How to Build Infill Housing in California w/ Jared Jones

Most investors won't touch California. It's too expensive, too regulated, too hostile to build. Jerry Jones looked at the same laws everyone else runs into and built a nine-figure company. He runs middle housing partners with over 600 infill units in the pipeline right now. In this episode, you'll learn how California's new housing laws lets small investors build and scale where Wall Street can't. How his build to rent model pulls all the cash back out like burr on steroids.

And why he says the affordability crisis is really a crisis of permission. Want the systems behind building like this? Head over to realdealcrew.com. Let's get started. Jared Jones joins me here today. You can learn what he can help you with by finding him on LinkedIn, look for Jared Jones. I'm gonna have that as a direct link in the show notes and make it easier for everybody to find.

But if you're on Instagram, also look for middle housing partners. And we're actually gonna be talking about micro infill housing across California here today. This is a really unique play in the real estate market. So I'm looking forward to this. Good to meet you, Jared. Glad to be here. Well, everybody's gonna wanna know how did you find your way into this niche?

Yeah, so I started out in real estate industry doing loans back in 2005. Market crash started selling and flipping homes as well and built a real estate portfolio. And then in 2020, the laws changed significantly in California, allowing us to start adding additional units to properties. So I started modifying my own properties, told my investor buddies about it and then we were off to the races and developing hundreds of units. After a couple years of doing that, we started vertically integrating.

We brought our design and construction teams in-house. Then we brought private equity to the table and we've started scaling that opportunity and that's kind of how we fell into it. So when you call it micro-infill, are you talking about ADUs? Yeah, so ADUs are part of it. In California, you can add a few ADUs on any lot. And then SB9 is a bill that allows for a second primary on a single family lot. So we use that a lot.

And then also... SB 1123, which is the Starter Home Act, which allows for small subdivision, townhomes, condos, in any zone that allows for housing. So single, multi, doesn't matter. This sounds like it could be a bit of a moving target with the different regulations and the like. Can you talk a little bit about that, especially in dealing with California? Yeah, so I mean, basically, as we've gotten into the opportunity, the laws have

continuously expanded and gotten more aggressive towards the small developers benefit. And so like those laws are our lifeblood. We know how to apply them. And then, you know, this moving target sometimes is just us going in and showing the city, hey, here's what this year's laws are. Here's how we're gonna use them and then pushing through that process with them. But ultimately what California acknowledged and the Supreme Court just upheld is that this housing issue in California, it's not a city by city issue, it's a regional issue.

And so that's, we're dealing with these statewide issues. So statewide zoning has essentially become the tool that allows this problem to get solved. And so a lot of the cities have had to essentially lose a lot of their autonomy on how they restrict housing to be created. And that moving target is kind of centered in on by the entire state and supported by their own enforcement based off of this regional and statewide need.

Yeah, you know, it's so uncommon for me to run into somebody. Most real estate investors are looking to, with going up and up and bigger and bigger projects, but you kind of ran into the other direction. And it kind of makes a lot of sense with the housing crisis, the way it is and everything. I can kind of get where California is coming when it comes to coming to these regulations and kind of incentivizing this type of build. Yeah, mean, contextually, we have the worst housing crisis in the nation that's not even close.

Like we need three and a half million units in California of the projected eight million units that are needed in the United States. And so... six of the 10 least affordable housing markets for rental exist in California. So they had to do something that feels really radical to the development community. And with those going up and doing bigger projects, those come with a lot more scrutiny, underwriting, constraint, financing issues and way more important time. And so

from a perspective of how do we solve this problem quickly, the thought process that's maybe trite, but it's many hands make light work, right? And so if you give lots of developers and lots of small investors the opportunity to add not only on their own projects, more housing, but also go out and scale really what otherwise would be unscalable. like two unit, three unit, 10 unit projects. That's not a very scalable model unless you have these laws that back you up and you can do the same thing in Santa Monica as San Diego, as San Francisco.

And like that thought process is what makes this otherwise paper cut heavy prospect really tenable to solve the housing crisis. put housing back in the communities that already exist. Can you talk a little bit about the process you go through in selecting the locations and then deciding what you're actually going to build on those? Yeah, so, you know, we used to just find whatever the best deal was in the market thinking as a flipper. And so it's like, well, if there's good equity already in it, we're going to go out and

take that project. And so basically we put the product to meet the project. Now what we've shifted to in our like efforts and scaling is we find projects that meet our product. You know, if I'm going to put 10 units on a property and they're costing me a couple hundred bucks a foot to build, but they're worth five or 600 bucks a foot. Well, I'm okay paying a little bit more for the dirt and getting the exact right project that fits what we need.

