Investing In Land Development with Tim Kristovich

Welcome to Real Money Talks, real strategies from the moneymakers and the world changers that you can use to make millions, keep those millions, multiply your wealth, and build your team. Here's your host, author of five New York Times bestsellers, money expert on Dr. Phil, CNN, CNBC, The Street TV, Fox News, and The View, Laurel Langemeyer. Hi, this is Laurel. Welcome back to Laurel's Real Money Talks. This is a podcast about how to make money, how to keep it, how to invest it, and why use a team. So Integrated Wealth Systems is our brand, and we help you integrate, which most people don't. And we talk a lot about how to make money, keeping very creative strategies from self-directing IRAs, funding sources, things like that. Today, we're going to talk about how and why you invest specifically into land development. We talk about different asset classes and how do they fit in your money rules. So I have with me today, Tim Kristevich, who is a client, a friend, and has been in land development for a very long time. So I asked him to join us to talk just in general about land development as an asset class. So Tim, welcome to Laurel's Real Money Talks. Thanks, Laurel. So Tim, first, let's talk about how, just your background, how did you end up in land development, and we're just going to continue our conversation from there. So give us your background. Well, I started out in general contracting probably over 20 years ago now. And what got us into development was trying to find property to build on. When we moved down here to Boise from Montana, we found that a lot of the property was locked up by other developers and build a team. So basically, we decided to start developing our own property. So we have plenty of inventory to build on. And we just built our development business based on that premises to start with. Along the way, we learned a lot of do's and don'ts. And it's been an exciting run as we started this project. So how do you go from general contractor to land, though? So what were you seeing in the market? Talk a little about the economics of that. So what we saw was a shortage of lots to build on at the time. So we wanted to create more lots for ourselves, and then we saw a need for other contractors that needed lots. So the biggest problem with a contractor is you build houses, that's what you do. So if you don't have a place to build houses, then what's your next step? So looking at the economy, looking at the process of what we did, that's basically what we got into development. Looking at the need for lots, not just for us, but other contractors, we saw a real niche to jump into and start developing. And as we started that process, the need became bigger and bigger. And we're at a point where we can't develop lots fast enough. So part of that is the economic growth, right? But talk specifically then about the Boise Metro area. I mean, obviously your family's from there. So talk about why Boise? Because I was there on the run before 2008, 9, 10 happened. But it's been, like you said, you can't build fast enough. So speak to that. It's kind of a unique market. Part of what really spurred the growth that we're seeing today is the crash of 08. We had a slowdown here, but it wasn't like other parts of the country. And I think a lot of the other parts of the country, particularly California, 36% of our people coming from California, started looking elsewhere to live. And they found that it's a really unique area. Our seasons are very distinct. We have really mild winters here in our area. And so when people started looking at this in a way, looking to get out of their crash to go somewhere else, I think they saw Boise as a real unique place. And that's what spurred the growth that we started seeing here. Probably five years ago, the market started to really take off. What's happened is now that the word's out, we have people from all over the country moving to the area. And they're moving so fast that right now, if we need 20,000 new homes built in there, we don't have enough apartment complexes to even serve what our needs are. 50% of the capacity is being built. So we're short not only houses, but we're short of apartment complexes. And I really believe that spurring it on is the quality of life here. It's right now, we remain number one in the country for retirement places to come to. Millennials. Oh, really? Yeah. Yeah, it's crazy what's happening here. And so it's just a lot of people have discovered all the unique aspects of our culture here. We have a big downtown in Boise. There's a lot of culture, of course, you want the city life. But then you also have the outdoors life on top of it. Swimming, we have fishing, we have the hunting aspect of it. You have just the green belts that people can ride their bikes on daily. It's an amazing spot to live. So where do you see most of the influx? I mean, is it the tip of California, you know, coming up? Or where are you seeing most of the growth? From the part of the country? Yeah. Number one is California. 36% of our growth is California. 