Latest / Real Investor Radio Podcast / Episode 16 | Developer Case Study: Franklin Cruz Part 1

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Episode 16 | Developer Case Study: Franklin Cruz Part 1 · Real Investor Radio Podcast

• craig fuhr (01:01.966) Hey, welcome to Real Investor Radio. I'm Craig Fuhr. Jack, how you doing today? Jack BeVier (01:10.745) Good man, good morning, good morning, excited to have our guest today. craig fuhr (01:13.846) Yeah, episode 16. Welcome everyone. Hope you're enjoying the show thus far. If you didn't catch last episode, we met with Logan Mohtashami from HousingWire to go into sort of the entire market. Check that was a crazy conversation. Yes. Jack BeVier (01:28.941) Yeah, super smart dude and he's only focused on housing economics. So, I mean, I learned a ton and really enjoyed the conversation. craig fuhr (01:35.478) Yeah, I would advise everybody to go back and check that out. I have to admit, I think Logan is an incredibly smart guy and I think all he does is spend his time looking at charts on the housing market, residential housing market. And I honestly feel like he's just a little more bullish than I am about the market. But you know, I think if you talk to any guy like that, you could probably make the story that you want to make right, Jack. Jack BeVier (02:01.089) Yeah, yeah, yeah. I, there's a lot of it's completely data backed. So you know, I'm encouraged by that. I mean, he's certainly not like roses and sunshine. But, but I thought that it was getting his perspective was really interesting. And it's something that as we're going into what could be continued tumultuous environment here with super high rates, you know, understanding what's going on a macro level is really important. You know, if you're in a strategy, and the Fed or the overall economy is just working against you, to a certain extent, it doesn't matter how good of an operator you are. If you're trying to bail water out of the Titanic, you're going to have a tough time. So be good to be mindful of those kinds of macro issues as we push forward here. craig fuhr (02:52.362) Yeah, I'm actually looking forward Jack to talking to some more folks and to get their take as well. You know, I think it's always good to hear the yin and the yang and we got the yin from Logan and I'd love to bring on some folks that maybe are a little bit more bearish on what might be out there and really just get their thoughts on like why, you know, what are you seeing that maybe Logan is not? And do we agree that there's, you know, some sort of middle ground or is one right and one not? Jack BeVier (03:17.517) Yeah, Floyd, yeah. craig fuhr (03:19.118) Yeah. So, uh, it's all about housing affordability right now, Jack. Um, I was, uh, doing a little research before the show and I was just sort of looking around at some different States and affordability right now. And, uh, so it was, took a look at California for instance, uh, median house pricing in LA around the LA MSA is about 830 grand. The salary men needed for a purchase of that would be about 200, about $210,000 a year. I guess that would be, you know, household income. Right. That payment based on today's rates and 20% down is about $5,200 a month. And I'm not smart enough to do that debt to income ratio, but you can, it doesn't feel very affordable, just sort of from afar. Took a look at Florida before we had for our guest, Franklin Cruz on today, which I'll introduce him in a second. Florida. The median home price jack between 2015 to 2022 climbed from $300,000 up to 450, which I think was fairly typical around the country, so that increase. And I think the median price around the country right now is about 450, 460. So the income, however, In 2019, median income in Florida was $67,000, which is just, and now it's just under 60. So it's decreased to about, you know, just under 60 grand. So with PITI, a payment on the median house in Florida would be about $3,700 a month. And I'm not a mathematician again, but I think that represents higher than average debt to income. Thoughts? Jack BeVier (05:00.257) Now that affordability continues to be the driver for a difficult housing market, right? But at least two years ago, housing prices were skyrocketing, but it was all about that payment. With a little bit of retroactive perspective, at the time I was like, my God, these prices are crazy. It's really getting hard to make buying decisions here. And later, what I realized was that you weren't buying the house as much as you were buying the mortgage. And locking in the 3%, 4% money, that was the asset that you were really locking in or that was the trade, right? That was the good being on the good side of the trade was being the borrower at 3% to 4% money. And so, and we did a lot of it because it made sense from a DSCR point of view for us to refinance some debt. But I later realized, man, and you see that now, the mortgages that were originated at know, three, 4% rates. Today, those are trading at 70 cents on the dollar in the secondary market in Wall Street. So if you own one of those, right, you're 30, you got over 30 points on Wall Street. So it's paying off one of those at par at 100 cents when it's worth 70 is a tough decision right now. And so anyway, you know, that you know, circling back to the affordability conversation. So, you know, that payment really, and that locked in payment for a long period of time is something that people aren't gonna get rid of. And as a result, there's just gonna be less velocity, right? Less transaction volume in the market on a going forward basis. And that was something that Logan was talking about that, you know, there's a whole segment of the market that used to transact because of like, real life decisions, right? Like moving and jobs and stuff and, or, you know, household formation, oh, I'm sorry, moving and jobs and just, you know, natural existing home sales. And because of those locked in, you know, mortgages that exist, those people are just sidelined, like, right? Like it just doesn't make economic sense for them to sell a mortgage for, to pay off a mortgage at 100 cents that is really worth 70, right? Said differently. And craig fuhr (07:01.451) Mm-hmm. Jack BeVier (07:18.069) And as a result, the homebuyer, the activity that we do have are going to be that new household formation. And so predicting where the market's going to go and what sub markets are going to do is much more about what's the new household formation market going to do? Where can it afford to transact? And so I think that's a good question. craig fuhr (07:37.738) Yeah, it I. So, you know, from a macro standpoint, I just don't see how... craig fuhr (07:47.83) Yeah, I broke up a little