Mar 25, 2022
How can a beginner break into a competitive and tough market like Los Angeles, California, developing and redeveloping multi-unit properties? In this episode Josh Gorokhovsky talks all about how he started small, lessons learned, and advice for people starting out in real estate development.
Since 2015, while still in school and while building up Telos Properties, Josh Gorokhovsky worked under L.A. Properties Inc. principal, Scott Rosenfeld, where he managed acquisitions, development, and redevelopment projects exceeding $10 Million
Josh has placed more than $15 Million in equity for investors and managed over $30 Million worth of real estate transactions since 2017. He intends on leading the company and acquiring, as well as developing, a slew of multifamily properties in the coming decades for the company portfolio through personal funds as well as partnerships with a range of clients: From institutional investment firms, high-net-worth individuals, and family trusts
[00:01 - 04:21] Opening Segment
- How Josh when from small single-family redevelopment projects to ground-up multifamily projects in Los Angeles
- Navigating real estate challenges in Los Angeles
- Josh breaks down the numbers of developing and redeveloping
[04:22 - 08:35] The Unique Challenges of Los Angeles’ Housing Market
- How to acquire properties that make financial sense
- How California's new affordable housing bill affects development
[08:36 - 14:30] Insider Tips on Developing and Redeveloping Properties
- Josh’s advice on getting started in development
- You don’t need to have a construction eye to get started
- Stay organized
- There will be mistakes, so make the most of them
- Biggest mistakes and lessons learned - Do your research before bringing on contractors
- Challenges in going into the larger multifamily space
- Exit strategies for large projects
[14:31 - 18:04] The Final Four & Connect with Josh
- Success is financial freedom
- One tool Josh can’t live without
- His calendar
- Task Management tool: Todoist
- One mistake listeners can avoid
- Don’t be afraid of mistakes
- How are you investing in the world
- Being a part of philanthropic groups
- How to reach out to Josh
- Connect with Josh Gorokhovsky on LinkedIn
- Visit https://telosproperties.com to know more about how they are building community through the development and management of real estate. Reach out to them at info@telosproperties.com
Tweetable Quotes
“Our network is your net worth,” - Josh Gorokhovsky
“You don't need to have a construction eye to get started in development… Be very organized, follow your steps. And there's going to be mistakes along the way, just like any other real estate asset class or product and you learn as you go.” - Josh Gorokhovsky
“Don’t be afraid of mistakes… Just realize that going through it is the way you accumulate knowledge, find better deals, improve your network and the way you underwrite. Action is better than inaction.” - Josh Gorokhovsky
Resources Mentioned
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Connect with Josh Gorokhovsky on LinkedIn and
Visit https://telosproperties.com to know more about how they are building community through the development and management of real estate. Reach out to them at info@telosproperties.com
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Josh Gorokhovsky 00:00
I've learned that you don't need to have a construction eye to get started in development. When I first got started, I, there was a joke that my mentor tossed around that I didn't know the difference between a screwdriver and a hammer. So for me, it was actually more daunting to start flipping houses. Because the budgets had to be a little more precise, you know, you had to walk in, kind of figure out what needed to be replaced, what you could keep, and for me, that was very daunting. So ground up development was something where everything was already on paper on the plans, right, and it was something that you could more easily calculate.
Intro 00:33
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson 00:45
Josh Gorokhovsky is a real estate developer based in Los Angeles. And through his vertically integrated development company Telos Properties, he has managed over $25 million of real estate since 2017. Josh, welcome to the show.
Josh Gorokhovsky 00:58
Thank you. Appreciate you having me on.
Sam Wilson 00:59
Hey, man, the pleasure is mine. Three questions I ask every guest who comes on the show in 90 seconds or less? Can you tell us where did you start? Where are you now? And how did you get there?
Josh Gorokhovsky 01:07
Yeah, so I started here in Los Angeles, I'm still here in Los Angeles, I got started by meeting a mentor of mine, when I was in college, senior year of college was playing around with a couple different ideas of what I wanted to do with my life, read the book, Rich Dad, Poor Dad, like 99% of people. And once I met this mentor and and saw the projects, he was working on the portfolio he's accumulated, there was really no turning back for me. So I started working out of his office shortly after that, just kind of learning under him and doing some small single family redevelopment projects in Los Angeles, and then ground up multifamily here in Los Angeles. And that's what I've been doing for the last five years now.
Sam Wilson 01:47
Wow, that's absolutely fantastic. Tell me, you know, Los Angeles, it gets a bad rap for place, it's impossible to get permits to get I mean, just the red tape to get through that. How have you guys found unity with that?
Josh Gorokhovsky 02:01
Well, yeah, I mean, it seems like every year, it's getting harder and harder, not just with the red tape. But obviously, the price is going up inventory being very low. But we had a very specific niche. So we have competition, just like every other asset class, but we really focus on that niche and have become, you know, very consumed by that not doing much else. So, you know, we've just been doing the ground up smaller multifamily to force, we're buying lots that are single family. And then we're usually demolishing and, and doing ground up force.