10 to 11% is actually coming from Alaska, which was a really, I was shocked when I saw that number. And then Arizona, we see people specifically from Arizona, and they're presenting some different parts of the country, but the big influx is California. And it's 36%, which is huge. Interesting. They can sell out their properties there, they can move here, and they have two to three times the buying power that you had in California. So that's appealing to people also. And so talk a little bit about, I'm just going to divert from land development just for a moment. Do you work with your family? You work closely with your family. Talk a little bit about what's it like to work with your family and making that choice? The dynamics can become kind of interesting some days. My oldest boy is 32, our daughter's 28, and our youngest boy is 26. And they're all involved in the business and by their choice. Other than my daughter, I fired both my boys years ago and told them to go get a job somewhere else just for the fact I thought they needed to learn what they had a hold of in our business. They grew up in the construction business, and now they're at that point where they're young men and women that they want to spread their wings and fly. And so I've got to have enough trust that I've trained them well enough to give them that leeway to take responsibilities and not micromanage them. In a family business, you have to step back and not be the father anymore. You have to be the partner and maybe the boss at times. I don't believe you can play a father role in a business and have it succeed with your kids because they have to learn not to be your kids. They have to become their own people and learn that they have to take the reins in their part of the business, take ownership of it. So it's challenging some days. Other days, it goes real well. But we try to have corporate meetings every two weeks to keep everybody on track. And we treat it just like you would any other corporate business. And just because we're family, that is parked at the door. And then when we're done with the business day, then the business is parked at the door, and now we're family. That's awesome. So advice on whether you should even do it or not, do family business? Because I think there are some rules around that. There are. And I think you need to have those rules set at the beginning when you first get started. It kind of depends on, I think, the family. There's some families I've come across I don't think should ever be in business together. But it's kind of the way we raise our kids to think like an entrepreneur. We raised them to think jobs aren't the greatest in the world. And that's why they had a hard time when I told them they had to go get a job and they couldn't work in the business anymore. I don't really think you appreciate having a business if you haven't had to go work for somebody else for at least a year or two. And I want them to appreciate what they have. So I mean, I don't recommend it to everybody. But I think if you do it right, if you set the rules in the beginning and understand everybody's position, keep focused the vision with the family and where you're going and understand if you're the parent, that one day you have to turn it over to your kids and you can't micromanage how they're going to run the business. Then I think it'll work. But if you think you're going to be lost till the day you die, then I would agree. Now, let's head back to land development, because I love the fact you have corporate meetings. I just want to point to some of the things you said, for those of you listening, is we do a lot of legacy and planning work. So family meetings, you know, around the table, money meetings, corporate meetings are critical. So I appreciate that you're doing those and working on that. But let's head back to land development. Talk about the downside, right? Because we've talked about the upside and then how to do it. We'll kind of end our podcast with that. But talk about the downside, the risks, the capital that it takes just to buy a piece of dirt and bring it into profitability. Well, the downside, I would say, is you have a lot of money at stake. I have a 50 lot subdivision we're working on right now. And we're right around the 1.7, 1.8 million that it's going to take to bring that thing in. Completely to the, you know, from start to finish. And that's counting the land acquisition. And the downside is in an up economy like we're doing, land's going up. So, you know, it's going to cost more and more to do them. And then the other downside is, you know, everybody's always worried about what if we have a downturn and you're in the middle of this or you're coming out of where you're getting ready to sell them and all of a sudden we have a downturn. So there is lots of little, you know, lots of risk that you have to look at and deal with. But I think the important part of making sure your risk is mitigated, if you will, is making sure you buy right and have an exit strategy that makes sense. And each project should be a standalone from not relying on another project you're doing. Then if it's standalone, then you have an exit strategy for each one. And not every deal is the same. Every deal is different. I used to look at it as we're going to build all the houses in-house on these things. It just doesn't make sense for a company to look at it that way, unless you're building 1,500 to 2,000 houses a year. So we go into it with a idea of we're going to move 80% of these lots to other banks. And we start taking on them before we can get final plow, which is when we can actually sell the lots. So with that, we want to have 80% of these lots spoken for with money down on them before we get to the end of the project. And that way, you're spreading out your risk with a lot of other builders. And they're taking on a portion of those lots at the end. Does that make sense? Absolutely. So