In June 2017, I spoke with Architect & Developer Jose de la Cruz of JdlC Studio in Houston, TX.
Jose de la Cruz: Well you know it really started because I was looking at my student loans and thinking they were too high. I am sitting here paying rent on a place to live and I began to think about buying a duplex and living in one unit while renting out the other. I thought that would help with my student loan. That was it. That was the only reason why.
I remember looking at some of the houses in this area of Houston and I started seeing houses that were sixty to seventy-grand, and thought, “Yeah, I could finance one.” I started doing the paperwork, and when it all came back in six months, the properties were double the price. It was crazy! Long story short, I found a house. It was on the market for two days. For some reason, they took it off the market. I called the lady a few times, had my realtor try to chase her down, talked to the neighbors, and eventually, I was able to get ahold of her. She was in town but was leaving in three days. I walked through the house and told the realtor to make the offer. That was how we got the first house.
James Petty: So you used a realtor to find the first house?
JdlC: Here in Texas, you need a realtor to buy a house. I happened to find it, but I had to use the relator to close on the deal. I tried to finance it, but the bank did not give me the loan. By chance, my brother was looking for a house to flip. He had some cash, I had some cash. I talked to him about this house. Then we just bought it cash.
JP: When you went to the bank, were you trying to get a standard mortgage or a construction loan?
JdlC: I was trying to get a standard mortgage and use my cash to do the renovation. It makes sense that they did not give me a loan. The house was not livable. They would not have been able to sell that loan if they needed to.
JP: Did you put together a pro forma for this project to project and track your spending for the renovation?
JdlC: We started to. We put some things together by hand between my brother, my sister-in-law, and myself. It was totally different with the first house. We had no idea what we were getting into. With the first house, it was just learning what not to do. It wasn’t anything about learning what to do. It was a hundred percent of what not to do. That is what we learned. We learned not to rely on people. We learned not to assume that they knew what we were talking about. We had to explain things to them as if they were five-year-olds. This happened with everyone. You can explain something to them and they will simply say, “yes, ok.” It doesn’t matter if you speak the same language or a different language. These guys just want to nail something, cut something, and do something right now. You really have to be on top of every worker. It is unbelievable.
With the first house, it was just learning what not to do. It wasn’t anything about learning what to do. It was a hundred percent of what not to do.
JP: You guys did a lot of the work yourself on your first project, the Eastwood House, right?
JdlC: Yeah, mostly. With carpentry, we had to get a carpenter. I had put some drawings together. I would show him the drawings and some images of what I was looking to do, and he would still do it wrong. He would do something completely different than what I would show him. I could not understand it. I was like, “Dude, here are the pictures, here are the drawings. Come on dude!”
JP: How did you organize your labor force?
JdlC: Some were by word of mouth. I had a friend who was doing some work at her own house. I asked her to give me the number of some subcontractors that she was using. Once you get one or two on your team, you can ask them if they know someone who does this, or who does that. We got a couple of guys from outside of Home Depot. We found our plumber at Home Depot! We found people at Home Depot who were amazing workers. They knew their stuff. We also found some workers that were horrible. It was like playing the lottery. But really that is like everything else in life.
JP: When you are the architect, developer, and contractor, how does the responsibility work out? What happens when something doesn’t pass inspection or someone’s work isn’t as you had intended it? How do you know how much to pay different trades for their work?
JdlC: We are working on our second house, the Clay House now. This one is a 3-bedroom house and a garage apartment. It works like two projects. For this project, I ask my electrician “How much do you charge for the work on this project? It needs to pass inspection.” He tells me $8,000. Somebody has to go and get the permit for that. So a licensed electrician needs to put his name and information on the application. Now he is responsible. If the project doesn’t pass the inspection, I will call the city to report him. If the city receives too many calls for any particular person, they will lose their license. So basically, my protection is that if the inspector does not pass the project, then the electrician has to come fix it. That is part of the contract. His fee is from first wire until he hands me the permit. If that takes him an hour or a month, it is his business.
Each trade is separate fee like that. But is the fee fair? How do you know? It is a lot like going to the mechanic, or the doctor. You are going to the electrician because you don’t know what you are doing. Maybe the work costs $6,000 or maybe $8,000. You have no idea. You have to get a couple of subs and see the different proposals. Always ask around and see if people have used them before. You have no idea. How much does it cost to install a window? $50? $100? $200? I don’t know.
