Josephine Saffert on Getting Started in Real Estate Development

Joséphine is a German native who came to Nashville, TN, as a D1-Track athlete recruit in 2011. Joséphine sponsored her Green Card by providing ground-up housing opportunities in Middle Tennessee, adding to the American economy as a real estate developer. As part of making her American Dream a reality, she built Sapphire Development Group, a vertically integrated real estate development and investment firm based in Nashville, TN. Sapphire & Co delivers a one-stop-shop real estate experience, from offering off-market deals and developing ground-up single and multi-family to helping investors build and sell real estate portfolios. Joséphine is working on her first brownfield project, which entails redeveloping a former metal plating facility site for 32 townhomes. She’s built a development pipeline of $30M+ focusing on elevating targeted neighborhoods within a 10-15 min radius of Downtown Nashville. Sapphire Development Group is committed to developing real estate that creates lively communities in Nashville’s Urban Core. Joséphine loves to travel and explore new cultures and places. https://sapphiredevelop.com/

Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com

Key Takeaways:

• Hire slow, fire fast when it comes to contractors and builders. Aligning incentives is crucial.

• Avoid 50/50 partnerships in real estate development. It's better to have a clear majority ownership and decision-making control.

• Budget significantly more time for rezoning and entitlement processes than the typical 4-6 months, more like 6-9 months.

• Diversify your income streams as a developer, such as starting a brokerage, wholesaling deals, and running an educational program.

• Obsess over costs and line items, and always get backup invoices from contractors to maintain control over the financials.

About Your Host:

Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.

Episode Transcript:

0:00

Are you looking to take the next step toward investing in commercial real estate but don't know where to go? Series central offers a comprehensive education and coaching platform designed to help you get started. Our online courses cover a wide range of topics, from the fundamentals to advanced strategies, ensuring you have the knowledge and skills needed to thrive in this competitive industry. As a member, you'll gain access to our exclusive online community and monthly group coaching calls, providing you with valuable networking opportunities and personalized guidance from experienced professionals. Whether you're a beginner or looking to take your career to the next level, cre Central has the resources you need. Visit www dot cre central.com. To learn more. Welcome back to the commercial real estate investor podcast. We are live from the Carlyle Group Studios here in East Nashville. And today we're gonna be diving into a great conversation with my good friend Josephine. Safford, se pFriem I'm in front. Josephine is a German native, she emigrated to the United States not too long ago, she was a D one track athlete, former track athlete. So of course, we're gonna be diving into that and kind of how that has shaped your mentality coming into into real estate. And she also got started in real estate and has grown into a real estate developer. And now she's actually got her own real estate development program where she's teaching people how to do this. And she actually runs a real estate happy hour with me every month, which is actually if you're listening to this live, it is tomorrow at 5pm July 3, at the wash in East Nashville, go hang out with us. We won't hang out with you. But Josephine that was a very white introduction about your background and kind of how you got here.

Speaker 1 1:44

Yeah, thanks for having me on here. I'm really excited. Well, yeah, I first came as a student athlete in 2011, you know, the one running track 400 meter of water hurdles, and was about to start 19 years old. And that sort of was the start to the whole journey. I wouldn't be here without sports. So has had an immense impact. It was also my first creative financing. Because without that scholarship, I just wouldn't have found a way. So that's really how I got to the US. And then real estate, I would say is more. So how I ended up staying here being able to stay here. Yeah.

Tyler Cauble 2:23

Talk me through that. Because that was something I had never experienced before you in order for you to get your green card. Do the type of real estate.

