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Show Summary
In this conversation, Fernando Barajas shares his journey into real estate, focusing on his experiences in the California market. He discusses the importance of mentorship, the growing trend of accessory dwelling units (ADUs), and the differences between development and fix-and-flip strategies. Fernando emphasizes the challenges of new construction, including navigating regulations and the approval process, and offers insights on partnering with others to succeed in the industry.
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Investor Fuel Show Transcript:
Fernando Barajas (00:00)
Depending on the area and I’m gonna get to it There are some areas where home are worth. I don’t know a million plus This is where you do the ground up construction because there’s margin Where you can build them up sell it for a profit There are areas They are called lower income areas where homes are I don’t know 700,000 maybe even 500,000you don’t have enough margin to do a ground up. So in the lower income areas, you do the fixing and maybe adding like a bathroom or maybe even a little extra. But ideally, you don’t want to build in those areas because you don’t have enough margin to make money.
Dylan Silver (02:20)
Hey folks, welcome back to the show. Today’s guest is Fernando Barajas, background in construction and single family investor in the California Bay area. Fernando, welcome to the show.Fernando Barajas (02:34)
Thank you. Nice being here with you guys.Dylan Silver (02:38)
It’s great to have you on. Fernando, I always like to start at the top of the show by asking my guests how they got into real estate. So how did you get into construction? How’d you get into real estate?Fernando Barajas (02:52)
I got into real estate through work, realizing that not only that could work in homes, but I can also make a business out of it. I’ve learned in a very early stage that if I can work for myself, I will be more productive.Dylan Silver (03:14)
Now, when we talk about the California Bay Area, there’s a lot of competition. When you were getting in as an investor, did you have mentors in this space? Were you learning on the go? Was it a little bit of both?Fernando Barajas (03:31)
You have to get everything you can. So yes, I had a mentor, but I’ve also learned things in my own. In California, it’s really complex. A lot of it has to do with the area that you want to work on ⁓ and also has to do with ⁓ the stuff that we talked about, which is accessory dwelling units. Some areas have already approvedthe buying and selling of accessories rolling unit. So you have to pay attention to where you’re working on. So area means a lot. You have to know what’s going on with the rules.
Dylan Silver (04:13)
question. I think there’s a lot of interest right now specifically in affordable housing everywhere, but certainly in California. accessory dwelling units, ADUs, is this big right now everywhere in California? Are you seeing this pop off everywhere?Fernando Barajas (04:32)
Yes, it is big, but it hasn’t been approved everywhere yet. There’s some cities, for example, San Jose has already approved it, so you can buy and sell in San Jose. San Francisco has also approved it, and Oakland has already approved it. Now, you can verify, I might not be correct on everything, but in those three cities, they have already approved the buy and sell.They just take it like if it was a condominium, even though it’s the same house, you can sell it as an ADU as long as it has certain requirements like entrance. ⁓ Sometimes they require a parking space, sometimes they don’t. So you have to go with the local authorities to find out what the rules are.
Dylan Silver (06:13)
Now as an investor, are you focused on the development side? Are you focused on the flip side? Do you do a little bit of both?Fernando Barajas (06:22)
⁓ I kind have to do a little bit of both. ⁓ The development, it’s for gains and the sell is when you need the capital to keep working. So you kind of have to do both. But it’s very important to know where, when and how. And that’s where I need the help sometimes from the mentors.Dylan Silver (06:52)
I want to ask you specifically about the difference between the two spaces. So on one hand you have the ⁓ pre-owned homes, fix and flip, fix and hold, people turning homes into Airbnbs, this type of thing. On the other end you have ground up construction, which is an entirely different skill set that includes, you know, framing the home.With someone like yourself, background in construction, how do you approach each deal type?
Fernando Barajas (07:26)
This is a really good question, man. And I’m going to be very specific about this.Depending on the area and I’m gonna get to it There are some areas where home are worth. I don’t know a million plus This is where you do the ground up construction because there’s margin Where you can build them up sell it for a profit There are areas They are called lower income areas where homes are I don’t know 700,000 maybe even 500,000
you don’t have enough margin to do a ground up. So in the lower income areas, you do the fixing and maybe adding like a bathroom or maybe even a little extra. But ideally, you don’t want to build in those areas because you don’t have enough margin to make money.
