Kyle McGee is the president of Sunchase Construction. His portfolio includes 22 apartment units, 9,000 sq. ft. of office and warehouse space, 35 infill lots, and five development parcels. In this episode, Kyle discusses his company’s focus on subdivision development, strategies for getting into ground-up construction, and how to work with inspectors to achieve your real estate goals.
Kyle Stevie | Real Estate Background
- President of Sunchase Construction
- Portfolio:
- 22 apartments
- 9,000 sq. ft. of office and warehouse space
- 35 infill lots
- Five development parcels
- Based in: Pensacola, FL
- Say hi to him at:
- Best Ever Book: Who Not How by Dan Sullivan and Ben Hardy
- Greatest Lesson: Losing my dad right out of college and learning how to pick myself up and make something out of myself.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Kyle McGee. Kyle is joining us from Gulf Breeze, Florida, in the panhandle. He's the president of Sun Chase Construction, Panhandle Developers, the Sun Chase Team, which is a residential real estate sales team. He's a developer, general contractor, broker, and investor. His current focus is on building single-family spec homes on infill lots. Current portfolio consists of 22 apartments, 9,000 square feet of office warehouse, 35 infill lots, five development parcels. Kyle, can you tell us a little bit more about your background and that current focus?
Kyle McGee: Yeah. First of all, I appreciate you having me on, Slocomb. So I come from a family of entrepreneurs in the construction industry. My grandpa was a brick mason, eventually started his own construction company. My dad was also in the construction industry, and ended up becoming a general contractor, focused on masonry subcontracting business. So I have that construction background.
My first real estate job - I was 19 years old, I took an internship -- I was in college, took an internship with a commercial real estate company here in Pensacola, did a couple other internships... My first actual full-time job out of college, this was in 2016, was a real estate appraiser in Key West, Florida. So I learned how to value real estate, and then I moved back home in 2016, started full-time residential realtor and real estate sales, and then I started pitching my dad on "Hey, we need to build spec homes." He had gotten out of the construction industry at this point in time, and eventually he agreed, so we bought three lots, started building one spec house at a time. Unfortunately, during the third house that we did - I got my contractor's license, in the meantime - my dad got skin cancer and passed away relatively quickly. So that was a huge turning point in my life and in my career. Eventually, it led me to my mentor business partner.
So I've been building homes, I've built a real estate team, and started learning about investing in real estate in about 2018, 2019, so a couple years into my career, and just been building homes, selling homes, and investing in real estate.
Slocomb Reed: Building spec homes on infill lots is not exactly simple and easy. It makes sense that you come from a background of contractors. Quick question about that, actually... Is your family from the Panhandle?
Kyle McGee: Yep, born and raised, both parents.
Slocomb Reed: When I think of masonry coming from the Midwest, I think of brick construction homes, and I don't think of brick construction in Florida. Am I just completely wrong, or where is the demand for masonry in the panhandle?
Kyle McGee: They were primarily in commercial construction. So my dad was a block subcontractor, so he built schools, prisons, shopping centers... Big commercial projects.
Slocomb Reed: Gotcha. That makes a lot of sense. Much more sense than whatever I just said. Kyle, why spec homes on infill lots?
Kyle McGee: That's a good question. So really, it started out -- I was 22 years old, so super-young. I had the background and grew up talking business at the dinner table. So all we did was talk business. But residential really was the lowest barrier to entry, so I saw it as a way to break into the space and learn about construction with a relatively - I want to say easier, but it is easier than commercial to get started. So lower price points, you still have all phases of the construction industry, but it's really just an easier way to break into the space.
Slocomb Reed: Starting in residential... That makes sense. Why not build subdivisions?
Kyle McGee: Again, it goes to the cost of capital. So I was fortunate enough to be in a position to where I partnered with my dad, like I said, and he provided that initial seed money, and we would build one house at a time. So we built one -- and I was still hustling, selling real estate, so it was kind of like, "Hey, I'm going to sell the house, so we'll keep it all in-house." And one at a time.