talk about the... Because I know you do a lot with individual investors too. Let's talk about the upside. So it allows a lot of opportunity to those who want to have land in their portfolio, right, because it's more of an appreciation play. Because you don't pay cash flow throughout the time period, right? You cash out at a certain phase. Right. As you talk about how you deal with private investors, I'm going to ask bigger questions on how you do this system. Right now, we have a certain amount of money we need to raise to get the project done. And we invite the investor to come in and put in their money. With a group that comes in, we put a position on that property. So at the end that they can... When the lot starts selling, then they get their money back. So basically, it gives the investor a chance to participate in the development and the activity side of it without having to get in and do all the legwork that has to be done. And we try to send out videos in a monthly. And as it gets really happening on things on a daily basis, we send them out daily results of what's happening, pictures. And so they can see this progress of the development happening as the subdivision. So what we try to do is really give them a hands-on without being on it and see it happening on a daily basis. With the fact that when they invest, then they get to be part of the project. And the returns aren't bad either. They have a good return. And the project usually runs 18 months on average. And at the end of the 18 months, they're paid out their principal plus their interest. It's a pretty simple process for the investor side of it. The time that's really a lot of work is on my side, where we are the project manager. We have to go in there and go through all the process, getting the permits, going through preliminary plaque, going through getting that approved. There's public meetings that has to happen. Then we have to get construction plans drawn. Then they have to be approved by the city or county at that point. Then we can start building. We have to get all the bids in. There's a lot of process to happen up to the point where we actually get to do the construction. Construction is usually the short period. It's a four or five-month period at the most to have the construction paid. But it's a year to a year and a month or two to get to that point, just with everything you have to jump through. So the investor has an upside of being able to see and be a part of the project. And they get to make money on their money. But they don't have to do all the legwork. And so talk a little bit about how you phase the capital. So obviously, it comes in. You have your offsite and initial phases. Talk about how you phase a project. For those who are listening, again, this is an international podcast. Some folks in land projects are very different in other parts of the world. Some of that are here in America going, yeah, we know. We know if you've done a land project. But I don't think people realize that you buy, you develop one phase, and you sell it out to the next phase, et cetera. So explain how you phase into a project. When we phase a project, first thing is you have to acquire the property. So we usually raise money to acquire the project and get started. The next phase is what we call preliminary plat. So when we go into that section, it's a time frame of about three months, three to four months. And at that point, we start raising money for the construction phase. The construction phase is where all the money is spent. Probably three quarters of the money is spent at the construction phase. So in order to get the money raised for that, and usually it's around $1.2 million, $1.3 million on a 50-watt subdivision. So we start raising the money from the time preliminary plat starts. We go through preliminary plat, get approved. We go to the construction plan phase and get that approved. So our goal is to raise that money up to the point of when the construction plans are approved. And we try to have, if not 100% of it, at least 85% to 90% of the money raised at that point. So there's no delay in the construction process. And at that point, then the next phase, which is the last phase, is getting it constructed and final plat. So there's basically three phases, in my opinion. Acquisition, preliminary plat and construction plans, and then actual build-out. So is that the question? Yeah, it is. Well, and then I think there's also a phased approach where you build so many houses and then you use that capital to actually fund the next phase, right? Speak to that a little bit. Yeah, and that would be a bigger subdivision. So like I say, a 150-watt subdivision, what we would do at that point is you acquire the property, you go in and you do phase one, it'd be the 50 lots. And then you start building those out. And as you build those out, part of the monies you raise after the construction part of it would be construction loans in the houses. As you sell those out, you're raising enough money in that to start phase two. And phase two would be the next 50 lots. And then there'd be a phase three, which would do the final 50 lots. I have to say, I wouldn't get too excited about doing the whole thing in one shot just because what if we do have a turndown? If the economy turns down a little bit, I would rather have 50 lots sitting out there we have to deal with, and we can work with that. But if you have everything all done with 150 lots, that becomes a big nut to crack. And so just