You're listening to the Master Passive Income Podcast Network.

Hey guys, this is Charles seaman with Erica McNew, and we're here with the Master Passive Income Multifamily Podcast.

And today we have a guest joining us.

Our guest is Justin Gooden.

So to give you a little background on him, Justin, after graduating from business school with a degree in finance, he started working as a multifamily underwriter, commercial bridge lender.

And he quickly realized he was on the wrong side of the equation.

He discovered that if he was ever going to achieve the net worth and lifestyle that he wanted, then he was going to have to start doing deals himself and not rely on a 401k or W2.

So he founded Gooden Development, a multifamily development firm.

And in that firm, he helps busy professionals earn all the benefits of real estate without having to be a landlord.

He also lives in Indianapolis with his wife and two dogs.

Welcome to the Master Passive Income Multifamily Podcast where we we guide you to invest in commercial real estate with a special focus on raising money from others to buy bigger and better deals.

And now here are your hosts, Charles seaman and Erica McNew.

Justin, welcome to the show.

Charles, thanks for having me on.

So after that brief bio, do you want to share a little more about your background and how you got started in this with some of the listeners?

Well, happy to start there and yeah, thanks for having me on.

So like Charles mentioned, I'm from Indianapolis, Indiana and live here today.

I got my first taste of real estate by investing in single family homes as rentals and fix and flips and doing, doing all that.

You know, like most people, I thought you needed to get started in the residential space.

I thought you needed to, you know, use fix and flips and rentals as a stepping stone before you got into commercial real estate.

So that's exactly what I did.

What I did and all I knew at the time was, you know, getting into residential space.

So after doing that for a few different years and you know, after business school, I started working as a commercial underwriter for a multifamily bridge lender.

You know, kind of like opened my eyes to the possibilities of commercial real estate, multifamily investing, working with partners, raising capital from investors, really just sort of opened my eyes to all those different possibilities and the benefits of commercial multifamily.

So, you know, after working for the bridge lender, I decided to open up my own firm and invest primarily in value add multifamily deals across Indiana.

So about the past four Years we've been buying existing multifamily assets here around Indiana.

You know, buying properties, adding value, fixing them up and then selling them.

And late last year we have transitioned fully into multifamily ground developments.

And happy to chat more about reasons why, you know, behind the switch, but moving forward.

Yeah, our company good in development.

We are focused on building properties from the ground up here in Indiana and working with investors that do so.

Justin, you have a really interesting background.

You've been on different sides of the industry.

You've been on the lending side, you've been on the investing side.

Now you're in the development space.

So let's hear about it.

What motivated you to go from value add to development?

Why the switch?

Yeah, a few different reasons, Charles.

One of them that kind of just sticks out to me is, I mean, all the competition in the value add space and you know, as you know, it's really like, you know, everybody when I go to events and conferences or I talk to other people on my network, I mean, you know, everybody and their brother is going after classic value add deals around.

So the competition in the value space has just been tremendous.

You know, I'm spending a tremendous amount of time like all operators trying to find out, you know, find these awesome deals that pencil out on the value add side and especially, you know, like the on market deals.

When I find a deal that pencils out that's listed on the market for a broker, it's really rare that it happens.

And even when I do, I'm competing against 20, 30 other buyers against that other deal to win it.

So for me, the competition in the value add space, maybe saturated wasn't the right word, but it's just really competitive and I just think it takes more of a different kind of investor to develop properties and go into development space.

So yeah, to answer your question, I think there's less competition on the development space and my company is going to be able to do more deals and more transactions in development.

Very, very neat and congratulations on that transition.

Thank you.

When you were making that transition, what do you think was the most difficult part of getting into the development side from value add multifamily?

I said, yeah, I say the most difficult part is just, you know, you're in a whole different ballgame.

I mean, of course when you switch from any different types of business or niche or asset class, you're in a whole different kind of business and you know, different things to learn.

So, you know, going into the value add space, you know, is a whole different business plan and ball game than single payment homes and fix and flips.

And similarly, like when I'm going from value add into development, you know, it's just a whole different ballgame.

More things you have to learn and figure out along the way.

You know, the way I've mitigated that is sort of, you know, finding other people that are in the development space already leveraging their knowledge, their expertise, partnering with them on deals, asking them questions, on looking at stuff.

So, you know, in a way, you know, just going into like that whole different sort of niche has been the most difficult part.

