1704: Special Guest Dax Ferguson
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Jennifer (00:00:01) - Welcome to episode four of season 17 of The Growing Empire Show. Today I'm here with my special guest Dax Ferguson. He's the CEO of Heritage Construction and Consulting and I'm really excited to share with you all of the really unique things that he does in his marketplace to help investors with due diligence period. So stay tuned.
Dax (00:00:23) - Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor Jennifer DeJesus. Growing empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
Jennifer (00:00:45) - Welcome Dax to the growing Empire show. I'm so glad that you're here.
Dax(00:00:49) - Glad to be here. Thanks for having me.
Jennifer (00:00:52) - Let's kick off this episode with you sharing a little bit about your background and the work that you're doing now.
Dax(00:00:57) - Okay. so I first of all have been married for 28 years now and have nine boys. So that's the memorable part. And I have been in and out of construction really since college. I have a background in theater building sets and lighting. In fact I did an internship up there in Pennsylvania and just outside of Johnstown and Jenna's town Pennsylvania. Did a short stint up there but live in Texas. Lived in Texas virtually my whole life except for a little stint. I was in California and I built performing arts theaters and then built home theaters and then went on to home renovations. in about 2008 was in the roofing world and decided I need to do something on my own. So 2011 that's a fast track through that. But in 2011 I started heritage and we started in the single family space. dabbled in multifamily but really really didn't jump into multifamily full time until 2015 2016 and have built my business from there. And here we are today working nationwide excluding a couple states that are difficult to work in and but nationwide for for the most part and we we only work on rehab of multifamily.
Jennifer (00:02:30) - Wonderful. Well today we're going to talk about construction and consulting in a changing real estate market. And I've asked Dax to join me to share his wealth of knowledge that he's gained throughout the years on these subjects. I'm going to just jump right in. Can you share with us your journey into the world of you know multifamily to specifically as it relates to what you're doing today? So you and I have been talking about your due diligence process and your consulting services. So how did you get to that? You started in the multifamily space with single family homes and now it's transformed into what it is today with your construction business and your consulting business. How did you get there and what kind of was the driving force behind that?
Dax(00:03:13) - So construction came first. I was doing construction and then really out of several of my clients coming to me going hey we need help in the due diligence side. And so I'm like well there's people out there that are doing it. And so I kind of have a mentality if I can't do it better than everybody else doing it out there why should I get involved? So started looking at how they were doing it.
Dax(00:03:37) - Some of the . Some of the issues that they had with the due diligence process. One was speed but also one was complete transparency. And so I created a software to where we take 50 or 60 pictures inside of every unit and it labels you know good functional or needs replacement. So from refrigerators to stoves to light fixtures to paint to carpet all everything in between. And we take pictures of it. And then when you're done in real time it's all put together with pricing of everything that needs to be replaced has a price associated with it. So I was able to do that because we are in the construction we know how to put pricing to certain things where a lot of people were just saying oh it's broken. They didn't give you an idea of how much it cost to fix or oh we can go get you quotes. So I wanted to put a complete package together so that people had a good idea of what the cost would be to rehab that property on the things that were broken.
Dax(00:04:47) - And then from there we took it another level and went well what do you want to do to this property? Like what is your vision for the rehab? And we merge those two to where if you if a refrigerator is broken on the due diligence side but it was your plan to replace all the appliances anyway. There's no need to double dip that number. And so it's a cohesive software that blends and goes well we're already counting for it on. That's what he wants to do anyway so there's no need to count for that twice. So the software really talks to each other so that we can do that. And then we create what your budget is for your lender to go hey not only do I have a $2 million budget for the CapEx here where am I going to spend it? And this gives you detailed of where you're going to spend it. And obviously lenders like that. And so they're more apt to give you all the money you're asking for because you have a very strategic plan on what to do.
