Welcome to The Gold Collar Investor podcast with your host Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the Wall Street investments and create multiple income streams.

Here’s your host Pancham Gupta.

Pancham: Thank you for joining me today and I really appreciate you being here with me. I hope you’re enjoying the podcast and also learning at the same time. Nothing will make me happier if you use or implement one of the ideas that you get from the podcast. Also, I have added a brand new functionality to the website where you can leave me a voice message if you have a question. And I will play that in the Ask Pancham episode directly. Now let’s get into the show. When your commute is 90 minutes long each way and you take the same time Every day for 10 years, you start seeing the same faces after a while. It happened to me when I was taking the Long Island Railroad every single weekday to New York City. I made a lot of friends over the years and some have turned into long lasting friendships and relationships. And in some cases, partnerships as well. I used to meet this guy who worked for Goldman Sachs at the time. And we used to talk about entrepreneurship and real estate investing all the time. We shared our passion for real estate so much that we started looking for deals together. Since then, we have partnered on a few deals and he has quit his full time job to become a real estate developer in New York City. Today I have invited the man himself. Gurvinder Singh is a real estate developer who focuses on multifamily development in New York City. He also runs New York City Developers Mastermind which brings people together to learn from each other. This past experience includes working on the Wall Street for 11 years for top firms like Goldman Sachs, JP Morgan and New York Stock Exchange. Gurvinder holds a Master’s degree in electrical engineering from University of Southern California. Gurvinder, welcome to the show.

Gurvinder: Thank you for inviting me Pancham. It’s great to be on the show.

Pancham: Are you ready to fire up my listeners break out of Wall Street investments? 

Gurvinder: Oh, yes. Let’s do it. 

Pancham: Cool, man. Cool. I’m so excited to have you on the show. So before we get started, do you want to give a quick background to my listeners on how you got started into real estate development?

Gurvinder: Sure, Pancham. I’ll start with my background. I came to United States in 2000 to do my Master’s in Computers. I went to University of Southern California. After finishing my Master’s, I worked in a few startup companies. In 2006, I got married and moved to New York City and started working on Wall Street. I learned a lot about investing and finance on Wall Street. The work was very interesting. There was a lot to learn about. And obviously the pay was good. But after some time, I started to feel like I wanted to do something on my own. In fact, I always wanted to do something on my own. The feeling just got stronger and stronger over time.

Pancham: Yeah, no, I remember that. We were on the train. I remember the very first time when we met we were actually at one of the meetups, which was talking like where you go and pitch your startups. Right? Do you remember? 

Gurvinder: Yeah, I remember that. 

Pancham: And on the way back over there, I remember you and I talking and we were like, oh, you’re in Long Island. No, yes. We’re also in Long Island. And you know, we started talking and you came back. And, you know, I know that the fire of starting something of your own was always there inside you. 

Gurvinder: Yeah, definitely.

Pancham: Yeah, no, sorry to interrupt, go carry on.

Gurvinder: So while working at Goldman Sachs, I also studied for CFA, I cleared all three levels. And that gave me a lot of in-depth knowledge and understanding about investment analysis in general. And then I always had interest in real estate. And some of my family members also had similar passion about real estate, and they had experience in construction and development. So it worked out really well. We partnered up and started developing and we had complementing skills. So it worked out really well that way. So I did that for part time for about like five years. And before quitting my job in 2017, and making the jump. Since then I’m a full time real estate developer and investor.

Pancham: So no, that’s a great story. And you know, I want to kind of jump in a little bit and dive deep into your career shift from being a software developer, to a real estate developer. The only word that’s common there is the developer, but everything else is different. Can you like talk about that mindset shift that you had to do from having a constant paycheck every single month or every two weeks to getting into something completely different?

Gurvinder: Sure. You’re right, you put it right that there’s very little common between software developer and real estate developer, except for the mindset. In both you have like, strong positive mindset. Yeah, I mean, stopping full time job with the steady paycheck and then doing…jumping on to entrepreneurship is not easy. It took me a long time. That’s why I mean, I was doing it part time for about like five years. I can’t believe it took me like five years. I wish I was able to do it sooner. But since I always wanted to do something on my own, and I wanted to have flexible work schedule, and luckily, my family was fully supportive of it. And my wife was really, really supportive of me quitting my job and doing something on my own.

