In all action, it wasn’t going to work from the jump. So that’s what we do is we create that atmosphere to where it’s like green light, red light, at a very reasonable price with a feasibility study. The other big pitfall that you have to watch out for is the lender that’s in first position on the main property has to agree to let you do a new map. There’s been so many people that have not saved for retirement correctly. With this new opportunity that they have an ability to sell their ADU, they could replenish their retirement account five, six, seven, 800 grand just by one small move of letting go a small piece of their backyard. That is a game changer of life. If you convert your ADU to a condo, the rents on a condo versus an ADU are much higher. So you also can get a higher cap rate and bigger return on just your rental process. When you find purpose in what you do when it’s not attached to so much revenue, but it’s attached to something that you are really making a change.

What’s going on guys? David, thank you so much for coming on. I know we have some really, really exciting things to talk about on this podcast. I am curious though, before we get going into what we were talking about beforehand, how did you get into real estate in the first place?

Yeah, no problem. So I moved to California from Oregon when I graduated college and quickly realized that the price to live in California was much different than the state of Oregon. So I had a buddy who was doing some fix and flip projects and he kind of showed me the ropes a little bit. I got a deal in contract. My very first deal I was like 26 years old and realized that I didn’t have enough money to close the deal. And then I had met a gentleman who did reverse mortgages and he let me 40 grand for the gap money to close on my very first rehab. And I did that. I went successful. We flipped it. And then after I did two or three more projects with that investor, he introduced me to a group of dentists that he worked with. And then those dentists supported transactions for about 90 rehabs and two subdivisions. So I had a really long-lasting, fruitful career in that development process. And then at the end of my subdivision, that was a three-year process, a lot of work, a lot of cash. And my lender, who was a really cool guy, was getting ready to retire. My hard money guy who did my vertical construction loan. So he’s like, “Hey, Dave, I want you to fly out to Scottsdale and sit with me and visit.” And I’m like, “Okay, that’s cool. I’ll come out to Scottsdale.” And he’s like, “How long did it take you to make any money on your subdivision?” I’m like, “Like three years.” And he’s like, “Do you remember how long it took me to do your deal?” I’m like, “Yeah, about 45 days.” And he’s like, “Do you remember what I got paid?” I’m like, “Yeah, you got paid 180 grand.” And he’s like, “Do you see my point?” And I’m like, “Yeah, I see your point.” So he introduced me to vertical construction lending and then for about seven years I did that. So I started my own vertical construction lending program and it went great. I was having a very successful time and then COVID hit and then knocked the stool out from underneath me and I lost a huge pipeline of business and kind of reinvented myself. And the next really cool niche that came about that I thought had a great opportunity and solved a big problem was additional dwelling units. So we started a company and it went fantastic. We kind of just jumped in with both feet and I look back over a three-year period, we built over 180Us from B2C and it was cool. It was a lot of moving parts, but it was lucrative and met a lot of great people, a lot of smiles. It’s a cool ADU is an awesome thing because not only is it used as a rental unit, but the senior care facility process to where you have the ability to keep a loved one in your home was a big thing. It’s a generational thing to where it’s now serving a purpose to where you don’t have to put your grandma or grandpa in a senior care facility. They get their own space, they still can hang with the kids, emails with you. And that was really cool. I really enjoyed seeing those smiles and making a difference in that field. So within that, after those three years passed, I was studying some legislation out of San Francisco with an assemblyman named Phil Ting who was working on a bill called AB1033. AB1033 is a new process to where you can now legally have your ADU unit in your back of your yard. You can record a condo map and install an HOA and you can now sell your ADU legally with its own parcel number. So I knew that if this went successful, that this is going to solve a lot of problems in the Silicon Valley starting one for affordable housing. We kind of talked a little bit about this earlier that the new entrance age of a home buyer now in the Silicon Valley is 52 years old just because of the price of homes versus the interest rates of where we are today. Housing has never been more unaffordable. We went through a 15-year bull run of real estate value and we had that big massive increase of interest rate and it’s starting to come down a little bit, but people are still hung up on that 2.5%, 2.75 and stuff’s still floating around 6% interest. So I wanted to watch this deal. So the very first deal recorded with this HOA map roughly 90 days ago. So when I saw this, I’m like, there’s two things that I really wanted to follow. Number one, how is the city of San Jose going to perform? This is a new thing. It’s a new parcel number, a new condo map, totally new process, and they fulfilled it. They did an awesome job. They got it done. And more importantly, the big green light for me was what lender on the backside is going to convey this and fund this? This is kind of a new thing. It’s an ADU that’s now being converted to a condo in someone’s backyard. Most lenders would probably look at that and go, “Hey, this is kind of strange. I’m not sure if I really want to do that. ” Well, one of the biggest mortgage lenders in the world is spearheading this funding and it’s Wells Fargo Bank. So when I saw, okay, well, Wells Fargo has a whole lot of people, a lot smarter than me. So I completely re-strategized my company and went all in towards this AB 1033 process. So since then we’ve manifested some projects and we’re the only service provider in the state of California that offers the complete package for AB1033. They’re currently 120,000 ADUs in the state of California with no ability to sell it and no ability to refinance it. So that’s what we do. We’ll give the opportunity to let that homeowner sell their ADU or refinance it using AB1033.

