Scott Choppin – Real Estate Developer

“Imagine spending $100 MILLION DOLLARS on a project with uncertainty you’ll ever make your money back. Welcome to the world of real estate development. My next guest has been a real estate developer for over 20 years. This industry is most definitely not for the faint of heart. From the outside looking in, the risk to reward ratio is far off balance and would cause most people to pass out from sheer anxiety. He started his career on the front line as an electrician. He then went to school to learn the entire real estate development process. Thereafter he worked for several developers as a project manager learning what he would call the entire “cradle to grave” lifecycle. Then at age 32 he branched away and started his own company and now today his speciality is residential properties. If you want to get an idea of what real estate development looks like, this episode is for you. Please welcome Scott Choppin.”

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[Intro] This is the Payback Time Podcast, where we interview driven individuals who have achieved or are well on their way to achieving financial freedom. We break down the steps required to generate leveraged income, including, but not limited to stock investing, online business, traditional business, and real estate. Each episode breaks down the mistakes made, victories achieved, and the overall journey that led them to where they are today. Sean Tepper is your host and here is today’s episode.

Sean Tepper: Imagine spending $100 million on a project with uncertainty you’ll ever make your money back. Welcome to the world of real estate development. My next guest has been a real estate developer for over 20 years. This industry is most definitely not for the faint of heart. From the outside looking in the risk-reward ratio is far off balance would cause most people to pass out from sheer anxiety. He started his career in the frontline as an electrician. He then went to school to learn the entire real estate development process. Thereafter he worked for several developers as a project manager, learning what he would call the entire cradle to grave life cycle. Then at age 32, he branched away and started his own company. And now today his specialty is residential properties. If you want to get an idea of what real estate development looks like. This episode is for you. Please welcome Scott Choppin.

Scott, how you doing?

Scott Choppin: Good, Sean. Great to be here. Appreciate the invite.

Sean: Awesome. Thank you so much for joining me. So if you would go ahead and kick us off and give us your career backstory.

Scott: Yeah, thank you. So I come from a real estate background, the real estate development family background. So my dad, Carrie, and my Uncle Mike were both real estate developers in their own right. Predominantly in the commercial office development space. And then both did a ton of apartment buildings, developed new construction department buildings. So that informed my early years, like my younger years from let’s say 12, 18. I was around that. I wasn’t necessarily working in the business, but I got some exposure and sort of understand generally what real estate developers did. But I will be honest with you, I wasn’t really like necessarily after having that be a career. It’s not your normal career and that’s fine. Like that’s not a bad thing. It’s just you don’t have the career counselor in high school saying, “Hey, go be here real estate developer.” It’s like.

Sean: That happens never.

Scott: It happens never. That’s right, exactly. No books in the library about how to be a real estate developer at least that I can find, and I left by the way. So I spent a couple of years after high school, really I worked in the construction trades. That was sort of just a move to make some money. I’m a Gen X-er. And I was ready to move out of my dad’s house. I lived with my dad in my teenage years. I was ready to go. At 17 I was like out of there.

And that throws you into having to make money and survive and put gas in the car and do all those things that adults have to do. And so I worked as an electrician for a couple of years and that taught me a couple of things. One is that it wasn’t what I wanted to do in a long run. Like, I could just tell that one, it wasn’t going to necessarily be challenging enough for me. I just felt like, okay, I wasn’t the world’s greatest electrician, but I was pretty good at it. But I also interpreted that I go, “Oh, there’s got to be more to life than this.” I could see people who I worked with were going to get worn out.

Sean: Right.

Scott: Construction just does that to you. Good salt to the earth people, good people. Like no complaints about it. And then I just sort of observed that is I was sort of dissatisfied and knew that this wasn’t what I wanted to do, that I started to look for what I did want to do. And I think you and I talked about this when we talked before, it’s like working on construction sites. In fact, I was an electrician on apartment building sites almost exclusively. In fact, I think about 98%. I recognized who the developer of the apartment buildings was. Like he’d drive up and in my world, there was a he at the time. Nice car, wearing the suit and tie, clearly he was a leader in commanding the space, right. And I go Oh, like I knew who that person was because of my family background. I go, “I want to be that guy.” Right. Like it finally dawned on me, “Oh, this is what my dad and my uncle who they are.” And of course, I didn’t have the whole story of all the risks that you take and all the challenges that you’re pushed into to do that. But at that point I identified, I go, “Okay I want to be a real estate developer. I want to work for myself.” And then I read a couple of books that were pretty instrumental in thinking about how to be in business, which was sort of How to Invest in Real Estate On The Weekends and Make a Million Dollars, you know that kind of thing.

And those books really taught me, opened my eyes up to deal-making. Like that was the missing component for me in the context of, I could see what real estate developers did, but it’s like, what do you do? Right. You find land, you build buildings and you lease them. That kind of thing. But the money-making, the production of profit part was missing for me. Like in a way that was meaningful to me, of course, I knew people needed to produce profitable projects. Like who wouldn’t do that, but then what’s the challenges and what’s the attitude. And really one of the things is creativity. How can you be creative in the process of producing a new transaction? And that could be anything don’t they need to be in real development. It can be deals, real estate deals, it can be business. It could be manufacturing widgets. But it’s the idea of creating a new opportunity, executing on it and a creative problem solving oriented way. And that at the end of the day, you’ve got a valuable property that is more valuable than what you’ve expended to produce that opportunity.

Sean: Cool. I really like your story here in the beginning. You’re a Gen X-er. I’m at that borderline between X and millennial. And our generations, our parents really introduced us to or encouraged us, especially in my family to go to college, get a four-year degree and you’re probably seeing this in today’s day and age. We have a shortage of contractors. We’re talking electricians and plumbers and carpenters. So these individuals are not going to get a college degree, diving into a trade job and doing very well in comparison to the college students. So you, got into that, your mindset was no college I’m going right into a trade job.

Scott: You know I would love to say it was more strategic like you’re describing Sean. I don’t want to say I was forced to, but when you are out on your own, you got to figure out how to make money.

Sean: Yeah.

Scott: I mean it’s as simple as that. But I will say I saw something on social media the other day and it had a side-by-side picture. It was one person who held the sign and it says, “I got my college degree” and I don’t want to be too harsh here, “But I got my Liberal Arts college degree and I’m in $40,000 in debt and I have no job prospects.” And then the other side was a person who said, “I went to trade school. I work in whatever the trade was and I make a hundred thousand dollars a year and I have no debt.”

Sean: Right.

Scott: And it really appeared to me. I go you know, there’s a story here and you’re right, there’s a shortage. And we see that in our development projects that lack of labor supply for subcontractors is an ongoing issue. And in the United States, we’re in this story of there’s a lot of older contractor folks that are retiring and there’s nobody who’s coming up after them, or at least a lot less, we’d say. And there’s a real story about that. Unless you’re going to go to college and produce a major that produces a career that is going to outrun the cost of what you expended to get that college degree, you shouldn’t do it.

In fact, there was a, just a little side note, somebody, it was a 60 minutes’ style program. And in veterinarian school, one veterinary school started a class of the business logic and the business prospects of veterinarians. And what they figured out in the class, a lot of the students was like, “I can’t make enough money in my career to pay for all the costs of going to veterinary school.” So actually stopped the class. Like they didn’t hold anymore.

Sean: Interesting.

Scott: And I was like, you know we really need that more in college to your point of there may be stories. And I think it’s going to become more and more where you don’t need a college degree. Maybe it’s a trade school, maybe it’s programming. I know there are programs where people can go straight into computer boot camp, coding boot camp. And you can come out and I can’t remember the stats, but it was like a hundred to $150,000 a year. And you were in this boot camp for, I don’t know, six months. I can’t remember all the details about it, but I was like this is interesting. Now I ultimately did go to get a college degree.

