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Show Summary
In this conversation, Rick Sims discusses the importance of developing community housing solutions and the role of equity in affordable housing. He emphasizes the potential for individuals to create their own retirement jobs through nonprofit trusts and the significant equity that can be gained from successful housing deals. Additionally, he addresses common misconceptions surrounding affordable housing and Section 8 programs.
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Investor Fuel Show Transcript:
Rick Sims (00:00)
Well, you got to realize what the greatest investor in housing, I don’t care who you are, United States Treasury is the greatest investor in housing. Now this is how they make their money. They know that the same people that are making profits, they’re either in real estate or stocks and bonds, they will pay a personal tax or corporate tax. Government says, but if you invest in,What I want you to invest in, I’m gonna give you a credit statement. So they’ll say, Rick Sims, you got a tax background, you know the personal taxes and you know, but listen, in order to raise money, we’re gonna allocate tax credits to each state based upon the population. Then what happens is we apply for these tax credits, whether a 9 % competitive or 4 % non-competitive.
Dylan Silver (02:25)
Hey folks, welcome back to the show. Today’s guest is a developer in Louisiana who has a wide range of experience across really multiple asset classes and development types. Please welcome Rick Sims. Rick, welcome to the show.Rick Sims (02:42)
Thank you for inviting me.Dylan Silver (02:45)
Absolutely, absolutely. Rick, I always like to start off the top of this show by asking guests really how they got into the real estate space. How’d you get in, Rick?Rick Sims (02:57)
Well, I got into it because when I grew up in California, ⁓ way back in the 80s, they used to have the ⁓ HUD, Home Improvement Loans, $25,000. So we used to, with the FHAs that would go in the foreclosures, we would get them out of foreclosure or catch them before they got the foreclosure, get the Home Improvement Loans. And then it was strictly FHAs where we could do subject twos. Then the…Dylan Silver (03:24)
Yeah.Rick Sims (03:25)
We were doing that in California when it really could make money getting us the foreclosures and fixing them up. then we would sell them to affordable housing, know, affordable housing, because there was always a challenge in housing in California. Then when the tax was reformed in 86, I always, I had a tax background, but I always understood the corporate side of it. So when HUD got out of, ⁓Dylan Silver (03:39)
Sure.Rick Sims (03:53)
being developers and they start privatizing it to us. I understood about the tax credits and equity financing. So, but you know, going through some things. So I went into Texas, a pastor called me over there cause and I saw Houston and I looked, I said, this is Target Rich. And then I saw the competition and I said, Hey man, well, this ain’t but application to me. It’s a lot of work. So I did an application andI had the top applications, then there was something, something they went to the attorney general about it had to be subject to the statute. So I went from the bottom to the top. But then when I first, my first application always finished number one, because I knew how to do a tax credit application. And I, and I understood the nature of the tax credits and the equity financing and selling the tax. So then when the newest disaster came in and they started putting in the CBG money and they wanted us to,
Dylan Silver (04:41)
Sure.Rick Sims (04:50)
those be takeouts of the construction financing. I understood tax credits enough to know how to sell the CBG financing as a takeout for the construction loan. So it was basically, I understood tax credits,Dylan Silver (05:01)
Yeah.Rick Sims (05:54)
I understood equity financing, and I understood the market coming from California. So California, Texas, and Houston knows the medium income that we was, it was a bigDylan Silver (06:01)
Right.Rick Sims (06:08)
Like the best part of the box was the 30 to 60 % medium income. CBG let us go up to 80%. So we understood the market and the demand for affordable housing. And we stay away from the market. Like if it’s market unit, you can do what you want to do. know, but I, of the qualified census tracts and then the recent Supreme court decision in 2015 about, ⁓ we have to also put the affordable housing in the high opportunity areas.Dylan Silver (06:09)
Big jump.Rick Sims (06:38)
That’s how I got into it. just had a tax background, but I knew housing coming from a high, from California where cost of living was pretty high for affordable housing.Dylan Silver (06:48)
You mentioned the tax background and how that has facilitated really your real estate ⁓ career and trajectory. You know, one of the things that sticks out to me, Rick, is taxes are challenging, right? You can go to two different tax professionals and have two totally different results. But also for the average person, it’s like the tax laws are constantly changing. Very few people… ⁓are themselves aware even of tax strategy and what they can do to keep more of their money in their pocket. So you took that background which is challenging space to be in and applied it to the real estate space to say okay well how can I really maximize my dollars and effectively gain access to more capital than other people are either aware that they have access to or don’t have the knowledge and skill base to go out and get that money.