Sam Wilson 02:37
Wow. Okay, so you'll buy a single family property that has a lot big enough to put four units on it.
Josh Gorokhovsky 02:45
Right. I mean, two to four. So it just depends. I mean, five years ago is more feasible to do the twos. Now it's getting a little more difficult. So last couple years, we've been doing primarily fours, but now with new rules and regulations rolling out that's always ever changing. So we're actually kind of in the middle of trying to figure out what our next step is. But that's what we've been doing for the last couple years. Yeah,
Sam Wilson 03:06
can you walk me through the math on that, because the price of you know, a functioning single family homes got to be pretty high, especially in your market. So walk me through the kind of the numbers behind that, buy a house, demolish it and redevelop it.
Josh Gorokhovsky 03:20
Yeah, so LA is a very large city. So the different areas of La are kind of priced differently. So I'll just pick a random, you know, sub market that we do in LA, which is North Hollywood. So the most recent project that we're finishing up right now, we purchased the land in 2019. For 720,000 was the single family on there, we demolish that I would say the all in construction and soft costs after we purchased the land was about another 1,100,000. So say just for easy math rounding, let's say we're in 1,800,000 And when the project is finished, it should appraise at about 2.4 -2.5. So what we do is we go to our institutional partner, we get a refi, low leverage, nothing too crazy about 65% of the investors on the deal, get most of their capital back end up leaving some as equity in the project. And we just cash flow the sucker.
Sam Wilson 04:22
Right, that's really, really interesting. How do you find you know, in North Hollywood, how do you find the properties that make sense? If it's not vacant land? If it has a house on it? How do you I mean, it's got to be it's from my perspective, knowing nothing about you. It sounds like a needle in a haystack type of thing. Yeah,
Josh Gorokhovsky 04:37
it is. I mean, kind of just like anything else, you know, your network is your net worth, I like to say so just developing relationships over the years doing good business, having good reputation, you know, agents and brokers that I've worked with over the years, bring me deals, and also just being on the job sites getting friendly with the neighbors. You know, I've purchased quite a few properties like that just being around and then not wanting to deal with the hassle of putting on the market or agents, million people walking through their house. We've done some grassroots tech marketing, door knocking and mailers and stuff like that. So just, you know, trying a lot of kind of different things. And being personable being a real person, no high pressure sales tactics. And so far that's worked out for us.
Sam Wilson 05:20
Is there a certain lot size that you say, Hey, this is exactly what the minimum size a lot we have to have in order to do what we want to do?
Josh Gorokhovsky 05:26
Yes, and no, I mean, it kind of depends, like, if there's an alley back there, if it's a corner lot or not, so you can kind of get creative with it. You know, the biggest thing is having the parking requirements based on the bedrooms, and I don't like to do very small bedroom counts just for the turnover, things like that. So usually, when I'm looking on, it's usually 6000 or more, but we've purchased lots that are smaller for those other reasons.
Sam Wilson 05:50
That's really, really interesting. And you had mentioned that, you know, things are constantly in flux, right. And so you are once again, going back to the drawing board thing, okay, things are changing, what are those things that are potentially changing? And then how do you plan on dealing with them?
Josh Gorokhovsky 06:03
Well, specifically, in California, there was a state bill that was passed the end of last year, and it was just rolled out by Los Angeles building and safety, their rules, regulations, along with the housing department and planning, basically stating that if you demolish any units, even if it's one, you must replace those units with affordable units with when you build back. And the only real loophole or way around that is if the homeowner has been living there for five years. And they have to, you know, provide a lot of documentation and proof that that was the case. So pretty much it's very specific to my business model. So the way around that I don't have an answer yet, we're figuring it out. I mean, you know, the simple answer would be that we're going to try to find lots where maybe we don't have to demolish, and we can build some units in the rear of the lot or, you know, the houses in the back in the front of the lot. You know, we still do some single family flips. So we'll be probably ramping that up a little bit. In California, specifically, there's a adu program, accessory dwelling unit program. So, you know, that's another route that we're working on. So there's that. And then, you know, I would say if all else fails, but a long term goal of mine has always been to go into the larger multifamily space at some point, whether it's, you know, nationwide syndication, or if it's ground up development. So not sure if that'll be in the playing cards this year. But it's something that long term I will eventually get into. Yeah,
Sam Wilson 07:29
that's really intriguing. I mean, I get the desire to push for affordable housing. Okay, that's fine. But why specifically, if you tear it down? Do you have to put? I mean, that just seems like they're gonna really hamper new product coming online for people for anyone to live in? I mean, it's already a constrained supply already.