Then the opposite of like, wow, I got this great discount, but crap, it doesn't really work that well for the best kind of product. And so site selection. now looks more like what are my lot dimensions and what neighborhood am I in relative to the need and the value per foot in the market as well as what can I get in rent. And so we're mainly a build to rent model. So when we're underwriting these projects, it's like, I could build two cities over. The cost of the actual build is the same.

But if I'm taking in a couple hundred bucks more per unit, it makes a massive difference on what I'm selecting to do because in one scenario I get to pull all my cash back when I'm done. In another scenario, I may have to keep a few hundred thousand dollars in at the end of the project. And so it's looking at that algorithm and figuring out like what project meets that design. Is that your end goal then is to be able to extract all the capital that was invested in

it? Yeah, so I mean, it's like bur on steroids, right? So we were able not only to go out and do the project adding enough value so that we can pull all of our cash back and make the rents, but we've also forced a ton of appreciation, not just the appreciation enough to make it so that we can get our cash back. And so it's a... It's fun because we get the opportunity to usually go in with a little bit of leverage and say that we're a million dollars into a project that is worth six or seven million

dollars, but we only owe three and a half million dollars on it when we're done. And so that's cool because we got to create a whole bunch of new product, but also a few million dollars in equity. And so we just keep rolling that process over and over. How many of these units are you building at any given time? Well, building, you know, 70 to 100 units at any given construction moment, like, but in process right now, I think we have 640 units somewhere from acquisition to, you know, and not entitlement.

I'm going to say to stabilization, you know, somewhere in that process, we have 640 units at the moment. And then because of that scaling, you decided to kind of bring everything in house. Yeah, yeah, if you would have asked me five years ago, if I wanted to ever own a design or a construction company, let alone another property management company, I would have told you that you were out of your mind. However, what we found is yes, the business of doing this was profitable, but the constraints of all of the potential delays when we weren't vertically integrated.

like they were eating us alive. And logistically, Build Durant is, it's a lot of work either way, but when you're vertically integrated, your specialized experience and direct application of knowledge, like, becomes so, so valuable across the board. And so that's how we ended up in that space. Yeah, I've run into a number of situations and other people where they, we consistently see that wall where your interests aren't aligned when you like property management, your construction company, and this is another synergy that you can really take advantage of.

Can you talk a little bit about the process that you went through when deciding to, you know, it's time to scale and you're trying to do this vertical integration? Like, what was that first thing that you brought in house? first thing that we brought in house was design. And because what ended up happening is as we started out, not only the designers we hired like wouldn't understand, hey, what's this gonna cost to construct? But also because we're implementing specialized laws, you're not just a designer, you're somebody that has a specific knowledge set on the laws that you're using.

So it's kind of like you're a pseudo legal educator or planning educator for the different building and planning departments. And so that disconnect caused us a lot of pain in the beginning where we get bad advice from our designer or the city would say no and they just accept it and they're like, hey guys, we can't do this. And... You know, so by the time we figured out how much we were inserting ourselves in the process, you know, it became important for us to just to do that.

And then also understanding kind of on that vertical integration thought process, like what floor plans weren't renting well, you know, what floor plans we were struggling with. And like those pieces became so valuable to us. in our designs and every time that we would have to correct our architect on a project, it's like, hey, now we're spending another week and a half getting the floor plan right, that we could have made four tweaks in house in 10 minutes. I mean, it's a bit of an exaggeration, but you know, that's really kind of the way that it happens.

so. That was the first thing that we knew we needed. And then as we were deeply in construction, really it was when we decided to move into private equity that we realized that the construction piece was the other major constraint for us to be able to do a large scale and volume. And so, you know, we ended up going out and getting the licensure and... bringing that in house here a few years ago. Just to remind everybody, we are talking to Jared Jones.

