Tips for Making Money (and Having An Impact) in Real Estate Development

As an Architecture and Design firm, we often get hired by clients to improve a place so that value will be created.  We use Design as a tool to create that value on the assumption that a place that looks nice will be worth more than one that looks average.  We trade our time and ideas for money in the form of fees and we seldom get reimbursed if any of our ideas create more value than we have been paid for. 

I remember working on a project where our client had been hoping to improve the value of a property by 50% and our work resulted in a 200% increase in value.  When they sold the property they made an extra $20M and we got $0M.  That made me wonder why we weren’t developing properties for ourselves and shortly thereafter we started doing just that. 

Now I’m sure you’ve all seen those TV shows that feature house flippers or people who fix up neglected buildings in nice areas.   But what if you want to get into real estate development and don’t have the time or skills to take on a handyman’s special?  How would you do it?

When we started our journey into being our own clients we definitely did not have alot of money or resources.  However after a decade or so of projects we’ve learned a few things that have stuck with us through alot of trial and error.

Below is a list of things we’ve found to be true and maybe they’ll help you figure out if you want to start your own real estate empire. 

1. Design ALWAYS Matters - I’m a big believer in the ‘you build it and they will come’ mentality. Anytime a beautiful property shows up on a search next to mediocre ones, it stands out no matter what the price is. Most inventory in a place all looks the same so if you can punctuate your project with a sharp eye for design details, it will stand out and get you a higher price every time.

2. Time is Money, but more time usually means more money - I’ve never finished a personal project on time. While my clients rush things to get open so they can start making money, I personally take the required time to do things above and beyond what most people would do. This extra time usually pays for itself by commanding me a higher value than the ordinary thing I would have built if I rushed it. On a recent project we took three extra years to build a house due to some unforeseen circumstances. In those three years, the world fell into a housing shortage due to a global pandemic and the house was now worth double what I would have gotten for it. Often we have to choose between a fast schedule or a low budget and I choose to stick to the budget and take the necessary time that the project requires. It’s a personal choice but it’s always worked out.

3. Build where no one is building - Conventional thinking seems to say that if no one is building cool stuff in a certain market then there’s a reason. Maybe the area is depressed or maybe there’s some larger issue that makes it difficult to build. Either way, I have found that those areas are way more affordable to build in because less people seem to want to be there. However when you build something really amazing in an area with nothing amazing, it stands out incredibly quickly. I remember when we built our first house in a rural area of Pennsylvania, the realtor had been showing our buyer custom log cabins, all of which were fairly pricey. When they saw our house it didn’t take five minutes from them to imagine themselves living there. It stood you to them, but in the best possible way. And our cost to build there was half of what it would have been in a better area so we made a 200% profit as opposed to a 50% profit.

4. Work at your own financial pace - Right now there are lots that you can buy for $500 somewhere in America. There’s a prefabricated building kit than you can get on amazon.com for $10K. You may have to start small but it’s always been my experience that paying for things yourself gives you ultimate freedom in creating the best possible project. You can also buy real estate at auctions for pennies on the dollar and find short sales and foreclosures too. I call this the Monopoly approach after the board game. In the game you can only buy things if you have the money to do so and you can only build homes and hotels if you can pay for them in cash. Once you build, you can then start collecting rents with no debt on your books. I realize that many people borrow or raise money to do projects but then you’re inviting outside opinions and also having to give away equity in your projects. I personally don’t see it as being greedy because you get to hire the contractors and vendors who you want to work with as opposed to an investor advocating for doing the ‘least expensive’ thing. In my experience working at your own financial pace ensures that you end up with the highest quality product because you end up caring way more about it when it’s all on you.

Some of these tips may seem different than what you typically hear but they’ve definitely worked for us and allowed us to stay in control of the projects that we decide to take on.  And it may take you longer than you’d like to build your own real estate empire, but those months and years will serve you well and prevent you from making bigger mistakes that claim the careers of many investors who try and rush the process. 

