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Show Summary
In this episode of the Real Estate Pros podcast, host Michelle Kesil interviews Jason Smith, a real estate developer and investor in the Detroit market. Jason shares his unique journey into real estate, starting from his college days and his first property investment funded by his grandfather. He discusses his current projects, investment strategies, and the importance of community development in Detroit. Jason also highlights the challenges he has faced, including the cost of capital and the significance of maintaining integrity in business relationships. He concludes with his future goals of connecting with more investors and operators to further enhance community growth.
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Jason Smith (00:00)
In the long run, retail commercial development is the goal in some of these neighborhoods. But to spur retail and commercial development, one needs to have people to live there. You can’t bring a retail shopping center with a large Kroger anchor or Meyer anchor to this neighborhood and they’re…there aren’t neighbors in the neighborhood, right? So you have to establish these neighborhoods, bring on housing units to these neighborhoods, work with the city to bring on housing units because ultimately that’s what the city want is housing units brought back into these neighborhoods.
Michelle Kesil (02:06)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil, and today I’m joined by someone I’m looking forward to chatting with, Jason Smith, who is a real estate developer and investor in the Detroit market. So excited to have you on the show today, Jason.Jason Smith (02:23)
Thanks for having me,Michelle Kesil (02:25)
I think our listeners are really going to take something away from how you’re approaching your developments, your investments, and the ways that you raise capital. So lots to dive into.First off, for those who are not familiar with you and your world, can you share what your main focus is?
Jason Smith (02:46)
Yes, my main focus is in the Detroit market. So there are lot of opportunities in the Detroit market to invest and develop. And my main focus is to connect the average investor or the average human being who doesn’t think that it’s possible to invest and develop or maybe overthink the how to apply their skill sets to this area is to connect them with the operators, the actual doers in the market.Michelle Kesil (03:18)
Awesome. So how did you get started as an investor?Jason Smith (03:23)
Yeah, it’s actually a long story, but I’ll make it short for you. So I bought my first property my freshman year of college, right? My first property came by way of my grandpa. I had a full ride to college, to Tuskegee University. I had a full ride, minus room and board. My grandpa really wanted me to go to Tuskegee University because his grandma was like second graduating class and he was very amped up for me to go. And he said, well, if youdecide to go, then I’ll pay your room and board, right? And from there, he decided that I took him on on that. I said, okay, pay my room and board. I got there, he paid my first semester room and board $5,000, and then I came back second semester, was like, yep, I need that other five, so I gotta pay this twice. I said, well, actually you gotta pay it twice a year for the next five years, because I had a five year major. And he calculated that, he was like, that’s $50,000, I can go buy you a house for that. So.
We went into the market down in Tuskegee, Alabama. We looked at like five or six houses and then the least susceptible house was the one that he decided to go with. talking about you walk into this one, holes in the floor, holes in the roof. And I’m like, this can’t be it. And he’s like, nope, this the one. And I’m like, I’m talking about the old shag carpet from the seventies. My grandpa party put in about $10,000. The contractor that did the work stayed up the street from the property. He put in about $10,000 to…
prepared a roof, prepared a floor, put some linoleum on the kitchen floor, made it to where the house was livable, right? We got it cleaned up, a good cleaning, and then we went on. From there, my grandpa really told me that he was like, your job is to now lease it up. Obviously, I went to the university, so I knew a lot of people on campus who wanted to move off campus, things of that nature, right? So I decided to, you know, I started soliciting.
I leased it up to most of my friends, right? My grandpa made sure that it was structured. We would make sure we got the business account. He helped me structure my lease. And as soon as I got it all leased up, my grandpa, three months after that, my grandpa passed away. So from there, I kind of went to the school of hard knocks while I was in college also, right? So learning architecture in college, but also learning how to manage a rental property, but also…
not only just learning how to manage a rental property, was learning how to manage relationships. Because like I said, my initial tenants were some of my friends, right? Which is a little bit hard to manage when you have business and then friendships. You also are 19 at the time, so a lot of the leases that were signed were co-signed by the parents, right? So when it came to the parents having conversations with me, when it came to the parents having to communicate, say, hey, look,
I’m gonna be five days late, like can I speak to your parents? It’s like, well.
who you I don’t have parents for you to speak to. Yeah, I have I have a mom for them to speak to. My mom is far away from the transaction. No idea what’s going on. Right. So a lot of parents took a there was a lot of pride them having to have put a lot of pride aside to have this conversation with a 19 year old kid who in some cases was younger than their kid. Right. I had to work around for it, though, for those people that were hell bent on speaking to my mom. Like I would just set my mom up with a whole script like, hey, look,
talk to these people and say this, Say this so I can get my money and it worked
Over the next five years, put in new windows, I put in a new kitchen, I replaced the flooring, I replaced the carpet. I kinda did a lot of additional items. I probably put in another 45K into the property. So my grandpa put in about 10K, he purchased it for 30K, so he’s probably all in 40K, then I probably put in another 40K.