You can learn more by heading over to his LinkedIn page. And I will have that as a clickable link in the show notes. But if you're on Instagram, middle housing partners, I'm going to have that as a clickable link as well, so it's easy to find. If you found some value in what we're chatting about so far, do us a favor, share this with one of your investor friends. If you're watching us on YouTube, it's always appreciated for that like and subscribe. So Jared, when you were in that scaling process, you were starting to do these vertically

aligned aspects. What was the first thing that broke? You know, it's the real question is what doesn't consistently break? And, you know, I think that one of the things that we've learned is we have been vertically integrating is that what we actually get paid for is to move through learning curves and pain as each of these new laws roll out. Like it's a different process every time. and dealing with new cities is a different process every time.

And so it's systems and communication between people that consistently breaks. And as we bring new people onto the team, it's like making sure that everybody's learned appropriately. And really the... The amazing thing for us has been this opportunity to acknowledge that our best in what we're doing is good enough to make the profits happen, but ultimately that what ends up happening is we get better and better all of the time. Our floor plans get better, our turn times get better.

And it's really this investment in ourselves as a company. Like, what are we doing to educate ourselves? What are we doing to improve a process? How are we developing as leaders? Because the housing needs always going to be there. The amount of the housing that we get to fulfill is directly related to that strength that we build in our systems and in our people. so systems and people.

are the game. That's our business. I would imagine that there's quite a bit of networking and involvement with the state and local governments at some level. Do you have an ongoing relationship there? What does that look like and how do those communication channels stay open? Yeah, that's another thing that's wild to me too, because identifying as like a real estate investor and flipper for the bulk of my career, that was, you know, those people

were almost the enemies. They were never the friends. And today we're deeply involved in the legislation. California YIMBY, which stands for Yes in My Backyard. That's the largest lobby group and then also Casita Coalition. And we're deeply involved with them. We actually have a law last year that we were able to write like 90 % of the language in that law and got it passed.

And it helps us directly every day as practitioners. But then we're also deeply involved as those practitioners with the people that are writing the laws and making this usable and then on a local level dealing with city managers, community economic development directors, the head of planning, the head of building and figuring out how to bring this new perspective of development into an old system and understanding that everybody's trying their best. The people in the cities like

they've been operating under the same kind of systems for last 30 years. And that's like, whatever we think is pretty with some objectivity, but mainly subjectivity goes. We get a vote on it. The neighbors get to say all of that stuff. When we're pulling that away as a state and you're inserting a developer into the system, you have to build a relationship. because we're gonna see you again next week and the week after that and 10 weeks after

that. And so getting our head around this and not looking at these people as enemies, but looking at them as stakeholders in our communities and partnering up with them that way so that we can bring the housing that not just we want to see, but really that they wanna see their kids in or. they want to buy their own first home. Like that thought process is what we've had to develop around. And it's taken a minute to get there and we're probably still only 80 % of where we want

to be. But a lot of the time that we spend now is working with those municipalities and our state governments. We typically learn the most from other people's mistakes, unfortunately. Would you mind sharing one of your biggest mistakes and what you learned from it how it's impacted your business going forward? Yeah, I would say that early on, like we are so deeply invested in this kind of housing now early on the thought process of we just hire professionals and take their advice.

And it's kind of like we I love something that I heard a little bit ago, and that is that we delegate, we don't abdicate. And so when I want to hire anybody to do something for me, I need to understand that I have to be the expert in my specialty. So now I know how to read all of the laws and I understand them deeply. If that's going to be your core business, you got to dive into the pain and the knowledge of understanding how that thing works.

Now, you don't have to be a fire expert like to figure out your access and your mitigations and all of that. But you do have to understand where they come from and how they tie into the laws if you want to become an expert at the thing. You don't have to do all the daily practice, but we abdicated so much at the beginning of the housing law that these things were being designed under and it caused us harm. Like we bought projects that we should not have bought. and slowed ourselves down and caused way more brain damage than was necessary versus for a

guy like me, I have ADHD and I can dive deep into anything, but it's very hard for me to sit and do paperwork for two hours. And I've read through the laws that we use now hundreds and hundreds of times and I'll still reread them. And now I can quote, code section, but I only get to do that because I've looked at that as my business. And so the thought process of some designer is going to be the person that's going to know the law better than I am when it affects me by millions of dollars and then by hundreds or

thousands. Like that wasn't a clean thought process. I needed to own the knowledge to be able to go out and apply it cleanly. and really to become that expert that I needed. We also have a tendency as real estate investors not to celebrate our wins, whether they're big or small. just kind of, they happen and we kind of move on. What is one of those big wins that it might've even been something that surprised you that

we can celebrate here right You know, there are, I was talking oddly enough to my therapist a little while ago and talking to her about a financial marker that we hit as a company. And I was like, you know, that's great. And she's like, hold on, wait, have you stopped and thought about that thing? Like, you have a company that's you know, now worth nine figures. And that's a big deal.