from a macro standpoint. I just don't see how we can have, you know, such a massive gap of affordability and builders can continue to build houses of the same square footage that we've all been accustomed to over the last 10 years. Something's got to give the land price has got to give the house has got to give. the labor has got to give, something has got to give to make these things affordable. Incomes have to go up and I'm not seeing a really hope in a whole lot of those spaces. So I think builders have to shift sort of the mentality of what they're doing. And that's why I want to bring in a guy that we're bringing in today, Franklin Cruz. So Franklin, welcome to the show, brother. Franklin Cruz (08:27.047) How you doing? Thanks so much for having me. craig fuhr (08:29.578) Yeah, man. So Franklin is an old friend. I've known him for quite some time. And he's a United States army veteran, proud veteran, a father of two great kids. He's a real estate investor with more than 20 years of real estate experience. And he inherited the name, the real estate drill sergeant, because honestly he's kind of a no nonsense guy. What you see is what you get with Frank. He's a big ball of unbelievable energy. Never seen a guy with a brighter light than myself. Franklin is on the show today. Honestly, tell us. Franklin Cruz (08:48.6) Laughter Franklin Cruz (08:55.172) Ha ha. craig fuhr (08:57.27) what he's doing in the Florida market with affordable housing. And I just think it's so exciting, Franklin, I can't wait to get into all the details of what you're doing. So man, thank you for being on the show. Franklin Cruz (09:01.031) Mm-hmm. Franklin Cruz (09:08.411) No, man, thank you so much, man. I'm definitely honored to be here and hopefully whoever's listening, definitely get that pen and paper out because I'm gonna drop some nuggets of things that I've learned in real time that could actually help some people that's listening to this now. So yeah, great, I basically have transitioned from investor to developer the last four years. So it's been interesting. Yeah. craig fuhr (09:21.719) Yeah. craig fuhr (09:27.562) I feel that. Dude, I've watched you from afar. I really should, you need to change your LinkedIn profile and I should have updated that myself knowing what you've been up to. So thanks again. So man, tell us about the transition from investor to developer and sort of what that looked like initially and when it happened for you. Franklin Cruz (09:40.532) No, I'm cool. Franklin Cruz (09:50.563) Yeah, so it's a great question because it has an amazing story. So get some popcorn on this one. So basically what so is my wife of 15 years filed for divorce. And when she filed for divorce, literally the next week, a lady called me that had some land in South Lakeland. Now, if you know anything about South Lakeland, just imagine wherever you live at right now that you've got. You know, you always have that section of town that's like really ritzy that you're just like one day That's where I want to go, you know, if you don't already live there, right? But we all have that over here. It's South Lakeland And so I remember the lady gave me a call and I knew she had this house in the middle and she had nine Acres of land but I've never done a land deal. So in 20 plus years, I always just did residential easy peasy, fix flip, wholesale, or list the property, and that's it. That's been 20 years of my life. Yeah, that's it, just homes, never did land. So she calls me up, I go and meet the lady. What was interesting is her name was Nancy, and why that stood out was my mom's name was Nancy, and my mom passed when I was 10, so it was a really big deal, and I never met a seller named Nancy before. craig fuhr (10:46.942) Sure. Existing homes. Franklin Cruz (11:11.495) So I was like, oh, this is gonna be interesting. All right. So I talked to her and she's like, look, I need to sell the property. My mom is sick. All these other things are going on, but they're the original owners from 1963. Okay. So just imagine you've got house in the middle, nine acres, beautiful area, everything. And I was like, all right, well, I just treated it as I would a house. So I said, Look, I don't know anything about land. I think there's, I know there's value in the house. I think I could flip the house for eight or 900,000. They wanted 600,000, but they were willing to do creative financing. So at the time too, remember I'm going through a divorce. So literally these papers just hit. Now I'm having this conversation. I was like, man, I don't even know if I'm gonna have money tomorrow. Like I have no clue how this situation. So I did, I said, look. craig fuhr (11:56.401) Mm-hmm. Franklin Cruz (12:00.719) I'll lock it up right now. Here's $1,000 cash that we can lock up the contract. She signed it under seller financing and I would pay her $50,000 now, or $50,000 in six months, then $50,000 after the 12th month, and then another $100,000 and then the remaining balance at the end of two years. And I told her, I said, the only reason why I'm gonna take two years is because I don't know shit about land and I don't even know where to start and I don't even know how long the due diligence would be. And she was like, okay, at least you're being honest. And she signed the contract. And then what I did is immediately I had this epiphany. I was like, oh man, I don't even know anybody that does land. Like, I don't even know, like I have no idea who I can trust that actually has been a developer before that could possibly do something here. Like I don't even know where to start. And you know, and when you YouTube stuff, it's like everybody who's a developer, they're so grand. of just, oh, I did a hundred million dollar deal. I did this and you're just like, okay, that's great. Tell me the tactics. What was the, like, tell me what specifically did you do? Yeah, you're just like, okay, well, nobody ever tells you like, okay, first thing you gotta do, dude, you gotta figure out what's the zoning, right? Then you gotta figure, it's like going through it. What's the zoning? What's possible? What's the site? What's your conceptual plan? Like, nobody tells you this. So anyway, I remember. craig fuhr (13:04.407) What's the how to? craig fuhr (13:20.618) Ain't nobody ain't nobody. No, there's no there's no gurus out there selling a course on how to subdivide and develop. Franklin Cruz (13:26.291) No, and you know what hit me you know why because every great developer their net worst usually starts with a B And they don't need to do shit. I'm sorry. I'm not like her shit, so they don't need a So it's like they don't need to do anything and it makes sense like dude if you've made a hundred a hundred million on Something