Let me ask you a question, Justin.

So one of the things people always hear when they talk about development is the risk.

You know, there's a lot of money that can be made, but there's also a lot of risk.

And it's good that you have some experienced team members with you.

So how do you mitigate those risks for your passive investors?

You know, what risks should they expect and what do you do to mitigate them?

Yeah, it's an awesome question.

And of course, there's many risks in the development space or many risk in any kind of, you know, investment in general.

I'd say, you know, some of the bigger risks and how we're mitigating them.

I mean, one, the obvious one is, you know, what happens if your construction costs go over budget or more than what you're planning for in your underwriting?

You know, in the deals that we're doing, we have a contract price with our construction company.

So we have something baked into our contract called a guaranteed maximum price, meaning that, you know, if our budget goes, if our construction budget goes over our contracted price, our construction company is actually going to be on the hook for that overage and not us or our investors.

So, I mean, that's one major way we mitigate the risk on the development space is just having that guaranteed maximum price option in our contracts.

Let me ask you a question.

That's definitely a great protection to have.

Do you find that, do you do any financial vetting of the contractors to make sure they could actually make good on it?

Because with some contractors, you know, if they're not large enough, they may not actually have the financial wherewithal to make good on that guarantee.

Of course, yeah.

I'll just take our last deal as an example.

You know, when we had this deal basically ready to go, shovel ready, you know, we were already speaking with some different contractors throughout the entire process, going up to, you know, approvals and getting to zoning.

But when we're ready to start?

I mean, yeah.

We bid our project out to three different, you know, local and reputable construction companies.

So we are looking and working with companies that, you know, have experience in this space, have a tremendous amount of knowledge in the multifamily industry.

You know, we're working with companies that, you know, we know like and trust, and we have a tremendous amount of confidence that they'll be able to, you know, execute our business plan and get our property built.

So we're spending a lot of time, you know, vetting our construction partner in the beginning.

It makes a lot of sense, I think, with anything in this business, you know, regardless of what side you're on.

It's all.

It's all the relationships.

Right.

So it sounds like that goes a long way in the development space.

And just getting to know your kind contract is the same way you would any other professional, of course.

So what set your projects apart from others in the market?

Is there a competitive advantage that you guys have?

Yeah, a few different ones.

I feel like our biggest competitive advantage right now is that we are looking for opportunities to where we can actually partner with the city or town in the location that we're doing the project in, meaning we are working with different municipalities that want to provide incentives on our projects.

You know, it's basically with how construction costs are without interest rates are.

And we're doing this interview right now in September of 2024.

But, you know, development deals are almost impossible to get to pencil out on paper unless the, you know, the city or the town wants to invest in the project in some way to make that project happen again.

It just goes back to construction costs and interest rates and things like that really make development challenging.

So there are a lot of developers, like, sitting on the sidelines now.

You know, they're not doing projects they're not building, and they can't get deals with pencil out.

We are spending a lot more time on the front end, you know, working with municipalities and finding a way to partner with them, finding a way to inspire them with our projects, which does take a tremendous amount of more time in the beginning.

And that's what sets our company apart from other developers that aren't willing to do that or are just more transactional or just doing skinnier deals.

We're spending a lot more time on the front end, but we think by working with the city or the town that we have more opportunities and more.

More value to be created in our projects.

That's really brilliant.

You know, I mean, you can sit there and you can fight city hall, you can work with them.

And working with them certainly seems to be the smarter idea.

What type of projects are you guys building, Justin?

Are you guys doing affordable housing?

You guys doing luxury?

What are you building?

Yeah, so in the great thing that you mentioned for me in the beginning, yeah, we are doing class A, multifamily and mixed use projects, meaning we're usually residential, regular apartment units on top and then some sort of, you know, commercial or retail on the bottom.

And you know, going back to partnering with the city, you know, the city or the town, they like to see mixed use projects come into the area.

So, you know, we're creating jobs, we're bringing businesses and companies into the area, we're providing housing.

So by, you know, building a mixed use project, you know, the towns and the cities that we're talking to are more willing to incentivize those projects because they understand the benefits that a project like that brings to the area.

Yeah.

To answer your question, assay mixed use projects, typically between 50 and 150 units.

Okay.

So you're working with, you're working with the local government and you're building things they want and you're benefiting the community.

So it sounds like aside from the profit, maybe there's also a little bit of passion and purpose involved in it too.