Sean: Oh, you did.

Scott: Like I thought that was needed to get be ultimately get out of the trades, get a college degree, and then launch into my professional real estate development career. That was to me at the time. And this was mid-nineties or really early nineties when I made that decision, late eighties, early nineties.

Sean: Sure. What did you go to school for specifically?

Scott: Yeah, so I determined, so after reading the book and observing the world and working in the trades for a couple of years, I made the decision that I needed to go work in the professional development, real estate development career space. In order to do that, I needed a college degree. And so in my background from my dad and my uncle, particularly my uncle Mike, he’s like, real estate development is all about the capital stack. I mean, he didn’t call it at that time, but he called it the financial structure, raising capital. How do the numbers work? How does money flow through the deal? And so I picked, I went to Cal Poly San Luis Obispo, got a business degree focused on finance that was my specialization was they call it financial management, but not in the sense of financial advisor, but managing money and the flow of money and that kind of thing.

That was the closest that was available. And fortunately today, a lot more schools have real estate oriented classes and even real estate centers. Cal Poly’s Business School now is a real estate center; at the time it was ad hoc. I had to get whatever real estate classes I could. I took some classes in architecture school. I took some classes in construction management. I sort of built my own real estate minor. I mean, it was nothing beyond what my regular major was. I just picked electives that I thought fitted best to that. But ultimately it was focused on logic I got from people around me, my dad and my uncle learned the financial part of it. That’s what’s the heart of the deal.

Sean: Good for you. You actually went at your college path there very strategically. Like you knew what you wanted to do so you grabbed and selected classes that you knew would benefit that profession after you graduated.

Scott: Yeah. And I was very fortunate. I’ll give all credit to people who were around me, my family, and family friends. I had a family friend who was a high school counselor at Huntington Beach High School here in SoCal where these surf team coach and the counselor. And I didn’t go to his school, but he was a family friend. And one day he took me aside and sort of walked me through a series of questions that sort of kicked me in the side of the head like, “Hey, do you want to do this? Do you want to be a corporate guy? Or do you want to work for yourself? Do you want to be a professional? Or do you want to…” Like this is sort of in the transition from trades. I determined I wanted to go to college. I think I was in junior college at the time. And the answers that I gave sort of lean towards the look, I don’t want to be a corporate guy. I want to work for myself. Can’t remember, it was like to be in business or not be in business. But in the end, it’s funny because he went to Cal Poly. He’s like, “Okay, your answers mean to go to Cal Poly.” I sort of laugh at it, but it was really, it was one of those clarifying conversations that don’t come along very often. And I remember at the time it was very meaningful to me.

And so, what people can take from this is, if you’re in that conversation with yourself or you’re in that question or you don’t have enough clarity, it’s usually going to come from somebody else. I mean, we’d love to say that we’re lone rangers and gosh, I thought of it all myself. But the reality is, actually there’s a guy named Grant Cardone, a well-known internet personality and he says it great. He says, “Strangers have everything you want, everything you need.” And that’s so true. Now John Rothrock, who I mentioned wasn’t a stranger, but his thinking and his way of looking at things were new to me. I didn’t ask him to do that. He just probably saw me floundering and struggling to figure out what the heck to do. But it’s building networks of people around you that are high performers that have knowledge that’s way beyond, it’s like don’t be the smartest person in the room and if you are, there’s something wrong.

Sean: Yes.

Scott: Like you want to be around people that are more experienced in places that maybe you want to go to, or more importantly, is that they can see things that you can’t. I call them blind spots, right. Like, maybe forming a business and you go, “Gosh, this is a great idea. I love the idea of this.” And then you go, “Okay, I better do my research.” Well, one of the researches is to go talk to people who are in that business in whatever way you can meet them and have them give you feedback. And it’s harsh as hell sometimes, Sean. It’s like stuff that you don’t want to hear. Lots of times, I get people with who I have built those networks. In fact, just before coming on with you today, I was at a group that I study with monthly. And a lot of it is just to have people make grounded assessments. I don’t do that. Now maybe sometimes do that, that’s a great idea. But a lot of times it’s you need to be shown your blind spots. You cannot do it yourself. So maybe that’ll be a help to people.

Sean: That’s great advice. And, I’ve learned to do that through my profession is ask for that ongoing feedback and kind of my theory or my strategy there is hear them but you don’t have to listen. You don’t have to act on it.

Scott: Yeah. That’s right.

Sean: You just hear.

Scott: And you’re right. Yeah. I totally agree with you because in fact, being entrepreneurial is going to generate a lot of kickback from those who are close to you as what has been my experience. Right. Friends and family, who are like and maybe it’s different for you and me, but you’ll get, “Oh that’s that idea is crazy. Or somebody’s already thought of that.” And I guess what I’m meaning is, the networks I’m talking about are people that are high performers in whatever domain it is that you’re trying to grow into or move into but are usually high performers themselves. And they will be honest with you if you’ve built them the right way and the right networks. But you also have to pick the right people to be your network. Nothing wrong with friends and family to be soundboards. But I found that in the early years of entrepreneurship, you’re comfortable with those people, my dad, and my uncle, I use those examples of both excellent developers in their own right. But ultimately most of the best feedback that I’ve gotten in my career and in my growth of who I am, my knowledge, and my capabilities as a business person have come from people that I ultimately have no connection with me. Ultimately in the beginning now you grow those networks and you grow those solid relationships. But you do it in a way that you hold people accountable. You learn together. The terminology that people might be familiar with is mastermind.

Sean: Yeah.

Scott: Right. And its mastermind in common sense and the person who wrote the book Think and Grow Rich was a group that works together that had shared concerns and others. I may be after my real estate development business and somebody else has after growing their plumbing business and somebody else’s growing their financial services business, but we all have the common thread if we want to grow in our knowledge and capabilities. And that in fact, the diversity of business domains is powerful because you’re looking, “Hey, how can we work fundamentally knowledge such that we can be effective in business. And I don’t care what domain you’re in. These are powerful ways to be in business. So it’s really, you have to be very selective in your network and that’s a process. But I agree, it’s both. You have to sort of taking into account what people will say with a grain of salt if you don’t know where their agenda is or what their expertise is. And then also build a network of people who are very expert and like highest performers. And then once you pick that group of people, they’re probably going to be kicking your ass more than you would be yourself. And that’s part of how you know it.

If they’re the right people, they’re like, “No, I’m not going to tell you it’s right or wrong because of who I am. I just have been there, done that.” It’s like when I advise people want to be in real estate development and sometimes people go, “Well, yeah, I heard you, but I guess I’m going to do something else.” And I don’t struggle with that. People will take the advice or not, but I go where I go with it as I go, “Okay, you have zero time in business and I have X time in business.” And not that the years are what counts. It’s the acquisition of knowledge. It’s like I’ve been through, I went through 2008. Thank you very much. It was hard, right. A lot of expensive lessons learned. And so I bring that knowledge, really capability to execute. And that’s my measure of whether I listen to somebody or not is, do they have demonstrated expertise in that space? And in fact, now what I do, Sean, is if I have somebody I need to help me in my networks, I look for the person who’s got the most highly valued accomplishments. I don’t want the guy who’s been in it for three or five years. I want the person who’s I’ve made this much money. I produced this many new businesses. I’ve sold assets that cost this. And I sold them for that profit. That’s really the measure. Really the criteria and standard that I use today.

Sean: Sure. Yeah. That’s good. You’ve got some metrics, you know, beforehand, before you start communicating and networking and building a mastermind approach.

Scott: Yeah. And it’s not comfort. It’s demonstrated knowledge-producing actual results. Not because I know somebody who knows somebody who’s in that business, you go, “Oh, I met that person.” But they don’t have any accomplishments. They’ve not been successful. I need people who demonstrated expertise and knowledge.