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What’s the main problem that you want to solve with this business? I mean, obviously housing crisis is big, but if there’s one thing that you can solve with this business, what would that be?

I think home ownership is one of the coolest things in a world that a family can work hard to achieve and get that, man. It’s like if you’ve ever received your first set of keys when you bought your first home, that’s an awesome feeling to where your family gets to hug each other and it’s just so cool. It’s like you feel like you’ve conquered a really cool step of life to where it’s something you can hang your hat out and be proud of. And I think that that’s a cool thing and I want to be a part of that.

Oh, that’s awesome. That’s awesome. Well, why do you think, obviously it’s new, but why do you think investors haven’t jumped on this and do you think they are once maybe they find out about it or whatever the case may be?

Yeah, so it’s brand new and you really do need to know what you’re doing. This is not something that you just want to jump into because you see the opportunity and the money. One of the things that is mandatory that I perform for our clients is a feasibility study to make sure that, does this work? What are the percentage of this going through and being a successful transaction? And we will say, “Yeah, don’t do this or do this. ” And with us going through that feasibility study proces, it can save five figure checks to where someone’s willing to start construction and get blueprints drawn when in all action it wasn’t going to work from the jump. So that’s what we do is we create that atmosphere to where it’s like green light, red light at a very reasonable price with a feasibility study.

And what would you say is probably the most common misconception about this offer?

I would say the biggest misconception offer is zoning, number one. Number two, the other big pitfall that you have to watch out for is the lender that’s in first position on the main property has to agree to let you do a new map. So if they push back on that, it could cause problems. So that’s one of the things that we get done in the beginning of the process is like, who is your lender? And let’s find out if they’re going to agree to let you remap this backyard because they’re going to be giving up some of their collateral and this is kind of a new weird thing. Are they going to agree to it or are they going to say, “No, we’re not changing it. ” So that’s a big one. Fortunately, 80% of the ADUs in the state of California have been built with cash. So that factor helps a lot. The lenders that are more typical to approve the process are small credit unions, local state banks, but the bigger banks is really difficult to deal with.

And at this point, can you look at a lender and be like, “Yeah, they’re probably not going to do it, or they probably will do

It? ” Yeah, it’s the bigger banks that are like Bank of America, they’re not digging it. Wells Fargo is an awesome one, they’ll do it, but yeah, US Bank, it’s still very new. As the rest of the cities adopt and more lenders want to get involved in the process, that friction will release. But as of right now, there’s a little bit of detail involved in that. Well,

What do you think are the top two strategies that go into this niche of a niche really that you think can make or break someone’s return on one of these deals?

Again, I just think the feasibility process and timing, right? Timing is a huge deal and where the property is located also. If you’re trying to sell something, you have an ADU built in your backyard and it’s in a tough area that not a lot of people want to go to, how is your backyard set up? Are you going to be butted up right to next to someone else? And I mean, there’s some particulars to the space and the zoning and the overall layout that I think really help you and that’s what we do. We provide that entire thing to where we’ll give them a site plan, we’ll show them what works, we’ll run all the comps. We give them an external view of what to expect on a resale, what can you expect on a rental value? And then does it make sense for you to go through this process this amount of time with the cost of what it takes to get to the finish line?

And when it comes to mistakes, obviously that it’s newer, right? So you probably haven’t seen a ton of mistakes being made. However, what mistakes do you foresee someone doing besides maybe the feasibility part that you think could be a colossal mistake?

Yeah, I think that utilities is a big one and that fire is another huge one, but the utilities is a big deal. How do you run utilities if you’re doing this as a new project, the cost of that can be a big deterrent sometimes if your ADU is a long ways away from your house. And just the overall, if you try to do this independently with multiple people, and here’s what I mean, you’ve got an architect in San Francisco, you got an engineer in San Diego, and then you have a permitting person in Sacramento. Those three people are not on the same sheet of music. And so because it’s a new thing and they will see some friction in their potential city, that will cause a lot of time and a lot of headache trying to get those three people moving towards the same design.