Right.

If we could circle back around when you were making that transition from value add multifamily into development, it sounds like you were doing the acquisition side of the value add multifamily.

And it sounds like that was your role within the multifamily development, was the acquisition still.

And then you had partners that you brought on.

What does that look like?

Sourcing acquisitions for the multifamily development?

Great question.

It definitely takes a lot more time and sort of like imagination on the development side.

It's not always as simple as just like seeing a piece of land listed on the market by a broker and then just going, okay, I'll go get that piece of land, I'll go build it there.

But, you know, we are contacting property owners directly.

A lot of the time we are going and speaking with the town manager at different municipalities and saying, you know, we're asking them, is there a site that they have in mind for a project?

Is there an area of the city that they would like to see improved or developed?

Sometimes it may be a piece of land listed on the market by a broker.

That's a rare case, but it's just more about, you know, networking, using your imagination.

Maybe you Know, you drive by a property that's slighted or kind of like an eyesore, and you may think that's an awesome place to develop a multifamily project, so you go looking at that further.

So, yeah, a combination of all those things.

Erica, very neat.

Awesome.

So it sounds like you guys are finding ways, in spite of the challenging interest rate environment, to get deals done.

So that definitely gives you a leg up over the competition.

Do you find there's a lot of the competitors that are on the sidelines because of where interest rates are right now?

Yeah, like I mentioned, there's not a lot of companies, at least that I'm seeing, are willing to work at the municipalities just because there is more red tape, more upfront work, more due diligence that you have to do in the beginning.

You know, it might take nine months to a year before you even get a project, you know, closing and going off the ground.

But, you know, we think doing that upfront work in the beginning is a lot more valuable in the long run and, you know, makes our basis lower on the project overall.

And other companies, you know, just.

It just depends on your business plan and what you're doing.

Other companies that are developing the, you know, two, three, 400 unit properties, you know, I think that they're getting those deals that pencil out because, you know, they're just more transactional.

They're taking more fees in the beginning.

They're making money from their in house construction company, from their in house property management company.

You know, I'm not saying it's right or wrong.

It's just a whole different business plan.

Those deals might be slimmer and more, you know, skinnier overall, but, you know, they're making money in different ways and more transaction.

Would that make sense?

Got it.

One thing I've learned the last couple years, even in the value space, I think sometimes less transactions can be more so.

It sounds like you're probably on the right approach there with development.

That's, that's, you know, taking those skinny deals can get risky.

Right.

Because you wind up in trouble sometimes if things don't go 100% as you expect, that it makes it, you know, what should have been a decent deal and not so great deal.

So taking less and doing more work on the front end sounds like a really safe approach.

I love that.

Of course, Yeah.

I mean, quality over quantity has always been a good model of mine to live by.

You know, if you don't have a lot of margin for error in your deals, I mean.

Yeah, it just Makes them overall skinnier, risky.

And in the end, I mean, you just put more risk on your investors.

So one thing I know you have a lot of experience with is underwriting.

You know, with the different perspectives you've had, you know, working for a lender, finding your own deals, running your own deals.

What tips do you have for somebody who's starting out?

I know you have a lot of proficiency there.

Quickly, like, speaking on the underwriting, like, how to learn underwriting.

Yeah, you know, I know expert level underwriting strategies is definitely something you have, you know, a lot of.

A lot of expertise with.

I would recommend, if you're wanting to learn underwriting, I mean, definitely just, you know, look for somebody who's already, you know, doing deals that you want to do.

Like, talk to them about how they learned underwriting.

You know, look at deals they're doing, how they're underwriting them, network with them.

On top of that, you know, there's tons of information out there.

YouTube, podcasts, different online courses.

You know, in the beginning, that's at least what I did.

You know, just did a lot of networking, took courses online, watched YouTube videos.

Working the bank was certainly helpful as well.

But yeah, you need to, like, immerse yourself in the space and just take up as many resources as you can and, you know, learn from what's out there.

And on the underwriting process of the development, I imagine at the very beginning that you weren't aware of what the costs were of permitting fees and building fees and all of those things.

You worked really closely with the city manager in order to find out those things for your underwriting process on development.

What did that look like?

Yeah, great question.

I actually went and spoke to another developer that is doing very similar quality deals that I want to do.

And so I was actually able to, you know, leverage their knowledge, expertise.

I looked at past budgets they had on their projects previously and use that as, like, some sample data to use when I'm underwriting my projects.