A Short Guide to a Happy Home

A few years ago, the American Institute of Architects ran an ad saying that if you have problems at home, you should consult an Architect. While I don't subscribe to the idea that an Architect can or should solve a domestic dispute, I have learned a thing or two about how a home can be designed to enhance the quality of a family's life. Below are a few of the things that I believe to be true about what makes a great and happy home:

1. Smaller houses make for tighter knit families - There was a time in America when a two bedroom home was common for a four person family. The parents were in one room and the kids were in the other. Kids did homework at the kitchen table while dinner was being made. There was one TV in the whole house and the family room was used by the entire family. Although it seems that many Americans desire a larger home, smaller homes actually create better environments for families to stay closer. When Sarah Susanka developed the 'Not So Big House' concept (which argues that a smaller home of higher quality yields a better lifestyle than a larger home of less character) people latched onto it with resounding approval. If you want to have a relationship with your kids and your partner, you have to live among them, not in the vicinity of them.

2. You need less than you think - Every year my wife and I do a complete inventory of our stuff. If any of our stuff hasn't been used in the previous year (whether clothes or possessions) we either donate or sell it. This ritual has made us very aware of what it is we actually need to survive. And although we are by no means minimalists, you start to understand that the best things in life aren't things. It also keeps us in check with respect to how much our kids need. Your stuff can weigh you down. Less stuff means less stress.

3. You'd be amazed what you can get done when you're not watching TV - now before you freak out, I'm not advocating you get rid of your TV. What I am saying is that it doesn't need to constantly be on in the background regardless of whatever else is going on. With DVR and On Demand, you can pretty much watch your shows whenever you want. So instead of hitting the couch for a solid block of time each night, dedicate one or two nights to catching your shows and use the other nights to do things that are productive. It's also good for kids to see that you don't need to be watching TV every night.

4. Your home will never be finished - Whether you move into a new home or an old one, there will always be work to do. That being said, don't sweat that weekend project that takes six months to finish. Your home is an ever changing tapestry of your family life. It will never be totally clean or totally finished unless your family stops growing and changing. And when that happens, you're probably ready for the nursing home anyway. Focus on keeping it warm and comfortable for whoever lives there and stop obsessing over how much stuff is on your kitchen table.

Think about your favorite memories from your childhood and your home. I guarantee they have nothing to do with a cavernous bedroom or a three story foyer. For me, they involve things like an old lawn chair that we used as the catcher when my brother and I played wiffle ball. Or my Dad and I playing catch for a few minutes on the side of the house while we waited for the grill to warm up. Memories are made by people, not by objects. A big house can be nice, but a great home is something far more desirable and much harder to achieve. When designing a great home, make sure that you leave room for that part of the design which cannot be planned or measured - otherwise known as LIFE.

The Importance of Failure in Great Design

It has been said that Thomas Edison made 1,000 prototypes before he had success with the light bulb. It is also true that Charles and Ray Eames experimented with all sorts of applications for plywood long before the first DCW chair was made. In today's world, trial and error is not often something that is celebrated. We try to teach our kids to come up with the right answer as opposed to testing out all the wrong ones first.

When I was in junior high, I had a math teacher who told me that the answer is not as important as understanding how to get it. Years later, I had a professor at college tell me that an expert is someone who has made every possible mistake in a very small area of study. To this day, I don't think I could argue against either statement. I have read dozens of books on leadership, business, and success and each of them say the same thing in one way or another.

With this in mind, how can designers be expected to deliver a perfect masterpiece every time without incident for each client? The answer is that we can't. Every project is different and has different challenges. Many firms take a 'cut and paste' approach to their work in order to avoid mistakes. While this approach is common, it does not promote an environment of creativity.

In order to be creative, you have to make mistakes. If you have ever watched your kids, you will see that they have a certain way of learning that adults have long forgotten. It starts with the phrase 'what happens if I do this?'. Adults don't often ask those questions. We are trained to learn how to anticipate what will happen without having to do the test. Educational expert Ken Robinson has said 'If you're not prepared to be wrong, you will never come up with anything original'. As a designer this is as important a statement as 'Form Follows Function'.