Dax(00:05:47) - So that's how we got there. And then I look at salting side. It's really talking about do you really want to spend your money there or do you get more NOI if you spend it here. And so we really talk about what we see nationally what we see in that market. and also what we think is going to help you long term. So we get involved in what's your business plan. Are you going to hold it for three years? You're going to hold it for five years because that that plays a big piece of what we do on the finishes. And I'll use granite for for instance if if you're only doing resurfacing countertops which is nationally what's done more common. But if you're going to hold it for seven years and you're going to turn over these units not every year but you know let's just say on average every year and a half how many turns are you going to get on on that and have to resurface that? And what's the cost of that? Why don't you just put granite in and you never have to touch it again? So your downtimes a lot shorter.
Dax(00:06:55) - so you don't have to resurface it anymore. And it's a better look so it rents faster. So those are the types of pieces that we go into to help really dial in what your CapEx budget should be for the long term.
Jennifer (00:07:09) - What sparked your interest to focus on the due diligence and the CapEx? Execution within this field? Was it just that you felt that there was a hole in the marketplace or because you said it started from people actually asking you? So it sounds like it sounds to me like your client base is 100% investors.
Dax(00:07:26) - My client base is 100% investors. Absolutely. And they just they felt the whole and I had walked with them on some properties and talked to them about some of the things that I see and I do and they really just said why don't you do the due diligence? And and I just started looking into it and decided that that's what I'm going to jump into. It's not a huge moneymaker but what it is for us it it is a revenue capturing will get the work right.
Dax(00:07:55) - So most of the time that we do the due diligence we're getting the work unless we choose not to for whatever reason. Client's not a fit or or something like that or it's just not big enough for us. you know it's not the right fit for us on the size of project. So that typically is just turned into a lead source for us.
Jennifer (00:08:17) - Okay. So how do you define due diligence when it comes to real estate investments? And why do you think that process and what you're providing for people is so critical to their investment journey?
Dax(00:08:29) - So historically in in due diligence due diligence on the physical due diligence. We also do lease audit side as well. But in the physical due diligence side you would see most companies going out there taking pictures of 10 to 20 units a sampling. And they're just saying okay everything else is like kind right. Because they had a general idea. Well if you've been in multifamily for a while you know that property management companies tend to show you their best units.
Dax(00:09:01) - And so you're not really seeing the dirty you know really getting under the hood and checking out what's really wrong with the property. And so we demand we walk in every single unit. and the reason is it's every unit is different. It's you know every unit is unique and what it has and what it doesn't have. And so figuring and figuring that out and finding out that they're not just going to be able to show you the best units you're going to have to see them all is a huge key in in being completely transparent in what's there and what's not there for your budgets with the lender and what you're really buying. Right? It's like buying a used car and never you know having a mechanic look at it and you're just like oh it looks good. I'm going to take it right or never starting it right. So you're just trying to really find out what's going on so that you can go okay well I can prepare for that.
Dax(00:09:59) - Right? As long as I know I can prepare for it or I can budget for that. But it's the unknowns that people really bite you in the rear in the end.
Jennifer (00:10:07) - Right. What are some of the common challenges that or issues that you come up with during the due diligence process? And how does your company address those things for investors?
Dax(00:10:20) - So I would say the biggest problem depending on geographically where you're located you know plumbing sewer pipes things of that nature collapse lines if they're cast iron and things like that there's issues there right where it's growing into them and things. And so those typically are your expensive finds that you look at during due diligence. You know we we recommend with at least starting with a third scoping the lines with the camera to know it's there. walking the property looking at some key factors. Are the clean outs covered up? Are they are they open? Do you see any evidence of stuff flowing out of the overflows? and if you do really dive into those to see what's going on there because that is that is something that can be a $10 000 fix or hundreds of thousands of dollars.
Dax(00:11:16) - Right? And so those are one of the things that people get get in trouble with I would say on that and then you know roofs roofing. I have a lot of a lot of roofing experience. And so I really look at the roofs and try to really dial in on what that looks like so that you can have the best understanding and knowledge of what you're going to do for your roofs moving forward.
