ETJ Removal Explained: Save on Permits, Taxes and Development Delays

REAL ESTATE PROS INVESTOR FUEL PODCAST
Guest: Julie Drenner

Julie Drenner (00:00)
Sure. So let’s say that I am a real estate developer and I buy this huge tract of land. If I have to go through the city for all the permitting, for all the infrastructure, that is hard money. That’s time. Cause as you know, you never ever pass an inspection on the first time out. So that delays the projects, which is obviously more costly. It has a huge financial impact. The funding, everything is backed up.

Freddie Steen (02:00)
Hey everyone. Welcome to the Real Estate Pros Investor Fuel Podcast. I’m your host, Freddie, and today I’m joined by someone I’ve been looking forward to chatting with. Julie Rivers Drenner, who’s been making serious moves in the real estate industry, particularly in the area of legislation, the things that matter to every person that’s in this audience that owns a piece of land or would like to.

Julie, I’m so glad to have you here. I think our listeners are really going to take something away from how you’re approaching your company City Free, how you’re explaining to the average person as well as the general contractors, as well as the multifamily real estate investors around the world, around the world that we live in here in the United States, that there’s a better way to do what they’re doing.

So let’s dive in. So, first off, for people who may not be familiar with your world, give us the short version of your niche. What’s your main focus these days? And after a storied career, generations of people that have in your family who have been in real estate, what markets are you operating in?

Julie Drenner (03:15)
So I appreciate you first of all letting me join you today. It’s such an honor. And so we started a little company called City Free Property in January. And it is a very niche part of the market, but it’s so impactful for the valuation of landowners all over the state of Texas at the moment. we hope to expand that, but it is so interesting how the history of

property really affects its value. And so so cities, as you know, have their own city limits. In Austin, Texas, it’s called the full purpose district. But just outside of those are jurisdictions like the ETJs, the limited purpose district, and most homeowners don’t understand where their property lies and how that affects the value of their property.

Same with investors, with builders, all of it affects the value of the property because it tells you what you can and cannot do with that property. So in the ETJs, as we call them, it was a construct, a contract between the city and the landowners. And the city said back in the eighties, Hey, we don’t have the capacity to bring services to you right now, but we’re going to regulate you.

We are going to tell you what you can do, what you can’t do. We’re going to tax you. We’re going to make you have permitting and all this other kind of regulation, but we are not going to bring you services yet. We will eventually in a few years. Well, again, that’s in the 80s. And those services never came. The people have now invested, they now live there, have businesses there. They don’t have a voice. They can’t vote on all the regulations that occur. And so

We looked at this and said, this is illegal as a state. So we passed a state law back in 2023 that makes it illegal for cities to do this and make it an opt-out version. So City Free Property is very simple. It’s a very niche part of the real estate world, but it allows people to remove their properties from the ETJ or disannex them and stop paying city taxes and have to.

undergo the burden of city regulation.

Freddie Steen (06:26)
Love it. What I love it. What caught my attention about you and City Free Property was the way you’ve been able to leverage an actual law degree, a generational legacy in real estate. My research team tells me that your father was somebody special in real estate in Houston back in the day. And

There’s another story running around the real estate group that maybe you have a name a street named after you in Houston for some of his efforts. Is that true?

Julie Drenner (07:03)
Yes, my dad was quite a man. He helped develop Sugar Land right outside of Houston when I was a little girl. We moved out there and they needed names for for streets. So if you go to the Sugar Land Business Center, you’ll see Julie Rivers Drive and that is named after me.

Freddie Steen (07:24)
Wow. So it’s great that you are here with us today at Real Estate Pros as a full-fledged celebrity and a person who has a street named after him. I have to go back, you know, about what caught my attention is the way that you leverage that legal family legacy to now literally having a company that is tackling a subject that a lot of Real Estate Pros don’t know about, and that is the ETJ. That

What we’ve heard about as a buffer zone, actually, the work that you’re doing with your company can save builders, GCs, and real estate investors on any level money if they have been essentially taxed inappropriately. That’s not easy, especially in this climate. What’s been the key to keeping that machine running smoothly?