Right. Well, what would you say to a homeowner in California right now that might be watching this with an ADU already?

Yeah, I would say that they have an opportunity to … Let me go back a little bit. There’s been so many people that have not saved for retirement correctly, that with this new opportunity that they have an ability to sell their ADU, they could replenish their retirement account five, six, seven, 800 grand just by one small move of letting go a small piece of their backyard. That is a game changer of life. Just the common stress of especially anyone, it’s like, “Hey, you’re in your 20s and 30s and you’re raising a small family. Next thing you know, you look up when you’re 45 years old, how much should we put away for retirement?” Well, we bought a house in San Jose, you’re a teacher. I work for Tesla. It’s hard to afford to live there from the beginning, let alone save an extra million bucks that you’re planning to retire in the next 10 years. So it’s a phenomenal opportunity to be able to replenish your retirement account, which is going to make everyone in the family breathe a little bit. Also, if you convert your ADU to a condo, the rents on a condo versus an ADU are much higher. So you also can get a higher cap rate and bigger return on just your rental process. Yeah,

I love it. I love it. When it comes to the word success, everyone’s got their own definition for it. Everyone’s got their own way of striving for it, measuring it. How do you define the word success? How do you measure it and how do you strive for it every day?

That’s a great question. Striving for it, I’ve learned that when you find purpose in what you do when it’s not attached to so much revenue, but it’s attached to something that you are really making a change and it makes you feel alive that you’re like this getting up. It’s very easy for me to get up in the morning and start working because this is such a cool project and just being the first one to ever work on something like this and pioneering this space is so cool. It’s like every time I talk to someone about it, they’re like, “Man, this is incredible. This is a paradigm shift in real estate in the state of California.” And I’m like, “Hey man, it wouldn’t surprise me if in three, four years from now, this is a nationwide thing. This could very easily go nationwide where people look at this adaption and it just moves east.” So it’s very cool. And I think that that success is finding a problem and being able to create a solution on a massive scale that helps people is a cool thing for me to provide home ownership to people that it was completely out of reach for.

Yeah, I love it. I love it. What do you think some key challenges are in this process? Because I’m going to have to assume that it’s not right for everyone, even as simple as a small backyard kind of kills the deal, but stuff like the lending, if their original lender won’t approve it, what are some other challenges that you could see happening that might hinder some deals?

Yeah. So every jurisdiction, every city, every county will have its own different set of rules. So there’s not one key fits all solution. So the particular deal that is in San Jose versus San Diego is going to have their own particular set of rules and covenants. So you really have to take the time to learn each process of each one of those independent cities. And it’s just not a one, hey, study, fill out an application and get this through. It’s very detailed. It’s very engineered and it takes a lot of brainpower and a lot of people to touch it. So the process being new, there will be friction. And so you have to have some professional guiding you through the way.

Yeah, for sure. When it comes to just how new it is and obviously you’re the only one in the space that’s doing it on a turnkey level, what would be your ideal, like if someone was listening to this and what would be the ideal person that would come to you and you can make them a boatload of

Money? Yeah. So I think that someone that is maybe owned their property for a while, they bought it quite a long time ago where they have a nice size backyard, typically 8,000 square foot or greater and they’re just looking for a way to create extra income either from that, like I said earlier, that nest egg of retirement that, hey man, it’s like you can knock out 500 grand right now and put it in Nvidia and life could be pretty good in 10 years. So being able to provide those opportunities, that’s awesome, man. There’s a lot of people that did not have the ability to retire correctly that are figuring out ways, “Man, what if I should have … ” All these different things that you kind of knock on your head, but I’m like, “Hey, there’s one more thing you can do that is going to put you forward.”

Love it. I love it. Where can people find you? If someone’s interested in this or maybe it’s an investor interested in learning from you or whatever the case may be, where can people find you? Where can people reach out to you?

Yeah, the easiest place is just to go to our website. We have a page in there to where they can contact us directly. It’s info@strataxdev.com and they just fill out an inquiry and someone on our team will reach back out.

I love it. I love it. Any final advice or any final words for the people listening about this new thing?

Yeah. I mean, I would just tell anyone who has a property, has a wish to create more income for their family, call us. Let’s go through a feasibility study and make something happen, man. This is a rare, rare, rare thing and it’s brand new. So make a difference, man, and reach out and let me do the hard work and let me make you some money.

Awesome. I love it. I love it. David, thank you so much for coming on, everyone. Thanks for watching and we’ll see you next time.

See you, buddy. Have a great day.