which I do I remember I was like oh, I know one guy Joe I could call Joe from catalyst capital craig fuhr (13:38.466) There goes the family show, Jack. Franklin Cruz (13:55.747) And I remember he just closed a deal and made like 50 million, but then Joe wasn't taking my call and Joe wasn't responding to my email. And I was like, God dang it. I don't think Joe's going to be the guy. And so I remember my, my soon to be ex at the time, my wife, Bridget, her uncle used to be a builder and he built communities, but 15 years prior, he went completely bankrupt or 10 years prior during, you know, when 2008, like he just went bankrupt, lost everything. But he was the first guy in my life, I remember, that had a Rolex watch. So he always stood out to me, because to me, anybody that had a Rolex where I'm from in the hood of New York City, was like, that dude is selling something, or he's just rich. And so anyway, so I remember calling Uncle Donny, we called Uncle Donny and said, Uncle Donny, I got this piece of land, I think I could do something with it. Uncle Donny says, and I said, look, can I meet you and can I talk to you? He's like, look, I'll meet you, but this is what I want. And I was like, oh man, I've got no money. I was like, I don't know what he's gonna say. So he says, I just want two pizzas from Marco's and a Coke. I said, done, I'll get you three pizzas. I was like, done, we'll go. So I go to Marco's, we start eating pizza. And he says, look, this is the first thing you gotta do. Now I want you to think about the mindset I got is I'm going through with a voice. And so he said, yeah, here's why. So the first thing he tells me is, craig fuhr (15:15.986) I got, we got the divorce part Franklin, yes. Go. Franklin Cruz (15:22.427) you need to hire a civil engineer. And I'm like, another attorney? I don't wanna hire a lawyer. I was like, no, I'm thinking civil, like civil court. And I was like, no, man. And he's like, it's civil engineer, it's an engineer. And I was like, what did they do? And they're like, I've never heard this language before. Like all these new terms are like when I was stationed in Korea. I was like, what, what are they saying? And he's like, you gotta do a civil engineer, you gotta do a geotech, you gotta do the boring, you gotta do a top of boundary tree survey. You got to do a gopher study to figure out if there's any gophers. You got to figure out what's up with the land. You got to figure it out. And I'm like writing down notes, you know, I'm just like, and I'm like recording it too with my phone and I'm like, can we repeat? Can it like, can we go back? Cause I don't, I don't understand anything you're saying. Like I don't even, I don't even have the concept of what you're saying. And he's like, okay, let's go back. And I remember like, he's like, let's just meet with the civil engineer. I say, but she's not an attorney, right? Jack BeVier (16:00.741) Go first. craig fuhr (16:02.723) Hope. Franklin Cruz (16:21.011) because I can't pay the retainer. She's like, no, a civil engineer's not a returner. So anyway, long story short, we went to meet with Kim Leonhorn, who's a national known civil engineer. And then they told me at the first meeting, like, hey, that site could probably be 25 houses there. And I was like, really? Okay, tell me more. She's like, well, and on record, there was already a top of a boundary issue survey that's already on public record. I was like, how much is that? She's like 10 grand. I was like, what? craig fuhr (16:41.143) Yeah. Franklin Cruz (16:50.487) I was like, but it's already been paid for, it was already there. And I was like, whoo, good Lord. Okay, good. And then she's like, and I asked her to say, well, how much is your fee to do everything and what does that look like? She's like, Oh honey, it's only like $40,000. I'm like, Oh my what? Like everything is hitting me. craig fuhr (17:08.945) Did you get out the credit card right at that moment, Franklin? Or swipe this. Franklin Cruz (17:12.239) No, I didn't have it because going through the board, so everything was a little bit different. So I had to put my creative mode on, how can I be super creative with everything? So I remember I called then out of this, what happens in commercial development, the first thing what hits you is, one, if you've never done it before, you just realize, God, Lee, this is a whole different world. Like this is a very different world, terminology, language, everything's different, right? But the numbers are very different. Like if you could hit a base hit or a double or a home run deal, like you're done. Like financially, you don't have to work anymore even on just one deal. And I'm not just saying that, I'm just saying it because it's true. I've been a part of these transactions. You're like, oh, I'm good. Like I don't have to do anything. I'm done. Because you're figuring out, this is the knowledge base that the huge families. craig fuhr (18:00.007) Yeah. Franklin Cruz (18:07.527) they have their family offices connected to development for a reason is because when you're a billionaire, where's the only asset that you could actually purchase something that's a hundred million dollars and it's secure and you can land bank it, land. Sorry, but. craig fuhr (18:19.582) Let me, so let's just let the ton. No, man, that's time to swallow. And I, I knew you'd come out of the shoot like a race horse that you are. So slow you down a little bit and sort of digest some of this. And, um, you know, I think I. In, in our world, there's a lot of learning on the fly. We've known guys who, you know, jump in with both feet and then sort of figure it out as they go. It's the ready fire aim approach. And, um, this sounds very much like that. Jack, I know you are. Franklin Cruz (18:27.908) I'm sorry. craig fuhr (18:49.93) You know, I've always seen Jack to be a much more measured guy. Jack's not going to jump, go jumping into anything before he truly understands, like, what's going, but yeah, what, what are you, what are you getting there, brother? Come on, tell me, tell me I'm wrong. Jack BeVier (19:00.563) Uh, no, our experience was the same way. It was like, I was like, I got to learn how to do this. I don't know how to do this, but I can't go just like talk about some, if I go to talk about some theoretical deal with them, like one, they don't want to take the, they don't want to take the time because like, they're like, Hey, I get paid on deals on the table and like. Franklin Cruz (19:11.559) Yeah. No. Jack BeVier (19:20.201) if you want to go get your civil engineering degree, you know, call your local community college. Otherwise, here's the zoning handbook and you can go read that in your spare time. And I'm like, dude, neither