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Show Summary
In this conversation, Dylan Silver interviews Chipp Naylon, who shares his journey from the Marine Corps to becoming a real estate developer. They discuss the importance of tax incentives in real estate development, the challenges of building affordable housing, and the current trends in Virginia’s real estate market. Chipp also talks about his consulting work and the diverse range of clients he serves, from new investors to larger developers.
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Investor Fuel Show Transcript:
Chipp Naylon (00:00)
Basically, the path that’s been is build a portfolio of single family homes, launch my development company, and then start selling the single family homes to work as seed capital for larger developments. And I’ve been very fortunate in just the happenstance of timing that I’ve been able to sell those and then establish qualified opportunity funds and invest in QOZ areas to take advantage of long-term tax benefits.So that’s what we talked about briefly before. A lot of real estate tax planning can’t be the next six months. It has to be, how does this factor into the next five, 10, 15 years?
Dylan Silver (02:09)
Hey folks, welcome back to the show. Today’s guest, Chipp Naylon is based out of Richmond, Virginia. He’s a developer and has been a real estate investor over 15 years and founded Walutes Capital as a vehicle to open opportunities for others. He’s also the author of the Investor’s Guide to Real Estate Finance, Accounting and Tax. Chipp, welcome to the show.Chipp Naylon (02:33)
Dylan thanks for having me. It’s great being on.Dylan Silver (02:35)
It’s great to have you. I always like to start off at the top of the show by asking guests how they got into the real estate space.Chipp Naylon (02:43)
Yeah, 30 second overview. Started in the Marine Corps, knew nothing about real estate, but had my VA loan. Bought a townhouse, wildly unprepared, didn’t know what I was doing. Fast forward nine years in the Marine Corps, my wife and I had bought portfolio single-family homes. As I transitioned out into the outside world, went back to school for another bachelor’s and master’s in accounting. Got an asset management position at a big commercial real estate developer in Richmond, Virginia.Worked there and that’s where I really cut my teeth and the commercial and multifamily world. After a couple of years there, got my CPA and decided to open Walutes Capital really as a vehicle both for my own development work, but also to provide development, asset management, accounting services to real estate investors across the board.
Dylan Silver (03:30)
I want to ask you about, ⁓ if we can, being a CPA and coming out of the Marine Corps in that time period, did you know that, you know, hey, I’m going to go be a CPA, this is something that I’m passionate about, did you have friends, family, or folks that you knew that were in that space, and what was the driving factor there?Chipp Naylon (03:50)
A couple elements to that answer. First, no, I didn’t know I was gonna do that. But with the very casual investing on the side, realized I wanted to get into real estate full-time. I just didn’t know what full-time real estate was. I wasn’t interested in sales. I can barely turn in a light bulb. construction probably wasn’t the answer. But my dad’s a financial planner and hearing him talk about accounting as the language of business planted that seed. And I had GI Bill availability, so.I decided I’ll go back to school for accounting. And it just so happened that when I moved to Richmond after my time in the Marines, there was an asset management position open in an incredible company, ⁓ development, property management and construction all under one umbrella. And I just took in a fire hose of commercial real estate knowledge. And that’s what kind of put me on the path. long way around, no, accounting wasn’t always the plan. It just made sense with
the route I went after the Marine Corps.
Dylan Silver (04:50)
You you talk about accounting and so much in this space being the language of business. The more I get involved in real estate, the more I see how true this is. And we were talking before the show really about how in many cases you don’t think, especially as a younger entrepreneur like myself, you don’t think about things like tax strategy, like bookkeeping ⁓ until you need to. And in many cases that’s too late. So then you’re kind of like, well darn, I should have thought about this.eight months or a year ago or longer. I want to pivot though Chipp and ask you about when you were effectively cutting your teeth in that commercial space and learning the ropes. What types of deals were you involved in? Was this commercial residential? Was it multi-use, commercial and apartment complexes? Was it across the board?
Chipp Naylon (06:29)
It was primarily historic tax credit investing in the predominantly mixed use space. So picture an old factory that’s basically just the shell, syndicating a historic tax credit deal where it becomes something like ground for commercial, retail, and then top floors residential. So that’s predominantly what this ⁓ firm did. ⁓I like to consider the historic tax credit and I am by no means an expert. These gentlemen I worked for were it’s kind of PhD level development work because it’s additional compliance syndication legal that far surpasses most similar types of just, hey, see a deal and execute without that historic tax credit element to it. So it was fascinating seeing it.
Dylan Silver (07:19)
When I think about this, Chipp, there’s actually an area, I lived in San Antonio, Texas for about four or five years. There’s an area in San Antonio called The Pearl, which was this old brewery that they…Effectively developed into what you’re talking about like ground floor retail restaurants and then they had really sprawling apartments and I’m now seeing this trend happen across the country as a way to keep a lot of the historic feel to areas, know, people don’t want to lose touch with something that you know, their parents grandparents or the city may be able to relate to culturally right but also you’re able to revitalize it in a way that brings more people to it rather than
potentially sitting there as like distressed real estate.