Dax4 (00:11:42) - Okay.
Jennifer (00:11:44) - So talk to me more about you know pretend I'm your client right? I'm buying a property and I want to hire you. What does this look like? What is what? Take me through the steps of bringing you in to a deal that I'm working on and you know utilizing your resources and utilizing your skills to help me navigate this this real estate transaction. What does it look like?
Dax(00:12:09) - So you're going to submit an Loi and you're and you're putting that together and you're wanting to use this to do your due diligence.
Dax(00:12:19) - you give us a call and you say hey Dax I'm submitting an Loi and it looks pretty good. I'm probably going to get this one. my due diligence period is going to be 30 days and I probably will go into contract in the next couple of weeks. Don't know exactly when it may be three weeks and maybe a week and a half I'm not sure but I'm going to go into contract pretty quick. Can you pencil me in? And so at that time we'll pencil you in in due diligence and and we can move that around you know days here a week there you know kind of figuring that out. But as long as we know you haven't we have you in the schedule that it's coming. We can work work you in that schedule. So we do that and then we you know obviously give you the price that it is depending on the number of units and and all that. There's a lot that goes into that.
Dax(00:13:08) - And then we give you that and you hold on to it. You sign the contract and then we we come out we fly out. Our price is all inclusive. So it takes care of travel hotel all the different things that we do we do drone flyovers we do 3D imaging of the exterior 3D imaging of the interiors of all the different floor plans.. You know scheduling all the people getting everybody there. So that's all included in that price that we give you. And it's not very expensive. Again it's not a moneymaker. It's $50 a door on average. And depending on a couple other things that you might want to do we can add those in as well. and then we come out we do the due diligence. We're typically there for you know 2 or 3 days we get it all done and then we put our package together and we get it to you within 24 48 hours of us being off the property you'll have full access to it.
Dax(00:14:05) - And then we go over it with you on a zoom call. We kind of show you what we saw. We say here's the here's the issues we saw on the property. Here's the good things we saw on the property. But dial through this yourself. Figure out if there's anything else you have questions on. We're here for you. And then we go into helping you create your CapEx budget. So we now know that oh the property needs new roofs. we know we need to budget for some plumbing. We know that your business plan is we want to do flooring painting countertops water conservation light package and blinds. And so we put that quote together for you so that you can have and work with your lender on creating your CapEx budget with your lender. And then you move on down the road you get through your due diligence and then you've got to close you may have a massage or two on your budget before you get to close.
Dax(00:15:05) - typically happens and then you go to close. And if you choose us for the construction piece we try to start as close to close as possible so that you can hit your proforma as fast as possible. One of the things that we pride ourselves on is our speed to completion. So if you have 40 units that are vacant in this property and you need to get them up and running as fast as possible you know we turn those units pretty fast once we get mobilized and we get the product there we complete 30 units a month per property. So it's it's pretty fast. And so now you're at your Performa you'll be able to rent those out at your new at your new rate and get where you need to go.
Dax (00:15:52) - The episode will continue in just a moment.
Jennifer (00:15:56) - As an investor we know it's important to stay on top of market trends and real estate opportunities that add value to your portfolio. We also know that having a trusted source of reliable information to help you stay a step ahead of other investors is critical to your success.
Jennifer (00:16:09) - If you're interested in having these types of resources as well as access to me and my team I invite you to join the Empire Investment Club a free service that gives you an easier way to make sense of today's and tomorrow's real estate opportunities. As a member of the Empire Investment Club you'll get access to relevant resources and investment focused experiences such as live interactive webinars market trend presentations and investor socials designed to equip you with what you need to succeed. So whether you're an active investor passive investor a combination of both or just starting out the club is where you'll get what you need to build a portfolio you love. To join just head over to Jennifer DeJesus. Com sign up and we'll see you in the club where everyone's on a journey to becoming a better investor. You mentioned that you fly people out. So are is Texas the only place that you have boots on the ground or do you have boots on the ground in other states currently that wouldn't require all that back and forth travel.
