Patrick Zalupski took a big hit investing in condos just before the Great Recession. So he tried a new tactic designed to minimize his risk and weather economic downturns — and now he’s a billionaire.
Inside Bella Collina, a gated community near Orlando, Florida, three lots sit ready for their homes. The mock-ups are nearly identical: 3,076 square feet, five bedrooms and 3.5 baths, featuring quartz countertops, a tile roof and double vanities in the master bathroom. “It’s truly all the parts and pieces and components that you put in a house that make it appealing,” says Patrick Zalupski, founder and CEO of Dream Finders Homes, which owns the lots. An interested buyer could put money down tomorrow and move in as early as September.
Based in Jacksonville, Dream Finders designs and builds customizable homes at a typical price of $360,000, mostly in Florida, but also in Colorado, Washington, D.C., the Carolinas and elsewhere. Helped along by America’s superheated residential market, the company went public in January, and its stock doubled from its IPO price. That has made Zalupski—who is just 40 years old and owns about two-thirds of its shares—a billionaire, worth more than $1.5 billion most recently. “I tell everybody, ‘It’s only on paper,’” he says. (He hasn’t sold any shares since the company went public.)
The secret to Dream Finders’ ascent lies in the wonky details. Instead of buying large swaths of property in advance, like many builders, it purchases only the land it needs, from investors like Brookfield and Varde, paying a premium to the market value of the land that hovers around a 10% and 20% mark-up. The model helps the company offload risk in case of a market downturn and enables it to turn inventory over more quickly, fueling growth. Last year Dream Finders’ revenue jumped more than 50%, to $1.1 billion—with pre-tax income of $79.1 million—and the firm completed 3,154 home sales, a similar percentage gain. In the first quarter of 2021 revenue jumped 82% year-over-year, to $344 million.
Zalupski isn’t the first to use this playbook. It’s a mirror image to that of Reston, Virginia-based NVR, a publicly traded homebuilder founded in 1980. “They’re probably one of the most successful businesses in the last 30 years,” shrugs Zalupski. He says he landed on the business model after his ill-fated experience building condos in the run-up to the Great Recession, right before he founded Dream Finders in 2008, which proved the value of keeping expensive properties off his balance sheet.
Now Zalupski’s challenge is maintaining growth. The residential housing frenzy—across the country, 2020 saw the greatest number of sales since 2006, and national home values are up 11.6% in the last year —has sparked a run on vacant land, creating a supply crunch with no obvious end point. That could eventually threaten his plans for expansion. “Everybody’s looking for land… so the inventory is depleting,” says Deepa Raghavan, the lead housing analyst at Wells Fargo Securities. “Finished lots,” those ready for construction, “are not easy to find.”
Zalupski is unfazed. “Our historic return on equity is north of 40%,” he says—roughly in line with NVR’s and double that of many conventional homebuilders. “And our goal is to continue to replicate that in the future.”
Born in the suburbs of Detroit, Zalupski’s family moved around during his childhood, and he spent high school in Belgium while his dad ran General Electric’s appliance business in Europe and the Middle East. After studying finance at Stetson University, Zalupski took a sleepy job at FedEx conducting internal audits. The work was unglamorous, and the $52,000 annual salary wasn’t enough to keep him engaged. So in 2004 he left.
By then, Zalupski’s parents had divorced, and his mother was living in Jacksonville, working as a realtor and “making good money,” he recalls. “I said, ‘I’ll do whatever it takes to make more money than $52,000 a year.’”
He joined his mom, helping her business by day and working on his own projects at night. In 2004 he bought a foreclosed home for roughly $72,000, invested another $30,000 of his own money, then flipped the property for $150,000. “I learned how to do tile and drywall and countertops and cabinets, pretty much anything non-structural,” Zalupski says.
Using the profits from the first deal, he then bought a few more homes, and eventually a nine-unit condo project in 2006, just before the real estate market melted down. “That obviously didn’t go well,” he says. “I went through the financial crisis personally, and decided that I’d made some mistakes…. I should have been focused on single family detached homes,” which are generally more resilient in economic downturns.
That mistake formed the basis of Dream Finders, which Zalupski cofounded with a construction partner, Mark McGuigan, and McGuigan’s wife, Tobi—plunging him fully into the world of homebuilding. Their first $200,000 loan, in 2008, came from Clay County Housing Finance Authority in the northeastern part of Florida, with a mandate to exclusively sell affordable units. “We were buying land at deflated prices…and were able to then also renegotiate the labor costs and material costs,” Zalupski says.
In 2009 Dream Finders built 27 homes. As the market rebounded following the recession, its output did in turn, to 85 homes in 2010, then 150, 260 and more. “I reinvested every dollar [of] profit we made for 12 years,” he says. By 2013 the company had sold a total of more than 1,000 homes, and Zalupski bought the McGuigans out. He expanded beyond Florida into Georgia, followed by Colorado and Texas. The company has been profitable every year since its founding, Zalupski says.
Along the way, he has maintained his “as-needed” land-buying strategy, which many competitors shun—or at least use less—to avoid paying premium prices for land. But Dream Finders will be better protected if home values fall from their current record highs. The company “is uniquely positioned to continue robust growth in [2021] against a backdrop of deceleration across the industry,” wrote Michael Dahl, an analyst at RBC Capital Markets, in a recent report, though he noted that greater competition for land poses a risk.
In the meantime, Zalupski is happily riding a frenzied residential market in Florida, where Covid migration has helped jolt prices 11% in the past year and where inventory has shrunk more than a third, according to Zillow. “In the Southeast, especially for mid-priced homes, it has become extremely common to have situations with multiple offers,” says Carolina Gerdts, executive vice president at RelatedISG International Realty, which is based in Aventura, Florida. “I anticipate that as long as interest rates are low, we will continue to see this trend.”
Rates could tick up in the next year, analysts say, which could cause the market to cool, and perhaps Dream Finders’ stock price with it. Zalupski insists his focus is elsewhere. “My mindset is ‘What do we do tomorrow?’” he says. “We really are thinking about the next 20 years.”