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Sean: Let’s jump back here into the timeline. I want to learn how you got into real estate development on your own. So when you graduated, did you work for somebody for a few years, or did you just jump right in?

Scott: Yeah, so I again, in this sort of this idea of once I was like 18, 19, and I knew I wanted to work for myself and I sort of knew what the ambition was, which was to ultimately work for myself as a real estate developer. It allowed me to then map out the series of steps. So, the college degree that we talked about, and then when I was in the story was I needed to work for other people professionally which the college degree is what my entry ticket was.

Sean: That was the ticket in.

Scott: Right, to get in. And then I needed to work for other people. And in fact, my dad introduced me to a guy named Mike Costa, who runs a company called Higher Edge Costa. And at the time he ran a division of Kauffman & Broad, the big home-building company, it’s now called KB Home, but he ran a division for that company that was a syndicator and developer of apartment buildings.

Sean: Got it.

Scott: And I was introduced to Mike through my dad. And I knew Mike’s, what he’d accomplished. He had a track record in the business and he’d just formed these new divisions, it was clear there was an opportunity. And I spent about a year pursuing Mike to get the job interviewed several times, kept calling him once a month. Hey, I’m checking in. They weren’t ready for me in the beginning because I was a junior. But then I got into it. And when I didn’t know, was that Mike had this philosophy about how to be a project manager in a real estate development that took the person’s responsibility as a project manager was for every part of the entire life cycle of a real estate deal. From identifying the business plan to find the land asset, design it, finance it, build it, rent it, and they held their properties for long-term. So we didn’t sell anything, but we went into asset management. And that turned out to be utterly uncommon in the marketplace where your normal real estate developer would be, “Okay, you’re the landmark person. That’s all you ever do. You’re the construction manager, that’s all you ever do.” And there’s a little bit of crossover when one-state next stage a little overlap there. But my ex-philosophy was cradle to grave. Ultimately after I became a senior PM, I pretty much was given carte blanche to go find deals. Like they go, you know how to underwrite them. You know what the criteria is for a successful deal and how it competes. And we happen to do affordable housing tax credit finance properties. So it was a very specific type of development. But I was given, more or less, the capability to go find and create my own opportunities.

Now they still gave me, “Hey, you got to take this project that we found and manage that.” But I was given the capability and the latitude to do that. And so by the time I left there, after about four years, I was fully capable as a technician to be able to know all the phases of a project. How to do the entire thing, how to manage it, all the little myriad, little friction points. We’re in the process of developing land so you’ve got governmental approvals and finance and all those kinds of things. And then, so that was sort of that I went to work for another company to get some different market exposure for about a year. I worked for a company that did just luxury multi-family and worked there. And then I went out on my own at 32. And so that sort of brings me to now, what is the Urban Pacific Group of Companies, which is the company I’ve founded and run this entire now 20 years, 20 years in March, Sean.

Sean: Nice. Congratulations. So before we really dive into your business a little bit, just hit pause here. I’ve talked to a few people in real estate, some are focused on residential real estate investing where it’s more simplified compared to your business model. Where you buy a property, you rent it out to somebody, you make residual income. You do that on a single-family or multifamily. Commercial side, you rent it out to a corporation. You say you’re making the residuals there. So I think the easiest place to start correct me if I’m wrong is let’s break down the phases. You kind of went through them a little bit, but could you break down the phases of a real estate developer? What are they doing?

Scott: Yeah, no, that’s great. And in fact, that’s a common question that people, they say, what does a real estate developer do? I know it’s like projects and…

Sean: Right.

Scott: So and I’ll do these phases, Sean, but I would encourage people that almost every other type of real estate that you described is in this set of steps that one would take in other words. So in the beginning you set a strategy. Like what product type we’re going to do? Where do we want to do it? Is it apartments? Is it commercial? Is it industrial? We have to do that also. The difference is for us as a real estate developer, we get to create that new. So if you’re acquiring value-add apartment assets, let’s use this one, this is a common comparison between development and acquisition. You’re saying, “Hey, I want to be in Chattanooga and I want to buy properties that are a hundred plus units. They have to be distressed. They’re going to be this discounted on the market. Well, there’s going to be a limited universe of available properties at any given time. In fact, that’s a big part of doing good value-add business planning is getting off-market deals at a discount. There’s a whole set of tactics and strategies around that. For us, we’re going to create the business plan just as any other value-add investor would. But now, instead of going to find apartment buildings, we’re going to go find land. We’re going to find empty land, maybe it’s underutilized. And for us, we travel mostly in the urban environment, stink cities and suburbs around cities.

So usually we’re going to be in neighborhoods that are built out. We’re looking for an underutilized, small junkie house on a big lot with the right zoning. It would be one of the stories we’re in. So we set the strategy, we’ll go find land to develop that fits the criteria of our strategy. And then basically a big part of being a real estate developer, you have to get the land approved, your design plus the land approved for that use. So let’s say you find a piece of land that will allow the commercial office to go on it but you go, “Oh, I want to build apartments on that. But the city says, no, the zoning doesn’t allow that. So we have to change the zoning. Now there are numerous different ways to do entitlements is what we call that, which is entitling the project for the use that you want. But when you hear developers are going to the city council and they got approval, or they got denied, or they’re going to the planning commission, that’s what that is. You’re asking the city to confirm or approve your project for that use. And you can rezone, you can do site planner view. There are many different names and they all have different processes in each city, even, they may be one city’s rezone is different than another city. And even the zoning criteria. R-3 in one city is different than R-3 in the next city. So every city or every site that we work on in a different city. You have a lot of similarities in the zoning process, but a lot of differences. And so a lot of what we have to do is to figure out how to work our way through that. And it’s the governmental process.

You’re going to the city to ask for permission. So you get good at that. You get good at the autonomy process, but also you may go, “Hey, look, I’m only going to find sites that really exactly meet the criteria for the project.” I want to do what we call ‘by right’ and that I don’t have to ask for permission. I can just go straight into plan check. So you find the land, you get the plans drawn up and that’s the other part it is designed. So it’s you find land, you design your project, meaning you hire an architect, you lay the buildings out on the site, that’s works and fits with your business plan. Ours are townhouse rental units. So we designed, just looked at a project this morning, we’re doing 85 units on a piece of ground in El Monte, California. It would lay that product out. We make sure we can fit the right number of units. Then usually about the same time, we’re running a proforma, and so I got 85 units in two phases. This is what it costs to build it. This is what I can rent it for. This is what the land costs me. This is the time it takes to do all that. I value it in the end. I got a perm loan.

Scott: And that tells me the project is viable or not from a financial standpoint.

Sean: Right.

Scott: If all that works and we get our governmental approvals, if needed, then we can close land. And usually, we set up our contracts to not have to be obligated to close land until we know all those questions are answered successfully. We don’t take the risk of that political process before we buy the land because you can buy land and then the city council says no, and people do that, right. There’s a business philosophy around taking that entitlement risk, but we don’t not anymore.

Sean: Then you’re stuck with the land and then [Inaudible 30:35].

Scott: Then you’re stuck with the land and then you go, “I got a piece of land. I can’t build what my business plan is.”

Sean: Right.

Scott: Sometimes people can buy it at such a discount that that’s okay. But from a professional execution standpoint, as a developer, you just go like, I can’t take that risk. There’s a lot of other risks that I take by the way. And so it’s really, at the end of the day, development becomes a series of risk mitigation moves. So they ended the day, you’ve got a cleanly executed project that makes money, right. And the last complexity you have, and the more risk mitigation that you do in the front end, particularly in the choices that you make of underwriting, do I set this rent or that rent, do I pick this land or that land? Do I say, this city is better than that city? Is our five-bedroom townhouse, better than a one-bedroom unit. If we pick that, is it going to be better? So really hundreds of choices that we make in the beginning to make sure that we are going to have the cleanest execution, the best chance of success,.