Louis Kahn was notorious for making big changes on projects well into the construction phase of his projects. If the process revealed something that he had not seen on paper, he would alter it in the field. Although his clients did not welcome this exploration (and the resulting change orders I'm sure) there wasn't one who didn't rave about the end product. Great design evolves. It is not a static process.

In summary, if you want to be a great Designer, you have to get your hands dirty. You have to do the work. You have to adjust and not be afraid of being wrong. These are all traits that are counter cultural and will force you to unlearn what you have been taught. It's not that great Designers don't follow the rules - it's that they understand them so well that they know how to break them. Just be prepared for the fact that it might take 1,000 attempts to do something ground breaking.

The Design Mindset

As an Architect, I’m always amazed at people’s reactions when I tell them what I do. The idea of a career in Architecture or Design sounds incredibly impressive to those who have never worked in the field. Most of what we do as ‘Design Professionals” is far from the stereotype of big drafting rooms and rolls of drawings everywhere. Most of what we do is administrative and repetitive, just like other professions.

In the end, I concluded that what people are impressed with is not the process, but the result. The idea that we can take something ordinary and turn it into something amazing with a few strokes of a pencil (or mouse).  And although most think that they understand the process, great designers possess something that most people do not: the Design Mindset.  

The Design Mindset is something I’ve been thinking about a lot lately. My belief is that you can apply it to your whole life and not just a building in need of renovation. The Design Mindset is about starting with intent and having a goal that is not tied to superficial thinking.  For example, we Designers don’t start out by thinking that a dining room should be red. Instead, we think about making it feel intimate.  Once we understand our intent, then decisions become easier to make.  For example, we would choose light fixtures that provide warm incandescent light, seating that is soft instead of hard and colors that would be soothing to the occupant.   Compare that to fast food restaurants that want to get you in and out as quickly as possible.  Their seats are hard, the colors are bold, and the light is bright. They would prefer if you just ate and ran so they can cycle through as many people as possible.   

When you start thinking about intent in everything you do, your life starts to change dramatically.  For example, many people start the year with all sorts of resolutions and then break them after a short time. Maybe it’s not about the resolution but the overall intent of the resolution.   

There’s a difference between saying you want to lose 20 pounds and saying that you want to have a healthy lifestyle.  If the latter is your goal, you won’t necessarily focus on weight but overall wellness.  Everything you eat and drink would be tied to that goal, and you be more proactive in planning your meals as opposed to starving yourself till you reach a prescribed weight.   

Assigning intent is a critical part of the Design Mindset. You have to ask yourself ‘What Am I Trying to Do?’ and then come up with a plan on how to achieve that. In many cases, old habits are going to have to go.  In the world of Construction, this is known as renovation:  you remove the things you don’t want and replace them with the new things that you do.  It’s no different in Life.  

Another part of the Design Mindset involves cohesion: the idea that everything works together as a whole.  Once you know what you are trying to do, you have to find a way to balance new things with old things.  Some Designers go for ‘an eclectic mix’ where different things work together to create a unique aesthetic.  Other approaches are curated around things that are all similar.  Both can work well, however the final product should match the personality you’re designing for.  If the decisions are not cohesive then it will be confusing to other people.  

Intent and Cohesion are essential for making decisions about what stays and what goes.  Once you understand how to use them, you can design an outcome for any situation.  

Here are a few examples of how you can apply the Design Mindset to everyday life: 

First ask yourself, “What Am I Trying to Do?” 

Some sample answers might be: 

• Make More Money 

• Have More Friends 

• Live in a comfortable home 

• Get an Education 

Let’s imagine you want to make more money.  The first thing you have to do is remove some of the things from your life that are taking your money so that you can have some more. Designing a new life might involve looking at your expenses and seeing which things need to stay, and which can be eliminated.  Once the unnecessary things are gone they can be replaced with new investments that could produce a better return. Once you see your money actually earning you more money, you will likely be less inclined to spend it foolishly.   

