Gabriel and his team literally take the roofs off of their flip projects, add a second story, rip out the whole inside, basically build a new home, and then sell. Their strategy is not a typical or easy one, but allows them to double their money plus make $100k profit on each deal. Find out the key team members you need to complete jobs like this, as well as what to avoid when looking at potential deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Gabriel DaSilva Real Estate Background:
- Founder and President of DaSilva Group Inc., a privately owned group of real estate investment and development companies
- Focused on residential redevelopment in New Jersey
- Specialize in the analysis, acquisition, renovation, management and disposition of depressed real estate
- Based in Newark, New Jersey
- Say hi to him at http://www.dasilvagroupinc.com/
- Best Ever Book: Think and Grow Rich
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Gabe DaSilva. How are you doing, Gabe?
Gabe DaSilva: Doing well, bud.
Joe Fairless: I’m glad to hear it, and looking forward to diving in and interviewing you and learning more about your background and lessons learned along the way. A little bit about Gabe – he is the founder and president of DaSilva Group, which is a privately owned group of real estate investment and development companies based in Newark, New Jersey, focused on residential development in New Jersey.
He specializes in the analysis, acquisition, renovation and management, and disposition of distressed real estate. With that being said, Gave, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Gabe DaSilva: Yeah, for sure. My background is in finance. I’ve got a couple of finance degrees – one in real estate finance, one in financial markets; I’m an undergrad in just straight up finance, and in a past life I worked on a trading floor, traded mortgage-backed securities, and then after being let go twice in 18 months by no fault of my own, the market dictated that it was time for me to go. I decided to scratch the entrepreneurial itch, and did some stuff in food service for about four and a half years or so, and sold that restaurant off little over three years ago.
I started investing in real estate full-time, and what we do now – our niche is add-a-levels. So we buy dated capes and ranches in the better half of Union County, a specific area here in New Jersey, and we blow the roof off… We basically force appreciation by doubling the square footage. That’s our primary focus.
Aside from that, we do some wholesaling, we’ve got a small builders supply company, so stuff that we tend to use a lot of on our projects, we’ve decided to start warehousing, inventorying and then selling to our builder buddies here locally.
I personally do some coaching, some mentoring and some education stuff. That’s the gist, but our overall focus is single-family flips.
Joe Fairless: Single-family flips that you add the second floor onto?
Gabe DaSilva: Yeah, that’s right, so add-a-levels. I’d say 90% of what we do is add-a-levels. We’ll do some cosmetic rehabs, but even our cosmetic rehabs aren’t like the lipstick on a pig type stuff; we’ll even rip out kitchens, baths, we’ll redo mechanicals, and we actually still call that cosmetic. Anything above and beyond that, with the add-a-levels — or we do some news constructions… That’s more our niche.
Joe Fairless: That’s cool, let’s talk about that some more. What are the numbers that you look at prior to blowing the roof off and doubling the square footage?
Gabe DaSilva: The market in which we operate, there’s 23 towns in this particular county where we are. 23 or 21, I forget. 11 of 13 (I have those inverted) are towns where we would do what we’re doing; the other half doesn’t make sense. So what we’re looking for are dated capes and ranches where if you were to go up on them and convert them to colonials by doubling the square footage, it would make financial sense. You’d be able to get more than twice the value.
So we’re looking for a spread between mid-tier cape, ranch, bungalow in that particular town, and then the top-end colonial, because we’re gonna blow this thing out, we’re gonna trick it out, and we’re looking for a nice delta there. And in those towns where we see that, that’s where we’re going in and we’re trying to pick them up.
Unfortunately – or fortunately, depending how you look at it – in our market there’s a lot of people that are catching on and doing a lot of the same things… So where we would in the past buy a cape or a ranch here locally for under 200k, we’re now paying 250k, 275k to get in. Thankfully, the market has appreciated and we’re getting the same thing on the sell side, but what we’re looking for is that delta, that spread between that uncapped cape or ranch, and the finished, tricked out colonial that we’d ultimately put in that place.