Like, have you ever stopped and thought, maybe we need to celebrate that? because I never had that expectation. That was never a thing for me. But I was like, and I just started crying, you know? And you're right. We do not do that. Like, it just becomes like a line item. And you're like, yeah, but I still have all this work to do and I'm not good enough for

this and I haven't done enough of that. And so I am deeply grateful to the partners that I have and we have not celebrated many of the victories that we've had quite as much as we needed to. And so I deeply acknowledge the fact that it's easy to gloss over things that are massive marks in like massive, you know, touchstones or whatnot. But then we get to that point and we're like, yeah, of course. You know, it's like, no, it's not of course. You talked to me five years ago and I would have been blown away with the progress, but

we've been wading through so much pain that the progress just feels like the next like mile marker, you know? And so, yeah, I do have appreciation for where we've come, but have not done enough celebrating for sure. Yeah, I sometimes think it's, I don't know how your age, but my generation that just was kind of ingrained in us, we just keep, just kept working, working, working, move on to the next thing, not take a moment and smell the roses. 100%.

You know, one of those things that really strikes me is that you're actively doing this in California. I've always, I hear frequently that you avoid the East and the West Coasts just because of the investment and the potential there. What other myths are you going to bust regarding real estate investing in California here today? I think that... with real estate investing in California, there literally is not another place that I see

that someone can go from flipper to billionaire in a decade. And that is possible in California. It is very possible because you can scale these small projects, but what's way more important for me on that thing. is that this is deeply giving to the need. Like Wall Street is the major builder of homes in the United States right now, but they need large projects that are de-risked. The state has de-risked the projects for you with the laws that they've created.

And so what ends up happening is Main Street now has the opportunity to go out and build the bulk of the housing that's needed. and we get to deliver the kind of product that every person needs in this country that's lacking housing right now. The affordability crisis is really a crisis of permission. Like we need to get permission to do every single piece of housing in the major parts of the United States now and California has finally taken that and they've busted that. So now it gives the opportunity

to tens of thousands of micro-developers to come in and measurably change their own market. And so there's a little bit of pain that goes into that, and frankly, maybe a lot of pain, but you are going to see a massive shift in the way that people look at development in the next 10 years. And the gold rush is happening for a second time, and it's building house for workforce. That's what it is. And so there is not a better opportunity in the United States right now for housing.

People love 70 degree Thanksgiving. That's why people love California so much. It is affordability that drives people out of California, but people can live in California and stay where they want to be if we build the housing for them. And arguably a lot of the attrition that we've experienced in the last decade in California. can be reversed when we just put housing where people want to be. You said you just hit a nine figure business.

What is your next goal? What is your team driving towards? So our goal is we want to get to 10,000 units a year. And so that's where we want to be. The inevitability that that makes our company worth, you know, nine figures, it's fine. Like that's tangential to the purpose. The purpose is how can we put people back in the communities where they grew up? and they cannot afford right now to live.

If you're a nurse and your parents bought a house in suburbia in Riverside where we're at right now, 20 years ago, 30 years ago, working the same job, you cannot afford to buy that same house. Like it doesn't work. You need three of those jobs to buy that same house. But with what we build, you can maybe not quite buy that house, but you can come much closer to it. You maybe only need to make one and a half times.

so bringing that kind of product back is the major goal. And yes, we want to do tens of thousands of units a year. But what we really want to do is we want to inspire a new generation of developer to see, if these guys can do it, we can do it. We want to raise up the competition that brings the housing back that we really need in our community so that people don't have to commute two hours to work, that they can coach their kids' soccer team instead. They get to live close to where they

Well, your goal and what you see as the possible future of California, I mean, that's really driving an abundance mindset when it comes to this. mean, if you are so comfortable in speaking and encouraging others to get involved, to have other microdevelopers in your area, I mean, that speaks volumes. Yeah, goal, the financial pieces of this, our investors need to make money that we bring in and we need to provide housing. As long as we get to do that, the financial pieces work themselves out. Like what we need to do is just continue in our purpose.