You have to look for a good area where homes are valued higher in order for you ⁓ to make your investment worth.
I don’t know if it makes sense.
Dylan Silver (08:35)
Yeah, I think where a lot of people are seeing ⁓ difficulties in the fix and flip space specifically is, and I can speak for Texas because that’s where I’m licensed. You’ll have pre-owned homes that may be selling for let’s call it $75,000 less in Texas than a brand new home. Now granted, this might not be ⁓ a top of the line, you know.five plus bedroom home, but if you’re looking at let’s call it three or four bedroom homes and you’re comparing that to a pre-owned home and the pre-owned home is $75,000 less, you’re going to start justifying, hey, let me pay a little bit more. I’m gonna get a brand new home. And so it becomes very difficult to compete. And I think this is why so many people are now moving into new construction. We’ll see if this.
stays the same way now that the rates have been dropped slightly. I do want to pivot here Fernando and ask you specifically about the new construction space. There is somewhat of a barrier to entry in new construction because there’s so much that you have to do. You have to pull permits. It’s a whole different skill set that’s involved. What is your approach to new construction and also do you have any advice for folks?
who may not have a construction background but are interested in ground up construction.
Fernando Barajas (10:38)
Well, you got to consider a lot of things when it comes to new constructions. ⁓ Most of us, even the people that are in construction, miss certain items of the new constructions. And I to just mention one of them that nobody pays attention to. In California, you need a soil engineer approval ⁓ before you get the foundation built, because that’s how they base the foundation.And it costs a lot of money in California, especially for engineers. And sometimes, and I mean a lot of times, but we don’t estimate that expense, which is the expense of spending money on soil engineering. Because based on the soil engineer, it’s how they’re to build the foundation of the whatever house you’re going to build. And just as much as you do that.
you made mistakes on all the items that you forget or you don’t even pay attention to. And that will be one of them. I can keep going on it, but I don’t want to spend too much time. All I’m saying is you have to pay attention to all the items. The biggest one that I can tell you is one needs to be done and make sure to estimate everything. And the second part that to me has been the most important one is location.
Dylan Silver (11:54)
Yeah.Fernando Barajas (12:07)
make sure that the location that you’re going to pick has the highest value homes that is going to be worth building the house that you’re planning to build.Dylan Silver (12:18)
What’s your perspective on ⁓ looking at infill lots versus looking at larger areas and building out maybe a multiple or even a small development? Do you think that it is ultimately ⁓ smart to start with infill lots as a developer? What would be your approach if you were starting out?Fernando Barajas (12:40)
Well, most of the questions are not answered in one way because there’s multiple solutions or multiple routes. I can tell you one thing. I can build a home, a single home, for probably 300,000 to 400,000, you know, from the ground up, depending on how big the house is and how much is in it. Now, we’re going to switch it to theDylan Silver (12:50)
Yeah.Fernando Barajas (13:09)
⁓ to a development. We’re going to get like a big lot and we’re going to build, let’s just say, 20 homes. Building 20 homes cost me a lot less than building one home that is unique for somebody else. Because all you’re going to do is repeat the same process you did on the first one. And when you do the second one, it just takes you less time. By the time you’re on the 20th one, it goes really fast.Sometimes you can do the house in half of the time compared to the one that you did first. So it’s a lot more economical to build track homes than to build just one home specific for somebody else. Does it make sense?
Dylan Silver (13:41)
Mm.100%, I want to pivot off of that Fernando and ask you about when you’re talking about building small developments or larger developments, you’re dealing with more, I would say engagement from city officials, right? So you’re having to potentially get utilities out there in some cases. ⁓ It can be, I can imagine without having gone through it myself, maybe a more challenging process on that front. Have you found that to be the case? And then also when it comes to ⁓
building newer developments, is there any risk, ⁓ whether it’s utilities being out there or ⁓ holding costs associated with waiting for approvals from the city?