Joe Fairless: Okay. And for someone who is not in the Northeast but wants to do something similar in another city across the country, where there might not be capes or the type of properties, but regardless of the property, just about the numbers… So you look at the property like a regular fix and flipper would; if you’re going in, you look at the value that you buy it at, and then how much you need to put into it, and then you look at the exit price, and that’s ultimately how you decide?
Gabe DaSilva: Yeah, so when we model deals here, we’re always looking for six figure flips; we’re trying to find six figures of spread on every deal… And if you’re in the right towns, even though locally, there’s opportunities to do that. I’m actually working with a couple of coaching clients in Washington, in Raleigh, in different places where there’s opportunity to do the same things in their markets, but we’re just trying to pinpoint where exactly they need to be looking for those specific opportunities.
Just outside of Seattle proper they can buy bungalows for 400k and sell at 1.4. Those spreads are crazy. We don’t even have those kinds of spreads here. I’m just trying to help people elsewhere understand that if you can buy the canvas – I call it the canvas – at the right price, and there’s room there to go in and do the work, and there’s that much spread on the sell side, those are the opportunities.
Here what’s happening is a lot of guys are catching on and they’re squeezing out the spread on the front end. We’re bidding in competition where we would have bought for 165k, 175k a couple years ago, now we’re paying 250k, 260k.
Joe Fairless: The spread that we’re talking about – you’re just looking to make sure it makes at least $100,000, or is there a percent that you’re looking for? And if it’s a percent, what is the percent?
Gabe DaSilva: I try and make sure that there’s six figures in the deal itself on a cash-on-cash basis, because we get really creative with our financing structures. I try and make sure that I can at least do 100% cash-on-cash. So if I have to come in with 50k or 70k or whatever the case is based on however I have to finance the deal, which is all over the map – sometimes you’re using hard money, sometimes private money lenders, sometimes bank financing, sometimes we’re self-financing stuff… I’m looking to double our money; whatever we put into the deal, we wanna do at least twice that on the sell side, and at the same time we’re trying to model the deal all-in, and make sure that there’s six figures in it.
Joe Fairless: Okay, so double your money, plus make at least $100,000.
Gabe DaSilva: Right. We rarely hit the 100k mark just the way we look at the deal, but if we make 82k or 76k or 94k, you’re not gonna be upset. So long as you model in that spread there, you’re usually pretty good, and when we have our financing — our terms are actually getting a lot better here locally, so I find that we can get into deals with a lot less of our own money and a lot more leverage… So with that, our cash-on-cash is getting better. We’re seeing 3X cash-on-cash on some of our stuff.
Joe Fairless: What’s the group name that you use to get your financing?
Gabe DaSilva: Our hard money lenders you mean?
Joe Fairless: Yeah, yeah.
Gabe DaSilva: We work locally with Alfa Funding. That’s our local hard money lending partner. We’ve borrowed through Enterprise Community Bank – they’re a local bank; they’ve got three branches here locally. Private money stuff, especially now, since we’ve been so active and we’ve been pumping out so much content on social, we’ve been able to raise a lot of private money at 8%. That’s really helping us out.
When I did get started, things were a lot tougher. We were doing 3 and 13, so it’s amazing–
Joe Fairless: Will you elaborate what 3 and 13 is? Three points, 13% – is that right?
Gabe DaSilva: That’s right, yeah. So the first handful of deals we did, we were getting three points and 13%. Those terms are brutal. Looking back now on those deals, it’s amazing we made money at all with those kinds of terms. So I would say you have to do that, it’s part of the process to get started, but looking back on it now, I’m thankful that we weathered that storm and that we did what we had to do to position ourselves, and now we’ve got access to cheaper capital, thankfully. But if anyone’s out there thinking “Those terms seem silly. There’s no way I would ever do that. How does that make sense?”, we have to do what we have to do to get started. There weren’t a lot of guys willing to take a chance on us, and the couple that did – and Alfa in particular – the terms were what they were at the beginning. They have to account for risk, and they did, and thankfully we proved ourselves to be good sponsors, we performed, and now thankfully our terms are better.
Joe Fairless: Now let’s talk tactically on the execution of what you do… Using your words, you “blow the roof off the house.” What contractor type of thing should we be considering and what did you learn through that process?