Dax(00:17:09) - So our teams when we're doing construction they stay on the property we're working on. So when it goes to construction we're we're out there. We are guys are staying on property typically in 1 or 2 of the units sometimes three. And they're working six days a week and they take off Sunday so they're there the whole time. And then my project managers are typically managing multiple properties. And so they're flying around every week. Okay. and then for due diligence side everybody's based in Dallas but we fly out to the properties.
Jennifer (00:17:43) - Okay. Understood. You also mentioned that you know you then have the teams in and go in to do the construction and is there a size of portfolio that is like a minimum size for you guys or like would you work on a three unit or does it have to be a 50 unit? You know what what size properties are you typically performing the due diligence on and then doing the construction work.
Dax(00:18:10) - So due diligence typically is is 50 units or more.
Dax(00:18:17) - And construction is about the same. It really depends on how much work you're going to be doing there in in a time period. Right. So if you need roofs then that's easy right? There's very little management that needs to happen there. Our crews are really good. They travel they'll get there they'll get it done. If it's you're going to turn 100 units over the next year and you only have ten a month let's say that's a little harder for us. We can do it but it just depends on kind of. There's a lot of parameters that get there. I don't want to come out for $100 000 worth of work that's going to be performed in four months. So that's the piece that you kind of need to to work through on that parameter. Okay. It's not cut and dry. Sorry.
Jennifer (00:19:09) - Right. No. Understood. I didn't expect that it would be because you're working inside the entire US so I assume I assumed it wasn't as as easy as it maybe sounded originally.
Jennifer (00:19:20) - So I know you're talking about remodeling and you talk about you know the providing the due diligence and the CapEx and the you know the renovations and putting the budgets together. What about people that are doing like adaptive reuse like they're taking commercial buildings and they're converting them to apartments? Would you do that level of work and due diligence as well?
Dax(00:19:45) - Yeah I'm actually working on two of those projects currently one in in Dallas and one in Corpus Christi working on permitting and plans and all that to get that wrapped up. One of them is a was a hotel then became a nursing home and now going into multifamily. And then the other one is a office three towers in downtown 381 000 square foot conversion into multifamily.
Dax4 (00:20:17) - Well.
Jennifer (00:20:18) - And if you were to do that obviously out of your local area or out of where you know your teams typically are you would be handling everything from you know plumbing electrical roofing I mean literally everything.
Jennifer (00:20:31) - You're coordinating 100% of the renovations. Am I correct on that?
Dax(00:20:35) - Turnkey. Yeah. Full turnkey.
Jennifer (00:20:36) - Full turnkey. Nice. Wow. That's a very impressive. So how do you navigate the conversations or helping investors understand the balance between managing costs maintaining quality and then executing on CapEx. Right. Because they're very different things.
Dax(00:20:59) - Very different. so cost it cost and quality. Right. I'll give you an example that I've used before. I I will put in whatever you want. That's first and foremost because it's your property. I will give you my opinion on what is reasonable to put in there and what is. I don't feel you're going to get the bang for the buck for. And I'll use the analogy of a light fixture. Right. So if you're going to replace the light fixtures because you want to go LED and you want to you know save save on your energy cost which is great great idea. However if you want to put $180 light fixture in the dining room because maybe that's what we would put in our home versus a $30 light fixture you're not going to see the bang for your buck on that light fixture although it may look better in our opinion but you're just not going to get the return on it.
Dax(00:22:02) - I'm going to have that hard conversation with you and and you can outvote me. That's okay. But I don't feel like I'm doing my job if I don't at least communicate that to you. Right. And so managing those costs are probably the biggest piece that I deal with. because people want to do what they would do in their home especially the new people that are in the industry are coming into the industry. They tend to do things well. I want this place to be like I would live in and that's great. But are you in a market you would live in? And and a lot of the times those don't mesh with each other. And so I have to have that conversation to to dial that in. Right. And so we we do that piece and then because I I'm not the cheapest in the neighborhood and I know that. And there's always a what I'll call Chuck in the truck that can do it for cheaper. but typically they can't do it at the cost I do.