Fernando Barajas (14:37)
All of the above First of all when you build a new homes you have to come up with all the new regulations like title 24 80 Fire sprinklers Those are items like I mentioned in the past that you have to pay attention tobecause sometimes you don’t estimate those items because they’re not typically on you know
on the current home that you work on. Because they’re new homes, you have to add all these ⁓ items that we usually don’t have on typical homes. And when it comes to utilities, there are so much regulations around it that it’s a nightmare to deal with it. Sometimes you have to wait up to a year just to be approved. And this is just to be approved
Dylan Silver (16:12)
Mmm.Fernando Barajas (16:16)
to do the work. They still have to approve the job. That could probably take another year. ⁓ Just as a reference, the fastest I’ve built a home is within a year just for the approval. Then it takes another six months or so to get it done. And that’s if everything comes out accordingly.Dylan Silver (16:42)
Now, when we talk about this approval process and you’re waiting months, a year, right?does that factor into what you’re purchasing the property for? I can imagine you have to think, I’m gonna be holding onto this for a year. You’re having to service debt for that year. Is it pretty much, hey, you’re thinking in your head, I have to hold this a year to wait on the permits? Or are you factoring in maybe a shorter timeframe?
and hoping that it goes through in let’s say six months.
Fernando Barajas (17:16)
⁓ it’s not going to go in six months, never had any permits for new construction in six months ever since I’ve been working on it. ⁓ you have to just purchase the property, ⁓ because that’s, that’s the key to, do the development. Because if you own the lot, you can get a loan to be able to, to be able to do the, ⁓ the, the building. And that’s actually the key because without purchasing the property,to get a loan on a property that has debt, they won’t give to you. It has to be paid off outright in order for you to get a construction loan on it. So that’s the key part to be able to do that.
Dylan Silver (18:02)
I want to ask you about, again, pivoting back to people who are interested in development. I’m hearing a couple of things. First, buy the land. You have to have the land to develop. Second, make sure that you understand what the most recent code is, because you’re going to have to have that going in. ⁓ You’re going to have to have the soil engineer out there. And then also, you’re going hold this property for a year. So you have to be prepared to wait that full year. ⁓before you potentially break ground, new investors or new developers may be listening to all these things and thinking, gosh, where do I start with this? Would you say for newer developers that they can start by buying the land? Or would you say before you do anything, you should take on a partner because you’re definitely going to want to have someone there with you while you’re doing a deal like this?
Fernando Barajas (18:58)
I’ve done both and if you’re going to find a partner, this might not be good for some people because the margin that you’re going to have to pay is going to be big. But the best thing to do to start, get a partner, but the partner has to get a big chunk of your profits. The way I did it was 50%. So I pay out half of the earnings, which meansthe money that was profit once the sale happened and they took half of it and that took half of it. ⁓ It’s a big chunk, it hurts because you have to work a lot. You have to work a whole year just to be able to get started and then you have to work another six months, maybe even up to nine months to get it finalized. And all this time that you work, you have to give out half of your profit. It hurts.
but sometimes it’s the easiest and the fastest way to get started. You have to do that several times before you’re able to do that yourself.
Dylan Silver (20:08)
On your own. Yeah. You know, I think if you have to pay for the education in the form of a partner, I think that may be the way to go for a lot of people, especially with how much goes into it. Waiting a year, making sure that you have everything up to code, understanding how to put up these properties. There’s a lot that goes into new development, I’m sure. And I know personally, from having done ⁓ work with developers in Texas.We are coming up on time here though, Fernando. Where can folks go if maybe they’re in the Bay Area, they’d like to reach out to you? Maybe they have a deal they’d like you to look at, or if they may be developers themselves, whether in California or outside, and would like your feedback on something that they’ve got going on.
Fernando Barajas (20:53)
Well, I have a webpage, it’s Baragon General Construction. You can find it online, it just has to be in the Bay Area. And you can definitely look at it. And one thing to say is the pictures on my website, they’re real pictures. They’re not professional pictures, are, you know, making look really nice so that I can sell. You’re gonna see not professional pictures because I took it with my phone.And they’re real pictures. know, you’re going to see not a not a clean, uh, perfect, you know, with downside, but it’s too real. And the end product, when you see it, it’s real pictures that I took with my phone. So you can see the work being done, you know, not through the eyes of AI or not through the eyes of somebody, you know, just making a picture to show that they do a good work, the real, the, the piece are not real. They just were advertised.
Dylan Silver (21:55)
100%, people appreciate the realness of it and to be able to associate someone’s work with what they’re seeing online. Fernando, thank you so much for coming on the show here today.