Speaker 1 2:31

Right. Tell us more about that? Yeah. All right. So I graduated in 2016. And I have a finance background actually had a Wall Street offer for just m&a, investment banking. And then, you know, I thought I was kind of covered was thinking, you know, I'm just gonna move to Manhattan. And then ultimately, what ended up happening is that immigration set, and so that that investment bank just couldn't sponsor, it was like, right, 2015 16. So, you know, as a foreigner here, as an international student, you, you know, you are any kind of like Wall Street Program, you've got to get into that a year plus, before. So anyway, so long story short. That whole entrepreneurial journey started in 2016. Whenever I couldn't proceed with investment banking, so I had to get really creative. And so join a tech startup in New York learned how to like, you know, raise capital and all that. And from there, I just needed something more tangible, right. And I was thinking, Well, what's more tangible than real estate is kind of the physical pillar, right? And I ended up moving back to Nashville 26th 2017 November to start the first development firm with a former business partner just flipping homes just renovating properties. And so we bought a lot of auction property, REO properties, a bank owned property in Clarksville, Tennessee, Nashville, and then Chattanooga. And so fast forward about a year later, Immigration Services came back and said, Well hold up. Even though this is a multimillion dollar business that does not count towards immigrations. So you're recycling value rather than building original value on US soil. And so they were going to turn down my application, which at that point was already pending, like over two and a half years, maybe even three. And I said, Well, what about new construction? How about building ground up on US soil hiring Americans? Would that work? And yeah, I won my green card or got the green card 2019 January, but after filled a building for homeschooling grown up in Chestnut Hill in Nashville, that's great.

Tyler Cauble 4:36

Well, congrats on doing that. I appreciate everybody jumping in the chat. Apparently there was something going on with my mic beforehand, and I didn't touch anything except for move the volume knob a little bit and move it back to her was so if it is working now please jump in the chat. Let me know. I appreciate you all for saying that my mic was low. Just for a quick recap of those that might have missed it. I just was introducing Joe Safina she's a German native, former D one track athlete, good friend of mine, and we run a happy hour every month together. So we've been doing business together for quite some time, we were actually board members together at the real estate investors in Nashville, which is a time that I certainly cherish. So So talk to me about investing. Alright, audio is fixed. Thank you, it'd be stars appreciate you. So, so talk to me about your experience in real estate development. Because, you know, typically what we're doing is we're telling people, Hey, go invest in real estate for a while, get your feet wet, you know, make sure that you understand that side of the process, because once you start new construction, it's a totally new new business, really. So talk to me about that first deal that you did. I mean, how did you figure out how to do it? How did you pull the money together? Like how the hell did you do it?

Speaker 1 5:47

It was wild. Actually, at the time, there was no coaching program really out there. We're talking 20 or 2018, really. So it was kind of prior that to that coaching era, right. And I ended up getting a land use attorney that is now at Metro. And that was one of the best investments. That's pretty nice. And so, ya know, I basically asked a lot of people a bunch of questions. That's really how I got started. And what I did is, so with this landers, attorney, you know, I'd looked at several different sides, and was just trying to understand how he was thinking, right, and really going into absolute depth on my questions. And so I figured out pretty quickly what I was looking after. And so at that point in time, it was sort of the cycle are six laws. So the light has to be a minimum of like, 6000 square feet, you could build, you know, two homes. But yeah, anyway, I ran across this one deal in Chestnut Hill. And it sort of was more used as a community park. It's right pocket a Perkins harbor in Lincoln. And it was actually alongside the main former prostitution line in Nashville. Did you know that? Perkins nice, yeah, yeah. And that was the wildest deal. Still, in my career. It took me 24 banks to underwrite the deal. Yes, redlining is still real. A separate chat. And, you know, not only was the underwriting tough, but also, yeah, the crime was really high. It was it was very high. So I think I've never called the police more often. And also, yeah, I learned a whole lot about that side of things through this deal. But I ended up, you know, finding a bank that was willing to do the deal. And I raise capital for my first deal. I didn't have any cash off my own, when I started. And so I got two guys together for the equity and the interest carry. And then the bank, you know, to cover obviously, the rest on a debt. And and then yeah, the land use attorney had helped kind of working through some of the beginnings. And the rest I just asked by, you know, going to Metro codes, asking a lot of questions and, and take it from there.

Tyler Cauble 7:58

Well, that couple of questions to come up with that. Where did you find those investors? Like, where did you meet them?

Speaker 1 8:04

That's an interesting question. Because I think a lot of people always look to other real estate investors, right? I'm sure you probably see that too. And I understand real estate. Right, right. Right. And I actually found your first investors, they're like in your network, right? So it was a former sort of brief coworker in New York, that was briefly in the timeshare marketing sales industry for like five months before he got went off on my own. And then the other guy was essentially a local hero, that sort of here and there did some real estate deals. And so I paired them up together. And off we went.

