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Real Estate Investing School Podcast
122. REAL DEAL: Tiny Homes, Giant Returns
00:26:48
Welcome back to the Real Estate Investing School Podcast! In this Real Deal episode, Brody shares insights into his journey of developing a tiny home resort. Brody discusses the inspiration behind the project, the challenges he faced in finding the...
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Because it's obviously a lot less square footage. You can get into the property with a lot less. And then on top of that, it usually can rent if you do it the right way for very similar to a property that's two, three, four times its size. What's up everybody? Welcome back to the Real Estate Investing School podcast. This is a real Deal episode and I am your host today, Brody Fossett. Thank you for joining me hopping in here today. I'm going to dive into my tiny home resort. I'm going to tell you ultimately how I found it, how I funded it, and how I forced it and turned it into an awesome deal. Now this one's fun because a lot of people have showed a lot of interest in this just over the last honestly years that I've been putting this thing together. And now I finally have like one month of renting it out. So I can actually give you some accurate data. I've had some experiences, good and bad and putting this whole thing together. And so I thought it would be time to share that with you and I'll probably do the same thing like in the future. Just an update on how things are going and what it looks like there. I want to be as transparent as possible with all of this stuff and obviously we share these things with you so that you can learn from these deals and learn from the mistakes so you don't have to go make them that cost time and money as well as the things that did go well so that you can go replicate the process. So excited to jam for the next little bit with you. We keep these episodes pretty short, sweet, to the point, but as always, if you have more questions or follow up, go ahead and reach out on Instagram @RealEstate investing school or to me personally, Brody Fawcett. It's probably the best way to reach us and always as well, if you are somebody who needs a little extra hand holding and you're ready to take your real estate investing to the next level, we invite you to join our program at Real Estate Investing School. We have one on one coaches and we actually are just rolling out a new program for the year that gives those who haven't been able to make the investment in the past to work with a one on one coach to go fast. It is a good investment for a reason, but we actually just rolled out a lower tier offer where you can still get access to the community, our live classes, everything we have going on without breaking the bank. So all that info is at real estate adviceschool.com. now, with all that being said, let's. Let's dive into the deal today. So just kind of backstory on tiny homes. I mean, this is something. It's kind of a buzzword today for me. I've always. I don't know about always, but at least, like, the last eight or nine years have been obsessed with this tiny home concept. And something about just creating experiences is really fun and enjoyable for me. And so for me, I like the idea for multiple reasons. I'm the type of guy that I like to close my eyes and just visualize something and then go and create it. And so it got so fun and addicting for me, just closing my eyes and visualizing what this tiny home resort would look like, and how do I go and create this type of an experience for other people to come and enjoy. And so throughout the years, I jotted down so many different ideas and notes, and always kind of like, the more I got into real estate investing, looked for different properties that would work. And it was kind of difficult because it has to be the right zoning as far as being able to put multiple units, right. If you think about it, just going out and buying, like, a big piece of land and spending more money for it, a lot of times you can only put one unit on it or one dwelling, right? And so it didn't make as much sense to spend a lot of money to put a tiny home on something. And so it really does take the right property. I'll tell you about how I found that, but at one point, I. I found on KSL.com I found some shipping container homes that somebody was selling and trying to get rid of. And I actually got a good deal on it. So I bought them, picked it up. I had no idea what I was gonna do with it, but it was a good deal, and I'm a sucker for good deals. And I knew I always wanted to do something with these tiny homes. And so that actually sat for probably a year, and I didn't do much with it. And that was for different reasons, but one was I figured out with shipping containers, it's interesting. It is a unique experience, and there's different things you can do, especially if you stack the containers and whatnot. But they are small. They're really small. You're limited to the space that you have, what you can do with that space. They're a little bit more difficult to build with, right? Because by the time you put in the insulation and you're framing the walls, like, it just cuts down on all the Space. And so I realized that, hey, if I'm going to go and do this thing, like, I want to go design these units the way I want to design them. I want to be able to sleep more people than you can just in a single shipping container. So that led to. Eventually I sold those. And always in the back of my mind was this tiny home resort idea, however, that would kind of play out. And so what ended up happening was I found a piece of land that