Gabe DaSilva: Well, we do a little differently than most – we’ve in-housed a lot of that stuff. We actually project-manage our own stuff. I call that PN/GC. So we don’t actually hire a general contractor to run point on our projects; we do that. And in turn, that means we hire and fire all the subs.
If you were gonna sub out the entire project to a GC, who was responsible for everything soup to nuts, you’re basically looking for a good GC that has done new construction projects, essentially, because that’s what we’re talking about. We’re ripping everything down to the foundation, so everything short of putting in a new foundation, you wanna make sure that your guys has done that before.
What we look for now, having done this a handful of times – I’ll do the actual walkthroughs on the homes, and I’ll make sure the foundation is good. We don’t buy bad foundations, we don’t buy oil tanks, which are very common here in our market, and we don’t buy floods.
Joe Fairless: What are oil tanks? I mean, I know what an oil tank is, but what do you mean by “You don’t buy tanks”?
Gabe DaSilva: Yes, in New Jersey especially, you can’t really sell a home with an oil tank, so we would never buy one. You don’t know whether or not there’s a leak… There’s too much uncertainty. So those are like our three no’s. If there’s a tank at all, we’ll either pull it, and if it’s not a leaker, then we’ll move forward and we’ll buy the home, or we’ll insist that the seller pulls the tank. So we won’t buy that.
We don’t buy flood zone, just because on the sell side it’s a challenge, and we don’t buy bad foundations, because we need a good foundation to build on top of. So we spec out those three things, and so long as that stuff makes sense, because we’re gonna gut the entire house and rip it all the way down to the first floor/sub-floor, nothing else really much matters to us. So we’re just really conscious of those things, and that’s what we’re looking at.
Beyond that, there’s a lot of elements on the construction piece that we over time have gotten a good grasp on and now in-house… But if anyone’s out there looking to do this, and even some of the coaching clients I’m working with that are trying to do this in their particular markets – what I’m telling them is you need two friends. One’s a mason, and the other is a framer. With those two tradesmen in your pocket, you can go and spec out any potential add-a-level candidate, and be able to say “Okay, this is something I wanna move on, or this isn’t.”
Joe Fairless: Will you elaborate more on the mason and the framer, and why they would be your two main people you need to know?
Gabe DaSilva: The mason piece is critical because of the bad foundation stuff. You’ve gotta have a guy in there who knows what he’s looking for – looking for cracks, looking for settling, looking for the kind of stuff that you can’t just go up on. If you’re gonna have to underpin a foundation, that’s gonna crush your budget. So you definitely don’t wanna buy something with a bad foundation.
Then from a framing standpoint, why that guy is critical is because depending on what you’re gonna do overhead, he’s gonna have to tell you — an architect more so than the framer, but it’s hard to get the architect in there and to draw the home before you can write your offer. That’s gonna be a challenge. So if you have a good relationship with your framer and your mason, you can get those guys in there with you.
An architect needs some time, obviously, to draw the add-a-level, but the framer can at least go in there and take a look and tell you “If you’re gonna go up over this… It’s 800 square feet now, and it’s gonna be 1,600 later… Here’s what I think you might spend per square foot on just lumber, and then here’s what my labor might be.”
So you can get a good idea, because those are gonna be your two biggest bills. I always say, once you get over those humps – once you’ve got a home framed and wrapped, you’re already forced appreciation long past where you are, where your money is into the home, if that makes sense. Say you buy a home and you’re 250k into it, and then the after repair value on the house (in a good market here) is probably like 750k, say. Once you’ve done the masonry, shored up whatever issues it might have with the foundation, built out a little cross base and then framed, sheathed and roofed the home, you’re already far ahead of where you would be otherwise.
The rest of the money you spend – it’s already paid for. That home as it sits right then to anyone else is worth far more than you’ve got into it.
Joe Fairless: That’s really interesting, I’m glad that you’ve talked to us about those two people and their roles. For the mason and the framer, would you need to compensate them to come out and consult, or is there fee built into the deal if you get it, and if you don’t get it, then you don’t pay them?
Gabe DaSilva: Well, at this point we’ve been working with the same guys for long enough that the expectation is that they’re gonna get the job if we get the house. And if the house makes sense, we’re gonna move on it, and the job will ultimately be theirs. What I’m telling a lot of my clients in other markets that are trying to forge relationships with those tradesmen is that at the beginning be willing to give them something for their time.