And we're just so confident that there are. many, many hands out there that can make for this light work. And we can change the way that people get to live as developers and communities. And that's what we want to see. That's very much in alignment with our passions. And from that perspective, just everybody should do it. We just want to see everybody win. And definitely when that happens, then the people that have been marginalized over the

last 20 years, they haven't been built for, they haven't been cared for from a housing creation perspective, we get to provide for those people. The people that make our communities run. Like that's what we want. And so we do have abundance in that because we have what we need and we can continue in our own small little way to do our thing. but we hope that that sparks something for other people that they move into more creation. You say this, you just said that was such passion associated with this product.

Was there something in particular that, whether it was your upbringing or recent events that caused you to have this type of outlook? You know, I have definitely always been in an abundant mindset. That's something that's probably born into me. But I will say that as we started moving towards the macro on this, as we started talking to private equity, we started understanding what the deep need actually was and who we were providing for. And yeah, I mean,

Definitely in my life, broken systems, injustice, like these things affect me deeply. And so when I see somebody that's marginalized, I think how can we change something to benefit that person? Why is the system broken? Why is it harming them? Why is it harming me? As we look at those things, there is deep drive to fix things that don't have awesome reasons to be broken.

And so over the last couple of years, basically mainly over the last year, I've just finished the first draft of a book called The Middle Housing Revolution. It's not out, I'm getting it edited. But the point is, like as we've dove in deeply into what the cause, and the solutions are for the housing crisis that's been created over the last 20 years, this passion has continued to develop and emerge. Well, Jared, this has been a very interesting conversation. really appreciate you joining me here today.

Before we start closing out this show and jumping into the rapid fire, is there anything else we should have tried to hit on here? You know, I think that what is exciting for us is to see that the effect of what's happening in California is going, it's starting to, but it will deeply roll across the nation. And the way that housing is viewed will change. And as that's the case, We think that people should be advocating in their own states and in their own cities to

see the change that they want. You know, there's Miami, Denver, New York City, like lots of places like this that have different laws that are coming out. But the more that you push and the more that you draw from other states and other people that are having successes at this and saying, we can do this here, like you will see the change that you want. And so that is the thing that I do love to touch on is saying like, you can make the change.

And if you see it coming from miles away, you can prepare to be a massive part of that movement as well. Well, if you're ready, Jared, we're going to jump into the rapid fire. But before we do want to remind everybody again, you can find Jared Jones on LinkedIn. That's going to be a clickable link in the show notes. You can also find him on Instagram, middlehousingpartners.com. Now that's just middle housing partners on Instagram. I'm going to have that as a clickable link in the show notes.

But if you're ready, Jared, we'll jump into the rapid fire and close out this episode. Let's do it. What lie do real estate investors often tell themselves? Yeah, often we tell ourselves that the pain is somebody else's fault, right? Like when we get in and it's like, that eviction. No, we sign up for that eviction, right? Like we are investors. Like the risk that we take is inherent with the reward that we get.

And so It's not somebody else doing something to us. It's our chosen profession and we are privileged to be a part of If you could go back in time and give your younger self one piece of advice, what would it be? If something's causing you pain, look deeply at it and figure out what you can do to change it. Cause oftentimes the pain that you're trying to avoid is actually the answer to your

problem. Do you have a book recommendation or what are you reading right now? Yeah, like I have a book right now that I'm reading. It's The Wealthy Gardener. I got my little notes in here. Great, great book to talk about what true wealth looks like, you know, finding great purpose and meaning in the things that we do on a daily basis. And we are the masterpiece.

Like at the end of the day, It's our work on us that greatly affects not only our wealth, but the impact that we get to have on other people. And finally, what single tool or process have you implemented that has had the biggest time-saving impact? Ooh, the time saving aspect. I would say that virtual assistants have been very helpful to me and implementation of AI along with them has been massive leverage point for me and saved a ton of time over the

last couple years. Yeah, talking about another gold rush, right? The whole AI landscape is changing every single day. Yes, it's wild. Well, Jared, I really appreciate your time. This was fantastic. I really appreciate the value you brought here today. And one more time, you can learn more on LinkedIn.

Head over, find Jared Jones, as well as Instagram, middle housing partners. Both will be clickable links in the show notes to make it easy for everybody to find you. But really appreciate you coming on and hope you'll consider coming back again real soon. 100%. Thank you. Well, thank