of those like neither of those are practical. Like I'm not going to do either of that shit. Like, so I needed to have a deal on the table so that I could have a conversation. So we started we started looking at deals. And then we paid for the learning experience by we look at deals we didn't that we didn't even have under contract yet. Franklin Cruz (19:24.674) I'm gonna- Franklin Cruz (19:30.031) Ends it, player. Franklin Cruz (19:35.827) Mm-hmm. Jack BeVier (19:49.273) But I would just say like, hey, I've got this under contract. Like, you know, can you, you know, what can I do with this parcel? And I'd get charged a couple of grand to do like a very basic analysis. And then I, whatever they'd come back to me with, I wouldn't understand anything that they said. And then I'd be, and then I would just go like word by word, like being like, all right, what's that mean? What's that mean? What's that mean? And they're just like, you know, sighing or whatever, like, oh my God, this guy's really pretty fucking green. And... Franklin Cruz (20:00.303) Mm-hmm. Franklin Cruz (20:11.049) and Franklin Cruz (20:16.078) Yeah. Jack BeVier (20:17.069) But you know, but you just ask dumb question after dumb question after dumb question until by the third of fourth of those, I was like, all right, I'm starting to get it. You know, like, I understand the things that are going on here. And then, yeah, and then you realize, oh, yeah, all those, those are somewhere in the zoning handbook and somewhere in like, you know, the civil engineering, you know, one on one. But that's how that's how we learned it, too. It's just like, you know, fit, you know, put a deal on the table and then just like start digging in. Franklin Cruz (20:37.707) Yeah. Franklin Cruz (20:46.343) Yep. Jack BeVier (20:46.817) Um, but yeah, that your civil engineering resource ends up being your best friend. Um, and, uh, and then, and then the local municipality, Oh my God, the, uh, just like the, the nuances of, uh, you said gophers, right? You just said gophers and like in other parts of the state, it's like scrub J's tortoises, um, if you, you know, Jaguars, like, yeah, like whatever, like migratory birds. Yeah. Franklin Cruz (20:51.553) Mm-hmm. Franklin Cruz (21:00.187) Yeah. craig fuhr (21:06.19) Oh yeah. Tiger Lilies! Franklin Cruz (21:09.755) Yeah, oh, that killed the deal. They killed, they just killed a whole second division in Auburndale, not that far from here, for the Auburn, for the Gopher study that came out. craig fuhr (21:18.862) God forbid you wanna develop anything close to the Chesapeake Bay where we are in Maryland. I mean, it becomes a whole nother level of macro that you have to learn. So Franklin, bring us up to speed now. So sort of fast forward to this, like I've got this thing, we understand what we've got here. I've got my uncle who wants the pizza sort of working alongside of me. Like quickly bring us up to like. Jack BeVier (21:26.433) It's a thing. craig fuhr (21:46.143) We're going to plot this thing out at this point. And then what did you end up with? Franklin Cruz (21:51.471) Yeah, so then right after that, right after they told me the 25, I got introduced to two commercial brokers that are very active in the commercial space, which I would highly recommend. If you're going to play in this game, you got to find agents and brokers that are really heavily active in the commercial world. And Andy and Jared from Cushman and Wayfield were a huge resource. Andy said, look, if you get this up to 41 houses, every national home builder will bid on this property. but you gotta get it up to 41 because they really want 50 houses as their threshold. But because the area is so great, if you can get 41, they'll take it because the area is so great. So I got the conceptual plan changed and conceptual plans for me are like $25 to $3,000 each. And I'm already like at the time, three conceptual plans in. And so long story short, we got to convert it to 41. I got every national home builder. that you could think of in your head right now, bid it on my property. And they put LOIs as many as possible. So in my head... Good. craig fuhr (22:53.874) Let me just stop. Let me let me let me stop you there for the folks that are listening. So when you say bidding on the property, that means I'm going to go and develop the dirt, put the infrastructure in. And these guys are going to come in and buy that. Is that what you're saying? Franklin Cruz (23:08.827) No, no, no. So there's, okay, so there is, there's levels to development. Okay, and every level you can make income. So the first thing is land packaging, you got to package the land, and you got to control it. But right there, that raw land asset, you could sell that for a profit, and you're good. You don't even have to go to the next step. But the next step, what I found was land, land entitlement. So that means that your property you own, you've got the land. you've got a conceptual plan that the approvals and entitlements are complete, and then you could sell the conceptual plan with all the studies that you've already done. Now it's a heavier investment on you, because you're probably gonna have to spend 100 to $150,000 on studies, it all matters the size of the land, and then, but if you can package it right, you can, like what I've been doing is basically, now I've got an asset, I'm into this deal for 600,000 that I haven't paid on, remember it's seller financing. I got $100,000 of studies into it, so I'm into it for $700, and now I got LOIs at 2.6 million. craig fuhr (24:12.951) All right. Not a bad day. Franklin Cruz (24:14.267) Make sense? So then I'm not building up anything. I'm not putting, what you're doing is I'm getting a shovel in the ground. I'm getting a shovel ready for you. You're gonna take it from there. Now some other land developers are different. They wanna do the pad ready. They wanna cut in the streets. They wanna put in the lift station. Now you'll make more, but not more profit. So at least for me, when I started doing the math, I was like, man, this is gonna, first of all, what is the biggest bang for my buck? craig fuhr (24:23.602) Mm-hmm. Got it. Franklin Cruz (24:43.247) and the biggest bang for the buck was shovel ready and sell the asset off. So anyway, long story short, any questions related to that and then I can go further in the story. craig fuhr (24:53.707) I think we're good. Jack BeVier (24:57.352) So were you actually getting the lots? So you're doing the studies, are you getting the lots to what I, in Maryland it's called get it to record plat, were you actually subdividing and getting the subdivision approved and recorded? Franklin Cruz (25:11.067) Yeah, 100% just shovel ready. So basically that last