Sean: And I’m sorry to interrupt you here. I’m sure going into a particular plot of land based on the population or the city or the neighborhood, you have an idea of what kind of property would be best for that. So every property probably thinking [Inaudible 31:48].

Scott: Yeah. And that’s part of like, when you think about the strategy at the very beginning, you can like put all those variables together and then choose a product that you think is best to fit that particular criterion. So like, as an example, we rent our units to middle-income working-class families that make, let’s say between 80 and 150,000 a year in Southern California. Now we happen to be offering a specialized product to them. But we already knew upfront that we wanted to serve like this middle-income housing demographic because it’s so undersupplied and really nobody’s competing in that space. That was a place for us to go. Think of it as a niche or a contrarian play. We’re trying to identify markets that are undersupplied and have low competition fundamentally, right. Which when you think about it, Sean, it’s like any business, you would want low competition and high demand.

Sean: Absolutely.

Scott: But it’s interesting because when you’re an entrepreneur, like the thing I say for entrepreneurs, they’re self-selected optimists, right? You have to be optimistic to be able to sustain through the butt-kicking that you’re going to get being an entrepreneur and you have to believe in yourself enough. But part of like this blind spot that I talked about is that optimism can work against you where you’re making aggressive decisions and you’re going, gosh, it’s really risky, but I can do it. In fact, the joke I make is when I was a young project manager. In fact, when I worked for Mike and Kaufman & Broad like I said, there’s no deal I can’t do. I’m a great problem solver. I can find the harrier steel. I mean, I’d literally say these words, but my idea was like, “Hey, there’s no deal that can have some solution put to it and make it successful.”

But the reality is if it has so much hair on it, that takes that much problem-solving. Then there’s just a higher inherent, like the probability that there’s going to be some breakdown in the chain of all these decisions and, all this time that goes through. And so now my philosophy is the opposite. Let’s find the easiest site. So I don’t want to do zoning. I want to do already zoned. I don’t want to be out in the periphery, out in the boonies. I want to be right in the middle of the city, right where I know there’s population. As you said, demographics, jobs, right? Demand, characteristics, those kinds of things. And it’s interesting, anybody who becomes an entrepreneur in real estate and real estate development, you’re after trying to do things, you’re like, I’m going to get it done. I want to do business. I’m excited to do this. And that’s where you really have to have people around you.

Be it, mentors, maybe people that you partner with, maybe it’s people you even hire and you go, “Hey, look, dude, tell me I’m wrong.” Like I even tell, it’s my joke with the subs that we work within our construction teams, I go, “Hey, take my plans. And I go tear them to shreds.” Tell me what’s wrong here. Tell me what was going wrong. I want to know, in fact, I have one person, particularly we would do a lot of work with, I think he’s a little afraid to tell me, “Hey, that’s wrong?” Like he doesn’t want to disturb the relationship. And I go, “No dude really like tell me my architects are doing a bad job, not insulting the person. But, it’s like I am not served by having somebody tell me yes, when something’s wrong, including myself, by the way, right. Most importantly, myself.

And so that underwriting in the early phase of somebody’s entrepreneurial career really has to be tempered with seasoned people in your networks who go, “Yeah, dude, I know you want to take on that site that has an underground gas tank and you think you can clean it up better than the next guy, but just don’t.

Sean: Right.

Scott: That’s one of my fundamental rules, no environmental sites.

Sean: I’m sure you’ve got a like checklist of red flags.

Scott: Yeah. I’ll give you a quick story. So I worked on a site in a state called Montebello and buying the land from this nice older lady. It was her husband who had passed away. It was her and her daughter and they’re the nicest people. And they go, Scott, we just need literally 5k hard money, day one on the contract. Like you sign the contract and give me a check for 5K right there. We went out and we did environmental testing like you drill the dirt to see if there’s gas in it. And they went down a hundred feet. I mean, literally like in an hour. And they said, yeah, we hit a layer. We hit the water and there’s gasoline and what they call it VOC, which is volatile organic compounds. And it was done right there. And so my joke is that’s the fastest money I ever lost because this nice old lady wanted 5k, and I go, Oh, here here. So a great learning lesson. But those are the kinds of things that I didn’t know. Like I could run into that problem so quickly. I mean, I did the testing that tells you there’s the issue, but then no one to counsel me to go, “Yeah, don’t give them the… Tell them five days or 10 days or whatever,” or, “Hey, let’s get the drilling rig out there and then really find it.”

So, as an example, now we do phase one right out of the gate. Like we do a contract, no hard money day one ever anymore. We learned that lesson. We’ll do phase one of the environmental report, which tells us, yeah, the site has issues or not. And if there’s even any little inkling of like gasoline, tanks or, hey, the gas station was next store and could have leaked onto your site. I’m out. Like just don’t even.

Sean: Don’t even mess with it.

Scott: I don’t even spend a second thinking about it anymore, Sean. So anyway.

Sean: I want to jump back to, you were really stepping us through the different steps along the way. And I think we ended at you get approval and now is the time to execute construction. Is that the next step?

Scott: Yeah right. So you get approval, like entitlements, like your planning commission approval, you close the land. And then a lot of times you go into your actual construction drawing production. So that’s the architect’s really now drawing the plans that build the building. That’s what your subs and your general if you use a general, is going to build from. Go through the plan check process. So that’s not discretionary. So planning commission rezoning says yes or no at their discretion. Political plan check is just, hey, building code. Do you have the right splint sprinklers? And, the right kind of materials. That’s just code stuff, not discretionary. I mean, you got to meet the code. So you produce your plans. Then you’ll go to bid, right? You get all your bids, you work out your scopes of work, get your pricing, you put your budget together, you get your construction loan lined up, construction lenders search to look at your proforma, you get already. And then usually what we do is we’ll close the land, close the construction loan and start construction all in one period of time.

Meaning we push risk out into the future as far as possible. So if something bad happens let’s say our costs come in, you know, we’re a hundred percent above our proforma. I can still step out of the contract right now. I’m probably giving the seller some non-refundable money at that point in time, right in the land. But better to give them 50 or 100 or 150 K and not do the deal because it doesn’t make sense anymore because costs have gone up so far. Now that doesn’t happen to us because we’re in the market regularly, right. Historically we know costs. But, you never know. And so what we do is we give ourselves the option always to step out of the deal with no further obligation to buy the land, or we give them a certain amount of money that we’ve assessed. Like, hey, I can give them the 100K non-refundable. I’ll live, right. Close your land, start construction. Then like you said, you build it. Now you’re running a construction operation and building a brand new building. And you finished the building, get your certificate of occupancy or COO, we call it for short.

Then you lease up your units. Let’s say, this is multifamily, new construction. Like we do. Now, you’re going to lease up your units and then you get to stabilize operations, right? And now you’ve leased all your units. You’re just collecting rents and paying operating expenses and managing the property. And then you probably fund your permanent loan. If you’re going to hold it long-term, or that would be at the time you sell it.

Sean: Got it. Is your objective to develop, build, and then sell it outright?