Tyler Cauble 8:40

Yeah. That's, I mean, that's not too dissimilar from my first deal. I mean, one was another developer here in town. And then one was a doctor that I had just known for a few years. And that's funny, very, very parallel. I just called to people as well, you know, put that deal together. How do you remember the numbers on that deal? Like was profitable? How did it work out for you? I

Speaker 1 9:01

think at the time, oh, God, we acquired a lot for a total of 50,000. So what does that 62 units for for for you? So my first deal, my first year had to be four units. Because as an immigrant, I needed a couple of million dollar project. I mean, a $2 million project. So I ended up building four homes, and so sold them for 500,000 Each, essentially, so very straightforward. But I acquired the lot for 20 50,000, which was 62,000, whatever pop, and I think the equity was 175 each, so about 350. And then, you know, we ended up what was the split on us. I did have a foreign business partner. I think we ended up making about maybe 120 on our side. So the whole deal produce about 240,000 or 250,000 and gross profits.

Tyler Cauble 9:50

It was probably what a 12 month project.

Speaker 1 9:52

It was a little bit longer because again, I learned a lot of things on this first deal, how to vet contractors and you know, maybe off Who not to hire? No. But the builder was very difficult to work with. And we got definitely burned. And so it did take longer. I think it was six and 18 months or something like that. And also like he left us hanging. So I mean, it was a lot of Heartless. And that's why, you know, when I started the developer Academy, now, I'm just I'm kind of pouring this all into others, because you can really shortcut that whole learning curve. If you do invest into coaching. Same with your coaching program, right? Yep.

Tyler Cauble 10:24

Yeah, I mean, but even for I mean, even if it's 18 months, I mean, you're still talking like a 25 to 30% cash on cash return for your investors? Oh, yeah, that's really good.

Unknown Speaker 10:33

That's a great question.

Tyler Cauble 10:34

I mean, that's our first project. That's I'd say that was a good one. Yeah, that's awesome. Okay, so So tell us kind of what happened next, now that you've gotten your first deal done, you've gotten your green card. And now you have the experience going into your second project. So I mean, how, what was your What was your next at bat? Kind of how did you start to scale this? Well?

Speaker 1 10:55

Yeah, I've had a wild journey. So I ended up actually, my next very next one was taking on a rezone for an SP. So special purpose, zoning, and I took it from preliminary to final. And that was, that was a difficult process. And then, throughout this process, I ended up splitting from my former business partner. And you know a lot about that, you know, it was very nasty and very costly. And so I ended up pretty much in 2020, losing it all. I mean, I ended up you know, getting really creative, I continued to build utilizing, like land trusts, and just like other investors and had a family office at back me, but I ended up having to build a full new firm. And so Sapphira development group is just about, you know, what, about two and a half, three years old, really? And that was, yeah, that was a journey that, you know, I'm really grateful I had early because I learned so much, but it was really hard lessons. So kind of could write a book on like, why not to do 5050? Oh,

Tyler Cauble 12:02

yeah. I mean, I want to dive into the partnerships aspect of it. Because a lot of people when they're first getting into development, they grab on to somebody else. Right? It's I mean, the mistake that you made is unbelievably common, like almost everybody does it before we dive into partnerships. So I want to talk about the rezoning. Why did you decide to take on a rezoning for your second project? What were your takeaways? Because that's, it's brutal. I mean, people don't realize how much work goes into it. And I mean, I had a deal last night completely fall apart, because I had a city town hearing, and they decided to vote like four to one No. Reason, as part of it. I mean, really, really, I'm sorry to hear it for the for that town. Because it's, you know, there, they get, they get to keep a pretty bad hotel instead of an apartment complex. But hey, it is what it is.