Rick Sims (07:42)
Well, you got to realize what the greatest investor in housing, I don’t care who you are, United States Treasury is the greatest investor in housing. Now this is how they make their money. They know that the same people that are making profits, they’re either in real estate or stocks and bonds, they will pay a personal tax or corporate tax. Government says, but if you invest in,What I want you to invest in, I’m gonna give you a credit statement. So they’ll say, Rick Sims, you got a tax background, you know the personal taxes and you know, but listen, in order to raise money, we’re gonna allocate tax credits to each state based upon the population. Then what happens is we apply for these tax credits, whether a 9 % competitive or 4 %
9%, you usually bring in 78 % equity to the table.
4 % you bring about 50 % equity to the table. People say, well, what’s the tax credit? Well, what happens is a syndicator or like Raymond James or your bank, like Bank of America Regions Bank, not the local guy, the guy in the Chicago Towers, he’ll see our name on this list. And then they will give us what they call LOI, right? And then we’ll have agreement where a partner, they’ll give us a cash contribution. So let’s say that I get $10 million in tax credits.
Dylan Silver (09:01)
Sure.Mm-hmm.
Rick Sims (09:09)
Isell those tax credits for 80 cent on the dollar. He gonna give me $8 million cash. Got it? To build some affordable housing. I have the best way. I’m going to be on the Monopoly board. That area pass go up into that area where they say go to jail. That’s my area. Everybody else is on their boardwalk and back saying, hey Rick, I need you to put that same house over there.
Dylan Silver (09:30)
Yeah, sure.Rick Sims (09:38)
that’s on Boardwalk at his cost, but you can’t charge his rent. So I take this, where this other guy on Boardwalk, he put 20 % cash, 80 % debt. I bring a 20 % debt, 80 % equity, the lower the rents. So when they buy for 80 cent on the dollar and you’ve invested with them,they’re gonna tax, let’s say I get a million dollars in your tax credits, he get an 8609.
Dylan Silver (10:40)
Right.Rick Sims (10:43)
Every year where he would have paid a million dollars Right in taxes for making profit in some other venture He’s only paying Nothing because he made 20 percent because he bought it at a discount That’s how money is get that’s how that’sDylan Silver (10:58)
discount.I want to
ask you about the ⁓ development space as it intertwines with this access to capital. ⁓ Right now I’m seeing more more people pivot into development. I’ve seen a lot of flippers in Texas look at how can they get into development because it’s harder to do flips. And it may be a little bit easier now that the rate has dropped.
I’ve noticed that there does seem to be a push towards new construction. In your experience, what percentage of developers are thinking about gaining access to this capital or are they even aware of it? And are developers in general
Rick Sims (11:45)
Many of them are awareDylan Silver (11:48)
trying for it?Rick Sims (11:51)
⁓ There’s two markets See when they come into the affordable housing a every state has a housing finance agency And they always come in there the market people that you’re dealing with. Hey, man Well what y’all need to put more money here? No, we do not mess with market units because we have a restriction on the rents You got it. So they want to get in because we got more equity and less debt you get what I’m saying, butThe very cabinet challenges is just like I have a real project. I see a lot of for rent signs on rehabs. I don’t even have a sign out and I got a list because my, they go pick the new over the old. See, we have this, this concept developer. I can see an apartment building, but if it’s got a stigma, I don’t care how I fix it up. The stigma ain’t going to change it. Tear it down. It’s not just so much the housing real estate, it’s the economic development.