permit, you know, you got your water, you got your water sewer permit is your last permit for us, our water and sewers, the very last one, right before Swift Mud and everything else. So we get it right to that stance. And then what we do is right when that actually that permit comes in, we're closing a week after. So that's in our PSA agreement. And PSA, if you're listening to this, which I didn't even understand what that was in the beginning is called purchase sales agreement. So there's these acronyms that I remember in the beginning, I was like, I don't know what they're saying. Like what's an ESA report? And they're like, oh, it's environmental size assessment. I'm like, how much is that? 30 grand. Well, I don't want ESA. I don't want, it's like, I don't want. Yeah, can you wave it? Is that fine? Workman's comp exempt? So, anyway, go ahead. Sorry, good. craig fuhr (25:54.058) Yeah, I'll wave that. Jack BeVier (26:03.989) That's funny. So we're seeing it. Yeah, no, no. So we're seeing. So and then in terms of like selling that land, are you selling that raw land? Are you then selling it to the national who's going to go do the horizontal development, the roads, the streets, the utilities, etc.? Are you selling it to straight to the national or are you selling it to another developer who's going to do that horizontal and get it ready? Franklin Cruz (26:22.673) Yeah. Franklin Cruz (26:32.136) Mhm. Jack BeVier (26:32.794) get it to finish a lot, right? Like put the streets in, put the pads in, put all the utilities in, and then sell it at finish a lot. You could do both, but what are you seeing in the market right now? Is there advantage? Franklin Cruz (26:36.688) Yeah. Franklin Cruz (26:41.575) Yeah. Well, for what I'm doing is simplifying. So for me, it's keep it simple. Keep it stupid simple. So it's stupid simple is sell it to the highest bidder. That's it. So at the time of that property, I sold it to, I decided on KB Homes, but I did have to negotiate the deal face to face with the acquisition manager twice. Because what I discovered is when they sent me the first PSA, they wanted me to do the land development. And so they gave me this really high number. But then when you start digging in, that's why I tell everybody. who was thinking about development, you need to start, you gotta learn contract law. So you need to understand and at least get a core foundation of contract law. Because your attorney, remember they're hourly, but real estate attorneys are expensive as hell. So just for my real estate attorney, he's talking me through this 36 page PSA, but when I started going into it, redlining it and tabbing it out, I was like, oh, wait up. They want me to pay for the land development and me to front that. And that would have been 1.7 million dollars to front it. So I was like, no, we're good. So let's have coffee, let's talk. And you gotta think about a house. It's the same thing of a house. Look, I went to the acquisition manager named Paul from KB Homes and I said, look, it's not gonna work the way you have it set up. At the end of the day, do you guys want this deal or not? Yes, we do. Perfect. Okay, so what's your... per lot net to me. What does that look like? What's the highest you're paying right now? He didn't wanna tell me, but his engineer told him himself. So his engineer who's right next to him said, oh, we're at like 32,000 a lot that we could do net. I was like, perfect. So look, 32 times 41, what's that? I was like, all right, cool. So I'll get the last permit and we just do net to me. You pay 100% of the closing costs. I'm not paying nothing. And then we waited for about a half second. And they're a national home builder. Let me tell you something, if they're a NASDAQ company, they got unlimited capital, unlimited. You know why? All they gotta do is print out more stock. So he said yes, and then we closed, then we got the deal done. It was all together from start to finish with six months. And I closed the deal for. craig fuhr (28:39.063) Yeah. craig fuhr (28:48.982) So that was your... Yeah, go ahead, go ahead, I'm sorry. No, please. Franklin Cruz (28:52.123) Go ahead. Yeah, and I closed it for over one point something million. We made the biggest profit at the time in my entire life ever. Like I've never seen a seven figure check ever. So for see like there are so many emotions going through my head from seeing that it says your name, it says true, but it says like all that when you read it and the number and you're like a national, like I don't know, man, it was like, it was emotional for me. Like, I, I was like, what is happening right now? craig fuhr (29:18.446) Thank you. Franklin Cruz (29:21.447) This is amazing. So go ahead. craig fuhr (29:21.71) Jack, the reason why I wanted to have Franklin on is because he really brings that main street approach that I love so much. Like Franklin is like the guy literally at the ground level who's learning it from the ground up, which I just love. So that was it. Any questions before we move on, Jack? Franklin Cruz (29:34.887) Yeah, literally, come to dirt. Jack BeVier (29:39.129) So have you done, are you doing any of the horizontal work yourself or digging into like how to get that work done? Franklin Cruz (29:48.967) Yeah, yeah, now I am. Before I was just trying to, yeah, 100%. Now I'm doing, so what I did was, okay, so when I got really good, when I sold the KB homes, that was like the joint of confidence. But at the same time, simultaneously, I was doing assemblage of a business park. So I got 22 acres, and then I converted that from 22 acres, got an assemblage of 60 acres, and then found a national developer, Johnson Development Group, that wanted to buy it. craig fuhr (29:49.014) That was, yeah, that was the next step here. Franklin Cruz (30:16.527) my partner at the time who financed everything. So that's the other thing, when you start learning development, they're going to pay you as a co-developer or main developer and they understand like that's a high fee just to work on it. So I negotiated $150,000 upfront to work on the deal and then we'll split the profits 50-50. So long story short, we were in the asset for about three million, but I negotiated all seller financing. So we were only out of pocket like 100,000. And then we had a buyer at like 5.5 million. And that was with Johnson. Because I was going through a divorce, my partner said, hey, do you want me to just pay you out? It'll be less than what you'll make, but you got cash in your pocket because everything is happening. And I was like, hell yes, I'll take it. So on that deal, I was doing that deal and the KB Holmes deal simultaneously at the same time. So I was learning subdivisions. and commercial business