I did a lot of research on first, figuring out what would work, what the city would require, what would they need to be able to approve a project like this, what would it need to be zoned? And all of those things, which I want to walk you through really quick, because that question comes up all the time, like, how do you know how to get it zoned? How do you know how to push it through all these different things? Right? And so just kind of like an overview of this deal. This is one. One lot that we just finished building on. I say we because I have a partner. So I'll tell you how I funded that in a second and what that looks like. But we ultimately have four lots. Okay. And then we subdivided those four lots because one of them was really small, and they were all weird shapes into three different lots that are all about the same size, which is a little over half an acre each of them. So the land's not even that big, but total. Like, if we're putting tiny homes on all of it, we can fit about 24 units on everything. And there's certain restrictions that they have, just like every county is going to have on different things where these are at. The way that they actually have it written is, one, you can't do tiny homes on wheels, so it has to be an actual foundation. And two, you can't build on more than more than 50% of the land. So you actually got to keep, like, trees and keep things like that to make it still feel like you're in the mountains. And so going back to how. How I found this deal, it started with the land. And even before the land, it started with doing the research. Okay? So I knew this concept that I had, and I wanted to take it to cash flow. I knew I wanted to do something like this, and so it just became, okay, where do I want to do it? And the way I did this one, it was in. It's in Brian Head, Utah. Okay, secrets out. You guys know this. I always. I always laugh because everyone's like, oh, where are you investing? Where are you investing in reality is it's, it's more about the investor and the investment than it is about the location. Okay? So just keep that, keep that in mind. Location is good. It makes a difference for sure. But there are so many good locations and more often than not, you're going to get a bad investment in a good location than, than trying to actually focus on getting a good investment. It could be in a bad location, it could be multiple places. I want to say bad location because you never change the location. But you can get an investment that's going to do better than a lot of other investments in an area that a lot of people are like, oh, don't invest there or don't go there. So just, just kind of like, quick tip there. But with this one, I actually had a condo that I was Airbnb and I'd had that for probably three or four years. And I saw what happened. I saw what happened during COVID with it. I saw what happened during the summertime, I saw what happened during the winter time. And so it gave me a really, really good idea of what these smaller homes would do. Because this is just a one bedroom, one bath condo. It wasn't brand new or anything like that. But I kind of started to figure out this strategy. And my strategy, which is a lot of what I'm applying now with the tiny homes was how do we build it or buy it at such a good cost that you can afford to rent it out as one of the low, lower or less expensive prices per night and keep a really, really high occupancy rate. Okay. And so with this condo that I had, I would probably, I mean, if without pulling up the numbers, I would say it's probably 85, 86% occupancy, which is pretty good, staying steady. And I knew when I bought it, I'm like, I know it'll do well during the winter time because a lot of people go up there to ski, but I didn't know about the summer. And so it was kind of a gamble there. And it wasn't a gamble because of the deal that I got on it. Right. But ultimately I didn't know how well it was going to perform and ended up doing really well in the summer and really well during the winter. So it worked out great. And then it got my mind turning of like, hey, how can I go replicate this process? Okay? And the reason I'm telling you guys this stuff is because if you've already done well or you have a couple of deals that have worked out well for you, or you've talked to, you know, friends, family, whatever, that they have a certain strategy that's worked out really well. You don't have to go and reinvent the wheel, okay? Like, you don't have to re reinvent the wheel. Instead, you can copy success, find out what other people are doing, what's made them successful, as well as what type of investments are they doing, and go copy it, right? You don't have to start over from scratch. Take the risk. It takes all the risk out, not all the risk, but takes a lot of the risk out of it. If you already know that this is a proven method and a way of doing things, why go recreate it, right? So my mindset was, okay, I know this does well. I've had this for a while. I've seen how it performs during all these different seasons. How can I go replicate this process and do this, you know, 10x right? Or I can be into the same cost because I was Getting probably a 200, 300% cash on cash return. It was a phenomenal deal, right? And so I'm like, how can I go build something roughly the same cost as what I got this for, but maybe I can build it nicer and newer and even charge more for it, but maybe I can do all that with roughly the same amount that I'm into this one. And so that was kind of my mindset going into it, which led into looking for the land. And so that's just an important concept to not skip over when it comes to the