30, 40 K over that time period. So I was about all in by the end around 70, 80 K. And then COVID hit, right? I graduated and I moved away. I tried to lease it out for a year while I was gone. COVID hit and you know, a lot of students just weren’t on campus. So wasn’t a lot of demand for off-campus housing. After that, I sold the property. The market was also great at that time. So I sold the property for top of market for around 130.
Essentially, that was my first flip, right? That was my first flip. It just was a delayed flip, if you will. And then I kind of took that money and reinvested it into the market, bought more property. So from that one property, I then went on and bought seven units, right? And then just scaled from there.
Michelle Kesil (08:51)
I love that story. That’s so unique and beautiful and exciting to have a start in that unexpected way.Jason Smith (08:51)
We’re lucky.Yeah, definitely.
Michelle Kesil (09:03)
So what does it look like from getting those seven properties to now? Like, why are you currently working on? What type of investment strategies are you up to since then?Jason Smith (09:16)
Yes. So initially, I’ve always been a person that the reason why I chose architecture as a major in the first place was just I grew up in Detroit during the Great Recession and I lived amongst a lot of blighted houses in my neighborhood. My house is actually on my block. I was one of three houses that were active. The other 12 were abandoned. Right. So I spent a lot of time cutting abandoned houses grass because growing up, my grandpa also told me, said, look,I don’t care if you cut your grass, if your neighbor’s grass isn’t cut, your grass looks bad. So I spent a lot of time cutting the five houses around these grass and no one lived there. Some of these houses were boarded up. And from there, I would see a lot of blight throughout the neighborhood as far as commercial buildings as well. And it’s like, hey, how can I change this? Of course, I could also draw around the sixth grade. And one of my teachers said, you should explore architecture, right?
And I’ve always been headstrong and architecture kind of stuck with me. So from the time that I stopped wanting to be a fireman, I decided I wanted to be an architect, right? And I stuck with it. And I only applied to schools in high school that had architecture, so I knew that that was the path that I was going into. So I started my career in Atlanta in architecture and in project management.
But I knew at some point that it was going to be time for me to transition back home. Take what I’ve learned in different markets and thriving markets, because Atlanta is a thriving market. It’s grown. It’s been growing since the Olympics and it’s there. And that’s a place that I aspire for Detroit to be as far as economically. So take the skill sets that I learned there and then bring them back home and apply it here.
in a market that is not as saturated with investors. It’s not, and Atlanta’s very saturated. Detroit, there’s a lot more opportunity, right?
In the long run, retail commercial development is the goal in some of these neighborhoods. But to spur retail and commercial development, one needs to have people to live there. You can’t bring a retail shopping center with a large Kroger anchor or Meyer anchor to this neighborhood and they’re…
there aren’t neighbors in the neighborhood, right? So you have to establish these neighborhoods, bring on housing units to these neighborhoods, work with the city to bring on housing units because ultimately that’s what the city want is housing units brought back into these neighborhoods.
Why? Because those are tax dollars. Now that they have tax dollars, now they’re more willing to help you out when it comes to bringing your commercial development. Now you flow into the commercial development. So right now I’m working on about…
We’re working on about three single families and six small multis ranging from double, two units to three units. Some of them are gonna be conversions in these neighborhoods. Some are gonna, depending on the neighborhood, some are gonna be kept as multi units for affordable units. And then I’m working on six, not six, 12 new builds. It’s gonna be prefab homes in the Detroit area. The lot’s already allocated.
A large issue with Detroit is that there are a bunch of lots. There are a lot of families that own side lots to their houses, but it’s difficult to build, right? Difficult to build because of the construction costs. You have basement costs here in Detroit, which basement costs could range from 30 to 40 dollars a square foot, right? So that could be 25, 40K, depending on how big your basement is of the build that you don’t have to worry about in other markets, in other southeastern markets, right?
So, but prefab helps with that. Why? Because you also have the weather delays in Michigan. If you weren’t already framed up and dried in around about a month and a half ago, then your project is delayed because it’s been snowing. You can’t do anything while it’s snowing, right? So the prefab houses.
allow for projects to not be delayed, those houses are gonna be built regardless in a warehouse and then be shipped to you, right, as completed and then they’re gonna, obviously you have to have some connections on site, right? But along with those 12 units working on, at the end of that block, a commercial, more apartment, about a 15 unit apartment complex, at the end of the block that also has the 12 units.
that project is probably going to come after the 12 units. that probably rolling into quarter four and then quarter one, 2027.
Michelle Kesil (14:32)
Amazing sounds like exciting projects and avenues are working on and yes, so inspiring how you were able to just jump right inJason Smith (14:32)
you.Yeah, definitely.
Michelle Kesil (15:25)
What are some of the major obstacles or lessons that you’ve faced while you’ve been on your investing journey that, looking back in hindsight, you wish you maybe had that knowledge that you have now?Jason Smith (15:42)
cost ofafter going to school for architecture and working in architecture and construction, I actually decided to go back and get my master’s in commercial real estate to fully understand model development and understand ⁓ how the how the metrics work. How can I it helps it makes it easier for me to go raise capital and find capital. But cost of capital is probably the biggest deterrent from from a lot of these deals. Right. You’ve got interest interest rates that
on some of these hard money deals, interest rates that range from nine to 12%, right? 12 % is interest only is extensive, right? It could really put a damper in your returns for your project. relationship, establishing solid relationships with lenders and investors, these are the things that propel your projects, right? Because someone else may come to this lender and get 12%.
three points to close this deal, but because I’m coming to this lender, person that has a track record with this lender who’s who’s closed multiple deals in the past, they’re willing to give me non-Dutch lending or they’re willing to give me one and a half points, 9 % interest, right? Because I’m deemed less risky, right? So the biggest thing is one, doing what you say you’re gonna do with the parties that you say you’re gonna do it with, right?
