I the people that we deal with are mostly, they've got a chunk of money in the stock market and they want to diversify a little bit, but they're like, pretty comfortable with putting that money at risk. You know, they're not going to be, like, super, super worried about it. I don't want them to be taking any risks that they're uncomfortable with, I would say, I would say comfort and and confidence for me is the main thing, you know, if, if someone's, like, really nervous about putting that money in, I'll just be like, you know, it's probably not like, if you're not pretty comfortable with this level of risk, this isn't, you know, I can't take your money because I don't want to, like, put you at risk at all, right? Like, there is, you know, these are, these are fairly low risk projects, but, and they're secured by real estate, so in, but it's, you know, I the nightmare scenario is to lose someone's money when they can't afford to lose any money, you know, and so I would say the investors that we have are a little more savvy, and they've got an extra chunk of money that's kind of sitting around that they want to diversity with

Rion Willard

32:34

kind of stocks and shares and those sorts of investments. Usually there's a kind of quite a lot of screening that goes into, you know, making a distinction between an a sophisticated and unsophisticated investor and and there are certain criteria. And obviously, if you're selling it as a financial service, there's kind of lots of codes of conduct and regulation that you need to be able to kind of follow when you're looking at investment for kind of kind of real estate and property, is there regulations that you need to follow or your or is it quite like you can make your agreements as a private agreement between two people, you negotiate what the deals are and then you're good to go. Or is there any kind of external thing that you're being you know you've got to abide by?

Speaker 1

33:23

That's a really good question, too. And there, there, there is at a certain level. So the the next kind of, the next level of of development that I haven't gotten into yet, but that we probably will pretty soon, is, is called a syndication, and that's when you go out and raise a larger chunk of money, and you you have a project sponsor, and you have a general partner, and, and, and, you know, those are for projects where you're raising probably over $5 million is how I've had it described to me, and that's kind of the next level of development that we'll be Getting into, hopefully within two years, I would say. But the way that we're doing it is we're doing a promissory note that's in the second position to the hard money lender, basically. So it's an agreement between two people and a private loan. So there, there. It isn't regulated like syndications are where, where you have to they're much more carefully regulated. The the F, what is it? The FCC, the F the in a way that the American regulatory entity that covers, uh, you know, financial transactions is is more concerned with those. But the way that we're doing it right now is pretty simple. It's just a promissory note, um, you know, secured by this,

Rion Willard

34:44

right? So and when, and so then that's in that note. You're kind of agreeing. You can't, obviously, you, I imagine you can't agree specifically what the returns are, but you give an idea of what the returns are going to be, and that there's a, there's a, kind of a level of in. Investment that is expected to be returned, or you kind of outline what the risk is with it,

Speaker 1

35:04

yeah. So, you know, I mean, we outline the risk, and then we say we actually provide a 15% fixed return. So, you know, no matter what, that's the minimum return, and then we do profit sharing up to 18% typically, on that and, and, and that's there is there's a clause in the agreement that says, you know, if the the promissory note doesn't cover anything beyond the project, basically. So if the project gets liquidated, you get what's left over after the hard money lender gets paid. And I don't get paid in that situation, you know? So there, there is risk, and we outline that risk, but we, we have always been able to pay a 15 Well, we've always paid over a 15% return.

Rion Willard

35:50

So is there? Is there a there's a sequence then as well, when you're kind of, when you've got this debt stack where you're kind of bringing in finance, some other other positions, that there is somebody who's at the top of the pile of getting paid back, if anything would go wrong, is that correct? And how do you structure that?

Speaker 1

36:04

That is correct Absolutely. Yeah. So there's different positions. The hard money lender is in first position, and in a bigger project that would be your commercial lender, your bank. This is like one level of higher risk lending than a bank, you know, but they're in the first position, and they have a lien on the project, and then then our private money lenders are in second position, and then I and my partner are in first Okay, so we don't get paid unless the project's profitable, but when it's profitable, we keep most of the profit, you Know, or the rest of the profit after that, you can negotiate

Rion Willard

36:43

with profit distribution is going to be, and people are kind of in line of priorities, of who gets their money back first, and then that's part of your Exactly,

Speaker 1

36:52

exactly. And the hard money is just a fixed rate, you know, and that's coming down. It's maybe 10% now, got it? Okay?