And my partner today, back then he was the broker who I worked under... So one day he came and he was telling me "Yeah, you're doing a great job." I would always share numbers with him at the real estate office. One day he was like, "You're doing great, but you need to be doing 3, 4, 5 at a time, not just one." And I said, "Of course, but I need the capital to do it." And he said, "Well bring me some numbers." So the next day I was at his office with a whole pro forma, breaking out numbers, and we formed a partnership.
But to answer your question, I am just now starting to get into the subdivision development. We have a couple subdivisions that we almost have a DO, development order. So the goal initially was to build a subdivision before I'm 30. I'm 28, turn 29 in a couple of months... And we do have a subdivision in the works, about to have a 55-lot subdivision developer-ready in two months.
Slocomb Reed: Nice.
Kyle McGee: Infill business is great. It's tough to scale. Really, with the infill scattered sites, you can get about 8 to 10 houses for one superintendent, where one superintendent can do a full subdivision, 100 homes. So it's tough to scale with scattered sites, but it's good, because it's a relatively low barrier to entry.
Slocomb Reed: Kyle, I have very limited experience with ground-up construction. Let me make some assumptions, and then please correct me where I'm wrong, add detail where it makes sense to add detail. It seems to me that someone who's coming in with a lot of the expertise that you already have, that doing spec homes by location one at a time, two at a time maybe, that per home I would hope at least, due to the levels of complication involved in that, that you would have a higher profit margin; possibly a higher return on your own investment, depending on how you do those numbers. So better returns per house, per deal for you.
When you look at a subdivision of 55 houses all at the same time, when you look at the amount of effort involved, I would imagine you can handle a much lower margin per house, and still make better money for your effort, your time on a subdivision. Am I on the right track here?
Kyle McGee: Yeah, you're exactly right. So the infill lots are typically higher margins. I say they're typically higher margins - it's all about buying the dirt right. So once you get some experience in building homes - we have a couple of different floor plans that we offer, so we've kind of nailed down our costs, we know what the cost is to build, so it's all about buying the land right. So if you can get your bases in your infill lots land low enough, then you can do really well. I don't have any experience, so full disclosure there with the subdivision buildouts. However, you're typically able to turn them a lot faster, because all of your subs are going from one house to the next. So it's all about speed with subdivisions.
Slocomb Reed: It's all about speed, and delivering a fairly similar products 55 times. There's a lot more design efficiency, and yeah, I would imagine that's one of the things that makes it faster, is that each of your contractors, especially your tradespeople, are effectively doing the same thing over and over.
Kyle McGee: Yeah. That, and you're delivering your materials to one site, so you can deliver in bulk, you can stage materials on-site... Back in the pandemic, everyone had an issue with windows; that was a huge deal, trying to get windows in a timely manner. So if I'm in a subdivision, in that you can get a U-box or whatever and store a whole truckload full of windows right there, for the whole subdivision. For me, it's a little bit tougher, because then I've gotta find someplace to store them, if I can even get them, and then get them on the site... So it's time [unintelligible 00:08:42.15]
Slocomb Reed: So Kyle, I and the vast majority of our listeners do not come from a family of high-level real estate contractors. Let's say that I really want to do what you do. I want to get into ground-up development, whether I start with spec homes, or I start with subdivisions at a time. I'll let you tell me what I should do. What are the first things that I should focus on, if I want to get into ground up construction?
Kyle McGee: I'll start with -- I had a great family, a grandpa and my dad, but they never did residential, and they were mainly subcontractors. So I didn't have that experience per se from learning from them. So this really has been learning as I go. So if you're gonna get into new construction, then I would highly recommend you start small; it kind of goes against the grain; everyone says "Go big, don't start with single family homes. Get to multifamily" as far as your investing goes. But [unintelligible 00:09:49.07] get in there, learn how to build a house, do it with people that already know how to do it, so join forces.
The first ever house that I did with my dad, we hired a shadow contractor; we paid them a $5,000 fee and said "We're going to control the whole thing. Just tell me the order, tell me when I need to be buying materials, when do I need to be scheduling certain subs, who do I need to be calling..." So really find someone that knows what they're doing in your market, and they can steer you towards the right subs. They can tell you certain finishes that are working in homes, and aren't, and just lead you in the right direction.