Josh Gorokhovsky 07:49
Right? Yeah, you're gonna see the smaller developers pretty much step out of the market, you know, it's gonna be a lot harder for us to do that. So they'll go to other markets, or they're started developing something else. And I mean, to your point, I think, yeah, economically, it's going to really affect the supply even worse.
Sam Wilson 08:06
Yeah. Which then drives the price of the existing stock even higher, which then further exacerbates the need for affordable housing? Right. Okay. I just want to make sure I understand the, the trail of thinking here, I mean, alright, we're not going to get into political discussion. I just, I fully understood the scope of what is occurring and wonder if anybody, you know, is capable of abstract thought who put these bills together? Obviously, perhaps not.
Josh Gorokhovsky 08:35
Obviously not.
Sam Wilson 08:35
Right. Okay. On to other things. development side in general, what have been some things that you've learned, being a developer? And if someone wanted to follow in your footsteps, what would you recommend?
Josh Gorokhovsky 08:47
Well, I've learned that you don't need to have a construction eye to get started in development. When I first got started, there was a joke that my mentor tossed around that I didn't know the difference between screwdriver and hammer. So for me, it was actually more daunting to start flipping houses. Because the budgets had to be a little more precise, you know, you had to walk in, kind of figure out what needs to be replaced where you can keep. And for me, that was very daunting. So ground up development was something where everything was already on paper on the plans, right. And it was something that you could more easily calculate. So for anybody that is interested in development, I mean, I started small a lot of other people that I've spoken with very successful older developers have told me that you start big don't waste your time with the small because drywall is drywall is drywall and the pain in the butt is still going to be a pain in the butt. Just a couple more zeros. I have no experience with that. So I couldn't say for sand. But I will say that it is more practical than you think you just got to be very organized, you know, follow your steps. And there's going to be mistakes along the way, just like any other, you know, real estate, asset class or product and you learn as you go.
Sam Wilson 09:55
Yeah, absolutely. What have been some mistakes you've made that you would say, Hey, here's an easy one that I'll keep somebody else from making,
Josh Gorokhovsky 10:01
do your homework on the people that you work with, make sure that they you know, have a portfolio of work that you've actually checked out their work, maybe speak with some other clients or people that they've worked with, see what their reputation is. Because you know, just are you eager to just get in it that if somebody is willing to help you, and they got a good price, and you know, they talk a good game, you're most likely just going to start working with them just to get the ball rolling. But that's one another mistake. Let's see. I'll think of one. If I think of another one. I'll come back to it. But that's probably my biggest one.
Sam Wilson 10:33
Yeah, absolutely. Running into fast bringing on contractors, you don't know that? Well. It's a common one. It's certainly not one unique, unfortunately, to you. But that's really, really intriguing. When it comes we've talked a little bit about opportunity. We talked about how you find opportunity, kind of what you've seen the market do and how things are changing on that front. We've talked about mistakes. Well, Josh, tell us, I guess, as you have done these two to four units, you've done, you know, lots of development side of things. And you're looking maybe getting into other bigger assets. What are some things that when you look at that potential to either go into larger multifamily, or, you know, going nationwide? What are some kind of challenges you see on that front? And then how do you intend on overcoming those?
Josh Gorokhovsky 11:11
I've been spoiled by the returns that development can yield. And I think that when you get into the larger multifamily space, you're dealing with more dollars, but usually less yield. So that's something that I have to wrap my head around. I'm always a conservative underwriter. I'm always conservative with my future outlook on things. So I think that when you're underwriting these rallies, percentage wise, marginal deals, even though it's a lot of dollars, you know, and you're banking on a huge upside, a lot of these pro formas and OEMs that I've seen, people are, you know, saying in five years, acid is going to be worth this, because we're going to up the rents are going to do renovations. And, and that's great. And that has worked with, you know, short term single family flips, that's worked for me with these smaller ground up developments, because it's usually a two year process. But when you're talking about five plus years, I have a hard time banking on that's going to be what's actually going to happen,
Sam Wilson 12:10
right? Yeah, that's really, really interesting. We say spoiled by returns in ground up development. Can you elaborate on that?
Josh Gorokhovsky 12:18
Yeah, I mean, with ground up development, I mean, the whole purpose you're taking the risk of doing that is because you're manufacturing a greater yield, then usually, I mean, not always, but usually, if you just go buy something, right, or renovate it. So in my particular world, that's what I'm doing, you know, buying a single family lot. That's the lot is underutilized. I'm building more units. And usually my return is in the mid to high double digits. So, you know, for me and my investors, it's been great. And then if I have to pivot now and go into the multifamily, you know, syndication space, and again, I'm no expert. So maybe just talking here, but I think that most of these deals you're buying, you know, these compressed cap rate deals with single digit returns in the hopes of maybe getting to the low double digit returns. So that's what I mean by I've been spoiled. Yeah,
Sam Wilson 13:11
well, I mean, it makes a heck of a lot of sense. You can almost with clockwork precision, or certainty, say, hey, look, we do this, we do XY and Z. And this is what we're going to get, you know, for our finished product, with a value add product or value add, you know, you're buying something, you know, with a low cap rate already, you've got to execute the value add in that and hope that, you know, the market has continued to appreciate that the cash flow was indeed, they were able to raise rents as projected. And then oh, look, now we can actually sell because let's hope there's a buyer. Right?