Rion Willard

37:00

So then, so that's all part and parcel of your sort of due diligence and how you're kind of navigating and mitigating your own risk.

Speaker 1

37:10

Yes, absolutely, when we put these projects together, you know, we have all the, you know, kind of a sophisticated pro forma spreadsheet where it accounts for all the lending costs and all the holding costs and everything else to you know, make sure that at the end of that project we're getting right,

Rion Willard

37:27

once you completed this first kind of commercial project, or the first flip you went now you've got five on the books, or five that you we've

Speaker 1

37:38

got five on The books right now, we're off to the races this year, and we're hitting as hard. Our goal is to do 10 projects this year, and we've got five in the first month, or we're, we're making a some serious progress.

Rion Willard

37:54

Now consider, because now you've now you're scaling up the whole entity, and it's, and it is a big jug from one project to say, to five in a in a year. What? What are the additional risks for you? Where's the money coming from? Like, what's the additional kind of complexity now that's coming with, with in investors and, yeah, how are you kind of navigating having five projects all, all, all at one time. How do you protect that kind of portfolio?

Speaker 1

38:26

So, you know, scaling up is the way to put it. You know, it's, I think that first year was still about like ironing out the wrinkles, improving the business model works. And then now this year is about scaling and building the business, right? So, which is also something I've I'm having to learn a lot about and, and, you know, unfortunately, they're in architecture school, you know, they don't teach you a lot of entrepreneurialism, like how a business works, and how do you do this? And, you know, so I'm learning a lot about that now, and and, you know, hiring people, so it's, and it's kind of a it's, it's not just one business, it's two businesses, right? Because the way I have things structured, I've got a development business over here, and I've got my architecture firm over here, and there are different entities, and I hire my architecture firm to do the I think, actually that's a really important thing to note, is I still hire my architecture firm to do the architecture for these projects, and I charge a good rate, you know, not a not like a full cost architecture rate, but I still am paying myself to do the design on these projects, and that's kind of what keeps the lights on and keeps the money coming in in between selling these projects, and that that model is, is is really good and and so I'm able to do it more efficiently. So. Not like a it's not a burden to the projects like a normal architecture firm might be that's coming in and charging 15% or something like that. You know, I'm able to do it more efficiently, but I'm still de risking it for myself by paying myself to do the design work along the way. So that's kind of an aside there, but so I need to build these two companies at the same time. So I'm, you know, hiring people on the development side, which is a very different skill set, and those are kind of project managers and and virtual assistants and things like that, people that can do analysis and fundraising and outreach and and project management, and then I'm hiring people on the architecture side to do, you know, classic architecture stuff. But I look for people that are interested in doing this kind of development work, because we're building it too. So they need to be able to do kind of, you know, a more cohesive construction administration, project management, type of stuff, then maybe

Rion Willard

41:05

you're not working as the GC as well.

Speaker 1

41:09

No, we're not. But there's a lot of, you know, typically we buy all our own materials and thing finishes and things like that. And so just, there's a lot of like management work, extra management work to do on that side? Well, we'll sometimes run our own subs and things like that too, where we'll have a GC, but we'll, you know, take scope to work on it for ourselves and hire our own subs to do that, to just keep it a little bit more efficient

Rion Willard

41:32

with the kind of the the five projects that you've got going on now, are they did? Are they kind of like a group of them are with one particular set of investors, or have you spread it evenly? There's different investors on different projects, or

Speaker 1

41:47

they're different different investors for different projects, and and, you know, there's one that's three ground up houses. So we're raising quite a lot of money on that. We'll raise about 500k for that over the life of the project. And then the others are kind of extensive flips. And so those are, you know, I would say, Are we probably have 10 investors spread out over those right?

Rion Willard

42:13

Okay, and so tell us a little bit about your courting process. Then for the investor, like, where are you? I know you said you were, you're kind of going out, networking and meeting people. But that's not easy in itself for a lot of people, that they can go to network meetings to the blue in the face, and they don't even meet anybody except for the barista who serve them coffee. What are you doing there? What kind of meetings are you going to? How are you kind of introducing yourself, getting into these conversations? And how do you, you know, eventually convince somebody, or build up a relationship where they're willing to take a risk of investing money with you?