Julie Drenner (08:20)
Well, I think again, knowledge is the biggest part of this is helping people understand what actual hard money that this can save them. a great example of this is people who have short-term rentals. right now they are required to pay a licensing fee. They’re required to undergo all of the ordinances that go with that licensing fee. But the biggest thing is they pay eighteen percent in a hotel occupancy tax.

And again.

Freddie Steen (08:52)
Can you explain that why they’re paying that occupancy occupancy tax?

Julie Drenner (08:56)
Sure. The city, it’s a city ordinance. So if your property is located in an ETJ, then all city ordinances are applied to it. And there’s a city ordinance that says if you have an STR, then you’re required to pay the eighteen percent HOT hotel occupancy tax to the city. And you do it on a quarterly basis. So that’s cold hard cash. The people don’t have to be paying that.

They are because the city isn’t telling them that they can be released from the ETJ. The other big one, especially for builders, investors, is general contractors, is the licensing that has to go into getting permits and the inspections, all of that, this building codes, zoning laws. I mean, if you have commercial property, you no longer have to deal with zoning laws.

Just think of the potential that that unlocks. So this is again real hard time and money that can be saved if people just know that they don’t have to be under the auspice of the city ordinances anymore.

Freddie Steen (10:38)
Wow, that’s huge, Julie. Can you just explain a little bit more about that?

Julie Drenner (10:42)
Sure. So let’s say that I am a real estate developer and I buy this huge tract of land. If I have to go through the city for all the permitting, for all the infrastructure, that is hard money. That’s time. Cause as you know, you never ever pass an inspection on the first time out. So that delays the projects, which is obviously more costly. It has a huge financial impact. The funding, everything is backed up.

But if you can release the entire property out of the ETJ before you even begin, then you’ve just saved yourself so much time and headache. And you can just roll with it at your own pace and you don’t deal with the city anymore. You do have to, I do want to have a caveat. You do have to deal with the county. But first of all, the county is way more reasonable and much quicker and much less burdensome than the cities, especially Austin.

Anyone building in Austin in the Austin area knows they’re overburdened. And right now, here’s a great example. There’s 84 open permit cases for properties on the ETJ. That means 84. I’m sorry, 8,400. Thank you for correcting me. But that means that the city has taken money, has given permits to property owners and

Freddie Steen (11:57)

Julie Drenner (12:08)
is it is making them build to building codes, et cetera. And they don’t have to. And the city’s not telling them, hey, you don’t have to do this. You could be released from the ETJ and you wouldn’t have to deal with this anymore. That’s insane. Like they are purposefully not helping property owners unlock the value of the property.

Freddie Steen (12:35)
Now, Julie, I’ve got to take one quick step back for our audience. Every operator I know has a moment where things got real. But for you, you not only have experience as a multi-generational talent in real estate in the state of Texas and beyond with your father’s legacy, with your legacy and your husband, but you also used to be a general contractor as well and currently still have a general contractor company. and I want you

to be able to speak to our audience, maybe a deal that went sideways or a time they had to pivot fast from. You mind sharing one of those moments for you?

Julie Drenner (13:14)
Sure. I think the most challenging for us was when we were building we build custom homes and during COVID for sure was was definitely the most challenging.

Freddie Steen (13:26)
Yeah, we all had to live through that. Explain

Julie Drenner (13:29)
I

mean, we were building two multimillion-dollar homes at the time and just again the burden, not only did you have, you know, materials literally going up every two weeks, the cost of those, trying to get your subs to come in when, you know, there’s this virus out and everybody’s afraid to go outside. I mean, dealing with that, but then again, having to deal with the city, like you couldn’t get inspectors to come out. They required inspections. So again, the delays

And the cost of that, I I can’t even stomach it because I’m not a numbers person and I hate money. That’s my husband’s job because it just makes me sick to think about, especially two of our biggest projects had to go through that challenge. that was definitely where I just looked at it and shook my head and said, Is this worth it anymore?