Speaker 1 12:49

Um, I think I wasn't afraid to take on a rezoning project. I was really just in it to learn. I think that's the difference. I was like, well hold up. This is in preliminary stage, what is it? What does it take to fight to go to final? And I just thought, like, look, I can figure this out. Like, I love challenges, I love problems. But I also just, like, really love and embrace the learning like process. Because I believe that whenever you going through these micarta times are like harder, you know, situations, like, kind of quirky projects, right. Even parcels, like, you know, I build on like triangular shaped parcels. I do a lot of a lot of I take a lot of on a lot of projects that maybe others don't, because I do like to figure it out. And I've found, you know, usually that those offer a good return. So it really was more so like, I wanted to see the rezoning process, and wanted to understand that, but I will say, today to really do it and an SP, you would have to pay me really handsomely to do it again.

Tyler Cauble 13:49

Yeah, I mean, my brother is a big fan of doing land entitlements. I mean, he that's like something that he just does for fun on the side. But if you're like it's tough to make a living, having a business that does that, because there's so much that goes into it. I mean, what were your what were your biggest takeaways? Like if you had to do that all over again, what would you do differently? You

Speaker 1 14:11

just got to plan on way more time. I think the timeline is the biggest deal. A lot of people keep saying, Oh, it's four to six months. And every time I hear that, I'm like, yes, in theory, you're right.

Tyler Cauble 14:23

Now, it should be four to six months. And if Metro

Speaker 1 14:28

had more AI, probably is possible, but

Tyler Cauble 14:32

we're just like three more employees. You know? Yeah,

Speaker 1 14:35

I think we all would help sponsor that. No, you know, I think the time is a big, big deal. I think it's just always calculated to short I think a lot of times, I mean, pretty much want to budget like six to eight, nine months to at least I'm in a habit right if you don't need it. Great. But yeah, yeah.

Tyler Cauble 14:52

I mean, here's the thing that I've always said. So if we've got a council member, or hey, if the mayor of Nashville is listening, which I highly doubt, but if we could just double our permit fees, I think almost every developer in Nashville would agree to doubling their permit fees, if it meant that 100% of that additional revenue is going towards hiring more employees, and making the process more streamlined. Because we're spending more on interest carry alone having to spend one month than we would if you doubled permit SSI,

Speaker 1 15:21

especially in the last year. I mean, over the last year, oh, my gosh, what we all pay and carry us?

Tyler Cauble 15:25

Wow. I mean, I don't want to go spend every other developer at Nationals money, but I think that it would solve the problem. Okay, let's, let's dive into the partnerships aspect of it, because you should never ever do a 5050 deal. Tell us why?

Speaker 1 15:40

Well, there's so many things on why not? Ultimately, roles and responsibilities, a lot of times, it's just not equal, right? Like the 5050 presumes it, and it's a presumption that things are equal and, and things are not equal. Unless, like you were looking at a perfect scenario, which how often do you have perfect, right, so the odds are already stacked against you, just right off the bat. But also things evolve, right? You start with good intentions, and to evolve and for both to grow at the same growth rate. I mean, you're just asking for it. But I also want to make the distinguishing factor that it's a 5050 and a venture. Right, so So I see a lot of times people joining LLCs together for development deal. I actually changed my structure. Now we do JV agreements, where so we own 100% of the LLC. And then we enter a JV agreement with the investors. Because what that does, it keeps it clean, right? Even if you were to say, hey, it's a 5050 on a deal. That's a different story than 5050 in an LLC, because the government doesn't distinguish between this just being for the sake of a project versus actually a new business, new venture. And once you're in an LLC, 5050 to get out of that. Good luck.

Tyler Cauble 17:02

Yeah. I mean, it's a nightmare. And you there are some ways to get around it. I mean, you know, you could do, you could have 5050 financial rights, but you could have 5149 voting rights, right. And so, you know, just to clarify that, because I know, some people are like, Oh, well, you know, what, can you structure this way? Yeah, you absolutely could. And here's the thing, like, I would rather be the 49% partner than a 5050 partner, because at least then it doesn't matter how much I disagree, somebody else is making the decision. Fine. Right. And so it's it's important, just like, pick who's, who is going to be more invested in this deal. If it's you argue for the 51.