from an economic standpoint, I think you're better off doing it in small phases of 50 or so, and just build these out. And like I said, just start building your houses and use that to start raising more capital for phase two. And if an investor wants to stick through the whole thing, there would be payouts at the time you sold the lots, building the houses, you'd have another investor to come in and invest in that. And then you just keep turning that money. But I would like the payout as the lots sell, and then as the houses are built, then you pay out again, and you just roll that money into the next phase as long as they wanted to stick with it. So Tim, what do you think the biggest risk is, right? So if you look at money rules and the upside and someone's evaluating, do I do this or not do it, what's the biggest risk that you've seen in the land project? I mean, I'll just say from my experience, it's someone like you isn't managing the project or the money and they run out of capital. I mean, kind of obvious risk. Other than that, what are some other risks that you've seen and had to experience? I think that one of the biggest ones is not having enough capital. You've got to make sure you have that going in. But next to that is making sure the projects are on time and kind of gauging what the economy is doing in your area. I mean, as long as you're selling land and selling houses, everything's going great. But what slows that down? You know, it's when nobody wants to buy property and buy houses anymore. And so I think the biggest risk is a downturn in the economy. And that's why I really believe in keeping the project small enough to where you can mitigate that risk with a small amount of lots. And it seems to me that number's 50 or less in your phases. But that's the big risk is the economy taking a turn and all of a sudden you're sitting on 50, 100, 200 lots and you can't sell them. But even in a downturn, you're still going to move lots. And the difference with us and other developers is we can build our own lots out. And so if we can't sell lots to a lot of builders, we can still keep building those lots out. It might be a little smaller, but we can still build them out and sell those houses. And I think that's a big plus for us because we can do both sides of the equation, not only just develop, but also build. I could just go on and on and on around money rules and just the appreciation, the risk. Now, one of the last questions I have, when you have investors, do you actually secure their notes or their investment against the land? Yeah. So when we put a group together, that note is secured with a deed of trust on the land. So everybody's in the same position in a group. And I do that through a company, depending on which company we use. But that company puts that deed on there and knows that's the company that writes the notes to the investors. And then I have everything go through a third party, like a title company, that we have construction loans set up with department. So all the money is deposited in one account. And then that title company writes out the checks directly to the construction company that's doing the roads. They write it out directly to the engineering company. So I try not to handle any more money than I absolutely have to. I let a third party do all that. All right. So, Tim, if people want to get a hold of you, I know there's a lot that many of you probably want to learn about. Tim said in the beginning, the Boise market is just exploding. You know, the Montana market's exploding. There's a lot of economies. And I think California is losing its population to, I think, Nevada. I mean, it's crazy up here in the Tahoe and even Gardnerville-Minden area. I hear Montana is just on fire. And I know Idaho is. So there's probably a whole other conversation we could have about how do you do those sales and actually do the build to suits. But that's another conversation. If you want to get a hold of anybody on our podcast, you can always go to AskLaurel, A-S-K-L-O-R-A-L.com. Ask a question, make a comment, make a request to have a conversation with Tim on what he's doing up in Idaho. And I know we're looking at the spring of 2020 to go up and do a tour. So those of you that are listening, stay tuned to learn more as we decide to go up to that market and just look at the market and what's going on in that market, what's causing the growth and looking at specific land projects with Tim. They want to get a hold of you, though, Tim. How do they get a hold of you? They could go to ChristieConstruction at Gmail.com. That's with a K-R-I-S-T-Y, Christie Construction. Awesome. Well, thank you for being on, Tim. And again, those of you that are listening, we will be back with more on the World's World Money Talks. And very soon, we're going to be going into a multiple-part series on the family's financial IQ. And that'll be building from never pay your kids an allowance to family financial literacy and then how to build a family legacy on money. So that will be at least a six, if not a nine-part podcast coming soon. So stay tuned and watch our channel. We'll be actually posting our schedules in advance. So stay tuned on World's World Money Talks for more great conversations about money. Thanks for listening to the Real Money Talks podcast. Your host has been Laurel Langmyre, author of five New York Times bestsellers, Money Expert on Dr. Phil, CNN, CNBC, The Street TV, Fox News, and The View. 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