Scott: We do both. Yeah. So there’s a couple of different answers. So that first build, rent, sell is a merchant built, model. In other words, there are people out there that all they do is they’re just produced new apartment projects and they sell them when they’re done and they’re out. They don’t hold anything. Like a company called AG Spanos, one of the biggest multi-family developers in the United States, that’s their model. They don’t hold anything and do they have holdings of course, but their main offer, their core offer is the merchant build, at least it has been that way traditionally. So we had that also. And that was true up to about three and a half, four years ago, as we moved into doing our workforce housing specialty product, the Urban Town House stuff that we’ve talked about. We identified that this is a market that was so undersupplied and had such long-term growth characteristics that we said, like, we want to be in that market. Like it’s got in our estimate decades of good demographics and [Inaudible 41:08] head of us. But also the idea of having long-term income-producing properties. And although we’re apartment guys, and you go, well isn’t that what that is. Selling the property when you’re merchant build it is not long-term income-generating. You produce the profits and you pay back the lender and you put a big chunk of money in your bank account. That’s cool. But I’m really where I’m at in my ark of my personal career and also the life cycle of this company. I now want to build a portfolio of these workforce housing projects, predominately in California, although we’ll look at other markets, that we just basically own long-term. And then the last part of it is really two years ago is when we converted to what I call long-term hold. We build it, we rent it and then we hold it long-term. That’s the other model, right?

Sean: Yeah.

Scott: Two years ago, we started to go, “Gosh man this economic cycle has gone a long time. In fact, that was when it started coming on the news. If you remember we’re starting to approach the longest economic expansion in US history. And I remember starting to think about that and having learned lessons from 2008, I started to think about, look, if we believe in this product, so that’s one, but if we hold investments for a ten-year period, let’s say, and the recession comes in three years. Not that I’m not affected by it, or the property is not affected by it. But what one key thing is I don’t have to sell in three years, I can sell in 10 years.

Sean: Right.

Scott: And as I watched properties go through 2008, somebody bought in 2005 and they had a three-year deal. And then 2008 came well their investors said, “Hey, dude, I want to get out. We’re done like three years. I want my money back.” Well, guess what? That was the worst time ever to sell. Yeah. And so anybody who had the patience to just like, “Hey, look, we’re batting down the hatches. We’re going to rent these things the best we can. We’re going to, hopefully not overleverage on the debt structures like too much loan payment relative to incomes right at the time of the recession.” Then you could sustain through that recession.

Sean: Smart.

Scott: You wouldn’t be fat and sassy, but you’d survive. And you’d probably hang on to the asset. And then you look at those assets, now if you bought in 2005, and although they drop in value in 2008, they’re like two and three times more valuable today than they were in 2005. Now that’s that 15 years, of course. And then the next 15 years won’t be necessarily the same. But then you’ll relay that undersupply story in California, we’re the most supply constraint housing market in the United States. Politically, we just can’t build enough housing. A lot of people resist new housing projects. You put those two together right, like a solid performing asset on a long-term goal, plus an undersupply story. That’s really where we live in our product type. So we’re all long-term hold now.

Sean: Good for you. I was going to say, and kind of summarize that you use to build and then sell the properties. But now it’s primarily long term.

Scott: It’s all long term holds. Well, and I’m not saying we won’t ever be opportunistic. In fact, the joke I make is every property is for sale all the time.

Sean: You get the right price. I’m sure you will sell it.

Scott: I mean yeah. If you go to the investor and say, “Hey, we said 10 years, but somebody is making just an offer and we can’t refuse it.” I mean, we got to get everybody’s approval, including our own right to do that. The characteristics of long-term hold outweigh what we see of the near-term benefit of selling plus the risk mitigation.

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Sean: Your actual projects, how many families or how many units are they typically?

Scott: So at the beginning of the UTH, so UTH is Urban Town House is a three-story townhouse product that has five bedrooms and four bathrooms, two-car garage on the ground floor. So it’s different than your typical apartments, which would be stacked flats. First, second, third floor, three families live above and below each other. This is like, in fact, we say it’s designed and built to rent, but lives like a house, right. Sort of [Inaudible 46:52] off from the marketplace. Sorry, ask your question again. I lost the thread.

Sean: You know when I talk to real estate developers that do multi-family I hear about some people they’ll think small, right? Like a four-family, like a hundred-unit complex on a bigger plot of land, what are your projects look like?

Scott: So, because of this UTH model and thank you for that. Because our UTH model is so different. We had to do what I call the demonstration phase. In other words, nobody’s done five-bedroom, four-bath at scale. There are a few little people who do it here and there. But having learned our lessons from 2008, we just said, look, if we’re going to be experimenting, let’s be experimenting in a way that if things go against us, we won’t die. The company will survive. Right. So we actually did four small projects, like literally two to seven units, right? I’ve never done a two-unit project in my entire career. Like, I mean, we’re in the institutional a hundred unit plus. The last big project in Den was 453 units, just to give you some sense of like size scaling.

But we said this is such an experimental undertaking. Like if it blew up in my face, “I go, okay, all right, you learned a lesson, do move on.” So we did those first four and ended up proving the model. Right. Can we prove rents, prove construction costs produced, or proven values? Right. So now we’re into our construction or our production phase rather. We’re in our production phase.

Sean: Yeah.

Scott: And that’s really like 15 to a 100 units would be our like range and the sweet spots are probably 30 to 75.

Sean: Sure.

Scott: Of these five-bedroom, four-bath townhouse units. So that’s the size of projects. Like at the end of the day, people do big projects because the efficiencies are always more, always better, right? Like you have a bigger amount of units to spread fixed costs across. You know, small projects are exceptionally inefficient and we’ve seen that now. We’ve done these small ones, but it was a testbed, right. You just go start small and mid-size prove the model, learn the lessons, build the practices, hire the team, the vendors, and internal team members that run these projects, train them on the process. And so now we’re on our like sixth and seventh and eighth projects in the business plan over like three years.

We continue to learn lessons and we’ll continuously improve practices, but we’re at a point now where we have some of the smoothest executing projects I’ve ever had in my entire career. And I equate that, or I say that comes from the fact that we started really small, grew the plan, we’re disciplined and rigorous, and how quickly we took on new projects. Because in development, there’s a real story around somebody who jumps to a really big project, but their knowledge and their teams and their practices haven’t caught up with that. And that was one of the blind spots I was talking about. And I speak from experience, we did this in 2008, well 2005 leading into 2008.

Sean: Yep.

Scott: We just took on some big projects. As an example, we didn’t know how to assess general contractors well enough and vet them in a way that they would be trustworthy and execute cleanly. So that we paid that price later, where it ends up that person they didn’t know what they were doing as a general contractor. Well, not for this project to then take care of us in the way that we needed to be taken care of. And so those kinds of mistakes propagate, right. So where did this knowledge and had I had somebody in my networks that knew big projects, and I was asking their advice, which I didn’t at the time that I said, “Dude, don’t do that, sell that project.”

I mean, you produce a nice land asset and got the governmental approvals great, sell that thing, right. Make a bunch of money. You don’t have to build the thing. In fact, I will tell you the most profitable project we’ve ever done, we didn’t build anything. Like we just acquired land, got the governmental approvals that we talked about before, and then sold it to some other builder or developer who had the capabilities to build a big project. As a company, we’ve made more like pure profit from doing that.

Sean: Sure.

Scott: Now those projects aren’t pervasively available. Otherwise and then some people make a living out of doing just that, land development you might call it.

Sean: Yes.

Scott: [Inaudible 51:28] projects. But also when you do that, you have no chance to long-term hold those. So it’s part of the story of long-term holders to build and keep them.

Sean: Yeah. Exactly. For the residual income. Okay. So here’s a question for you and give context for those listening. My background is in software engineering. Usually when you start a project and then launch it. You know building a software product, let’s say it’s a website that produces revenue. You could do that in three months. And then in some cases, it can be big projects that take a year, year and a half.

Scott: Right.

Sean: But it’s pretty quick to get something up and running and monetized it. From my perspective, I look at real estate development like, oh boy, this could be a real serious timeline. So when from the beginning, you’re looking at land to the point when it starts producing revenue, what kind of timelines are we’re looking at?

Scott: You could say easily for two years. Longer in some cases. I’ve had projects, I mean, not that we wished it to take this long, but the project, the big 453-unit project in total, I worked on it for 10 years.