Dax(00:23:05) - And the speed I do to get you to your performance faster. And so that's a lost revenue that people don't understand. So if I can turn 30 in a month but the chuck in the truck can only turn five a month what are you losing on the 25 that didn't get done? And the additional units that are going to become vacant next month. And so how long is it going to take you to have all of those units stabilized to be able to rent them out to capture the rents that you need to to capture there? And so you need to figure that in. And so that's part of the education that we come in with as well. Let's get you to stabilization as fast as possible. And so speed to getting there is a critical part. And you get into your performance your dollar numbers to answer your question fully.
Jennifer (00:23:52) - Absolutely. Yeah. That was wonderful. So who's your ideal client?
Dax(00:23:58) - syndicator that wants to do I'm going to say 100 units or more on their first deal or their next deal.
Dax(00:24:08) - I don't look for your your first deal that we work together to be the only deal we do. I want a partnership long term. So it's it's a give and take on a partnership and we understand that. So we want to help you be successful. Because if you're successful on this one you will use this again on the next one. And so I want I want the syndicator to know this is a partnership that we're going into for the long haul not not just for this property. And so if you treat it that way you have a different relationship from day one.
Jennifer (00:24:45) - Very true. What technologies and tools do you use that you find most valuable in you know creating the service that you provide and streamlining that due diligence and CapEx execution process? What are you using? What kind of tech and what kind of tools do you use that you find most valuable?
Dax(00:25:04) - So we created our own software for our due diligence package. So I have a little bit of a tech background.
Dax(00:25:13) - but I know a lot of people in the software development space. And so I went to a friend of mine and he created exactly what I needed for that. And then creating our cap exact software which ties into that helping you create your budgets. But post cap posted the due diligence phase. We we use a software that we take and we communicate with our customers weekly with pictures. Right. So every week you get pictures of your property they're put into your job. Whatever property name that is you can access the pictures. you can see the percentage of completion on the line items. That's another software we have that we tack on with that so that you know every week I'm 20% done with roofs. I'm 30% done with you know parking lot whatever it is. Right. And so it goes down down the list with the schedule of where we plan on being when we finish.
Dax(00:26:15) - And then lastly the a tool that we use that we implemented was every week every property you have a call with the project manager myself my operations manager and my finance manager VP of finance and VP of operations. And all four of us get on a call with the ownership and the property management company because if we're having problems we hammer it out. Then if y'all are having problems with us we hammer it out then and every week we stay on top of anything. Nothing festers. We get through it. We understand that we're here as a team to push this job forward so that you can get where you need to get. And so we just try to make sure that everything's addressed every week. And when jobs are going smooth it's you know it's a 15 minute call. Hey everything looks good. Here's where we're at. Do you have any questions? Nope. All right. We're good. But sometimes it's hey I'm I'm having trouble getting into this unit because I can't get the key.
Dax(00:27:14) - And I've asked for weeks and now we're here and you want me to finish on a timeline? I can't get there unless you help me out. And so the owner hears that. Never knew because the property manager never told them that. And so now we're we're diving into it getting the answers that we need. So it really clarifies and keeps your your pace going so that you never have a major hiccup.
Dax4 (00:27:37) - Oh that's awesome.
Jennifer (00:27:39) - What are some of your biggest roadblocks?
Dax(00:27:42) - Indecision and lenders.
Dax4 (00:27:48) - Okay. Touche. I understand yeah.
Dax(00:27:52) - so you know we we do the draws for you. We our team will will submit your draws to the lender. as you know we're in a very difficult time with lending. just trying to keep the jobs moving forward and respectfully understand that they have levers to pull to protect them and their you know their money I understand it. but you know if a property falls down below 80% or you know 75% one of their levers is I'm going to stop funding the job.