Pancham: No, that’s great. Having family support matters so much and I know that if your family’s not supporting you, then you always feel that, oh, you know, what, am I doing? You always question yourself like not only you have to struggle with your own mind, you have to struggle with everyone 

else’s mind around you, which is it more challenging. 

No, that’s great. All right. So let’s talk about grounds of development, which is your full time forte now, like what does it take to become a ground up developer? And how does that work?

Gurvinder: That’s a big question. We can we can talk all day about it. We can even write a book 

Pancham: I know. 

Gurvinder: So, I’ll cover at a high level, how does ground up development work? So we can dive deeper into any sections if you want. So first thing to note about grounds up development is that the rules are different in different areas. They are very specific to your local town, county or municipality. So I will be mostly talking about New York City development, which I have heard is probably the most difficult thing to do in probably the entire United States that getting into grounds of development in New York City. 

Pancham: That’s true.

Gurvinder: It’s very challenging, and there are a lot of regulations right now. But since grounds up development rules like zoning code, building code, fire Safety Code, they are different in different areas. So you should always check with your local town about the exact rules that apply to your development site. And you can work with the architects, engineers and development consultants, and they can help you figure out a lot of those things. So now in terms of development, the first step is to find land. And when I tell people that I find land, and then I start development in New York City, a lot of them get very surprised and they asked me that…is there really vacant land available in New York City?

Pancham: Yeah, same question.

Gurvinder: As surprising as it may sound, the answer is yes. There is still some vacant land available in New York City, although it’s getting less than less. But then there are some older buildings with air rights, which provide you redevelopment opportunities. And then there are areas that get re-zoned, which provide additional development opportunities.

Pancham: So you mentioned something, air rights. Is that even a thing? What is that?

Gurvinder: Yes. So air rights is basically so the zoning code determines how many square feet can you cover on a site. Let’s say you have a site which allows you to build or cover up to 10,000 square feet, and it has a single family home which is current, let’s say 1500 or 2000 square feet. So now the remaining unused square feet are the air rights. Let’s say the house is 2000 square feet, the zoning allows 10,000 square feet so now you have 8000 square feet of air rights.

Pancham: So when you say air rights, My mind goes that you potentially have to build those 8000 above the 2000? Is that what that means? Or air rights is a term which has nothing to do with air, or what that means is going up in size or height.

Gurvinder: No, it just means the unused square feet. You can you can knock down the house and then rebuild and then cover entire 10,000 square feet with one story with one story if the development site is large enough, or you might have to go multi story, which is typically the case in New York City because of tight spaces. 

Pancham: Right, so air right, in other words have nothing to do with the height of the space, right? Like I can go like 20 floors, and I don’t have to go through a separate zoning code or not the separate zoning code but separate kinds of rights I need to have for going up in the air. 

Gurvinder: No, no, the height will be determined by the height restrictions. Got it? 

Pancham: Got it.  Correct. So each area has height restrictions like depending whether it’s near JFK. Let’s say then it would not it would have restrictions on going on certain height level. Right? 

Gurvinder: Right. Got it. So once you’ve identified a development site, the next step would be to do different types of analysis. First one would be zoning analysis. That’s where you look at what can be developed. So you would look at the floor area ratio, which is FAR, which is the floor area ratio which would determine how many square feet you can cover in that area. And then you would look at the multifamily development, you would look at dwelling unit density factor that would help you determine how many units you can build. And then there are height restrictions. Then there are setback restrictions, and then there are parking requirements. So you have to figure out all that. And then you can come up with a vision of the building that you can make on that development site.

Pancham: Got it. So you mentioned few technical terms there. I think pretty much everything was self explanatory. One question on the FAR or floor area ratio. So what does that mean? So let’s say I have a floor area ratio of two. What does that mean?

Gurvinder: So let’s say if you have a development side which is a 50 by 100 lot. So your lot area is 5000 square feet. Let’s say your zoning allows a FAR of two. So that means the total area that you can cover is 5000 multiplied by two. So 10,000 square feet you can cover…total. Okay, the actual inside space can vary. 10,000 square feet. 

Pancham: Okay, got it. Got it. Got it. Okay, so now let’s say you have figured out all these restrictions…the setback, the FAR, the dwelling unit size, and you have acquired the land, which you probably will pay a hefty price in New York City, right? What comes next?

Gurvinder: Actually, before you even buy the land, you have to do a lot of analysis. 

Pancham: Right. 