Sean: Wow.

Scott: So again, I’ll tell you, I have a little running joke. I always say I’m jealous of the software guys, you know the Bill Gates of the world because they get to build software and then sell it over and over and over again. Like what a killer like business structure, and I’m not a tech guy and I can just observe. But I equate being a real estate developer, more similar to making movies. Like big blocks, like major production studio-level movies, where you have to find a script, collect actors, raise the money, hire a director, you’re testing the story and the shooting along the day on the way. But ultimately you do enough for you to make money until you put that thing out on the market. And you’re a hundred million in.

Sean: Yes. Exactly.

Scott: That’s what real estate development is. It’s like, you could be a hundred million in and like, not really. Now I will say that like good moviemakers who know good stories and they know that they have the right teams and they have their own judgment about what could be successful or not. Think of Steven Spielberg’s of the world or I can’t think of any other names, but…

Sean: JJ Abrams.

Scott: Yeah, right. Those kind of guys. They have a sense of what could be successful and I bet if you asked them, they would say they get a hundred scripts a year or whatever, a thousand a year, and they only pick one or two because they’ve gone through a similar process to what I described, where you’re doing all those different little decision metrics along the way, and you go, “Oh, I don’t want to do suburban. I want to do urban. I don’t want to do rural. I want to do this. I don’t want to do one-bedrooms. I want to do five bedrooms.” That at the end of the day, the narrowing of opportunities makes for like, what’s left is really strong, right? Like they weed out the BS, like real early, oh that’s a bad script. I don’t like that director or whatever, right.

This would probably be more from the movie producer, the money guys in that business. And so when do you then launch you’re at least likely to be relatively successful again, how can I put it? It’s not that it’s a huge success or a huge failure, but it’s what’s the likelihood of some success versus big success. You sort of make the bet, Hey, look, I think I could put this out on the domestic market, like talking movies again, but I know if I take it overseas, I can make, I generally make my money back. And then anything I make domestically is gravy. I mean, those are the kind of business decisions that those guys make. And it’s the same for us, right?

Like we have a higher confidence level after weeding these out and picking this market versus that market, right. Where I use my early example of somebody who’s an early and been seasoned, they go, “Oh, I can buy this toxic site very cheaply”, but they don’t realize what it takes to clean the site is way more than what the thing’s worth at the end of the day. Right. But movie production, movie making to me is very similar, like a big, huge bet. Maybe opening restaurants would be a similar thing and the best restaurant people are very successful and everybody else is a failure. I think the same with movie-making and developments that way. Right. It really is.

Sean: Yep. You’ve hit it out of the park and I’m a big movie nerd and I study what goes on behind the scenes intensely. So I love your analogy there.

Scott: And so I asked the question, does that sound from what, you know about it more about it than I do is this sound like, correct? My, like my analogy of it?
Sean: It is spot on because there are so many nuances below the surface that people are not thinking about that can just tank a project or cause you to lose a ton of money.

Scott: Yeah.

Sean: So you’re right.

Scott: And you don’t see it, right? Like people go, “oh this thing was just made a billion dollars or whatever, or fail then I never saw it. And what makes the difference between those two? Now those are radically different you have full failure versus full hyper success. But then there are the guys who are hitting the singles and the doubles in the movie-making business that have made a lot of money and are very wealthy, but maybe you’ve never even heard of them.

Sean: Yeah. Exactly.

Scott: And they’re not making a million-dollar blockbuster, but they made a lot of money.

Sean: There are so many little checkboxes to go through with the movie industry, with I imagine in real estate development, my world is stock investing and, and if you’re ticking off those boxes, like check, check, check, check, it’s like, you’re honing in that laser site getting more and more focused. So your probability of making a return is just significantly increased. And a lot of people don’t see those nuances on the surface.

Scott: Well, that’s right. And we could use Warren Buffet as an example. I mean, you talk about stock investing obviously has that background. But if you think about his selection of companies that he buys, right. Like, I look really Buffett is more of a, I mean, he’s successful in the stock investing world, but really he’s a buyer of companies. Right?

Sean: Yes.

Scott: You can think about it in that way. And he’s got this and you’ve read the books, I’ve read the books, but he’s got this criteria and standard for companies it’s got to have good management. It’s got to have moat business forums. Yeah. Right. And so those are all like ways that you can like to apply to any business. I call that fundamental knowledge, right? If you think about picking a defensible marketplace or idea, right. Not doing what everybody else is doing, having good networks around you, picking the right opportunities being very, very picky about it, right? Like if you look at it at the end of the day, whether it’s picking stocks or buying companies, or put picking scripts and movies and directors or picking real estate land deals, and those are all, like, you have to be very rigorous about like having criteria and standards that are built to be successful. Right. And a lot of it is the weeding out process isn’t necessarily fun. Right. Particularly this is why I go back to the young entrepreneur example because you’re so eager to do a deal that you’ll do any deal. Because you’re just, you want to do any deal you just want to get going. Right. And that’s a bad tendency, I’ll tell you.

Sean: For sure. In your model and I know you dropped this line and I don’t use it often, but it’s your industry’s not for the faint of heart.
Scott: Amen.

Sean: You have to be so patient because from looking at a plot of land to the time when it’s going to be monetized, Oh boy, that’s a long timeline.

Scott: Yeah. A lot can go wrong. We spend a lot of time trying to figure out how to deal with time.

Sean: Yes.

Scott: If you take a look at things now what’s going to look like in two years and we have no crystal ball any better than anybody else. But we do have tools that we use and people that we listen to and in the economic cycle tracking and that kind of thing and that’s important for any business. But I think there just comes with a set of practices. Practices or actions, named actions. Hey, I do this market research. I only work with these networks, right? Like these are things that you do over and over again, that if you looked at.

Scott: The best moviemakers and the best company buyers and the best real estate developers. They have these sets of practices that put them into a relatively rigorous set of choices. And that’s I think what you said, you don’t see It’s like what, how many bad scripts that I look at thousands. Right. And a lot of them were just total dog meat. But then one that I saw, but part of it is by the way if you didn’t read those, if you didn’t review and know how to review scripts and looked at the thousands of bad ones, you don’t know what the good one looks like.

Yep. In fact, I had a guy who I was advising, he wanted to get into the real estate investment space. We sort of traded, he did marketing and web design, so traded some time to learn. And my instructions to him in the beginning, I said, I taught him some basics about, real estate investing, buying apartment buildings. And I said, now I want you to go out. And I want you to find a hundred projects, a hundred opportunities that are for sale in the marketplace, apartment buildings that are for sale. And I go, you’re not going to buy any of them. But what you’re going to do is you’re going to go underwrite each one of them. You’re going to build a proforma. You’re going to assess the rents. You’re going to go walk in and get talked to the broker. You’re going to do your own market research on the population and demographics and job growth.

Speaker 1: And I said, purposely, you’re not going to buy any of them.

Sean: Right.

Scott: I said I promise you, by the time you get to the hundredth deal, you will know the market better than probably 99% of certainly the industry and whatever, geographic area and not including, the high-level professionals. And because you will have looked at so many deals, you’ll have learned all the questions to ask, right. The process of asking all the wrong questions teaches you the right questions. And then you work with people like me and you, and you go, what are the right questions to ask. Or you meet new people and you meet new people that can be powerful parts of your network. And, you can apply that to any business, right it’s the going through the process of that knowledge acquisition, but also understanding the marketplace. And that’s the same with real estate development. I mean, I know so much because I have literally developed in my career probably, I don’t know, personally been involved in, something close to 20,000 units. That’s like companies I’ve worked for plus what we’ve done. And like been bashed in the head thousands of times.