Chipp Naylon (08:04)
That’s right. And without, I’m sure there are exceptions, but most of these older buildings, without that additional tax incentive that’s typically translated into upfront equity in these deals, they’re typically cost prohibitive. So I see it as a win-win. You retain and revitalize historic architecture and you incentivize private developers to take risks on that revitalization.Dylan Silver (08:29)
I want to pivot a bit here Chipp, ask you about ⁓ your ⁓ experience as a developer. you mentioned prior to this opportunity you were investing. Were you investing in the single family space prior to?Chipp Naylon (08:43)
Yeah, prior to…Basically, the path that’s been is build a portfolio of single family homes, launch my development company, and then start selling the single family homes to work as seed capital for larger developments. And I’ve been very fortunate in just the happenstance of timing that I’ve been able to sell those and then establish qualified opportunity funds and invest in QOZ areas to take advantage of long-term tax benefits.
So that’s what we talked about briefly before. A lot of real estate tax planning can’t be the next six months. It has to be, how does this factor into the next five, 10, 15 years?
So that’s big picture. What I’ve been focusing on is getting rid of the single family homes, rolling the sale proceeds and the capital gains, it’s qualified opportunity funds, and then developing within that framework. And that defers the recognition of the initial taxes.
And then if you hold them for 10 years and sell it, you get a full step up in basis and you’re basically getting a tax free deal on the backend.
Dylan Silver (09:52)
As a developer, you developing ⁓ single family residential subdivisions? Are you looking at commercial deals? Is it a mix?Chipp Naylon (10:01)
It’s a mix because…Some people can do it. I did not consider myself the guy who could write a book saying invest with $0. I believe investing in developing real estate far easier if you actually have money. So I’ve been fortunate that we have some cash that’s been rolled from these single family sales. That means we can self finance deals by we, my wife and I. ⁓ That lets me take target of opportunities because I don’t have to say what are these investor minimum required returns.
What sort of asset class is this investment group looking for? If I see a deal that makes sense, I can focus on that deal and that lets me keep my time. So half my field development on my own, the other half, that’s when I do the client consultations, fee only development service, but for my own development portfolio, it’s really target of opportunities and what seems like an interesting deal and what I see is something that’s ultimately gonna give me more of my time and financial freedom.
the long run, which is ultimately what I’m looking for from real estate.
Dylan Silver (11:39)
Can we get a little granular and talk about some of these deals that you’ve looked at with Walutes capital?Chipp Naylon (11:47)
Yeah, so the, sold in April and that’s what I’ve rolled proceeds into another QOF, but the one I sold in April bought in fall 2022. It was two infill parcels in Western Richmond, Henrico County in aa more expensive part of town that due to the quirks of the census designations, like a little postage stamp of it of infill development fell under a QOZ. So it was a front parcel that had just a single family home zoned as an office and a rear parcel that was infill in an expensive area that was a pretty unique piece of land. And I spent a couple of years entitling that to build 20 townhouses.
So two rows of 10. The initial plan when I bought in 2022 was a build to rent deal. And then when interest rates nearly triple from when I bought to when I finally have approved permits, I realized from a pro forma perspective, build to rent doesn’t work anymore. So I ended up selling it as an entitled shovel ready partial to a home builder who was gonna do a build to sale. So that was a good example of, hey,
Dylan Silver (12:45)
Hmm.Chipp Naylon (13:06)
We can’t control macroeconomic trends. It was a good deal in 2022. By the time I permanent in 2025, the numbers had changed, but still at cash tied up in the deal, pivoted to selling to a home builder and came out making a little money and then rolled that to the next deal.Dylan Silver (13:09)
Yeah.So.
So basically these were shovel ready properties and the builder went from there and put the homes on them.
Chipp Naylon (13:33)
That’s right. So thought process being I bought vacant, unentitled land, received full entitlements, construction permits so that the builder just said, I’m buying this and I start construction. So it takes that one, two, three years of entitlement timeline out of the build process. They could close and begin construction a couple of months later.Dylan Silver (13:54)
Did you keep tabs on that property? Do you know what they ended up doing with it?Chipp Naylon (13:58)
Yeah, they, ⁓ they invited me to the groundbreaking, which was very cool. They ended up using, ⁓ our County. Henrico has, ⁓ a affordable housing trust program that’s been fed by real estate taxes from data centers. So they’re actually putting AMI capped affordable houses into an otherwise cost prohibitive area, which is awesome to see. now local cops, teachers, firefighters can buy a place when they’re working.Dylan Silver (14:24)
Yeah.Chipp Naylon (14:27)
Where otherwise they couldn’t so it’s been very cool to keep that relationship and see those guys get across finish lineDylan Silver (14:33)
That’s a really important thing to be happening ⁓ in our country. When we talk about people who work in a specific area not being able to live in that area, that’s kind of ridiculous that this happens in so many places, right? So I’m glad to see that in this case, they’re addressing that. Do you think that that’s gonna be more common in other areas?Chipp Naylon (15:38)
I think this is a model. at the groundbreaking, one of the Virginia US senators came because they wanted to highlight it that much that this could be a very collaborative public private model to incentivize affordable housing. Because from a numbers perspective, you can’t buy or build starter homes in this country. It’s just between interest rates, costs of construction materials and construction labor, plus land throughout the country. You can’tbuild a starter home. So when you have collaboration between the private sector and some sort of grants to offset a lot of these construction costs, you can make something so that it’s 80, 100, 120 % AMI capped. So people who work in an expensive area can still live there. So I think this model will be replicated. Please.