parks and industrial space at the same time. Then from there, I've done a lot more deals, apartments, multifamily, everything was approvals and entitlements to maximize profitability. Then probably about not even a year and a half ago, I was like, you know what? I just started seeing the trend of, because right before I left Clever Investor, me and Craig were at Clever Investor together, that's how we know each other so well. I was actually the CEO of a company called True Builders and True Plumbers. And so we had 45 plumbers, right? And so what I saw was specific skilled labor is only getting harder to find people that want to work on shit, literally shit, plumbers, right? And so even though they're making 80 grand a year, it's they still don't want to do it. So in my head, I'm like, man, I wonder how that's going to be in the future. Because it's only in kids nowadays, Gen X or Gen whatever they are now, they really don't wanna do shit. They're so dopamine heavy on everything, they don't even wanna move. Everybody got a crick in their neck like this, they walk around like this because they will look down all the time. So it's like, they really aren't gonna do anything. So a year and a half ago, Habitat for Humanity said, we've got a house we wanna build. I said, I'll take it, I'll do it. Mind me, I've never built anything in my life. Franklin Cruz (32:36.407) And I just said, whoever is the contractor, I'll beat his price. But for me, I wanted the education. I just wanted to learn how I could do it. And if you do something through Habitat, you actually could do owner builder. They, Habitat could pull all the permits for all the trades and you don't need any licensed trades for anything. So I was like, all right, this will be a good experiment because at the same time this is happening, I read the Sears catalog of 1900. Have you ever read that? You ever seen these catalogs before? Dude, you should buy one on Amazon. craig fuhr (33:04.19) where they taught you, where they gave you the craftsman house and the kit and you then built it yourself type thing. Yeah. Franklin Cruz (33:11.099) Yes, right, you got it. Yeah. Like, think about this though. Back in the 1900s. craig fuhr (33:15.801) They would deliver house on the back of a truck and then you would just kind of put it together yourself. You play it right out of the catalog. Franklin Cruz (33:19.515) No, no they wouldn't do it trucks didn't exist son. There was no trucks. It was a damn horse carriage. It was a horse and damn 1900. The T-mode did not come out. There was no cell phones, no cars, nothing. It was old Betty with a damn horse saying, come on son. craig fuhr (33:23.848) Okay, you go pick. craig fuhr (33:35.426) All right, listen. Hold on. Listen, I want to I want to cut through all of the all of the minutiae and I really want to get to exactly what you're doing right now with the smaller homes. And and honestly, Franklin, I love the story. But I like our listeners, I know we want to get into the questions of like, why you why you went to the smaller house, like what it is in terms of the square footage jacket, I don't know if you got a chance to take a look at these houses that he's doing. What's the best website where we could go to Franklin to find the really cool houses that you're building right now? Franklin Cruz (34:12.563) I mean, right now the best website is actually just Google Franklin Cruz Modern Homes. It'll pop up because there's news organizations that took the story. craig fuhr (34:19.69) Yeah, so I want you just to quickly get to the mindset shift that you had of, no man, I can't be doing 3,700 square foot house. What's the average square footage of the house that you're building right now, Frank? Franklin Cruz (34:28.755) Mm-hmm. Franklin Cruz (34:36.475) between 1100 and 1600. So our model that we have right now, 1622, three veteran, two bath, two and a half bath with a one car garage, two stories and a butterfly roof. craig fuhr (34:38.294) Yeah, so. craig fuhr (34:47.35) Yeah, it's the craziest thing, Jack. So like, not a small house. We're not talking tiny houses here by any stretch of the imagination. These are actually, you know, smaller than average, obviously, than what we're accustomed to seeing over the last 10 to 15 years. But so, what was your mindset there, Franklin? Why did you say to yourself, man, I wanna stick to this niche right here quickly? Franklin Cruz (35:10.163) Uh, actually the mindset was I want to be the, the Tesla of housing, which was a genius way that Elon must did first be vertically integrated and learn all the trades on how to build a vehicle. Um, which that's what we did with Habitat. I was vertically integrated three guys, me and two other guys. We built the house ourselves. I learned how to do electrical plumbing, roofing, how to do our own roof truss, how to do the sheeting, the drywall, the flooring, the kitchens, how to tie everything in the foundation, the you first everything. every micro detail that you could think of. And then I was on there, I was boots on the ground in the trenches, digging the ditches, finding, you know, where do you have to put your, you know, your plumbing pipes and everything else that connects to the utilities. So for me, I knew if we could do this with three guys in four months and do a modern home, okay, now next let's do three of them. And that's what we're doing now. We're building three and then we've got 12 more lots. And then I've got a site that we're doing 96. craig fuhr (36:00.244) Yeah, that's cool. Franklin Cruz (36:06.255) So we're working on that right now. And then another site that we could, so it's other sites now, because now my goal was, now we won't do it in-house because to scale, I can't be Elon right now. I don't have Elon's long money. But in the beginning, he did have to sub a lot of things out to make the first vehicle the Roadster. And so now what I've learned is, if we're gonna do the three houses in the 12 and the 96, we've got to get really good trades. And so now we do. So we're building all of these homes now with great tradesmen, but our schedule is building the home and finishing in less than 60 days, which we've already proven. Look, if we did that with three guys and we didn't know what we were doing, we failed all the inspections multiple times on purpose and recorded them and then created manuals of like everything he did wrong. or everything we did wrong so we could learn from the inspector. I just kept on saying, it was so funny because the inspector's like, you're never going to be done in a day to finish the plumbing because we just messed up so bad and we didn't put any schedule 40s at all. We had no, like everything you can think of wrong, we did it. And so