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.