And that’s having that integrity when it comes to a your contractors, your your your investors and your lenders. Right. So my contractors know that I don’t cut corners. If you cut a corner, I’m going to find it and now I’m going to exploit it and you’re going to and you’re going to fix it. Right. They know that I only want to move with integrity on my projects. My investors trust that I’m going to move with integrity on the projects. Why? Because if this means that I would rather if I have a budget of one hundred and fifty thousand dollars.
And I set a contingency of fifteen thousand, but I’m going to burn through my whole contingency plus three thousand dollars. So I’m going to be over budget three thousand dollars on this project, but I’m going to be I’m going to make sure that it is done right. I’m going to do that every time. Why? Because the end product is what matters, especially for long term holds, right? Delay not doing it now is only just deferring the maintenance to later on. Right. And ultimately, I put so much buffer, so much margin into some of the returns that I’m very conservative that
My investors still make out great. I have one deal, honestly. My last deal was a deal that I raised about, it was a smaller deal. I raised about 60K for the deal for a house over in Sherwood Forest. We renovated the house. The house ended up selling for over 50K more than what we anticipated. Our investors were initially gonna receive around 16 to 18 % return. They actually received around 34 % return in six months.
And that’s not prorated. I’m telling you, 34 % return. So one guy invested 20K. He received around, when he got his money back five months later, five, six months later, it was around 29K, which was a great deal. Those investors were very eager and excited to invest again. Of course we had to caveat and let them know that that was an anomaly, right? don’t, those are not, those deals don’t come that often. But, have an integrity.
And speaking to the investors, have monthly updates with my investors. That way they’re always, we’re always aligned. They always know what’s going on. If there’s a delay, they know why. If there’s a delay, I’m gonna see it from afar. I’m gonna see why it’s gonna be delayed and so on and so forth.
Michelle Kesil (19:22)
Yeah, amazing. think that those values and focusing on relationships are super crucial.Jason Smith (19:23)
One, three.Michelle Kesil (19:33)
What are you most focused on solving or scaling to next in your business?Jason Smith (19:42)
So right now I’m focused on connecting with more investors. And when I say more investors, I mean more people really to deploy capital and more operators. So there’s only so many projects that I can operate myself. But if there are other operators in the city that are moving with integrity, like-minded like me, right, there are a lot of operators. But it takes a while to…to kind of see through if this person is actively moving the way that I like them to move. So now I can connect my investors to them as well, because ultimately it’s about the market, right? If this is a neighborhood that is growing and moving, of course I could decide to come onto this block and purchase. If there are eight houses available, I can decide to purchase all eight, right? One, that’s a lot of risk. Two, that’s a lot of work, right? Or I can decide, okay, I’m gonna purchase these two.
But I have this operator over here, ABC LLC, who’s been operating and developing in the city for the last 10 years. And they understand what we would like to do in this neighborhood. And now they purchase another two. And now ultimately what that does is increase the value of your projects as well. And that’s not only just for single family, but that’s also for commercial development. Going back to what I was saying earlier, commercial development is spurred from neighbors.
from a need in the community. If there is no community, there is no need for the development.
And a lot of these cases, a lot of these neighborhoods once had a grocery store up the street, right? A bank, pharmacy, you know, all neighborhoods had these items, but now in some of these neighborhoods, you got to drive just a little bit far. When I say a little bit far, Detroit is on a grid, so it’s not, nothing’s too far, right? But you may have to drive 12 or 15 minutes instead of driving to the end of your block or to your main street, which is maybe five minutes away, and you could be back home, right?
you could turn that 30 minute round trip to five or 10 minutes round trip.
Michelle Kesil (21:45)
Yeah, amazing. Thank you for sharing all of that. Sounds like you’re on an exciting and opportunistic path.Awesome. So before we wrap up here, if someone wants to reach out, connect, collaborate, where are the best places that people can find you and connect with you?
Jason Smith (22:09)
Yes, absolutely just via email. Not too big on social media. I have to get better on social media. can connect with me on LinkedIn. My name is Jason Smith. So it’s be relatively difficult to find me on LinkedIn. But please search up company name Parker Avenue Capital Group. You’ll be able to find me. You can also email me if you’re looking to invest or looking to have questions about investing or if you’re an operator needing private capital to help propel your projects.You can email me at jason at parkeravenuecapital.com.
Michelle Kesil (22:42)
Awesome, Jason. Thank you so much for your time and your perspective.Jason Smith (22:48)
Thank you.Michelle Kesil (22:50)
And for the listeners tuning in, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators like Jason who are building real businesses and we will see you all on our next episode.
