Luxury Real Estate Development Secrets: Build What Wealthy Buyers Actually Want

Brad Blumenthal (00:00)

You gotta pick stuff that is timeless. You don’t wanna sell a house that’s gonna look, you know, out of style in another five years. It just, you know, you, you wanna build and do iconic stuff. Now you gotta start small. I mean, my first house was 185 grand. The last house I sold sold for 25 million. So, you know, take your steps, know what level you could get in, but get in. You know, you could only learn by doing. You could only learn by the mistakes you make.

Freddie Steen (02:05)

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, Brad Blumenthal, who’s been making serious moves, not just on the silver screen, but also in the real estate space for quite some time. Brad, I’m glad to have you here. And I think our listeners are really going to take something away from how you’re approaching real estate, not so much in quantity, but in quality. So let’s dive in. So first off, for people who may not be familiar with your world, give us the short version. What’s your main focus these days? And what markets are you operating in?

Brad Blumenthal (02:55)

Well, I did most of my houses in Hollywood Hills in L.A. And then I recently moved back to New York. I’m not doing any projects in New York. It’s very, very expensive and the regulations are strangling. So I’ve just purchased a home in Phoenix, Arizona, northern Scottsdale, and that’s where my next bunch of projects hopefully will be going forward when I move out there in October.

Freddie Steen (03:29)

Brad, if you could, for our real estate pros in our audience, one of the things that you shared with me offline in our private conversations has been how you’ve seen the Arizona market transform from being a place that attracted more retirees to now being as vibrant as some of the Austins and the Charlottes and some of the other up-and-coming cities and the Nashvilles. Can you explain what drew you to Arizona and how you’ve been able to see that transformation in the real estate market?

Brad Blumenthal (03:59)

I moved my dad out there, well, I don’t know, 35 years ago. And back then it was a retirement home. I mean, everybody was old. And then I recently went out there for—we, we do a golf tournament once a year called the Kamikaze Golf Classic, and, and that year, last year, was in, in Phoenix. I also did a, a golf school in Phoenix. And I’ve been out there a couple of times. And so I just started to see that, how it’s so young now. It’s absolutely been reversed. Last trip was a couple of weeks ago, and I went to three speakeasies in one night. So it’s really a very young, hip—the food scene is through the roof. It, it rivals anything in New York. I mean, you go into these restaurants and they’re gigantic. You go in at three in the afternoon and they’re, they’re mobbed. It’s like, what the hell are these people doing? Don’t, don’t they have day jobs? It’s like—and the few old folks that are left, they’re dressed to the nines, they’re hip, and everyone looks healthy. I mean, it’s, you know, coming from New York, it’s, it’s, it’s—it was quite refreshing to see that.

Freddie Steen (05:14)

So, Brad, would you nudge a nascent real estate investor or a seasoned one to take a look at what’s happening demographically in their markets to kind of nudge their real estate investing moving forward? Is that what you glean from there?

Brad Blumenthal (05:29)

Yeah, I, I like to go where the money is. In other words, I think we discussed this before the podcast. Your cost per square foot is going to be the same whether you’re in a medium-sized market or an expensive market. So, with—with, give you Florida an example, that, that market’s been doubling almost every two years.

You take a look at Miami and West Palm Beach or Naples, they will always continue to grow. So you gotta go where the, where the expensive houses are, because when you sell a house—and California Modern is what you sort of do—that’s where, that’s the style that everybody wants. If you build a California Modern in, in L.A., Hollywood Hills, you’re starting at 2,000 a square foot when you sell it.

If you build a Spanish house on the same lot, you’re gonna get about a thousand bucks a square foot. So you gotta know where the demand is, you gotta know what the design is, and you gotta build it where the most expensive land is, because that’s where you’re gonna get your biggest bang for your buck. If you’re building something at six hundred bucks a square foot and you’re only selling it for a thousand, what’s your return gonna be versus six hundred bucks a square foot that you’re gonna sell for two thousand?

So it’s a little scarier because you’re spending a little bit more for the land, but who the hell cares?

Freddie Steen (07:50)

I love it. I mean, what caught my attention about you, Brad, was the way you’ve been able to focus on quality over quantity in multiple markets. And that’s not easy, especially in this climate. You’ve handled real estate deals in eight figures. What’s been the key to keeping your machine running smoothly?

Brad Blumenthal (08:16)

Well, you always gotta do your homework. You always—and I say this to everybody that I mentor—is to—and let’s touch on that for a quick second. Everyone should try to find a mentor, whether you know them or not. You call them out of the blue. You know, everyone got a hand up usually. I didn’t, but most people do. And, and they’re flattered to ask for help.

You gotta do your homework. You got to go to open houses. You got to go to broker opens. You’ve got to look at the houses, look how they’re being furnished, look how they’re trying to sell them, what the realtor’s trying to push. And that is a huge education. And, and, and you have to go to tile stores and fixture stores and kitchen—and keep knowing what’s new and, and exciting. I mean, the stuff that I see in homes now, I did fifteen years ago. I mean, you wanna try to get the newest without being too gaudy. You want—you wanna pick fixtures and furniture, because you always have to stay at your house. We, we’ll get into that later.