Gurvinder: So first we did, we just talked about the zoning analysis. So next is the highest and best use analysis. As the name suggests, you want to figure out what kind of building will add the most value to that site? Is that office space? Is it retail? Is it residential? Is it mixed use? Is it warehouse? And if it’s multifamily, is it more suitable for studio apartments, one bedroom, two bedroom, three bedroom or combination of those. So you have to do the market research to figure out what’s the highest and the best use.

So the highest and best use…also you also have to figure out what street it is on. So kind of take into account the overall area or just for that site. It takes into consideration the overall area, the neighborhood. Is it close to a school. close to the train station?  All those factors like close to retail office buildings. So all those factors play a role.

Pancham: Okay, so you do all the zoning restrictions and all that. And then after that you figure out highest and best use. So you probably hire an engineer for that. Or you do you…can you can hire a consultant to do the highest and best use analysis? 

Gurvinder: I mean, I typically do that on my own.

Pancham: Got it got it. Okay, no, that’s great skill to have, I guess and what comes next.

Gurvinder: So, you also have to do this survey of the site to make sure that there are no…to make sure that you have a clear understanding of the boundaries of your development site, and if there are any encroachments from the neighboring buildings, you can figure that out. So you want to do all this before you buy the site.

Pancham: Okay. 

Gurvinder: So all of this is happening before you buy the site. Before you buy, you also want to do geotechnical analysis, which is a subsurface soil analysis, which will tell you what is beneath the surface. Because that can be an important factor in terms of what kind of development you can do. For example, let’s say you buy a site and you’re planning to build an apartment building with a cellar. And underneath the surface, there is a big rock. Now cutting the rock and building a cellar is very, very expensive. So you want to know all those things upfront.

Pancham: Okay, so, geotechnical survey, analysis, yes. What is environmental analysis? 

Gurvinder: You have to make sure that the site does not have any contamination, as oil contamination or worse would be groundwater contamination. And if there is any contamination, it’s small and then you have to calculate the cost of remediation into your analysis to figure out if the project makes sense.

Pancham: Okay, and anything else other than that?

Gurvinder: Those are the things you have to be careful about. Okay? So the overall county related restrictions, then the highest and best use, then the survey, then the geotechnical study, and then after that, the environmental studies. 

Pancham: So, all this, I’m already assuming you’ve spent a ton of money by this point before you even actually purchased the land. Is that right? 

Gurvinder: That’s right. 

Pancham: All right. So after you’ve done all this and everything checks out fine. And you say, okay, you know what? Let’s go ahead and buy this land. Right? So you buy this land. What comes next?

Gurvinder: So after you buy the land, you work with the architect and engineer to prepare the plans, and then they will file the plans with the town and go back and forth with the town on discussing the plan until all the objections are resolved and the plans are approved. And there are different types of plans. So there are architectural plans. There are structural plans, you have to have plans for the foundation support of excavation. You have to have MEP plans, which is mechanical, electrical and plumbing. You also need to have sprinklers and fire safety plans. You also need to have builder’s pavement plan which is about putting new sidewalk and new road. So there are a lot of plans that you have to prepare and then get them approved by the city.

Pancham: Got it, got it. Sounds like a ton of work before you even go and actually start the development. Okay, and so once you have got what comes next….

Gurvinder: Once the plans are approved, then you can actually start the construction. So some developers hire general contracting companies to do the constructions. Some of them do it in house. We do that in house.

Pancham: Oh, wow, that sounds amazing. So I want to stop there for a second and ask you, how long does it take? Typically, on average timeframe from the day you say, yeah, you know what that site looks interesting. Let’s study that one. Maybe we should buy it or not to actually start the construction work.  What’s the timeframe that you’re talking about? 

Gurvinder: Roughly, on average, roughly a year to get the plans approved.

Pancham: Wow, okay. 

Gurvinder: And most I’ve been able to get them approved was in nine months. But generally, it takes about a year or so. 

Pancham: That includes buying the site and doing all those feasibility studies that you were talking about? Or is it just for the plans?

Gurvinder: So overall, from starting the day, you wake up and you say, you know what, this site looks interesting and let’s start studying it. To this day, you start construction that would probably be more than a year in that case. 

Pancham: Yes. Okay. Wow. All right. And what does that time frame look like? How long does it take to get to a point of committing the plans?

Gurvinder: Typically couple of months to three months. 

Pancham: Okay. Yeah. All right. So not that bad. 