Speaker 1 17:39

I think I think just even distinguishing between the compensation versus like the governing rights, right, is a big deal. But when you get started, I mean, first of all, a lot of people just lack the experience when you get started, right? And then second off, like people are afraid to have hard conversations. Yeah, you know, a lot of times people started with maybe someone that they knew for a while good friend, close friend or family friend, right. And it's it's difficult to have those hard conversations. But what I've learned is, unless you have these hard conversations right off the bat, you're just not setting yourself up, or even your friendship, your relationship for success. So yeah, I think like, to your point, I would also rather be the 49% than like, you know, 5050.

Tyler Cauble 18:22

Right. Yeah. I mean, at the end of the day, your operating agreement, is there for a worst case scenario, figure it out on the front end, but

Speaker 1 18:28

it's up to interpretation, right? Yeah, that's some attorneys throw it up. You gotta be paying to now interpret what was initially intended. And that is an in the US. Expensive? Yes, it's pro attorney.

Tyler Cauble 18:44

That's very pro attorney, attorneys win every time. Alright, if you're joining us live, obviously, we've got over 30, or about 30 of you. If you're joining us live, if you have any questions on getting started in real estate development, drop those in the live chat, just feed and I will get over to those. In the meantime, just even when it comes to keeping the lights on, like as a real estate developer when you're first getting started. That is not an easy prospect, right? Because like you said, that project took you 18 months before you made you know, $120,000 that you split your partner. So when it comes to keeping the lights on as a developer, what are you doing to just make sure you're at least covering your bills, right and waiting for a project to finish?

Speaker 1 19:23

Yeah, someone to you. I mean, we're vertically integrated. So actually had like a realtor team that I started also had started legal battle back in what 2019 2020 And as of last week, we have our brokerage. So the Sapphire said, yeah, thank you. So that's been really exciting. I just really want to fix more that sales side, especially in the residential space, but we actually do have some commercial aspects to it as well. A lot of builders like a lot of development, focus. And so you know, the brokerage the realtor side is one aspect. Obviously we now have the academy as well. Which, you know, has been fantastic. It's now a nationwide community. So I'm really excited to connect with members, you know, all throughout the US. And then we've had a wholesale operation, you know, obviously doing this market, I think wholesaling is just a little bit more difficult. But in 2021, for example, when I got started, my very first wholesale deal, I netted about half a million dollars, package 10 homes and sold in touch to a hedge fund. So that's so that's kind of like I think, like just being more of a well rounded, right. So yeah,

Tyler Cauble 20:31

I mean, that's the thing, like, think about what you're going to be doing as a real estate developer anyway, you're going out there, you're probably looking at off market deals, there'll be some good opportunities that maybe just don't make sense for what you're trying to do. So how can you still make money on those deals? Right? Well, you know, there's a hedge fund or a REIT that wants to buy that, right, you probably wouldn't be a buyer for 10 homes, but you might know one, you know, same thing with certain pieces of land, maybe a piece of land needs to be entitled, and you don't want to go through that process where you could flip it to another developer that you know, in your network, of course, you get your real estate license and start brokering these deals as well. There's so many different ways for you to keep the lights on. Because I mean, let's be honest, your first project second third projects, you're probably not going to be making enough money over that, you know, timeline to justify not working on anything else.

Speaker 1 21:19

Yeah, I mean, I also think I mean, as long as you set up the development deals, right? You have a lot of time in between, right? Because it's more so the project start and exit that requires a lot of time if you hire the right builders, right, I think in between, you know, you have time to set up other ventures or be involved in other facets of real estate.

Tyler Cauble 21:37

What does your team look like today? I mean, now that, you know, you've you've built up the processes and systems around running a real estate development company. So what does it look like in terms of employees? What does it look like in terms of vendors, contractors? Like, how are you kind of accomplishing these deals?