Sean: Yes, for sure. It’s really funny how you break down that story because it’s very much a non-glamorous process. Whatever you want to be great at getting there is not glamorous and there’s a ton of mistakes and there’s a ton of data on a ton of nuances. But you get to a point when you start running into the same issues and you’ve solved them before, that’s a really good feeling.

Scott: It is. I’ve been here before. Totally, in fact, when I said we’ve had some of the best-executed projects ever in my career. It’s wow that’s so cool the budgets are good, that we’re on time. I’m like not getting, hammered with 8 million emails and phone calls every day to solve problems. Like I got to good team. We’ve trained them, they’re training, their folks that are on their teams. And only really, last, probably 10 years, I would say, post 2008. In 2008 and any recession in particular, for anybody who’s going through, we’re all going through the 2020 recessions. Recessions like Warren Buffet says, “You know who’s swimming naked.” You know who is weak in execution. Who’s weak in knowledge. Who’s weak in strategy. These sorts of environments will expose that. And hopefully, if you’re the person who’s being exposed, you reflect and go holy shit. It’s like, I see what, I didn’t have it together. And then you work to get it together. And that’s like all about those networks, I’ve been talking about.

Sean: Yeah, for sure. That’s good. I want to ask a question here related to psychology before we get into the final round of the rapid-fire round. So can you share a time or a moment or experience that was really a big challenge, a big problem you faced, and what that did to your psychology, and how did you overcome that?

Scott: Yeah, well, I would go back, I mean, bunch. So I really, fundamentally go back to the 2008 to 2011 era in the housing market and moves the worst downturn in the housing market generally. And that’s for sale. It affected the rental markets and developers, as a developer that time we talked about is always a real factor because if you plan for two years and you think there’s a recession out, three years then you need to get done in two years. Because if you go into three years or four years, then you’ve launched yourself in the recession. Right. So there’s always that time period.

I think really what where I go with it is that in the 2008 era, basically, we were doing a lot of condo projects. So part of our offer, we’ve always been an urban infill developer. We’ve done condo, high-density condo, apartment buildings, affordable housing. Although I would probably we are apartment guys really. I look back on it, but we did at the time and the 2004 to 2006 condo product was just a hit. And the market was just huge and growing. And so we were in a lot of condo projects and 2008 came, actually 2008, 2006 came, those were the earliest signals.

Sean: Yes.

Scott: And I think what the lesson I learned was that the signals for recessions and downturns are there. And in fact, I studied with a group called the IG Network, founded by Toby Hack, and Toby has this great way of saying it. And he’s like, look, fundamentally the business cycle is always there. It always goes up. It always goes down. It always goes up and down. And so you can count on the fact that that’s always there. Fundamentally what you can’t know is the timing of those increases and decreases in the marketplace. Right? So part of it is being vigilant. That’s the distinction I use, like watchful, not paranoid, not fatalistic, Oh my gosh. You know the world’s ending in two years, get out right buy gold, right? Like all the gold guys always say that. But you have to sort of be vigilant and still do business. Because you have to take risks to produce a profit. You have to produce new transactions and new offers to be able to make money. Because you could do none. Right. That would be the safest way to be protected from recession is don’t do business.

But of course, if we’re going to take care of our families and live the good lives that we all want and seek, then you have to take a risk. Very fundamentally. And so I remember at the time seeing early signals of the recession, and it’s I call it a signal from the noise, right. So you’ve got a very noisy environment of media and the internet and websites and this guy on TV and that guy on TV and this noise, [Inaudible 01:07:28] that seems right. And, in 2005, let’s say you would have both seen a guy like Tom Barrack who was on the cover of Fortune Magazine, basically saying “I’m getting out”. Tom Barrack’s Colony Capital, big real estate guy. I mean, Colony Capital is a hedge fund, private equity group, but you know, most known for real estate at least to me.

And then on this other side, you have the Wall Street Journal with a graph, with a line going like this. And housing’s never gone down since 1930, only opposing signals. And at the time I wasn’t seasoned enough to pay attention to the guys like Tom Barrack or getting out. In fact, I’ll share with you cat, in the old days, remember when you used to clip, newspaper articles, magazines, we don’t do that anymore. But I actually have a book it’s in the office behind me of articles that I collected, that was sort of post-2008, including Tom Barrack on the cover of I’m Getting Out as a reminder to me of both the good and the bad side of the narrative that we saw in the media as a way of paying attention.

Don’t forget, you will see that’s there, right? The yield curve went negative last year. And that’s been a pretty consistent signal for recessions. And what happens in part of the way you fight this Sean is that it will be, oh, it’s different this time. Remember 1999, 2000 internet companies and tech companies, Oh, they don’t need to be profitable. Business economics has been suspended, the internet and tech are different. They don’t need to be profitable. And then we all smack the wall in 2001. That is what happens. That’s the urban mentality, we’ll say it’s different this time. And that happened in 2008, sale of housing has been going on forever. So we start to then be better at paying attention to the signals in the noise. I talked myself into believing the stats that were positive in 2006 and 2007. I ignored the signals in the noise. This is sort of the shorthand of the point I’m trying to make. And that part of the seasoning is to like, watch all this stuff, and try to pick out the stuff that’s trustworthy and the stuff that’s not. And if I go back and sort of check my way I do it now, and I sort of, backtrack it or backtest it. I go, “Oh dude, I would’ve seen it.” Had I just listened to Tom Barrack. And I mean, Tom, Barrack’s being, he’s not getting out now, but at the time that was a very clear signal. And I remember seeing it and I ignored it to be quite honest with you, Sean. And shame on me.

Sean: I like doing is I like using tools like proven tools to prove the comments from people wrong. Yeah. And I do, there are certain people out there in the stock market. I will hear what they say, but I typically do not listen. Like I like hearing their perspective about the market and whatnot. And you get to the data, the data is usually the terminating factor. I’m not here to promote Ticker but that is something that kind of cuts through the clutter.

Scott: Exactly. I really keep going back to trust, not to over like, over talk about trust. But obviously, you think of trust and business transactions between people. But do you trust this media source? Do you trust that economist? You trust that government official who’s doing this or doing that. For your own self, as you do. In fact, this is exactly what I do because you go, Oh, I see that source. And then you go take it with a grain of salt or at least accept it. Like, Hey, here’s a piece of data in the market. And then you go who’s that coming from? Like, maybe it’s critical thinking or research. I don’t know what you’d call it, but you have to assess that source for yourself from a standpoint of risk mitigation and with the sort of the feeling, this is where I go to that. And I don’t like the term paranoia, but it’s maybe like the other term I use is staying frosty. Like you’re staying vigilant.

Sean: Yes. Yes.

Scott: You’re like, I’m not sitting here thinking somebody is going to chop my arm off today. But I got to keep my eyes out on the horizon. Somebody might be out there now, somebody may be coming to bring new supplies or whatever, and help me. I have to see those people too. But it’s too, I mean, at the end of the day, I mean, you’ll know this, when I say it, ain’t nobody going to do it for you.

Sean: Nope.

Scott: Nobody will look for your business as much as you look out for your business as much as you do. Right. And like, there’s nobody, who’s more meaningful that your business succeeds or dies than you. And so when you start to put that hat on then you go, it’s up to me and now you use networks and you find powerful people to pair up with or to combine forces with. And that’s really the strongest part of doing that. There are people out there though, although nobody’s going to take care of your business. Some people will help you if you help them. Absolutely people with knowledge and expertise and their own networks. That’s really, if you sort of combine that, those two things, and I’m talking about networks plus knowledge, really the ability to see signals from the noise is really knowledge. So it’s networks and knowledge, that combination, and sort of the philosophy that you’re not able to do it on your own. No lone rangers can be successful. People working together combined ways is always way more powerful tool is always better than one. And, when you start to put all those together, right, that’s to me where I’ve made the most progress in my career in the last, 10 years, the post-2008 recession has been in that domain, not even in the real estate domain. I mean, it’s all applied to the real estate domain, but most of that’s not real estate learning knowledge per se. I call it fundamental knowledge.