Gurvinder: Yeah, I’m pretty much familiar with the New York City’s zoning code now, so I can figure out those things very quickly and the highest and best use analysis. I mean, we’re mostly focused on multifamily development. So it’s not that complicated for me. And yes, the geotechnical survey, we have to get those done and environmental that just takes like month or two.

Pancham: Great. So in house construction team. That sounds fascinating to me. So how does that work? Like in terms of your construction team. Like you have a site manager? Like how do you plan that out? Overall. So once you have the architectural plans, right? What do you do after that? Like you, yourself work with the person who’s actually the site manager and who’s responsible for construction?  Like what happens?

Gurvinder: Yes, I work with my team to get the construction done. This is where my family members and other partners help. Their past experience has been very helpful, because they have experience in construction and development. 

Pancham: So that helps a lot. For how long your family has, or your family members who have had experience with this….for how long they’ve been doing this? 

Gurvinder: More than 30 years. 

Pancham: Wow.  And all in New York City?

Gurvinder: Yes.

Pancham: Okay. All in New York City. So that helps. So if anyone listening and they want to get into grounds up development, you need an experienced team. You know, it’s not a piece of cake just going and getting into construction, right? Right. You know, you do all this. You go out on the site, you do all the feasibility study and then environmental study and then you obviously figure out how much…you just price, how much to pay for this land. And after that, you submit the plans and then you come up with the construction budget to start the construction, then you actually go ahead and build it. Then you actually get see of who’s on all of those. 

Gurvinder: Yeah, right. 

Pancham: This entire process could potentially take three to four years, is that right?

Yes. On average, it takes like three, three plus years.

Pancham: Wow. So my next question, which you might have guessed already, is that is it what the return? What kind of returns are you getting? And is it worth it?

Gurvinder: Yes, the short answer is yes. It’s definitely. Sure. Definitely, it’s worth it. And I agree the development in New York City is very challenging, but it’s also very rewarding in terms of financially, as well as in terms of its impact on the society as well as community. So, first of all, there’s a huge demand for housing, huge shortage of housing in New York City, a lot of people are living in crowded spaces and less than optimal spaces. And it feels great to create new apartments to help solve that problem.

Pancham: Absolutely. That feeling is great. You know, I get the same feeling when we go buy existing apartment buildings and improve the overall building and quality of life for the tenants who get that good feeling that you’re doing something good.

Gurvinder: Right. And the new buildings that we are making, they are highly energy efficient. They are very good from they have much better safety mechanisms. They have much better fire safety, earthquake safety. So it feels really good to be able to provide like that kind of quality housing for the residents.

Pancham: Oh, that’s great. That’s great. So that’s more like emotional side and creating really nice community and making a difference in the community. Right? And in terms of the returns either for you or for your investors, like what kind of like loan to cost? Typically, you can get on such deals and how much of your own money or investor’s money you have to put in the deal.

Gurvinder: So, in terms of financing, typically, typical banks will not lend you more than 65% of the entire project budget.

Pancham: Does that include the acquisition of land as well?

Gurvinder: Yes, everything. Okay, so that includes the land acquisition to the soft costs, hard costs, everything, okay? So, but you can go to some debt funds or some private lenders who are more aggressive. So they will go up to 6, 7, 5%, LTC or even higher than that, but then they will charge you more interest.

Pancham: Right, right. So 60%. So typically you will have to come up with about 35 to 40% of the total project cost, either from your own pocket or from private investors. 

Gurvinder: That’s right. 

Pancham: Got it. Okay. And typically, if I’m a passive investor, and I’m looking into one of these development deals, what kind of returns should I expect from a project like this given it is going to take me three years, two to four years before I even have the building constructed? What kind of returns can I expect?

Gurvinder: It should be high teens. So like, you know, 15 to 16% on my money every year. Like you know, IRR. 

Pancham: Right IRR. For people who don’t know what IRR means its internal rate of return, basically The total project cost, you know. How much is the return on your capital over the life of the project? All right, great. Well, that sounds great. Anything you would like to add before we move on to our next section of the show?

Gurvinder: No. Let’s move on to the next section.

Pancham:  Great. So we’ll be back after this message. 

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Pancham: So, Gurvinder, I ask these four questions to every guest on my show. I call this round taking the leap round. My first question for you is when was the first time you invested outside of Wall Street?