Dylan Silver (16:26)
I wantto ask you about some of the investors that you’ve worked with. I know that you do several things with the Walutes Capital and I imagine that folks see what you’re doing and they may be asking you questions, know, how can I do something similar? Do you get a lot of folks who may be newer developers coming to you? Do you get more experienced developers? Is it a mix across the board in your consulting services?
Chipp Naylon (16:57)
It’s a mix across the board. People are looking for an hourly consultation. Typically that someone like, Hey, I just bought a rental property. What’s depreciation? People who reach out to me separately with more of a project basis. A lot of the work that I do and the nice thing about this, I can do it across the country is deal underwriting. So a larger, larger multifamily developer will say, Chipp, I need a hand with thepro forma development and just recurring deal underwriting as opportunities come across the plate. And sitting in Richmond, Virginia or anywhere in the world, I can do that. ⁓ With third party development services, I’m not trying to travel all over the country. So with deal underwriting, it’s typically more ⁓ mid to larger developers who can afford to pay somebody else to underwrite their deals. For your average single family home rental questions,
Dylan Silver (17:38)
Yeah.Chipp Naylon (17:53)
That’s anywhere from somebody interested in getting into it to have a portfolio of a half dozen places, but just you need some guidance on expanding or a specific tax question.Dylan Silver (18:04)
I want to say it’s impressive that you’re able to operate in these spaces. Normally, when I’m talking to folks like yourself, they’ve narrowed in on one niche, and it can be difficult to be active in the others. But you’ve got such a diverse range of experience that we’re talking about single family, you’re talking about shovel-ready land, but you’re also talking about underwriting.commercial deals in other states. So, you my hat goes off to you for being able to play ball in these different arenas.
Chipp Naylon (18:34)
Yeah, Dylan,I didn’t say I was good at it.
⁓ I just, I get interested in a lot of things and just due to happenstance, my background has, has led to this ability to through both my own professional or personal background, ⁓ working for a big commercial real estate company in Richmond and each client that reaches out and I ended up doing some underwriting. learned about a different tax strategy, had a, ⁓ a developer in Los Angeles doing large lie tech multifamily had never done it, but
It forces me to research and learn how to build and model a new deal. And that’s, I find that interesting. I don’t want to get into a rut. And each time I have a new client, it might be a new strategy, new asset class. It forces me to dig into the weeds, do the research and become a subject matter expert on it.
Dylan Silver (19:24)
We are coming up on time here. do want to ask you a question specifically about Virginia real estate. I mentioned to you before hopping on the show here, we’ve had a couple guests from Virginia. I’d like to have more. I’m sure that there’s a lot of interest in Virginia in general, but maybe it’s new to me or maybe new to some of our audience members. Are you seeing like lots of new construction go up? I know there’s new construction all across the country. Are you seeing a lot of out of state investors looking at Virginia?Chipp Naylon (19:52)
A massive amount. Northern Virginia is its own area and it’s almost recession proof. Although ironic saying this right now, federal government closed, but there’s so much federal money in Northern Virginia that it’s nearly recession proof. In central Virginia, in Richmond where I am, it’s a state capital. So a lot of government service here, massive education sector. And there’s just a stunning amount of multifamily coming up with, I think, pretty strong absorption still.And that’s a product of, think, I’m just, I love the town of Richmond, so I’m bullish on it, but I think reality is bullish on it as well.
Dylan Silver (20:29)
Well, that’s great to hear. I’m definitely going to have to look at some more deals in Richmond and in Virginia myself. And hopefully our audience will, if they’re not already looking at it, we’ll take a look at it. Chipp, we are coming up on time here. Where can folks go to reach out to you? How can folks ⁓ learn more about Walutes Capital?Chipp Naylon (20:48)
Best bet, walutescapital.com. There’s a contact us function if you want to book a consultation, just any random topics, happy to do that. Listed the book for sale there too, so there’s a quick link to Amazon from the website. But best bet if you want to contact me is through the website, walutescapital.com.Dylan Silver (21:06)
Chipp, thank you so much for coming on the show here today.Chipp Naylon (21:09)
Thanks Dylan, really appreciate it.