Sean: Yep.

Sean: Yep. Absolutely. Well, good. Now I’d like to transition into the rapid-fire round. This is where we’re going to find out who Scott really is.

Scott: Okay.

Sean: All right. There are some fun questions. If you can answer each question in 15 seconds or less. Are you ready?

Scott: Yup.

Sean: All right. What’s your favorite podcast?

Scott: My favorite podcasts so far is a guy named Michael Blank who is a real estate syndication podcaster and does deals. His whole philosophy is doing real estate deals, raising money from others. That’s been the business plan for several years now.

Sean: Cool. All right. What is a recent book you read and would recommend?

Scott: And so I’m a big fan of Grant Cardone. And so the book I’m reading literally right now is If You’re Not First You’re Last, which is basically sales-oriented sales training. But I’ve always enjoyed Grant’s like energy and he’s not for everybody from a personality standpoint, but I’ve gotten a lot out of learning from him and his books.

Sean: Sure. All right. What’s your favorite movie?

Scott: Several, but if I think I would go back to it. I’m going to blank on the name. This is what happens when you get old Sean. What’s the Vietnam movie? Martin Sheen?

Sean: Even I’m drawing a blank on that. That’s back seventies or eighties. Is that correct?

Scott: Yeah. Right, right. Oh boy, I’ll look it up. But anyway, that movie. What a lame answer.

Sean: Nope. Hold on here.

Scott: Apocalypse Now.

Sean: Oh yeah.

Scott: That’s great.

Sean: Yeah, that movie.

Scott: Apocalypse Now. How about that? A close second after that is a Saving Private Ryan. I did not serve in the military. All my uncles and my dad. My dad and my uncle Mike were both a hundred first airborne division. My other uncle flew and worked on helicopters in Vietnam. I don’t know why that era just resonates with me. It has since I was like the earliest memories.

Sean: Sure.

Scott: That’s partly why, and war from my understanding and again, never experiences like, the most extreme of environments. So those would be two movies that I would say.

Sean: Yeah, Saving Private Ryan will always be a classic.

Scott: Yeah, that beginning scene when they’re getting onto the beach. I mean, it’s just…

Sean: Powerful stuff.

Scott: Yeah.

Sean: All right. What’s your favorite food?

Scott: Great question. So I’m based in California, so we have a lot of Mexican food. You know places here and there’s something called ceviche, which is a dish that’s made in Latin America. And basically, they take fish and, I think like, pickle the [Inaudible 01:16:39] and fish and vegetables and they put it in lime juice and that cooks the fish and then they serve that up. Like it’s a cold dish serve as a seafood dish.

Sean: It’s delicious. I’ve had it.

Scott: Yeah. Love it.

Sean: All right. How many hours do you work per week?

Scott: That’s a great question. I’ve been in a conversation with me. I mean, I easily do eight or 10 in a day. But I also like am in the story. The joke I used to make is, as an entrepreneur, no day is a day off and every day is a day off. Now I’ve moved to no day is a day off. And I’m okay with that. In fact, it’s at home and short answer, when you have picked a career in a business that is challenging and that you like, you’re endeavoring to be successful in, that will sustain you through a lot of, kicks in the head and I’m not a person to like, find your passion and follow it and that. I’m sure that’s in there somewhere. But I’ve found like I love real estate development because it’s so challenging. And so therefore the time I spend isn’t working, and that’s sort of cliché, but I’m working all the time practically and love it all.

Sean: Okay. I get it. Yep. When you having fun. Right. How many hours do you sleep each night?

Scott: You know I’ve always been in this story of like loving the story of these guys that sleep three or four hours. And I just have found my body just does not do that. So I’m usually doing seven or eight hours. I don’t have a hardcore alarm, but I wake up pretty early 5:30 or 6 am.

Sean: Sure.

Scott: Just regularly, it helps to go to bed earlier. Of course. But I also, part of my learning with the group IG Network, I’m on several calls a week and we start at six in the morning on our calls, do an hour in the morning.

Sean: Wow.

Scott: To learn. So that gets me up also.

Sean: Good for you. I’m glad you recognize that because a lot of people underestimate the power of sleep and what it does on your decision-making, your thought process, or efficiency.

Scott: Anybody who has kids, that sleep deprivation is phenomenally like, tough. My first didn’t sleep and my wife and I traded, but just like what happens to you on that goes on. It’s just insane.

Sean: Sure. Yeah. All right. Next question here. What is your workout regimen?

Scott: So, great question Sean, I actually, work out two times a week with a personal trainer. It’s all around weightlifting. So I’m 53. So, really in the story of that, post 40-year-old era, physically of just naturally losing muscle mass, that happens just like a natural, like part of, growing old. So I’m all about lifting weights and, I’m not super crazy about it, but we’re definitely after rebuilding muscle mass. In fact, I’m in better shape now at 53 than I was when I was, 20 to 25, just from the process of lifting weights.

Sean: Good for you.

Scott: And then I throw a little bit of jump rope in there. And then, one of the big ones that I sort of cycle back and forth is I’ll do an hour, it’s a walk in the morning, but it’s really a hike. I’ll do three, three and a half, four miles in an hour. Just to get the blood flowing. And I’m a real firm believer in getting outside, right. Seeing trees and the sky, like your body and your brain, I think are benefited from just being outside. Your brain needs nature, your brain needs trees and air and sunlight and blue sky or whatever. So in addition to the physical movement the getting outside of nature, I think has an impact on your physiology, right from seeing and observing nature.

Sean: I 100% agree. Yeah. Good advice. Alright. Last question here, if you could go back in time to give your younger self advice, what age would you visit and what would you say?

Scott: Well, I always have been in a story that I was never in a huge hurry. As I started, I worked in the trades. I started college later and I never really, maybe I justified it to some degree. But I would probably go back to my just graduated high school self, and really two things I would give advice is one is you don’t have forever. Time is limited. If you look at the math, right. We probably have 10,000 working days in our career. And to be vigilant about time, but also to think about working with others is a more powerful way to be than try to be a lone ranger. That would be the advice that I give because it’s like, I’ve always been a story about, Oh, I can do it myself. I can learn, I’ll learn it. There’s a certain amount of that you need naturally to be an expert in your space. But I used to apply that to everything. And now I’m like, I don’t want to learn how to do that. I mean, maybe I do, maybe I don’t. But I go, there’s somebody out there in the world who knows this domain or what I need to do way better than I do. And it’s more effective to work and pair up with them. You’ll accelerate, you’ll amplify and accelerate your career and your business grows so much more rather than trying to be a lone ranger. The lone ranger is super weak.

Sean: Right. Great advice. That’s awesome. Alright. I’ll hand it over to you. Where can people reach you?

Scott: So I would encourage people to go to our website www.urbanpacific.com. On any page, there’s a red button that says sign up. Click that button on that all bring you to our e-blast which we put out every Saturday. Send me an email at choppin@urbanpacific.com and we’d be happy to share with you our ebook. It’s called How To Thrive And Survive A Recession, which is very timely in this day and age. Not real estate-centric, per se, but really about the entrepreneurial journey through a recession, which, I think probably a few people are in that story right now. And this can be a source of like support in the environment, but also, practical ways of things to do to survive and regrow your business with a with the goal of thriving actually.

Sean: Awesome. This has been great; Scott really appreciates your time.

Scott: Thanks, Sean. So glad to be here. Thank you for the invite.

[Outro] Thanks for listening to the payback time podcast. If you enjoyed this podcast episode, please provide a review on iTunes.

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