Ryan Herrera: Why Ground-Up Development Manufactures Equity You Can Never Buy

Most investors buy an asset at what it’s worth. Ryan Herrera’s entire thesis is that you should build it at what it costs instead — and that the gap between those two numbers is the only reliable edge left in a high-rate market.

That sounds like a slogan until you run his math. On Episode 216 of The REI Agent, Herrera — owner of R.H. Equities and a developer of 8-to-12-unit multifamily projects in Alberta with a luxury build underway in Miami — walked through exactly how a $1.5 million project becomes a $2 million asset in twelve months, and how the refinance hands your capital back to you tax-free so you can do it again.

The insight: you’re not buying equity, you’re manufacturing it

Herrera’s pivot to development came from a question most wholesalers never ask. His first deal ever was a piece of land he wholesaled to a developer. He and two partners split a $50,000 assignment fee three ways — about $17,000 each, in roughly three weeks. Coming from a painting business where a $17,000 profit meant a $50,000 job, that felt like a revelation.

Then he did the follow-up math. “I was thinking if the developer can pay me 50K, I wonder how much he’s making,” he said. “I found out he was making like 350 on one deal.”

Two and a half years ago he did his first development with, in his words, no money. The mechanism he found is the thing worth studying:

Build a fourplex. All-in cost — land, soft costs, hard costs, carrying interest — call it $1.5 million. Twelve months later it’s finished and it appraises at $2 million. Your construction loan has to convert to a term loan or DSCR loan at that point; it can’t stay a construction loan once the building is done. That conversion happens off the new value, typically at 75-80% LTV.

Eighty percent of $2 million is $1.6 million. Your cost basis was $1.5 million. You just pulled out every dollar of capital that went into the project, plus roughly $100,000 — and you still own the building.

“That half a mil of equity, you could pull that sucker out, not all of it, but most of it once it’s done,” Herrera said. “You were at 1.5 cost basis. 12 months later, it’s done. It’s worth two.”

He calls it an infinite return, and the term is technically accurate: once your basis is fully recovered, there’s no denominator left. The cash-out refinance proceeds are loan proceeds, not income — so, as Mattias pointed out on the episode, that recovered capital is not a taxable event. You roll the $250,000 into the next project and repeat.

The part that makes it accessible: loan-to-cost, not loan-to-value

The obvious objection is that you need $1.5 million to start a $1.5 million project. You don’t.

Construction lending prices off loan-to-cost, not loan-to-value, and Herrera says he works with lenders at 90% LTC and occasionally higher. At 90% LTC, a $1.5 million project requires roughly $150,000 of equity — and that $150,000 lives inside the $1.5 million basis, which means the refinance recovers it along with everything else.

That reframing is the whole unlock. The question stops being “how do I find a million and a half dollars” and becomes “how do I find a hundred and fifty thousand, once.”

Herrera’s answers to that second question include 0% introductory business credit lines (he cites access up to $200,000-$300,000 for borrowers with strong credit profiles) and raising equity from partners. He’s candid that the credit route has limits: “you can only get up to like 300K. If you’re trying to raise a couple mil to do a 20 unit apartment, then you’re gonna have to raise capital.”

A caution the episode itself surfaces: some of what gets marketed in the business-credit space — purchasing aged entities to improve underwriting outcomes, aggressive credit-profile cleanup — sits in genuinely gray territory. Herrera discloses that his own team sells aged LLC services, which is worth knowing when you weigh the advice. Before you stack six figures of personal-guarantee debt into a construction project, that conversation belongs with your own lender, CPA, and attorney, not a podcast.

The capital-raising side is more replicable, and Herrera’s approach is unusual: he runs paid Facebook and Instagram video ads describing the project, then splits deals 50/50 or 60/40 with the investor who responds. “I run ads, messenger ads, and I wake up and I have an influx of people messaging me.” His framing on capital is worth sitting with: “There’s capital everywhere. It needs to go somewhere. Capital decays every year. It’s up to you to grab that and grow it for them.”

Getting paid during the build, not just at the end

The most common objection to development is the timeline. Twelve to eighteen months with no income is a real constraint for anyone whose business is commission-based.

Herrera’s answer is the developer fee, and it’s the most immediately useful tactic in the episode. You underwrite a developer fee into the project budget — he says roughly $100,000 on a $2 million project, which is consistent with industry norms of 3-5% of total development cost. That raises your basis, but the fee is paid to you.

Critically, it’s not paid at the end. “You’re pulling that out every draw,” he said. “So you finish foundation. You call your bank, hey, I need 250K, I just finished foundation. In that 250, you have part of your 100K. So let’s say it’s 20K. So during the build, you’re making money as if you were flipping or burning.”