I know nobody likes bidding work and competition, so what I find is that if you give them a couple hundred bucks without them asking, it’s actually the best bet. And just have them come out with you. If you’re looking at a couple dozen houses a month – yeah, that’s gonna add up. But if you’re being selective about the ones you’re going after, then that’s money well spent, and eventually you’ll forge a strong enough relationship with them where they won’t want that money. They want the job, essentially.
Now I do a lot of that, I deal with the walkthroughs on my own, I rarely ever call in my mason or my framer to walk the homes with me, because I’ve seen enough of them where I can kind of figure out where we’re at. I’d say maybe out of every dozen or so I look at, I’ll call the framer just for a second set of eyes; or the mason. But otherwise, after a while you get a pretty good handle on that stuff.
Joe Fairless: What type of approvals are required to build another story, versus another room at the same level?
Gabe DaSilva: If you’re gonna do an addition for a room, whether it’s at that level or above, it’s the same thing. They need a zoning review, so you’ll require a survey, and you need building, electric, plumbing and fire… Here locally, anyway. You’ll always need all that stuff. If you’re just gonna renovate the inside and relocate some walls, then obviously you don’t have to go before zoning.
What I find is that here every time we do anything — because an add-a-level is actually considered a new building; when you put that second floor on, that’s a new building, just like an addition, just like actually tearing down the structure and doing a whole new construction.
Actually, short of a couple things like a pest abatement, an environmental survey, soil compaction test, you wouldn’t have to do those things unless you’re doing new construction. But with the add-a-level, that second floor is considered a new building, so they’re gonna want all the trades to look at it, plus zoning, to make sure you’re not encroaching on those setbacks.
Joe Fairless: Let’s pretend we’re in a different market, other than yours, and I’ll just pretend I’m this person… I’ll pretend I’m a fix and flipper, I don’t live in your market, I’m somewhere in the Midwest, and I listened to this episode and I’m thinking “Oh, this is really cool, I’ve never thought of actually building up, I always think about renovating the interior… Maybe adding a room, but I’ve never thought of actually building on top. It’s just not something that’s commonly talked about. How do I determine the ROI on building up, versus just adding a room? Because when I look at the sales comps, they usually show just how many bedrooms and bathrooms there are, so it’s tough for me to determine (at least me asking this question right now) what the value of building on top versus — it seems like it would be easier building just another room, or something.”
Gabe DaSilva: What we look for, and that’s how we determine what half of Union County in particular we decided to focus on – we have to see a big spread between that run of the mill, dated cape or ranch, and that new construction or newly renovated colonial. If we see a big spread there, three times what you could buy the cape for, or close to it, for the ranch, or whatever the canvas, whatever the original property is, then I always — look, highest and best use. Well, to do a renovation or to carve out another bedroom is fine, and you could make 15, 20 or whatever the returns are, whatever these guys are making on those kinds of projects… But for us, if we’re in one of those towns we’re talking about and a spread between those dated capes and ranches and those top end colonials that have those similar bedroom and bath counts – if there’s that big delta there, that’s where we wanna be.
Joe Fairless: But what about the spread — because you’re comparing the dated version versus your renovated property with an extra floor, but what I’d like to know is the comparison between the renovated single floor versus the renovated double floor, because that’s what I would be choosing between… Because clearly there’d be a big price difference in non-renovated versus renovated plus another floor.
Gabe DaSilva: What we find here — we’ve got a perfect example… We’re working on the purchase of a razed ranch here locally, and we’ve got an offer in that 450k, say. That house renovated – it needs kitchens, baths, it needs the whole house; essentially, inside needs some work, outside needs siding and a roof. That house will bring 650k renovated. That house as an add-a-level will bring 1.1.
So when we look at those, we don’t wanna go in and spend 75k to 100k to try and make 100k, which after commissions and closing costs and all that isn’t even close to 100k realistically. What we want is to go in and spend 250k and shoot for that 1.1, because in that market there’s more demand — well, I shouldn’t say more demand, but there is demand for that blown out, massive colonial with the five beds and the three baths, and the finished basement.