Freddie Steen (14:19)
Julie Wood got so high during COVID that at one point my wife and I were considering planting trees. You as far as the what you the work that you’re doing with City Free Property, is there a time that what you’re doing with legislation that something went sideways or a time that you had to pivot fast due to what’s the niche that you’re in?

Julie Drenner (14:26)
yeah.

Freddie Steen (14:45)
You mind sharing one of those moments for as well?

Julie Drenner (14:48)
Sure. well, we’re kind of in the middle of it. what I love about Texas, I’m a very proud Texan, if you can’t tell already, is that we have session every other year. So that and we only meet for six months. So that gives us the 18-month interim, and that’s where we learn and we get our homework done. So we are now in this interim session and we see that the law that was passed has some loopholes in it.

So now we have this 18-month period to see, wow, that had some unintended consequences and we need to fix it. So that is is the biggest challenge of any piece of legislation. But I am grateful that Texas takes a breath, gives us those 18 months to say, hey, this is really working, or hey, this has got some little things we need to fix. So that’s always, you know, a learning experience.

Freddie Steen (16:24)
Julie, thank you for your transparency. Are there a couple loopholes that you would like to share with our audience?

Julie Drenner (16:30)
I would love that. Thank you. the biggest thing we’re working on right now is that the bill was passed with a exception that if property is within a five-mile buffer zone of a military base, that it is no longer allowed to be removed from the ETJ. Well, City of Austin, yeah.

Freddie Steen (16:52)
I’m sorry. Does that include armories?

Julie Drenner (16:55)
So that is what the city of Austin has just decided is that the Bee Cave Armory is a military base, which it’s not. And they’ve actually, this is very recent, within like the past month, decided this. So they have now approved ETJ removals and are sending basically recall letters to those property owners. So it’s really outrageous.

what they’re doing right now. So we have to close that loophole because it was never meant for an armory where they you store, you know, arms and where they have a few bits of training. It was never meant to cover that type of situation. The other big one, especially for disannexation, which we really haven’t talked a lot about, but that affects only properties along Lake Austin. But if they have a dock, then the law

Does not allow the dock to be disannexed. So basically, your all of your property is no longer under the cities, but the dock is. And again, that has tax implications. It has permitting, because of all things I’ve lived on Lake Austin, of all the things you have to continue to remodel and repair, it’s your dock. It’s just physically impossible to keep a dock perfect all the time.

So every single time you want to remodel it, which is basically fixing it and making it safe, you have to get a permit and you have to get inspections. Again, it’s the city just continuing its stranglehold on landowners that is unnecessary.

Freddie Steen (18:35)
Well, I can tell you that our Real Estate Pros audience gets a lot out of the fact that they also own boats. So that’s good information. And it’s the kind of stuff, Julie, people don’t talk about enough. And honestly, it’s what separates the folks who just dabble from the ones who stay in the game long term. Julie, you talked about disannexation, and I want to give you space right now to give our audience your take on disannexation.

Julie Drenner (19:02)
Sure. So in Austin, the city decided a few years ago that they were just gonna annex the properties along Lake Austin because they are the most valuable in our city for the most part and just start taxing them. And there was no repercussions. So you know, we looked at filing lawsuits et cetera, and so the legislature passed a bill

Which allows for those properties again that don’t have city services. So we’re getting no benefit from the city whatsoever. There’s no voting rights. You can’t vote on the mayor or have any, you know, representation at the city level to be to be disannexed. Yeah the big caveat is if you have some kind of city service. So for instance, there are some properties, they don’t have full city services, but like they will have water.

So if the city provides water, then you have to pay the taxes. But ninety percent of them, that’s not the case at all. The city has so that’s a different process, but it’s you know, a kissing cousin to the ETJ removals.