Break: [00:10:31.05]
Slocomb Reed: Based on your current portfolio, Kyle, it sounds like you're doing your own deal finding, you're acquiring the land, as well as working as a general contractor. You're also the literal ground-up developer. What is it that you're doing to find buildable land?
Kyle McGee: Actually, my current portfolio has all been existing assets that I've purchased. So really how I structured my real estate career -- so I've been full-time real estate my whole business life, at least... And it's evolved quite a bit. However, my philosophy is to make money building and selling real estate, and put it all into income-producing properties. So will I eventually build assets that I own long-term? 100%. But right now it's been buying existing.
Slocomb Reed: Yeah, I was talking about the 35 infill lots and five development parcels.
Kyle McGee: Yes. A combination of just being boots on the ground... So I am working in the area that I grew up in my whole life. I know it like the back of my hand. So I have a lot of relationships and connections. So with existing relationships I've come across some properties, but the main way that I come across properties is relationships with land wholesalers. So I've got three or four really good relationships with guys that focus strictly on vacant land in our area, and I've developed a track record. We've bought over 100 lots in the past five years. So they come to me first, or they tell me they do at least. So land wholesalers is the primary way that I come across land.
Slocomb Reed: Kyle, what are the biggest struggles you had getting started?
Kyle McGee: The biggest struggles I had getting started... So it's pretty funny... So my business partner/mentor - he is a big condo developer on Pensacola Beach. So he has developed most of the high rises on our beach. So when I first formed a partnership with him, I wanted to pick his brain on every single thing. So I had him very, very involved in the house design process, and I joke with him still today, but our first three houses that we did, we made a total of $13,000. And this was a full year. And these were beautiful homes, don't get me wrong. They were tons of glass, they had outdoor kitchens, high ceilings, and they were just really, really nice and beautiful.
Slocomb Reed: All the stuff that's really expensive to build.
Kyle McGee: All this stuff that you don't necessarily need in a spec home. We were really building custom homes... But it was a blessing and a curse. Or it wasn't really a curse at all. I mean, besides losing a year of my life to making $13,000... However, it gave my construction company a good reputation for building a high-quality product. Anyway, so we way over-designed and way over-built. So really, I niched down and I've started trying to find really inexpensive dirt. The past couple years really I was looking for lots for under $20,000, and we still do build 1,400 square feet starter level homes... So vinyl siding, laminate countertops, vinyl flooring, and they're around $300,000, depending on the area, where the median in our market's 400k to 450k. So we're in a great slot right now, but before we were not. So getting started, that was a little bit difficult to figure out, but we figured it out.
Slocomb Reed: Would you say that the biggest issue there was that you started out too complicated, and that you're saying you wish you had started out with simpler homes to build?
Kyle McGee: Yeah, I guess really just knowing the market and knowing your cost. So if you can start out with a smaller level home... And real estate, as you know, Slocomb, it's so regionally focused, so you've really just got to dial into your market, and really know what's missing. There's a bunch of builders that build nicer homes in the $500,000s, but there wasn't many that are building in the 300k. That's a much harder spot to be.
So I would say it's more so just really diving into your market and knowing what is missing. There might be someone in your market that is not building these nice, higher-end custom homes, and there is a demand for it. So either way you go, just really diving in and knowing the market.
Slocomb Reed: Looking across all of the homes that you've built, Kyle, what is the thing -- I want to hear about two aspects of construction, and I want to know which ones surprised you. Which ones surprised you with how complicated it was, and which one surprised you the most with how simple it was?
Kyle McGee: There's nothing simple in construction, or real estate, or really anything that's worthwhile. There's nothing simple. But I would say once you really dive in and get your processes down, building a home is not rocket science. So once you've figured out the process, the steps, the order of things, when you need to order materials... I've got a one sheet piece of paper that I've trained my superintendents, and I say, "This is how you build a house. This is the order that you order things in. This is when you schedule, this is when you get inspections." So once you figure it out, I wouldn't say it's rocket science to build a home, or probably build any project really, for that matter. It's just diving into the process of what it takes.