You’re getting flip-like income during construction and the half-million equity creation at the end. That’s the “best of both worlds” claim, and it holds up better than most podcast math.

Why the margin lets you hire real professionals

Herrera is refreshingly clear that he is not a builder. “I can’t tell you the difference between a two by four or two by six,” he said. “I let my experts, the team that I built, take care of it.” He estimates 10 hours a week at peak, zero when he’s traveling, with the team coordinating over WhatsApp.

That isn’t laziness — it’s a function of margin. On a fix-and-flip, the spread is thin enough that a wrong window order or a lumber theft eats your profit, which forces you to supervise personally. “You don’t wanna make 10K off a flip. You wanna make sure you’re making at least 30, hopefully 50 to 80,” he said. “With development, we’re making half a mil of equity. We are able to hire actual professionals — people who post on their LinkedIn saying they have 20 years worth of GC or project management experience.”

Bigger margins buy better operators. Better operators are what make the thing passive.

The interest-rate argument for building instead of buying

This is where Herrera’s case gets strongest for 2026 conditions. When you buy an existing fourplex and BRRRR it, your refinance is constrained by market value and market rents — you’re handcuffed to whatever the property can produce and whatever DSCR your lender demands, and rate movements hit you directly.

“When you develop, you’re at the cost basis,” he said. “So I’m at the cost basis of 1.5. If I were to buy what I built from someone like me, I’m buying it at 2 mil. So my interest rate is at the 2 mil.”

Because you don’t have to refinance to the maximum, you have room to maneuver. “You don’t need to refinance fully at the 2 mil. You could refinance at 1.9, 1.8.” If rates rise or rents soften, the half-million of manufactured equity is your cushion. Buyers of existing product don’t have that cushion — they paid for it at closing.

The macro backdrop supports him. Elevated rates and construction costs have suppressed groundbreakings, which means the 2026-2027 delivery pipeline is thin, national vacancy has passed its peak, and forecasters expect rent growth normalizing into the 3-4% range in most major markets. Fewer new units delivering into steady demand is a favorable setup for anyone finishing a build in that window.

The agent-specific argument

Herrera’s pitch to real estate agents is that they’re already most of the way there. “You are 90% ahead of the game because you have access to the portal. You have access to these off-market deals. You have the credibility as a realtor.”

What’s missing, he says, is underwriting: cost per square foot to build, zoning, land cost, and ARV. “If you add all that together, understanding the ARV, you’re good to go.”

On sourcing land, his advice is to look for evidence of new construction already happening — teardowns and replacement builds — which you can verify objectively through building permit records and recently sold comps rather than impressions. Permit data is public, it’s specific, and it tells you what a jurisdiction is actually approving. As an agent you can already pull the comps.

His blunt recommendation: “I highly recommend just skip the fix and flip. If you’re gonna buy rentals, just might as well build it, build your own rentals, because we get reward for the things that are hard.”

The honest caveats

Development is the hardest tier of real estate, and Herrera says so himself. Entitlement risk, construction cost overruns, interest carry on a project that runs long, and appraisal risk at conversion are all real — the $2 million appraisal that makes the math work is an assumption, not a guarantee. His student’s projected $350,000 Houston profit and his own projected $5 million Miami exit are forecasts, not closed results.

A 90% LTC construction loan is leverage, and leverage cuts in both directions. If the completed appraisal comes in at $1.7 million instead of $2 million, the refinance doesn’t return your capital and you’re holding a personal guarantee. That’s the scenario to underwrite before the optimistic one.

What to actually do with this

The transferable idea isn’t “become a developer next quarter.” It’s the distinction between buying value and manufacturing it. Herrera’s whole edge is that he acquires at cost basis while everyone else acquires at market — and in a market where cap rates and debt costs have compressed the returns on buying existing product, manufactured equity may be the last dependable spread.

Start with underwriting one hypothetical project in a market you already know: land cost, cost per square foot to build, soft costs, carry, and a defensible ARV from comps you can pull yourself. If the numbers don’t clear, you’ve lost an afternoon. If they do, you’ve found something the buy-and-hold crowd can’t compete for.

And keep Herrera’s framing on limiting beliefs: “If you think you can’t do it because you need experience, well, how are you gonna get experience if you don’t do it?”

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Ready to figure out how development, creative financing, or a portfolio pivot fits your actual numbers? REI Agent Advisor helps agents and investors pressure-test strategy against real financials — so you’re building a plan, not chasing a podcast episode.

Listen to the full conversation with Ryan Herrera on The REI Agent Podcast. This content is educational and is not investment, tax, or legal advice.