On top of that, you know, I've already networked with other companies in the area as far as construction companies, architects, civil engineers.

You know, when you really spend time in the beginning developing those relationships, you know, you can quickly send an email to somebody or call somebody on the phone, ask them about something.

So networking is, like, really important in the beginning, and I've sort of used those relationships to, you know, understand what the numbers could be like in the beginning.

That's awesome.

What relationships would you say were the most important for you to consolidate and make sure that you had at the beginning?

Mostly just other developers.

Other developers that are in my own local city that are doing similar things that I want to do.

I've found ways to network with them, take them out to lunch, schedule short meetings in their offices, you know, and just pick their brain about development costs, budgets, mistakes they've made on their previous deals.

I mean, that's just like a superpower that I've done in past is just networking and just meeting as many different people as I can.

Very cool.

So.

So, Justin, I know you have a passive investor course.

What information would you give for a passive investor to just starting out?

How should they be vetting a sponsor before committing capital?

Yeah, great question, Charles.

I would really look for a sponsor that, you know, you can know, like and trust.

What I mean by that is, you know, you really want to understand who you're investing with.

You know, we all know the deal is obviously important, really critical, but at the end of the day, you are investing in that company.

So what I would recommend is get, you know, investor references from their past projects.

You know, verify the performance, performance of their past and current deals.

It's easy to see like projects and pictures like on their website, but, you know, really like, ask the sponsor for legitimate information about how you can verify those numbers of what they're showcasing or not showcasing on the website.

And additionally, you can do background checks.

I don't hear a lot of people talk about that.

It's a really simple process to run a background check on somebody and, you know, see what has happened in the past as far as like litigations and things like that.

All those things are really simple.

But one of the most important things I can tell investors is just, you know, know who you're investing with and.

If somebody was to invest with you, you know, what's the type of update that you provide?

What should they expect?

So for somebody just starting out that doesn't know, what's a good standard for them to.

To be expecting that in the beginning.

Yep.

Yeah.

So what happens first is you just go to my website at goodindevelopment.

I have a simple form that you can go and fill out on our Invest with us page.

After that, we can hop on the call, we can talk about your investing goals, what you're looking to invest in, some investing strategies that may be of interest to you, and then we kind of just see if it's a good fit to together in the past or in the future.

I should say if it is, we'll keep you on our investor list.

We'll keep you updated with stuff we're working on.

And then when we have something, you know, we typically send out a mass email notification to our investor list and then we can go from there as far as that's another call.

You can watch a webinar and then see if that's a good fit for you.

Awesome.

So, yep, go for it.

Erica.

I guess I can imagine that it gets very frustrating for people getting into investing.

Maybe, you know, have a really good paying W2 salary position and want to get into real estate investing.

I see quite often where they attempt to do fix and flips and all of those things to scale in.

What would you say is the biggest benefit of investing with someone like yourself versus trying to do fix and flips or wholesaling or any of those other strategies?

Question.

Let's say, you know, when you're investing with a operator or developer, I mean it's truly a hands off investment for you.

The only part of the investment is where it's not passive is in the beginning, like I just mentioned, where you're researching the sponsor, researching the company and looking at their values, their past projects.

In the beginning, it's like the only part that is not passive for the investor.

So if you're looking for a completely, you know, hands off investment where you're going to trust the developer to execute on the business plan, deliver those returns that they talked about in the beginning, you know, investing in a syndication or development project will be the best fit for you simply because it allows you to focus on your busy career, spend more time with your family.

You know, you're not spending Saturdays repainting a rental or doing a fix and flip.

You know, it's really a hands off investment for you after you make that initial investment.

Very cool.

Awesome.

Well, Justin, we appreciate you joining us today.

I know that you have a.

Excuse me, A set, a free seven day passive real estate investing course.

Do you want to tell the listeners about that?

Yeah, of course.

If you go to goodindevelopment.com course you can check out our free seven day passive investing 101 email course and it'll send you one email a day for seven days.

It'll show you all the things you need to do to invest passively in a multifamily development, red flags that you should know about and you know, best practices that you should know before investing your money.

Awesome.

And Justin, where can the listeners find you if they want to reach out to you and connect with you?

Yeah, I'm really active on Facebook LinkedIn.

If you just search Justin Gooden, you should find me there.

And of course, at goodindevelopment.com all my social media links will be there as well.