And the most complicated part - again, it's all relatively complicated, but just managing subs. So the way we do it for a general contractor - we sub everything out. So it's all about the subcontractors and the trades that are actually -- I say actually building the home, with their hands. So just relationships and people. So getting good people. Fortunately, I was raised and taught by my dad, you treat everyone right, but you pay people on time, treat them with respect, and then you're able to retain these people. So we pay once a week; so if you get your invoice in before Thursday morning, you're gonna get a check that Friday for any work that was completed that week. So I'm a stickler [unintelligible 00:18:25.14] on time. So it all comes down to people.
Slocomb Reed: I'm gonna take a minute to answer my own question here, Kyle... I came up through residential real estate. This is primarily a commercial real estate investing podcast. But I was in residential real estate, I was taught by the investors I was learning from, and from Facebook groups and Bigger Pockets and networking meetups, that I was supposed to both fear building inspectors from the city, and not have much respect for them... And this is falling into the category of, frankly, simpler and easier than I actually expected this to be. I haven't done ground-up construction, I have gut-renovated a house, I've done a few flips, I've gone full-bore permits a handful of times... And really, the building inspector is not someone to be feared or disrespected. They are someone who has a level of authority, and how much accountability there is for their authority is questionable... But frankly, in my experience, every building inspector I've dealt with is a person who wants to work with you to get to the finish line. Whether it's a finish line you set up for yourself with a permit, or a finish line that the city or the inspector set up with you for a violation. They are someone who wants to work with you to get to the finish line. And they may see some things differently. I have had to do a couple of things, not the way that I originally intended, because a building inspector had an opinion about how they worked out... But frankly, it has not been difficult to get inspectors "on my side". Effectively, at least treating my property, my violation or permit like they were trying to help me get across the finish line. Has that been your experience?
Kyle McGee: Yeah, absolutely. I think, again, it goes to just how you treat people. So if you come in to a relationship, and you're just arrogant, or a jerk, or treating these people below you, then naturally, they're probably going to be more difficult. They're going to not want to work with you. But if you come from a perspective of understanding where they're coming from, and want to work with them, I've found that even the most difficult inspectors do want to work with you, if you want to work with them. So just being respectful and kind, I think, goes a long way. So yeah, to your point.
Now, we do have certain jurisdictions that are lot easier to work with than others, for whatever reason. I think that's just probably like a culture thing inside the organization or the local government. But for the most part, yeah, everyone wants to work with you.
Slocomb Reed: Kyle, are you ready for the Best Ever lightning round?
Kyle McGee: Yeah, let's do it.
Slocomb Reed: What is the Best Ever book you recently read?
Kyle McGee: Rereading right now "Who, Not How." It's a classic.
Slocomb Reed: Dan Solomon and Ben Hardy.
Kyle McGee: Yeah, absolutely. It's a great book.
Slocomb Reed: What is your Best Ever way to give back?
Kyle McGee: We like to do quarterly community projects within Sunshades Construction. So just everyone's got their ears to the ground, and we like to do some sort of community giveback project each quarter. And then also, we're super plugged into Miracle League of Santa Rosa County, which is special needs baseball organization.
Slocomb Reed: I'm going to change up the question I normally ask you, because I've already asked you about your biggest struggles... Kyle, what's the most money you've made on one house?
Kyle McGee: It's funny, most money I've ever made was $100,000 on a $340,000 sale, and it was next to a meth house. It was in a cul de sack, and they were definitely selling drugs out there... But it ended up being the most profitable, for sure.
Slocomb Reed: That's a story I wish we had time to dive into... Kyle, what is your Best Ever advice?
Kyle McGee: My Best Ever advice is just be the best at whatever you do professionally. Doesn't have to be real estate. It's just whatever you do, be the best at it, make a lot of money at it, and buy real estate.
Slocomb Reed: Last question, where can people get in touch with you?
Kyle McGee: I'm on social media, LinkedIn, my website, sunshadesconstruction.com, or email kyle [at] sunshadesconstruction.com.
Slocomb Reed: Those links are in the show notes. Kyle, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this interview, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a Best Ever day.
Kyle McGee: Thanks, Slocomb. Have a good one.
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