Dylan Silver (12:44)
That’s right.Rick Sims (12:51)
We’re creating jobs every time we do that. That’s one of the greatest things about ⁓ when you get funding from HUD, they have national objectives, area benefit, new job creation, and housing. So we’re trying to increase the employment opportunities and the economic opportunities. That’s where most of the money go. So if you want to get in, when the disasters come, back with Katrina,It was hard to get when Katrina came, there was so much tax credit floating around Louisiana. Everybody flocked to Louisiana. Then after Katrina, they started doing CBG money. So now to get in it, you have to have experience because there’s so much paperwork. It’s like on the developer end, the contractor worked for us developer owners. We have to sign the agreement. Engineer work for them. But we have so much paperwork that we have to do. We’re just.
Dylan Silver (13:27)
Hmph.Rick Sims (13:48)
Because we know all that we have to know the rules and regulations and we know how to make money, but we also know how to spend the money. And that’s the key. It’s like you have to be…Dylan Silver (13:56)
I want to ask youabout that specifically. You mentioned really a bevy of paperwork and how people may not be able to navigate that. But then you also mentioned dispositioning or spending the capital. When folks are looking at getting into this space, and you mentioned it, Rick, it’s gotten more complicated over the years.
Do you really have to partner with someone who has great experience? Are people reaching out to attorneys? What’s the main way that people who may be new are sorting through this space?
Rick Sims (14:37)
I’ma be honest with you. I had a, in Houston, there was a guy named J. Frederick Wellington. He owned a lot of the market units on Memorial Drive, the nice ones. They had me to do it, well, he had sons, he owned one of the nice restaurants in the city. And he said this, he said, this is easy as everybody think it is, everybody be doing it. It’s not that simple. That’s why they tell you, you need to getdeveloper with
at least an experience that’s got 150 affordable units in place and hire a good consultant to know the application because you’re not, we’re not going to be in here since the eighties and you’re going to get this overnight. We will tell you that it’s not, but it’s like, if you don’t think we are not trying to develop another company or like me, I’m not trying to develop a Chodo or community housing development organization, or I’m not trying to tell the people, listen, you can form a nonprofit trust.
and it can be owned and it’s in perpetuity. Create your own retirement job. Have all the equity because once you do one deal, you got eight to $10 million equity. You know what equity does for you. But it’s hard to get in there on any state if you don’t have put in service. You can come in there if you put in service some market units. But the terminology like, for instance, affordable housing or Section 8 people.
got the wrong definition. You say section eight to me, I’m just talking about area law. Tell people they’ll think about somebody living in the projects. No, that’s just an area of the public welfare act. You get what I’m saying? And if you say affordable housing, we’re saying, well, to us, if you paying over 30 % of your income to keep a roof over your head, you’re living above your means. You get what I’m saying? So we have to put in housing where you can be overqualified, but we still have to teach you the terminology, rules and regulation because everything is about
Dylan Silver (16:56)
Right.Rick Sims (17:16)
rules and regulations. If I was to say anything, say, if you ask a real developer, and you might have to edit this about racism, I say, yeah, it’s practice in housing, but there’s rules to it. It’s like football. You can win and still get penalized. The fair housing rules say, here’s the rules you gotta abide by, know the rules. One of the things that hurt people is like, they say, okay, if you get federal funding,Dylan Silver (17:18)
Absolutely.Rick Sims (17:45)
You gotta apply Davis-Bacon. Other people don’t like it. I like it. It’s like because it’s a cost restraints. I’m not gonna let you bleed me with labor when I’m knowing the prevailing wages. So what you gotta know the rules. If you know all the rules and regulations, then the projects will come in under your budget will make money. Cause developers gotta remember that syndicators and investors pay the developers and we still be the owners.Dylan Silver (17:55)
Sure.to you. Yeah.