he's like, you got to change it out by tomorrow. I was like, Oh, I'll call you back. Cause there's only $30 to get the inspector back. So I will call him back every time, even if we weren't done, just so I could learn from them. craig fuhr (37:19.223) Yeah. craig fuhr (37:23.926) What's your, so tell us about the land that you're building on now. Give us some like facts and figures. Like we get the backstory, but like, so tell us like how many acres are you, did you purchase or did you, you know, what? Franklin Cruz (37:32.091) Mm-hmm. Yeah. Franklin Cruz (37:41.383) Well, I've got three different sites. So I've got 12 lots right now, all within 13th and 42th. So they're infill lots that we're building on 40 by 60 lot size. So that's called a cottage lot. It's something that also a lot of people don't know about. They're called cottage lots. So cottage lots, the city or the county, wherever you're at, usually in the building code or land code, they'll allow a lot smaller footprint. but I wanted a house footprint. I didn't want a townhouse because comps are very difficult. Your highest comps are always houses because more houses are selling than anything else. So for me was let's find a one house that if we could change the pink colors, they always look like different houses, but we've got to perfect one model so we know the material cost down to every nut and like everything. So right now we're doing. craig fuhr (38:32.778) Yeah, and I think Franklin, like what you've captured here is like a really unique design that you can sort of mix and match but still be in the same footprint, the same everything. So tell us, like, so you got the 12 lots, what was your per lot price there? Do you remember? All right, so your 15 grand a lot. Franklin Cruz (38:43.815) Mm-hmm. Franklin Cruz (38:54.159) 15 grand. Yeah. And then I did owner financing. Sorry, go ahead. craig fuhr (38:58.794) You're 15 grand a lot for basically a 2,400 square foot lot, which is pretty small. And then you're building a 11 to 1,800 square foot house. What is your per square foot build price? Do you know? Franklin Cruz (39:04.911) Mm-hmm. Yeah. Franklin Cruz (39:12.211) Mm-hmm. Franklin Cruz (39:15.503) Yeah, sorry. Now you've got to add in, I'm adding in impact fees as well. So impact fees over here are $24,000 a lot. And so now the other thing is because we're keeping it when that workforce housing, we get reimbursed that when we show that we sold it to somebody who qualifies for workforce housing, you just have to fill out the paperwork before you pay for your building permit. So we're into... craig fuhr (39:41.232) essentially like a, it's essentially like a state grant. Franklin Cruz (39:45.411) Yeah, mm-hmm, yeah. And there's so much money in affordable housing and workforce housing, it's unbelievable. You just gotta learn how to tap into it. So our build cost is at $148 a square foot, is our build cost. And that's including the impact fees as well. So if you take out impact fees, you minus it off, we're probably at like 135. Jack BeVier (40:06.854) Were you buying this? Was the 15 grand lot, was that a finished lot? Is that like with utilities to the site already? Infill stuff. Yeah. Franklin Cruz (40:16.263) Yeah, infill. Infill always has utilities right there, yeah. So I've learned my lesson because I also bought some lights that weren't infill and I was like, oh crap, we have to bring in the utilities. That's not gonna be good, so we're not getting those. Jack BeVier (40:26.913) Yeah, Lakeland is one of those like unique markets where they like built so did so many lots even in the Great Recession that they're still in fill lots that have not been built out yet so that you're like I mean when you're finding lots of 15 grand with utilities already on site. I mean, it's the same idea as like buying a house below replacement cost. You're buying a lot below replacement costs like you couldn't take a piece of farmland run roads run utilities and end up with a cost basis of 15 grand. craig fuhr (40:48.514) placement. That's right. Jack BeVier (40:53.461) So I love and you know, and you're talking about the afford affordability is like the driver for the economy. The idea of buying lots below replacement cost when affordability is all everyone's talking about like that feels really de-risked to me. Like I love that idea. Now. So like the question, the question about that though, is that like one of the reasons that Lakeland didn't get done right. Like all those last didn't get gobbled up over the past 15 years was. craig fuhr (41:06.281) you Franklin Cruz (41:10.023) Oh yeah, no, I appreciate it. Jack BeVier (41:21.961) a conversation about, well, an issue about like, you know, proximity to jobs. So like, yes, there's lots that you can buy below relate, but replacement costs. But you know, who wants to live there? What are the rents going to be like? Can the rents justify that $130 a foot cost basis or 130 plus 15, 130 foot plus 15 grand cost basis? So like, how are you thinking about how are you thinking about that? Like, you know, great, we've got this like affordable house, but like, are you getting it filled? Franklin Cruz (41:53.083) Yeah, so the first 12, we're selling all of them. So we know we can build it for about 240. We know they're praising at 320. So for us, it's like, prove the concept, let's just sell them all. It'll be good PR as well for the community. And then for, because whenever you go, we're transitioning from the 12 to the 96 unit sites. So that's nine acres of land right next to downtown Lakeland and next to Bonnet Springs area. So it's like an area that, it's kind of like an area I lived in Tampa, so there was an area in Channel Side that was industrial, and it was a horrible piece of shit area for years. Nobody wanted to go there. And then after a while, somebody started building up these modern industrial cool condos, and now everything in Channel Side is a million plus. So I saw that in Lakeland. I was like, oh dude, this is like back to the future. This is just like 20 years ago in Tampa. And so I bought that nine acres in the industrial area that I know is already coming up. It's just not coming up like everybody like, oh, well, where's the modern, no, they'll be here in 15 years. But what I'm doing with that site because it's an opportunity zone, I needed to actually get experience because whenever you're dealing with you're gonna get the financing for 96 units, you've got to have a co-developer with experience or you've got to have the experience. So that's why we said, let's do the 12. And then hopefully that gives us enough experience that we could do the 96 or we bring in a co-developer, but he feels better because now we know what we're doing. We just