You gotta pick stuff that is timeless. You don’t wanna sell a house that’s gonna look, you know, out of style in another five years. It just, you know, you, you wanna build and do iconic stuff. Now you gotta start small. I mean, my first house was 185 grand. The last house I sold sold for 25 million. So, you know, take your steps, know what level you could get in, but get in. You know, you could only learn by doing. You could only learn by the mistakes you make.

And I’ve made plenty. Every house I have made a mistake or two or three. And so, you know, you’re always gonna learn.

Step by step, you’re always gonna find different subs because subs always think they got the next job. So they start to get lazy, or they’ll send their son, or they’ll, they’ll—they won’t give you a great deal anymore. So when you bid out jobs with subs or whatever, always get three quotes. Always look at three different bids on that job, and always hire a contractor if you can.

Trying to do it yourself, you think you’re saving all this money, and you’re totally wrong. Get a contractor. Get someone who’s responsible. So if anything goes wrong, it’s on his shoulders, not yours. And make sure that contractor has a track.

I got a buddy in Long Island City who, who’s Chinese and tried to save money and, and got a friend through a friend, and it, it was a total disaster that went on forever and was about a twenty-five-thousand-dollar job that could have been done in two months, and he ended up spending sixty-five thousand, took him half a year. So you gotta, you know, you gotta do it right.

Freddie Steen (11:51)

Brad, you, you dropped a key that I’m gonna pick up and put back in your hand. You said that 15 years ago, the way in which you were handling your remodels in that BRRRR method that you were using, you said that you were doing things 15 years ago that people are just now doing today. Can you give our audience of real estate pros, of people who rehab, who rent, who then refinance, and then repeat—that, that BRRRR method—can you give them a couple keys on the things that you were doing fifteen years ago that are still making houses pop now?

Brad Blumenthal (12:28)

Well, that’s—that, the pop is, is, is a good word to use, pop. I always try to do a house where you have one or two key features that no one else has. Like, I, I put a—I sold a house to the Olsen twins, and in their master bedroom, you open up these oak doors and there’s a Jacuzzi inside their bedroom. And when you turn it on, it fills from the ceiling.

And there’s a remote control that changes the colors in the water. So, you know, anytime you could do something that no one else is doing at the time—I think people are doing it now. I’ve seen it in hotel rooms where the, where the bathtub is sort of in the bedroom—but that’s a finite space. You have, you have to have a little jewel somewhere in that house that pops. And it should usually either be in the master bedroom or the kitchen, or somewhere in the living room. But the, the, the, the two most important places where you want to spend the money is the kitchen and the master bedroom. No one gives a, you know what, about the second bedroom or the third bedroom or the fourth bedroom, whatever. And media rooms are important. Entertainment rooms are huge now. I, I always make them part of the living room. I don’t put them in a basement. Most houses I have don’t even have basements.

And even the wine rooms I do are off the kitchen. I do, you know, spectacular wine rooms, but entertainment, in-home entertainment, is crucial when you’re doing a bigger home. When you’re doing a, a—when you’re doing a little home, it’s, it’s still important, even, even if it’s on a small scale.

Freddie Steen (14:20)

Brad, now every operator that I know has a moment where things got real. Maybe a deal that went sideways or a time they had to pivot fast. Do you mind sharing one of those moments for you?

Brad Blumenthal (15:13)

Yeah, it’s a painful one. So the house before last that was on the market for 10 million, I think it was, or 11, somewhere around there, was up in Hollywood Hills and was a little bit on a corner. We were on the market two weeks. We were all sitting in the living room waiting for their realtor to show up, and an older woman had a stroke in her car.

Freddie Steen (15:40)

Oh.

Brad Blumenthal (15:41)

And her foot was on the gas pedal, and she went flying through the wall of the, of the driveway—not the wall of the house—missed the wall of the house by about three feet, slammed into the back wall, went down the hill, and if she didn’t hit the tree head-on, she would have plowed right into that house where the guy was sitting in the den. I was the first one to the body. I thought it was some kid in a Ferrari, ’cause in Hollywood Hills, there are very few poor people that are driving around there. Unfortunately, she happened to be one of them. And I got to the body, and there was no blood in the car. So you knew her heart stopped way before that thing happened. So we had to shut the house down. Helicopters were everywhere. The ABC, CBS, they didn’t even wait till the six o’clock news. They, they were already on with helicopters, and, and I did not give any interviews. I stayed in the house.

Was not the kind of publicity one would want. But it, it, it was—I thought I was bankrupt. I thought there’s—’cause you gotta disclose stuff like that to any future buyer. So I thought my investment—and I was, I was loaned to the hilt. I was as leveraged as I ever been in my entire life. I borrowed money from friends. I had a, a huge construction bank loan. And so I, I thought it was over.