Rick Sims (18:13)
So yes, you need to partner up with every state housing agency got a list of developers or they got a list of consultants. And if you think and we’re not trying to ⁓ spread the wealth. One of the things I’ve learned is man, I didn’t want day to day with the big projects. I just want for personal, some small for retirement where I’m the handyman. You get what I’m saying? But when it comes down to board and running direction orIf I take on a deal now, it’s just like I look at the deal, the feasibility of it, and tell you now, under this new tax bill, it would have been challenging for me to say I would want to do a bond deal. Under this new beautiful tax bill, it’s like you can do a market unit. We can do a mixed unit now. Low income plus market unit, and you don’t have to have as much soft money with so much regulatory requirements paperwork. You get what I’m saying? Under this new beautiful
Dylan Silver (19:09)
Sure.Rick Sims (19:11)
If anybody understands this new beautiful tax bill Trump has signed, I know it. I’m like, that’s great. You got an increase in 9 % tax credit, they lowered the, find the debt requirement for the state for the bonds. So you come up with 75 % equity rather than 50. You know, you have to do the competitive.Dylan Silver (19:29)
Hmm.Yeah, yeah. This is probably another reason that I didn’t think about why we’re seeing so many new build, new construction.
Rick Sims (19:39)
Listen, a lot of people don’t know a lot of them new construction apartments makes you stuff Those are they’re either finance with housing tax credits new market tax credit or historic tax credits Tax are the things They’re like they’re business people don’t look or no It ain’t as good as if if the finance sir is the US Treasury who’s bigger? their bit goDylan Silver (19:51)
Hmm, they’re not even using it. Yeah, yeah.Rick Sims (20:05)
And when you know people like me, man, don’t you understand I take 50,000 because I’m paying for your third part of your architecture plant that’s making the application. I’m going bring whatever size deal that makes sense to you that I’m going to assess that you can handle, but I’m going to bring five, 10 million to the table. If I do a 9 % competitively, I ain’t doing less than the minimum. Right. And then if I do a bond deal, we might do two, 300 units. You know, but you want to start a new guy out, but they have programs like I have aThis one I was telling you about, have a model where I put together a 12 unit duplex type building, six of them, in turn, I’ll turn a block worth $30,000 worth $3 million with 90 % equity.
Dylan Silver (20:53)
Nuts.Rick Sims (20:54)
And that’s really, and then, you know, when people say, Rick, you tell too much. No, we have to, I can’t do it alone. It’s a lot of underserved communities. And when you go to them cities and you from Texas, when the areas get blighted, we have to go in there. They were once vital. got to revitalize them, but we not say under the Supreme court decision, but you just can’t focus all the low, the affordable housing in those areas.Dylan Silver (21:02)
Yeah.That’s right.
Rick Sims (21:24)
You got to put it in the high opportunity area. So we really define a high opportunity area by the higher incomes and the better schools. But everybody have safe America’s number one goal. Every citizen should have safe and decent housing. And there’s a lot of standards have changed after the hurricanes, after the fires. That’s why I like the sips. It’s like they slow burn. our engineers don’t like them because I cut you out. You got it? ButDylan Silver (21:30)
Sure, sure.Rain.
Rick Sims (21:50)
With so many changes because of the hurricane standards and the weather and flooding, the housing quality has gone up. The material we use is like no matter how they sand it, them central area here, we replacing them with mini splits.Why would I pay an engineer that money he’s charging me when that’s either an electrician or a carpenter’s job install that you know so we get better quality and a more affordable price so you have to learn how to understand where you build in your construction law and as the developer owner the fine the rules and regulations of the investor you have to know them and If you know your rules, and you know your market you’re gonna make a lot of money, and you’re gonna help a lot of people
Dylan Silver (22:21)
That’s right.Rick Sims (22:42)
and you’re gonna create a lot of jobs.Dylan Silver (22:44)
Rick, are coming up on time here for the show. Where can folks go if maybe they are interested in ground up construction, Texas, Louisiana, or if they have a deal and they’d like your feedback on it? How can folks get in touch with you?Rick Sims (23:00)
or they can get contact with me, ⁓ Noah Art Community Development Corporation. You can Google me. You can catch me. ⁓ But I would always recommend if you go to Texas and you can ask for your tax credit consultants, they got a list. My name is on there. You can go to any housing agency and they have information. But my telephone number, anybody want to contact me.as a consultant to guide them on a project no matter what states because our rules are governed by section 42 of the Internal Revenue Code. Everybody has the same rule governed by section 42 of the Revenue Code. The new tax bill tells you where to go. But my phone number is 318-349-1588. ⁓
Dylan Silver (23:45)
Rick, thank you so much for coming on the show here today.