It is a lot like when you first graduate from school and someone asks you to draw up some plans for them. “How much do you charge?” I remember the first time someone asked me that question. I had no idea what to say. It is the same thing with these guys. You have to ask around and you eventually start learning. If they give you a price that is too low, the may have no idea what they are doing. That has happened with us. We had a guy that bid so low, and he had no idea what he was doing. You learn by asking around. The first house is how you learn what not to do.
JP: You worked full-time at an architecture firm while you were working on both of these projects right? How long did that take with the first project from beginning to end?
JdlC: Yeah. We built these primarily on the weekends. The Eastwood House took about fifteen-months for the renovation. We bought in August 2014 and we sold it April 2016. The whole process was twenty-months.
JP: Did you go over to the property every day after your day job?
JdlC: No. Typically, I only worked on the house during weekends and holidays. I would be there all day Saturday and Sunday. That year, I think I had only six-days off the entire year when you combine my day job and the Eastwood House. I was working every day. Talking to people. Getting materials.
JP: What about the guys that you hired? Were they working during the weekdays?
JdlC: Some of them worked while we weren’t there. With the first house, the budget was very limited. My brother had $60,000 and I had $20,000. I had about $20,000 in my 401k. So together we had the money to buy the house. Now we needed money to repair the house. So I took a personal loan and I used a credit card to buy some of the material. Because of the budget, we could not outright hire people. Most people worked on the house with us on the weekend. This was their second job too. My friend is an electrician and has a full-time job for a company. He is paid salary there. I told him about the Eastwood House and he said he could do it, but only on the weekend. For us, it was perfect. Overall it took longer. With that project, we didn’t need speed. We needed labor for a good price.
JP: Did you pay capital gains tax on the Eastwood House?
JdlC: Well one thing to mention is that we waited until the day it was sold until we paid the property taxes. That day we paid a lump sum for all of the months we had held it. We talked with some friends regarding capital gains tax. We knew that we had to reuse the money that we gained from the sale. We had to get another property to avoid paying the tax. It is like playing poker. You are just moving around the cards. So he told us to make sure we reinvest that money right away. That is what we did. We took the money we made and put it straight into the second house, the Clay House. We got lucky with the second house. We bought the first one using a realtor, but the second one we got from a wholesaler. You know how there is a wholesaler for everything? Well, there are wholesalers for houses too! I had no idea.
JP: How long was it between the Eastwood House and the Clay House.
JdlC: About 5 months.
JP: So you knew when you sold the Eastwood House that you were happy with how things had worked out and that you were ready to do it again?
JdlC: Oh no, we had a couple of houses that we had put into contract even before we had sold the Eastwood House. We told the owners that we would pay them a specific amount, but not until the Eastwood House sells. We also told them, that if they get a cash offer before that time, the contract between us is void and they can sell it. We did that for a number of houses and every single owner received a cash offer and didn’t wait for us. So as soon as Eastwood was sold, we started looking. We put in offers on three houses and none were accepted. One day, my sister-in-law sent me an email with the details on a house and asked if I wanted to go see it right away. I said, “I don’t want to go see it, I just want to put in an offer.” I knew it was a total rehab and I knew the area. The main thing right now is the area. This property is 1.2 miles away from downtown. It is incredible. That was how we purchased the Clay House.
JP: Did you get financing for the Clay House?
JdlC: No, we had the cash from the Eastwood House. We purchased the Eastwood House for $80,000. We spent around $60,000-$80,000 on renovations. We sold it for $280,000. So it was a really great deal. We had enough money from that to buy this one and have a little bit left over for the renovation.
JP: With the first project, did you feel like you learned a lot about managing construction?
JdlC: One of the things I learned is to really know where everything wants to be. As the architect and contractor, the subs will constantly ask you for a dimension or if they should cut something. It is very hands on. I used to have all of this in my head and I just assumed that everyone knew what was in my head. Now I understand that I need to walk through the process of first we do this, then we do this, then we do that. I have to sell it to myself first before I can sell it to other people. “Cut it this way. Take this wall down here. Do this task.” I had never really experienced this many questions previously in my professional life. “How do you want it? Do you want to keep this wall? Where do you want this window?” A good example on this project is the tub. We are putting it on a little step. It’s nothing. But the guy is asking me how high to put the step. In my head, I am thinking, “oh you know, this high.” But he needs specifics. Is it eight inches?