Dax(00:28:25) - until you have some sort of conversation you figure it out and get moving. and when that happens we're there we're working. Do we pull off the job or do we keep going? Are we going to get paid or we're not going to get paid? And so we we have those more today than ever before. Because you know a couple of years ago it was never an issue. It just in the last year or so has become more of a having to stop until you get this corrected. And so you know dealing with that a little bit has been more of an issue than ever. But we'll get through this time hopefully.
Jennifer (00:29:03) - Is there anything in addition to that that you are expecting to happen in the future? You know obviously real estate and construction and due diligence and these things evolve over time. Right. So what are you expecting is going to be kind of the next the next trend or the next thing that kind of shapes you know how you operate your business and and how you know due diligence and things like that are actually conducted.
Jennifer (00:29:28) - Anything that you're kind of watching.
Dax(00:29:31) - So I think we're going to have a huge influx of properties coming available over the next six months. 6 to 9 months. I think next year you'll even have another huge wave come available. And it's going to be. Imperative that the due diligence is done correctly. Because there's going to be what? What I see is a missed cycle of rehab. What I mean by that is you have owners that have bought it two years ago they couldn't finish their rehab. And now they're selling it and or losing it in some cases. And the the rehab that should have been done in this one cycle is not done. So it's going to have to be made up for in the next cycle. So knowing exactly what you're getting into is going to be really critical in the success moving forward. So where you would have spent 10 000 a door you may be spending 15 to 20 000 a door just because there's so much more that needs to be done to get this property up to up to the par where it needs to be.
Dax(00:30:49) - So really diving in and having true due diligence done at a level of detail that has not been seen before is critical. So we have even looked at our due diligence on how can we get more detailed to make sure that we're not missing things. to do that and then being ready for the construction side of that because it's going to be massive.
Dax4 (00:31:15) - Okay.
Jennifer (00:31:16) - So how do my listeners my syndicators my hedge fund managers how do they get in contact with you if they're interested in using your services or learning more?
Dax(00:31:25) - Believe it or not I still have people call me on my cell phone so I give out my cell phone often. It is 469261 1190. you can come check me out on the website at heritage css.com and my email is Dax at heritage css.com. feel free to text me. Call me shoot me an email. you just have questions. You want to know more? I'm I'm pretty open. always have some time during the day to return calls return emails and and answer questions that you may have even if it's a you think it's a silly one.
Dax(00:32:07) - not knowing is more silly than asking the question so feel free to call me so I can help you out.
Dax4 (00:32:13) - Wonderful.
Jennifer (00:32:14) - And lastly is there any question or thing that I didn't ask you that I should have?
Dax(00:32:21) - No. you know I think the only statement I really want to say is I know we're in a crazy market. people are very afraid of the multifamily market today. Rightfully so because there's a lot of negative that's been stated out there. however I think I think the tide is turning and I think there's a lot of good opportunity that's coming up. keep looking keep keep doing your underwriting. Because once this tide turns you want to make sure that you have the relationships with the brokers and the lenders so that you can join join the forces and and be part of the the ride going back up.
Dax4 (00:33:08) - Wonderful.
Jennifer (00:33:09) - Well Dax thank you so much for your time. I think everything that you provide for syndicators and investors is absolutely incredible.
Jennifer (00:33:18) - So I'm glad I got the opportunity to talk to you and share your your information and your knowledge with my listeners. So thank you so much for your time.
Dax(00:33:25) - Thanks guys. I appreciate you and thanks for having me on.
Jennifer (00:33:29) - You got it. Thanks for listening to this episode with Dax Ferguson CEO of Heritage Construction and Consulting. I hope you enjoyed this episode. And until next time take care.
Dax (00:33:42) - For more information about how Jennifer can help you plan develop and manage a strong real estate investment portfolio visit Growing empires.com.