need him a part of it. So we can negotiate a lower fee and stuff like that. Jack BeVier (43:30.293) So tell me about like your like, financing all this right? Like where'd the money come from to buy the land? Where'd the money come from to do the vertical construction? Do you bring in equity partners? Do you bring in debt people? Like what's that all look like? Franklin Cruz (43:47.291) Yeah, no, I could answer all of it. So the first thing is everything is actually private. So I actually haven't done like a conventional mortgage or anything even with hard money lenders, probably since my own house I live in to 2016. Everything is just private individuals. So that's how I get the financing. So Habitat, that was a donation and then I put in $40,000 to finish the house. And then these other homes. They are partners that I have found or private partners on the capital side that brings in the capital. So the 12 houses, go ahead. craig fuhr (44:21.91) Yeah. Man, I that's honestly Jack. One of the reasons why I wanted to have Franklin on the show. We've talked to so many guys over the last few months that are, you know, they're, they've got hedge fund capital. I should let you know, um, Franklin, if you don't, that Jack, Jack and his partner, Fred at Dominion do quite a bit of lending themselves. If you didn't do your research, um, you know, I'll, I'll let you look that up. But, um, Franklin Cruz (44:47.909) Mm-hmm. craig fuhr (44:49.29) So yeah, they understand the lending game better than most. And what I love about you, and I knew that you would say this, is that you've bootstrapped all of this, man. You've literally done this thing, the like, I'm starting off flipping a house here in 2004, I'm gonna go to friends, family and fools, and I'm gonna put all the cash I need together. and you figured it out along the way. And that's honestly the story that I love the most here. It's, you know, you're not some hedge fund backed guy that, you know, you're gonna do a thousand of these things. You're learning it as you go. And so, yeah, continue. I just wanted to highlight that. Franklin Cruz (45:24.731) No, I mean, I appreciate that, man. Thanks. That means a lot. It's definitely has been a huge learning curve and sometimes even doubting myself. Because it's like, you know, it's interesting because even and I'll be upfront with you. So what happens in this commercial world and development world, the sellers will think they know what you're going to make. And I've been sued twice from sellers that wanted more money. So it's like you like what? craig fuhr (45:50.722) You're talking about the land seller, correct? Franklin Cruz (45:53.595) Yeah, the land seller. So land seller. craig fuhr (45:54.77) And so, so getting back to Jack's question, you've got, you've got the land, you've, you now encumbered the land, you're probably doing owner finance with that. What are the terms that you're, that you're kind of working with that? If you're willing to willing to offer that. Franklin Cruz (45:59.623) Mm-hmm. Franklin Cruz (46:09.255) Yeah, that's not a problem at all. So for example, like when I did the KB homes deal, right? When I sold that, I was a private investor at Front of the Dollar Capital, but he was also a private investor that I knew from doing houses. And I knew Joel had a lot of capital. And so I just asked him to say, look, I wasn't gonna come up to Joel until I had an LOI from somebody showing the difference of like, hey, I'm into it for this, I can sell it for this. Cause it's the same thing as houses, no difference. Like, When you're dealing with a house, you're just saying, hey, I could get into it for this on the rehab, but it's a praise for this. Here's my CMA. And you're just, here it is, this number, right? And so I showed it to him and I was like, man, what would you do? And I said, look, I'm not gonna lie, man, this is super high risk. I really don't even know what I'm doing. But this LOI is real, you can call them, right? And I really have it for this. And you know me for the other deals, like. craig fuhr (46:40.91) Sure. Right. Franklin Cruz (47:02.787) and things go wrong, like, you know, I'll figure it out. I'll pay you back somehow. I have no clue, but I'll figure it out. And so, go ahead. craig fuhr (47:06.698) What, okay, what were the terms? What were the terms? craig fuhr (47:14.473) Okay. Franklin Cruz (47:15.037) 50%. So I did 5% on his capital, no payments, and then 50-50 on the deal. And that was it. And so he funded it. It came out a little bit higher than what we thought, and that was it. craig fuhr (47:22.866) Okay. All right. Let's I want to. Okay. Let's fast forward to the 12 lot deal. The land there was in fill. Did you was that one seller for the land? Franklin Cruz (47:32.935) Mm-hmm. Franklin Cruz (47:40.363) Three sellers and all of them, I did seller financing. craig fuhr (47:44.394) And then so what are the terms that you generally arrange with them? Franklin Cruz (47:50.199) as little as much money as I can upfront for as long as possible. So that one specifically, seven, seven of the lots. And you got to figure where I'm at is called, it's, it's like an area that a lot of people have never sold. So like both, uh, three of the owners were like the original of when the street was made, you know? So, so they, yeah, yeah. So he wanted one 50 and I was, or craig fuhr (47:54.497) Okay. craig fuhr (48:11.222) Yeah, very unsophisticated. Franklin Cruz (48:18.559) I think he wanted like 175. I said, look, man, I'm a developer. The impact fees alone are $23,000 each on every deal. I don't even know what's up with the land. So I gotta front the studies. I gotta front what's going on. You're not gonna front that. So let's just come up to a happy medium, 150,000. And then what I'll do is I'll pay you $1,000 right now. I'll have it, I'll own the property. That's the other thing I do now is I own it, do seller financing. And then what I do is do a payment prompt. payment plan with like a two year note saying, hey, balance paid in two years or sooner. So I just told him, I said, look, it takes time to do studies. I've done projects that it takes a year to get all the studies done. craig fuhr (49:01.278) All right, love where we're going with this. I wanna go ahead and we'll, we usually do like 45 minute episodes, Franklin, so we'll end this episode right now and then we'll just keep rolling, start up the next episode, cool, Jack? Jack BeVier (49:11.898) Sounds good. craig fuhr (49:15.262) All right. Hey, so we're going to continue with Franklin on episode 17 of Real Investor Radio. This has been Craig Fuhr, Jack BeVier and Franklin Cruz. Come on over to episode 17 right now where we continue the conversation. We'll see you in a bit.