finding section of everything. Because oftentimes we just go and start searching and looking for deals or scrolling through Zillow and we don't have any idea what we're looking for specifically. There's just not a lot of direction. Right. So instead, find out, like, what is my buy box? What does that look like? Get really crystal clear on that and then it's going to come to you, right? It's the same, same additive. You've heard it before. Like, if you're gonna go chop down a tree, right, don't spend 10 hours chopping it down. Spend two hours sharpening your axe and then spend an hour drop chopping it down. Kind of the same thing like you sharpening your axe is equivalent to, like you figuring out what your buy box looks like, what you're looking for. Now when you look for deals, it makes a lot more sense. So that was me as I went out first. I looked at the zoning on the county website. It's awesome. Like, everybody should know what area you're investing in. Just go and like read the zoning requirements. You can pull up a zoning map and you can click on each of the different zonings and dive into it. See, like, does it allow you to have, you know, an adu or accessory dwelling unit? Does it allow you to, you know, rent by the room? Does it allow you to all these different things that you can read and find out about? And so with this one, I actually called the city as well because there wasn't anything that had been done like this before. And so I wanted to make sure that they would approve something like this before I, you know, dove into it. And they have certain stipulations, like things need to look cabin y, right? Because of where this is at, they need to look like a cabin as opposed to something that doesn't fit, like the environment. Right. So I sent a bunch of pictures of different things I wanted to do and they're like, yeah, we'd approve something like that. And then I asked about like zoning just to double check, hey, I could do something like this in this type of, of zoning. And the zoning that I bought this in was R3 or multifamily. Okay, it was multifamily commercial. And it's a, it's a long story, but the way that I found this was for sale by owner sign as I was driving around. And the reason I was driving around was because I pulled up the zoning map and I knew, right, based on the color, everything that was in the zoning that I needed to find. And so instead of looking where everyone else looks, which driving around looking for property, that takes a little bit extra work, right? And so I got done snowboarding one day and I was like, I'm going to drive around before I head home. And I saw this for sale by owner sign in the, basically in this lot, like right out by the road, called on it, talked to the guy and obviously ended up buying it. So purchased the land for 150, $150,000. And at the time we had an all cash kind of deal that was written up. That was one of the only ways he wanted to sell it. And So I had $5,000 earnest money that I put down on this. And we had a 30 or 45 day close. I don't remember exactly, but it was a little bit longer, especially for like a cash deal. Usually cash is like a week, two weeks. So at the time I didn't have intentions of paying cash, like my cash for it. And so what I ended up doing was Once I had it under contract, and obviously I kind of had an idea with how big the property was, what I could kind of build on it, what that would look like. I went through the numbers of, like, what does a build cost on something like this look like? And remember, bids are free. Contractors will give you bids for free and get a really good idea on what costs are going to be on certain things and what things look like. And what we'll do is we'll come up with a list of things and expenses that you need to be aware of. Because the big mistake I see a lot of people make is they'll just leave out a lot of the expenses and they'll think that they have their. Their hard numbers. And reality is, like, they didn't think through getting the units there. They didn't think through so many of the costs that go into actually building and development. And so little things to be aware of, like fees and paying your contractor and impact fees and all these different things that we'll create a list for you guys to be able to download if you reach out. So anyhow, got this property under contract. Hi. I did what I could do with it as soon as under contract, then I went to work, right? I'm like, hey, I gotta be able to go sell this to somebody. And as far as funding it, this is what happened. Okay? So I. I brought in on partner, and we. We have 50, 50 ownership. That's on the cash flow, that's on the equity. That's everything. We're 50, 50 partners right out the gate. Okay. And so him coming in is actually the day before we closed on the property. And I still remember this day because he wired me over 145,000 bucks. It was like the rest we needed to close, minus the earnest money that was already in it. And I remember just thinking, like, whoa, holy smokes. Like, this is awesome. Like, I just essentially, you know, sold somebody on my idea and what my potential projections were. And this is what it looks like. And. And they are excited about the deal and the numbers on it. And so they invested that. That money. And so kind of our deal was they would bring in the down payment and I would do kind of like overseeing the project. Obviously, there's a lot of value for me in finding the deal. Right. Because I believe it's a really good quality deal. And so a lot of people don't know how to go find those or they're not willing to put in the work. And so that was my quote unquote equity that I Brought to the table, right, was me being able to oversee the project, make sure it all gets built out, as well as me finding the deal and, and kind of putting it all together, getting all approved and that good stuff. Okay, so the, that's not the end of actually funding it because the down payment initially, and this is something good that I learned throughout this process. Initially the bank told us we needed 25% down. And so that's kind of how I pitched to my investor. You bring in 25% of the entire build cost and that's our down payment. We'll split everything, you know, 50, 50. A lot of people ask like, oh well, does he get his portion of the down payment back first before you split everything? 