Gurvinder: I know we talked about grounds of development, but in fact, my first project was actually a rehab project that was in 2012. So we bought a five unit apartment building in Queens, Ozone Park, Queens, and it was a rundown building with no roof. Falling apart. And we did a complete renovation and we rented it out and we still hold that property and it’s a good cash flowing property.

Pancham: Wow, that’s great, you know. Anytime you go..2012 was an amazing time but also, it goes both ways, especially for New York City. Things have gone crazy since then. It’s only up and up and up. So that’s great. So my second question for you is, what fears did you have to overcome when you first invested outside of Wall Street? And you actually got into that property?

Gurvinder: None really, you know, I’m actually more afraid of investing in the Wall Street. Investing outside the Wall Street, there’s a lot more uncertainty and a lot more things which are not in your control when you invest in Wall Street.

Pancham: No, this is so timely that you say that, and we are recording this early March, where, you know, I probably think that will come out in April or so. But what you saw in last two weeks with trillions and trillions of dollars got evaporated in the matter of two weeks. It just sounds so scary like your wealth cannot be so fragile, or should not be so fragile where it can just go like both in two weeks timeframe. All right, so my next question is third question for you is, can you share with us one investment that did not go as expected?

Gurvinder: As entrepreneurs we were always learning. So we were trying out new things. So we make mistakes, and we learn from them. It reminds me one quote from Facebook founder Mark Zuckerberg. Once he said, like, they possibly made every single mistake they could while building their company, and I was so amazed to hear that I was like, they made so many mistakes, and they’re still doing so good. That was amazing. So one of the investments that didn’t go as well was, in fact, my first investment as a limited partner. So I met this sponsor in a networking event, and we’ll and we started talking about this deal. And then I liked the deal. I liked the sponsor, and we ended up in that deal, and then that deal was completely mismanaged from day one. And the distributions were not on time. And the updates were very irregular. And it just kept going downhill. And we’re currently working on resolving that problem. And once it is resolved, I think we can go deeper into it. And I think there are so many lessons learned from that deal that I think it would probably require another full podcast to discuss all that.

Pancham: Now, I always say that you know, you do and you learn all these are lessons and feedback. There are no failures, only feedback. So I guess that made you a better investor.

Gurvinder: Yes, definitely.

Pancham: Right. All right. Great. So my last question is, what is one piece of advice would you give to people who are thinking of investing in main street that is outside of Wall Street?

Gurvinder: You don’t you don’t need to be afraid. I would say go ahead. Do it. And then you obviously want to learn about anything that you’re investing in before. You want to read books, you want to learn online, you want to attend conferences or meetups, if there are any, and learn as much as you can, but the real knowledge that you will get is from actually doing it. So don’t get stuck in analysis paralysis, because there’s nothing that will replace the real life experience.

Pancham: No, absolutely. I know you are an engineer from the background. And this an issue especially for engineers to try to analyze anything and until they get paralyzed to take any action. So it’s, it’s definitely…. I totally resonate with that one. So given that this has been great, how can listeners reach you if they want to learn more about…you know, we discussed it at a very, very high level, like you know, we, I think scratched the surface here. So if they want to learn more about you, or your company, how can they reach you? 

Gurvinder: Sure, Pancham. My email address is gurvinder@gmail.com. And my phone number is 516-721-9778. So any of your listeners can call me or email me anytime I would be more than happy to help. And yes, we just scratched the surface for the development. And there are a lot of details that we didn’t even touch on. But I’m happy to help. If anybody has any questions, I would be more than happy to help.

Pancham: Great, thank you Gurvinder. It’s been a pleasure having you on and always good to chat with you.

Gurvinder: Thank you so much Pancham and thank you for this amazing podcast. This has added a lot of value in many people’s lives. And I know I’ve personally learned a lot from this podcast as well as I’ve personally learned a lot from you in general and hopefully I was able to help you learn a few things as well.

Pancham: No, absolutely you know that’s why I say that I always resonate with…I think I read it in Rich Dad Poor Dad that you’re an average of five people you hang out with. And I’m happy to call you one of them. So it’s an honor. Thank you.

Gurvinder: Thank you, Pancham.

I hope that you guys enjoyed what Gurvinder had to share. I really appreciate you joining me today and thanks for listening. If you have questions, email me at me at p@thegoldcollar investor.com or leave me a voicemail on the website. This is Pancham signing off. Until next time, take care.

Thank you for listening to the gold color investor podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook at The Gold Collar Investor. The information on this podcast are opinions as always, please consult your own financial team before investing