Sam Wilson 13:40
I get what you're saying you're definitely spoiled by return, which is great. I mean, that's a great place to be in.
Sam Wilson 13:44
Talk to us about the exit on your projects. I know you alluded to this earlier, where you said hey, you know, we'll buy it, we will cash out maybe 60%-65% loan to value so we can return some equity to our investors is your intention to hold long term on all your projects?
Josh Gorokhovsky 13:59
Going into each project, that has been the case, except for the smaller, you know, single family flips that we do from time to time, but as far as the multifamily Yeah, I try to hold everything, we've sold a couple that we've syndicated or worked with private equity. And those, you know, those were kind of in the air when we started the project, whether we're gonna hold or sell, and we ended up selling because that's what most of the investors wanted to do. But going in Yeah, I have the mindset of I want to try to build this multifamily portfolio and, you know, get a little bit closer to that financial freedom.
Sam Wilson 14:31
Right. And so talk to us about that. What does success mean to you? Success to
Josh Gorokhovsky 14:35
me, it's different to everybody but you know, very cliche but you know, financial freedom to kind of do what you want when you want, right? But you still have responsibilities still a business run, you still have tenants to take care of you still have acids to take care of. So it's not always exactly do what you want when you want but the point is that you're living your life the way that you want to. So that to me is success and and obviously Having my friends and family being healthy and everybody happy and the world not up in in fire, but that's probably the success to me,
Sam Wilson 15:08
Man. That's fantastic, Josh, I've certainly enjoyed this. Thanks for coming on today. Let's jump here into the final four questions. What is one tool or resource you find you can't live without
Josh Gorokhovsky 15:18
my calendar. I'm like a psycho with my organization, and I have my time slots. So if I don't have that, then I forget half the things I got to do.
Sam Wilson 15:27
That's fantastic. Let me ask you this. Because as it pertains to calendars, this is a, there's a personal question, cuz it's something I'm always bouncing back and forth between what do you do for task management when there's always these one-off tasks that come up? Do you keep those in your calendar? Where do you put those?
Josh Gorokhovsky 15:41
So I have a two-part system, I use this application called Todoist. They have web-based platform, they have mobile apps, they got apps on my iPad everywhere. So you can work in teams on there, you can have your own individual projects. And I kind of do that for every property I have, you know, to do a to-do list within each project. And then you know, you can kind of separate it, it's pretty versatile. I also use it for my personal stuff. And I pretty much take those tasks and put it on the, you know, the daily calendar of what I got to do that day.
Sam Wilson 16:11
Got it. Oh, that's really cool Todoist. All right, we'll have to look that up. Second question for you. What is one mistake to help our listeners avoid? We talked about this a little bit earlier. And then how would you avoid it.
Josh Gorokhovsky 16:21
To not be afraid of mistakes to not be, you know, in this analysis, paralysis of finding the perfect deal, or the perfect time to jump in, and just realizing that, you know, going through it is the way you accumulate the knowledge is the way that you can find better deals is the way that you improve your network and the way you underwrite, and so on and so forth. So, obviously, not being reckless being calculated, but, you know, action is better than inaction.
Sam Wilson 16:50
Right? Yeah, absolutely. Question number three, when it comes to investing in the world, what's one thing you're doing right now to make the world a better place?
Josh Gorokhovsky 16:56
Invest in the world. I'm part of some philanthropic groups here in Los Angeles. I'm Jewish. I'm part of the Jewish Federation and another organization called Guardians of the Jewish home which we have events and fundraisers for some retirement homes here in Los Angeles. So I guess that's the small things that I'm doing.
Sam Wilson 17:14
Man, I love it. That's absolutely great. Josh for listeners want to get in touch with you or learn more about you what is the best way to do that?
Josh Gorokhovsky 17:20
I'm on most social media platforms on LinkedIn, Josh Gorokhovsky on Instagram my company, Telos properties, Facebook also Telos properties, our website, Telosproperties.com and yeah, reach out on any of those platforms.
Sam Wilson 17:35
Awesome. Josh, thank you for your time today. I do appreciate it.
Josh Gorokhovsky 17:38
Thanks.
Sam Wilson 17:38
Hey, thanks for listening to the How to Scale Commercial Real Estate podcast if you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google podcasts, whatever platform it is you use to listen if you can do that for us. That would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.