Speaker 1 21:53

So right now, we're definitely the smallest team that we've been in, like, a few years, you know, I think, up until about December, we were about 12 people total. Right now, we're roughly about five to seven. And so I utilize a lot of ways to I love virtual assistants, just because they're meaning laser focus on something. So I just have found that if you if you keep them in there, like one line, that you're just gonna get a lot more output than like having sort of one person try to do all? Yeah,

Tyler Cauble 22:23

I mean, I think that that is, I think that's very prudent, right? I mean, we grew my Development Cabinet of four or five people at one time. And now we're down to two. I mean, we're still handling all of these projects with two people. Yeah. Because, you know, you start to look at and you're like, do we really need a full time analyst? Well, now we're only acquiring one or two, like real deals a year I can underwrite them? Right? Do we really need an operations manager? Well, no, because that's like the fourth employee, you know what I mean? Like, there's things that you start to kind of realize it's like, actually, it's a lot better to run it lean, because then I don't have to make as much money on every deal. I don't have to do as many capital raises, I don't have to, it just becomes a much, much better oiled machine.

Speaker 1 23:02

I think, you know, the marketing side obviously takes a lot of time. I mean, you know, you have a marketing engine. So we're currently recruiting well, for new marketing coordinator, actually. So we're looking to bring someone out new in. And the marketing side I think is like the most like time and tense where you just really need a team. You need people that can help edit, you know, build funnels, websites, things and yeah,

Tyler Cauble 23:26

yeah, you've got to have that. Well, if you're good at marketing, and you're listening this podcast reach out to Josephine she's currently hiring. Josephine, you know, kind of wrapping it up. I mean, what are what are the key lessons, key takeaways, best pieces of advice you would give to other aspiring real estate developers? As they're kind of jumping into the market?

Speaker 1 23:45

Yeah, I think hire slow fire fast is definitely important. I think people are also afraid to fire builders.

Tyler Cauble 23:57

Okay, let's, let's unpack that, because you've mentioned it a few times talk to us about bad contractors.

Speaker 1 24:02

Well, you know, I think where do I start? You know, I think it's just super important to align the incentives. I think that's all I think that just a lot of times I see you know, some guys like also either doing 5050 with a builder or like, I've actually heard and I'm curious if you've heard this, but over the last like two years that some essentially new developers actually had the builders summit four draws directly to the banker.

Tyler Cauble 24:33

Oh, hell no, absolutely not. Why?

Unknown Speaker 24:37

That was my question.

Tyler Cauble 24:39

For those of y'all that are listening, that are not familiar with the commercial side development process, as a developer, you're the one getting the loan on the property. That's right as your head the roll. Your contractor is then you know, adhering to a budget that you set. They submit to you the drawers you review them, look at them compared to the budget say yes or no and then you submit that to the bank for payment. If your contractor is doing that directly, there is nothing stopping them from saying actually on this draw, I want to 50% contractor fee or fluffing up the Yes.

Speaker 1 25:11

Yeah, I think you know, always ask for backup invoices. I think that's something too that a lot of guys are not comfortable asking, just you know. And so we have to process that I have a full bookkeeper. And she actually before even I look at an invoice, she will make sure that we have the backup invoices, and she will cross verify that those make sense. And only then I go in and say, okay, hey, this is a proof. It's not an I am not afraid to ask questions, I will throw it back of like, Hey, why is this, you know, at this number. And that way, we will write what you write. And also you learn that way, right? Like, the more you spend, the more you obsess about the line items, the more you obsess about just you know, making sure you're you're having a pulse on costs and the flow of things of the time, like the timeline, the better you're gonna become as a developer. And so I think it's instrumental in order to just become very good at what what you do.

Tyler Cauble 26:07

Yeah, I agree. Yeah, just being this has been a great conversation, if anybody listening wants to follow what you're doing more and more about what you got going on, where can they find you?

Speaker 1 26:15

Instagram is the best way. So Josephine Safford, and then yeah, stuff I develop. And that's

Tyler Cauble 26:20

easy enough. All right, guys, appreciate you all for joining us. We'll see y'all in the next one. Awesome. Are you looking to take the next step toward investing in commercial real estate but don't know where to go? Series central offers a comprehensive education and coaching platform designed to help you get started. Our online courses cover a wide range of topics from the fundamentals to advanced strategies, ensuring you have the knowledge and skills needed to thrive in this competitive industry. As a member, you'll gain access to our exclusive online community and monthly group coaching calls, providing you with valuable networking opportunities and personalized guidance from experienced professionals. Whether you're a beginner or looking to take your career to the next level. Cre Central has the resources you need. Visit www.cre central.com To learn more