Speaker 1

42:50

Well, so the specific meetings I think that I'm going to, the ones that have been most productive Are these real estate investment groups, and they're like all there to like hustle and share knowledge and you know, and and exchange information and support each other. And it's been a really, like strong networking experience. And I think when you start going to, like, real estate investment meetups and things like that, you'll find it's a very like, just a very easy thing, because everybody wants to support each other and share knowledge. And the developer meetups, you know, is a little bit more, you know, technical, a little bit more specific, but they're great too, and, and, and there's kind of a place where these two meet, where, like Real Estate Investment and Development kind of meet and, and there's, you know, a lot of crossover in these groups and, and so I found it to be just a very hospitable and welcoming environment. And if you go out there and, you know, don't be shy about saying what you don't know. You know, I go out there and be like, Hey, this is what I want to learn. This is what I have to offer, you know, and ask people questions. And I've, I've, you know, made friends from those groups, and it's just been a really positive experience. And so I would really encourage, you know, everyone to kind of get outside of the architecture networking. You know, still do that. It's important for professional development and everything else, but, but go network with some of these other groups, and I think you'll have a very positive experience. That being said, most of the investors all come from friends and family and networks that I had already built up over the years. And, you know, that's just kind of a matter of, you know, talking about it, and I've found it to be more attraction than anything, where I'll just like present these projects and talk about the. Time, and then people reach out to me more so. And, you know, you develop a book of people that you keep in in touch with, and people that aren't interested now, but might be in two years and whatnot, and, and, but it's more attraction than anything else

Rion Willard

45:14

you mentioned there earlier about kind of, one of the criteria that you're looking for with investors is that they've you know that they're not risking everything they can financially. They're in a position where this is a an easy and comfortable investment to them, to the for them to make. Are you also looking for their experience with investing or with development? Does that ever come into the into the mix?

Speaker 1

45:41

Um, no, I wouldn't say that. I think with bigger projects, we'd be looking for that. And you know, when you start doing those syndications and things like that, you have to have that, right? Yeah, they have to be accredited investors and things like that. But at this level, it's more interest, right? I think a lot of people are interested in investing in real estate and development projects because it's awesome. You know, you're building something, you're contributing to the built environment, to these really cool, creative projects that is making the world a better place, rather than just making some fat cats at Apple or Tesla or whatever richer, right? Like the stock market is uncontrollable, you know this, you're actually building something and, and I think people are really attracted to that. So, so when, when someone comes, you know, to me, and is like, this is really cool. I want to be a part of that. That's like, that's a huge bonus to me. And they're part of, they're on the team, you know, and, and we can build something together, and we can kind of make our communities a better place through doing this, and provide housing for people in California and and, and do these beautiful projects that you know might not make it out there otherwise. So it's attractive for people. And so I think when people are interested in that aspect of it, that's like a huge bonus to me, where they're like, let's go build something grateful.

Rion Willard

47:13

So with the five projects that you've got going on, the moment you said, a couple of them are like, flips, and then the others are kind of ground up new new houses. What's the plan with all of these? Are they going to be, you know, the ones that are going to be flips, obviously, you're selling them and taking a profit. Are any of the new build ones going to be something where you're going to kind of put into a portfolio and then retain them and then collect rental income? What was that for the next tier of projects that.

Speaker 1

47:41

So I think that's that is something that we want to do long term. Money is a little expensive right now to do buy and hold. It's very difficult to get cash flow. So it's more of like a market timing and strategy thing than anything. So right now, our goal is to sell all of these, and then the plan B would be to rent them out, if, you know, if the market changes somehow. So, but I love owning real estate and and I love cash flow, and that's, you know, that when that becomes more, you know, doable, I think that will be a big part of our strategy. And I think doing about 5050, so holding on to half of the projects and, and, you know, for longer term, and selling half of the projects to get that, you know, capital kind of flowing through is kind of would be my long term strategy. But I'd like to, I'd like to build up a portfolio of of of real estate over and that's where, you know, selling a project and getting, you know, a chunk of money is great, but like building equity and having cash flow over the long term is where, like, true wealth comes from. You know, not only in, in, you know, making that, that money, but like having that time wealth, right? Like having something pay you when you're on vacation, like and, and just, you know, cash flow is, is an amazing thing to buy your time back and and have that like, you know, wealth hours define, is the the ability to do what you want with your time. You know, that's kind of what money so

Rion Willard

49:28

with the projects that you've got going on now, when are you seeing that they are completed? And then tell us a little bit about the the next level of of development that you got your eyes set on, or that you're beginning to, oh,