I sold the house eventually. We, we closed the house down, repaired it in the next—I think it took us two to three weeks to repair everything—and then we put it back on the market and sold it. Luckily, it’s a one-of-a-kind kind of house, and those can usually blister through down economies. And, you know, very rich people—there’s really only three things in their life: their significant other, their home, and a distant three is their car.

So when you build something that no one else has, it will, it will fight recessions. And people that have two billion, two hundred million, twenty million, you know, they want a—they want a nice home. And that they’ll sacrifice almost anything for it.

Freddie Steen (17:57)

Now, Brad, that kind of pivot, that’s the kind of stuff that 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, like you. Let me ask you this, Brad. What are you most focused on solving or scaling next? I mean, what’s the next real real estate goal for you?

Brad Blumenthal (18:19)

Mine is to introduce that California Modern lifestyle to Arizona. Most of it’s still fairly adobe. I was out there. Some people are doing it, but they’re doing it in a very ornate way. It doesn’t have the soft finishes and the, and the wood. I’ve only seen a few, and the few that I’ve seen have, have been a very almost office-building-like approach. So there’s—I think there’s a huge market for that. I think there’s a huge market for that.

In Florida—I mean, look what Florida was. You didn’t see that California Modern until about 10 years ago. And then all that South American money came in, and, and it just exploded. You see anything on the water now, just about, and it’s all the California Modern style. I mean, you’ll still see those big old white monstrosities, but most of the big money is going all to those California Modern style.

And I think, I think Arizona’s ready for it.

Freddie Steen (19:21)

Your take on Arizona, that’s big. I mean, especially when you’ve already got this toehold in understanding multiple markets, being able to make your rental properties pop with your knowledge and your experience. The next move can either compound things or create chaos depending on how you play it. Now, I know a lot of people listening are either earlier in their journey or looking to level up like you.

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 you, Brad?

Brad Blumenthal (20:01)

Well, there’s a couple. You, you, you definitely gotta know your market. So in Arizona, they don’t do escrow. They do title and, and lawyers. It’s usually through a title company. In California, it’s all escrow. So you gotta know—and in New York, it’s lawyers. So, so whatever market you’re in, get a goddamn good lawyer if it’s the lawyer that’s, that’s running the transaction.

Or make sure you have a damn good escrow officer if it’s in, let’s say, L.A., where escrow handles the transaction, or a great title company, where in Arizona it’s the title company that sort of runs the transaction and the realtor. So you gotta know your market on who’s driving the actual contract. And, and you’re gonna need a good lawyer anyway. It’s one—I’ve, I—I’ve had—

Out of the 15 houses I’ve done in L.A.—is the most litigious city you’ll ever be in. I have two houses where I had three lawsuits per house. And I’ve had a bunch of others where I’ve had at least one or two. So you’re gonna need to find a good lawyer. Not that you may need them right away, not that you may need them in year one, year two, year three, year four, but you are eventually gonna need one. It could be a contractual law. It could be a contractor dispute. It could be whatever—a crazy-ass neighbor. I’ve had some of those. So you’re always gonna have something where you’re gonna need a lawyer. And so do your little research on that one. And don’t skimp over the extra hundred bucks an hour if this guy’s, you know, got ten times more experience than the next. And make sure usually that it’s a litigator. That scares the crap out of everybody.

‘Cause if it ever—if it doesn’t ever work out, you’re gonna end up hiring one anyway. So start with the litigator to show that you don’t—that you mean business.

Freddie Steen (22:05)

Relationships are everything in this space. I mean, you cannot fake that. All right, before we wrap up, if someone wanted to reach out, connect with you, maybe collaborate or learn more about what you’re doing, what’s the best way for them to reach you?

Brad Blumenthal (22:22)

So they could email me at [email protected], M-A-C dot com. There’s no E in Bradley, and I’d be happy to help in any way. I’ve got a two-page letter on—not letter, but facts on what you should do in the housing business that you should look after and make sure how to do a budget, make sure everything’s in a budget.

Everyone underbudgets. Everyone leaves out eight, ten different things I didn’t even think of. So there’s a whole bunch of little pointers I have that I’d be happy to share with everyone.

Freddie Steen (23:05)

Perfect. Well, listen, Brad, I appreciate your time. I appreciate your story and your perspective. We need more people in the space who are doing it the right way. Would you agree?

Brad Blumenthal (23:16)

Yeah, I th—I think the more you could collaborate with other people and, and pick everyone’s brain. You know, I always have a couple of ideas, and other people have even more ideas. So the more people that are willing to help everyone in this business, the better.

Freddie Steen (23:33)

Well, Brad, from *Real Estate Pros*, thanks again for being here.

Brad Blumenthal (23:38)

Thanks for having me.

Freddie Steen (23:40)

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 Brad Blumenthal, who are out there building real businesses. We’ll see you on the next episode. Thank you, Brad.