Freddie Steen (20:17)
Speaking of which, prior to the pod, you and I had a chance to bond over my love for Texas. you know, I have family ties to Texas, and Austin being such a dynamic city from South by Southwest to Austin FC, which we talked offline that I have a nephew in love who was with the Austin FC soccer team. And so I

wanna just give our Real Estate Pro audience a big shout out in Texas that we love Texas, we love Austin, and we love operators that are there. Let’s bring it out to the macro. Disannexation, how would that affect someone who is in the Midwest or on the East Coast?

Julie Drenner (21:06)
Well, you know, disannexation is city ordinances and state laws. So again, I’m a proud Texan and when we, you know, go through all of the the hassle, if you will, of passing a law, the best part of it is seeing it as model legislation and seeing that law then become law for other states. So, you know, our our big goal is to help all states have this type of

of release opportunity again for for landowners, for investors, for builders, because it again it affects and to be honest, not only does it bring value to all the property, but it actually releases the city from the burden of doing all of this. The cities are overburdened enough. They have enough to do. They have everything well, they obviously they have all of their

Properties in the city limits that they’re already responsible for. If they would focus on those and bring the services to those properties, then it would make all the cities better. And it so if you are releasing these properties from the ETJs and no longer requiring the city’s attention to those properties, then the city now has the attention, the time, the money, the resources to really invest in their city limits, which is their job.

Freddie Steen (22:34)
I can hear our audience’s ears buzzing. I love your passion. So let me ask you this. What are you most focused on solving or scaling next, Julie? What’s the next goal for you?

Julie Drenner (22:45)
Well, I think the biggest thing right now and and very immediately is just helping people understand this, helping your audience and people like them understand the values that are the potential of the values being unlocked. when they go to look at a a property for any for any reason, they need to look at the jurisdiction that that property’s in. So education is the biggest thing, helping people know what they don’t know.

And we love partnering especially with realtors and builders and developers and title companies to help people know that this exists. It’s very niche, it’s very small, but yet it’s so powerful. So I think that that is that’s the biggest goal right now.

Freddie Steen (23:34)
That’s big. I mean, especially when you’ve already got this steep background on the legal side and on the legislative front, then also marry that to the fact that you all have actually done the work of being GCs investing in real estate, still have a real estate footprint, and have dealt all over the spectrum as operators. That’s niche and that’s the kind of real estate pro that our audience can really resonate with.

The next move that you can make either can compound things or create chaos, depending on how you play it. So now I know a lot of people listening are either earlier in their journey or looking to level up. And I think they benefit from hearing this. When it comes to building relationships and growing your network, what’s made the biggest difference for Julie Drenner?

Julie Drenner (24:31)
I just think being real and talking to the people that are in your circle and then making your circle bigger. for me, I’m probably the most unconventional business person you’ve ever met. So I meet people on the pickleball court, I meet them over the mahjong table. I I’m retired, so I’m not in an office anymore. But I think that’s the best thing is to really

get to know people where they’re at. And that’s the funnest part. Obviously the networking events are always great. we’re part of, you know, builder networks and other things of that nature. But it’s really about you being passionate about things that help other people.

Freddie Steen (25:18)
Yeah. Yeah, you you can’t fake that. relationships are everything in this space. All right, before we wrap, if someone wanted to reach out to Julie, connect with you, maybe collaborate or learn more about what you’re doing, what’s the best way for them to reach you?

Julie Drenner (25:38)
Sure, super simple. our website is cityfreeproperty.com and my email is [email protected]

Freddie Steen (25:48)
Perfect. Well, listen, I appreciate your time. I appreciate your story, your rich family legacy, your connection to Sugar Land, Texas, and actually a street named after you, Like that’s amazing. And I also appreciate your perspective. really, really excellent. We need more people in this space who are doing it the right way. So thanks again.

For being here, Julie. And for those of you tuning in, if you got value from this, make sure you’re subscribed. We’ve got more conversations coming with operators just like Julie Drenner, who are out there building real businesses, just like you.

We’ll see you on the next episode.