Speaker 1

49:40

man, this is a fun topic. Yeah. So we've got our eyes on a bunch of projects. You know, San Francisco is a really unique environment right now to do a large adaptive reuse project with an office building to residential and I've actually, I'm fortunate to have worked on the largest. Office conversion on the west coast and in San Francisco, Hunter brown S, which was a 40 story office tower that we converted to residential back when I was was working at a big firm and and so I've got some experience with it. So we've got our eyes peeled for Office projects in San Francisco, and everyone kind of wants this to happen, and they're on a fire sale right now, you know. So there's this big opportunity to convert an office building in San Francisco, so we are looking at that right now. And any adaptive reuse project, I have a real soft spot for a you know, for some reason I love like taking these old historic buildings, and I've done a number of them over my career, and doing, like a really cool modern insertion and, you know, and that, that kind of tension between the old and the new, I find really interesting from a design perspective. And so an adaptive reuse project is, is on the horizon, more adaptive reuse projects. And I think that's a really good way for architects to leverage your skill set on inner development perspective. And then, you know, ground up custom homes. You know, high end Custom Homes is a beautiful design problem. I love doing those. And so I, you know, I want to start doing some more, you know, just single family like, really well designed, really well detailed custom homes. And we're starting to do that Napa now with our three unit development and and a Boutique Resort is always been a dream of mine to do, like, a really cool Boutique Resort project. So that's on the horizon too, and that's kind of a lifestyle play too, right? Because my, my, my grand vision, goal, dream for that is to buy a, you know, beachfront piece of property in Panama somewhere, and develop a 12 unit Boutique Resort on it. And, you know, have that be a way to spend a few months a year down there with friends and family? And, you know, there's a, there's a goal there, to kind of get this amazing lifestyle built up, while also making money for friends and family at the same time and creating a space where we can all spend time together in the long term. And, you know, and going back to wealth like that's, that's wealth to me. You know that that, like being able to spend time with people you love and in the in environments that you really want to be in is kind of a beautiful thing. So if I can couple that together with building something really cool,

Rion Willard

52:38

love it. That's amazing, and it's perfect place to conclude the conversation, there really inspiring stuff. Josiah, I think that's, you know, kind of very much living the dream that many architects are kind of aspiring to. So thank you so much for coming on and sharing your experience. And look forward to having you back on the show when you've got some of these other projects up and running as well, just to kind of see your progress and and lessons learned. I would

Speaker 1

53:03

love that, right? It's such a such a pleasure and honor. I really appreciate your having me on around. This is a really cool thing that you do, spreading this knowledge. And, you know, I've listened to and watched your show for so long. I learned so much from it when I was getting ready to go out on my own that, you know, I just like, thank you for doing what you do. Thank you, and that's so rad. Hey,

Enoch Sears

53:26

Enoch Sears here, and I have a request, since you are a listener here of the Business of Architecture podcast, Ryan and I, we love putting this podcast together. We love sharing information as much as we can glean from all the other industries that we're a part of to bring it back, to empower you as an architect and a designer. One thing that helps us in our mission is the growth of this podcast, simply because it helps other architects stand for more of their value spreads the business information that we're sharing to empower architects together so architects, designers, engineers, can really step into their greatness, whatever that looks like for each individual. And so here my my simple ask is for you to join us and be part of our community by doing the following, heading over to iTunes and leaving a review of the podcast. And as an expression of our sincere thanks, we would like to give you a free CEU course that can get you one professional development unit, but more importantly, will give you a very solid and firm foundation on your journey to becoming a profitable and thriving architect. So here's the process for that. After you leave us a review, send an email to support at businessof architecture.com let us know the username that you use to leave the review, and we will send you that free training. On the training you'll discover what 99% of architecture firm owners wish they would have known 20 years ago. Hello

Rion Willard

55:00

listeners, we hope you're enjoying our show. We love bringing you these insightful conversations, but we couldn't do it about the support of our amazing sponsors. If you're a business owner or know someone who would be an excellent fit for our audience, we'd love to hear from you. Partnering with us means your brand will reach over 40,000 engaged listeners each month. Interested in becoming a sponsor, please send us an email at support at businessof architecture.com the views expressed on this show by my guest do not represent those of the host and I make no representation. Promise, guarantee, pledge, warranty, contract, bond or commitment, except to help you be unstoppable. You.

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