There are a lot of little things you learn in construction. Things you don’t think of. Things like trash. Do you rent a container for $500 for only ten days? Or do you buy a trailer and haul the trash yourself? If you buy the trailer, you also have to spend half the day taking it to a dump and add in the dumping fees. We have tried both methods. There are so many little things that have nothing to do with design or architecture. They take time. It’s crazy the things people will ask you. People think that because you are the architect, you know everything. They are like, “blah blah blah blah???” and I’m like, “hey I dunno! Its my first time too!”
JP: Are you building the Clay House as well?
JdlC: Yeah. We have some new people. In the Eastwood House we installed the windows ourselves. In this new project, we have brick which requires different detailing. So we hired someone for that. With the second project we also have a better budget, so we can hire more things out. With the Eastwood House, it took us like three-weeks to install the windows ourselves. With this project, it took the guy two-days. In the end, it pays off. You sell it quicker. You pay less in taxes. I think the property taxes on this project are $400 per month. So we think about that often.
JP: Are you going to sell the Clay House or rent it out?
JdlC: We are going to sell it. We want to keep on going. Getting back to your question on why I wanted to initially do this, there were two things I wanted to do when I got out of school. One, I wanted to renovate a house. After that, I wanted to build a house from scratch. I am trying to convince my brother that for the next project, we get some land and develop a project from the ground up. He is a little bit hesitant, and I am a little bit too. I have never done it before. But the only way to find out if we can do it is to find out.
JP: Have you already been working on ideas on what you are interested in or where it would happen?
JdlC: Well it depends on the lot. I like this area that we are working in. I would ideally like to purchase land, cut it in half and build a duplex. I would sell one unit live in the other. Right now, I am renting. I would prefer to own a house, especially if I could use this to help make the numbers work.
JP: Are you planning to make a full-time business out of this work?
JdlC: Not right now. My brother has a good job and I think he wants to retire early in five to six years. We will see where we are at that point. My student loans should be paid off by then. If I can get rid of the student debt, own a house, and have built up some savings, then I think we could do this full-time. At that point, I would not need to make much money. I can take my time and do this business how I want to. Right now I rely on my salary to pay my debts and my rent. Hopefully, after this project we can do a slightly larger project. My dream would be to buy an entire block and do something with it. It sounds big. But, initially I had no idea about the first house, and now we are on to the second one.
JP: If you were moving up to larger and larger projects, would you want to continue to build them yourself?
JdlC: Well yeah. I like it. It is like making a little architecture model in school. Except it’s so real and the buildings are alive. In the Clay House, there is an island table coming off of the wall. You know it is from the 1940’s. The kitchen counters are a little different size wise compared to what you are used to seeing in newer houses. They didn’t have appliances back then. You really have to imagine life at that time. For me, it is very interesting and very touching. That is what I like about renovation work. This project is great. You find little memories here and there. Like this brick we just found today! It is from 1924. The year was stamped onto the brick. Just imagine the guy that laid that brick. Right here. It brings me back to my grandparents. It is a little romantic for me doing the renovations in these old houses.
JP: When you are working on these renovations, do you feel like you are getting good design opportunities and satisfying your desire to make beautiful things?
JdlC: Yeah. My brother gets mad. He is like, “Why do you think so much like this?” I have meetings about how to lay the brick. I will sit for three-hours over little things like that. So, of course, I’m going to go over every detail. That is what I do every day at the office. He always questions why we do things in a certain way. It has been an interesting story because obviously, he is just a regular person. He wants to get it done any way possible. I want everything to align that no one is going to see but me. That is always a really interesting conversation between him and I. But we have managed to listen to both sides and come to an understanding. We know it isn’t a museum but for specific things, it makes sense. There are a few details here and there that you can get away with that are not that expensive. You spend a few hundred dollars more, but you get satisfaction because you have designed and built something that you hope somebody will appreciate.
JP: There can be times when spending the extra money or effort can command a higher return or sell a property faster.
JdlC: Definitely. With Eastwood House, we put in a marble kitchen counter instead of granite. The combination of Carrera marble and white cabinets is gorgeous. We took the marble from the island all the way down the side of the island to the floor and it looks beautiful. It looks monolithic. We spent around $300 more overall. But you look at a hundred kitchens around here and there are only two like that. It stands out.
JP: If that one thing helped sell the project one month sooner, then you have already recouped the money in property taxes alone that you would have paid.
For more on Jose de la Cruz, see the book Architect & Developer: A Guide to Self-Initiating Projects.