Many people try and solve the problem by changing jobs (a superficial response) or getting a second job.  However if you don’t have a plan in place, more earnings usually just equate to more spending.  Once you understand that your goal is tied to retaining money and building net worth, you will make different choices about where you spend.  It’s no secret that Warren Buffet drives an old Ford pickup truck around his hometown of Omaha, Nebraska.  He’s designed himself a life that is focused around retaining and earning money as opposed to spending it.  

The same mindset would also apply if we chose to tackle your environment or education.  If you want to be smarter, swap an hour of TV a day for an hour of reading.   If you want more friends, then start prioritizing social activities over playing video games by yourself.  I know these all sound like obvious choices but they’re all about defining your intent and then integrating them into your life with other similar decisions that work to support the intent.   

Although many people aim to accomplish things by setting finite goals, the Design Mindset involves a change of lifestyle around an intended result. If you can adopt this way of thinking then you won’t be troubled by the random bump in the road or setback.  Your decisions will be tied to much bigger picture objectives that will create larger changes in your life.  And the best part is that you can start right now.  There’s no advanced degree or work experience required.  

Let the demolition begin.  

Residential Real Estate is Booming – What this means for the Design Industry going forward

It’s no secret that many office spaces are empty these days.  While many are relegated to working from home, most are also saving money by not commuting, using their vehicles less and taking fewer vacations.  Due to restaurant closures, people are also eating out less and cooking more.  Given all of the areas that people are saving money it begs the question as to where all the money is going?

Look around and you will see that home sales in rural areas are way up as people move into larger homes where their money goes a little further.  They no longer worry about long commutes or even child care since many kids are home and handling schooling remotely.  Home improvements are happening at a furious pace as people look to add fitness centers, home theatres and new kitchens.  At present, IKEA reports that most of their stores are sold out of their popular and affordable kitchen cabinets. 

As we contemplate a future where people go into a physical office space less and less, the Design community contemplates how to best adapt to an environment that is highly personal, residential and bought online.   Here are a few ideas as to how the Design Community can stay relevant at a time when there is a lot of uncertainty.

1-     Know your supply chain.  There is currently a lot of disruption when it comes to sourcing materials and products such as cabinets, lumber, tile, lighting and furniture.  Stay in touch with your product representatives and understand where all the demand is coming from.  If you follow the demand you can also market to the demand appropriately.  Larger construction firms and showrooms are probably good sources of referrals.

2-     Now’s the time to make something.  Whether you’ve had ideas about a line of wallcovering or a new chair, there has never been a better time to launch a collection of your own.  Given that the internet is the great equalizer, physical showrooms and decades of history seem less important than if you have product to sell and it’s ready to ship.  Any person who uses Amazon can tell you that often you buy the item you can get the quickest (provided it has reasonably good ratings!). 

3-     Be Your Own Boss.  Lots of contractors are making a killing flipping houses or raising money to speculatively develop to current demand.  So why can’t you do the same?  Now might be the right time to buy a fixer up and put your skills to use.   Given the turnover in the housing market anything you fixup is likely to sell and sell quickly.

4-     Help your corporate clients re-position their spaces.  If you have clients who are stuck with office space, why not help them find a good use for it.  Whether you can convert it into co-working space or re-arrange it for greater functionality many renters will have to figure out what to do with all their space in the coming years. 

5-     Network locally.  A lot of wealth has been created by this pandemic.  While it’s true many businesses are struggling there seem to be just as many who have benefitted.  Go into a local bicycle store and you will find that they can’t keep any inventory in stock.  It is also true that companies that are doing well are also looking to extend their gains into the future.  Perhaps that small market is expanding into the adjacent storefront or the local butcher needs a second location.

The simple truth is that a creative person can be creative anywhere so why not change your reference point and start looking at new opportunities that have been created by a resurgence in residential neighborhoods.  While no one knows what the future will hold, it is fairly clear that most workers are not exactly rushing back to their offices.   That being the case, start networking around the areas you live and you will likely see that there is work to be done right in your backyard.