So we could go in and do what some I guess would call a cosmetic rehab, but highest and best use — because the opportunities here are limited, so we’re looking for “How do we maximize the potential of that particular piece of dirt with what’s there?” and for us, more often than not, it’s to go up with it. There’s opportunities to just go in and do prehabs, put lipstick on a pig type stuff and just quickly flip it, and we’ve done one or two of those to keep the machine moving, but what we’re looking for are those home runs. We want those crooked numbers, and if we can get a handful of those a year, those are the ones that really move the machine… Or move the needle, I should say.
Joe Fairless: Yeah, great stuff. What is your best real estate investing advice ever?
Gabe DaSilva: I’d say it’s that – it’s really about highest and best use. I think a lot of times — even us, we’re kind of caught up in this one niche, and this is the lens through which we look at every opportunity. Last year, for example, we missed an opportunity to split a lot and do two new construction homes, and we instead did the add-a-level, and it was a double lot. That’s a huge, huge miss, because there’s just not a lot of land here, so when you find something like that, you have to always be thinking what’s the highest and best use for this particular piece of dirt and whatever’s on it.
So I’d say my best ever real estate investing advice is to take your time when you’re looking at something and think about every possible angle at which you can approach this specific piece of dirt and how can you maximize the upside there? Because the opportunities realistically are few and far between, and when you get them, you really wanna maximize the upside.
Joe Fairless: I love that. It reminds us to break away from what we are conventionally doing and always look at highest and best use, and keep that top of mind. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Gabe DaSilva: Let’s do it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever sponsors.
Break: [00:23:24].16] to [00:23:54].10]
Joe Fairless: Alright, Gabe, best ever book you’ve read?
Gabe DaSilva: Think and Grow Rich by Napoleon Hill.
Joe Fairless: Best ever deal you’ve done that’s not your first and wasn’t your last.
Gabe DaSilva: The last massive add-a-level we did in Berkeley Heights – I picked it up for 465k, put in 350k, sold for 1.25
Joe Fairless: What’s a mistake you’ve made on a transaction?
Gabe DaSilva: That example I gave earlier is probably the worst – not thinking highest and best use, and missing an opportunity to subdivide a lot and put two houses where we ultimately put one.
Joe Fairless: Best ever way you like to give back?
Gabe DaSilva: I think what we’re doing now with The Build, our docuseries on YouTube, is probably the way I can best give back. We’re just documenting what we’re doing and looking to educate and inspire other people and help folks avoid the same mistakes I made getting started, by showing them what it is that we do every day, and how we do it. That’s not that easy, and it is a lot of work.
Joe Fairless: And how can the best ever listeners get in touch with you and learn more about what you’ve got going on?
Gabe DaSilva: I think going over to YouTube is probably the best bet, just because we’ve just recently launched that docuseries, and it’s engaging and there’s a lot going on, and we’re pumping out an episode every week, so they can see what we’re up to… But beyond that, I’m active on all the socials – Instagram, Facebook, LinkedIn… Anywhere they wanna reach out to me, they’re welcome to. I respond to every single e-mail, any question, over on BP… Any way you wanna get me, you can find me online and reach out to me. I’m happy to answer any questions and add value however I can.
Joe Fairless: And Gabe, what should they search for on YouTube in order to find that docuseries?
Gabe DaSilva: It’s called “The Build.”
Joe Fairless: The Build, got it. The Build, and then search your name, and they’ll find it. Easy enough.
Gabe DaSilva: Yeah. YouTube.com/gabedasilva.
Joe Fairless: Oh, sweet. Alright, cool. Well, Gabe, thank you for being on the show and jolting me at least back into keeping a fresh approach on my deals. I’ll just speak for myself – so often I can get caught up in the business plan that I always do, versus taking a step back and thinking highest and best use, how can we maximize the earning opportunities with this property?
In your case, you’re looking to build up, but in any case, it can just be having that frame of mind, and applying it to the deals that we do… So thanks for being on the show, thanks for talking to us about your business plan and how you’ve executed on it and what you’re doing. I hope you have a best ever day, and we’ll talk to you soon.
Gabe DaSilva: Thanks for having me on.