50, 50. Here's the thing with partnerships. You can structure it however you want, and whatever's going to be a win win for you and your partner ultimately just has to make sense for everybody, right? So in this scenario, and this is how I usually do them, like they're good enough deals that my partners are totally fine with not getting paid back first. Like out the gate, we're 50, 50. So they bring in the down payment, we're 50, 50 out the gate. Obviously that always changes, you know, depending on deals and different things that way. But that's how it was in this scenario. Well, the bank came back and said, hey, like we kind of got hosed during that time. So we actually, we want to see you guys put 30% down. And anyhow, we ended up pivoting to a different bank because they tried to raise that to 35% down. Ultimately we settled at 30% down and a 20 year amortized loan, actually, 25 year amortized loan. So what that means is basically instead of getting a payoff period of, you know, a normal, I would say more realistic commercial loan might be 10, 15, 20 years. We wanted to extend it out to 25 years so that our monthly payments were lower so that we could cash flow more and get a higher cash on cash return. So that's kind of my strategy. A lot of people do it differently. They're like, hey, we want to pay it off as fast as we can. For me, I like having the cash flow because then I can do what I want with that, right? I can pay it down. If I want to pay it down, I can keep, keep more of the cash flow. I just like having that flexibility versus being backed into a corner where you have to put, you know, more of it down on the principal payments. So that is how we funded it. Sounds a Lot easier than it actually was, but that was the process of it. So I actually came up with that extra 5%, which I wasn't expecting. Right. Is roughly like around 50 something thousand bucks. But the way I looked at it was this is what I agreed to. This is more than fair. I still have 50% of the deal for putting 5% down. So I felt really good about it that way. And the cool thing with commercial, obviously they're going to look at you when they're underwriting the deal. They want to look at the investor, but they're also looking at the deal. Right. A lot of times we're used to these residential properties that we're investing in where we feel like we're just like vetted in and out and they want to see every single transaction that's happened in our bank account and all these different things and you're like, dude, am I going to be able to close on this house or what? And it's a lot different with commercial. You know, they'll, they'll come out and they'll do an appraisal, but they're going to value a lot of the deal based off of the actual deal itself. And if they're going to invest in to the deal or not or lend on it depends a lot with the projections of the deal. And so they really liked this one. They liked the numbers on the productions and so they invested the money into it. So long story short, went under construction on it, which took a lot longer than we anticipated. And this was mostly because of the winter time. So we missed like our, our deadline to tie into water and everything before the freeze date, which that was a bummer because we expected to be done, you know, last, before last winter. And so that was a bummer because we have money tied up in this thing and you know, you are paying interest payments every time you take a draw on the, on the construction loan to like put in the foundation or whatever your, you know, whatever progress we had made up until then. So that was definitely something we didn't anticipate, but got it done this year. And as far as like forcing the deal, the coolest thing that I love about tiny homes is price per square foot is going to be higher than just a normal, a normal house obviously because it's just a little bit smaller and, and there's a lot of little things that go into. A lot of people think like, oh, it's just small, so your per square foot is going to stay the same. It usually doesn't. But here's the cool thing with it is because it's obviously a lot less square footage. You can get into the property with a lot less because it's smaller. And then on top of that, it usually can rent if you do it the right way for very similar to a property that's two, three, four times its size. And a lot of that just comes down to the experience that people want to have. It's more unique. It's like I'm willing to stay there for that type of an experience. And, and so with these that we built, like we have triple bunk beds, we did a loft. They're still, you know, quote unquote tiny houses or tiny cabins, but they actually can sleep seven people. Plus there's a couch, we have nice TVs in there. And anyhow, we did a really good job making it feel luxury. We added a sauna, a laundry building. We have a fire pit, we have a barbecue pit. That's. That's coming. That's one thing that we didn't finish that we'll add in, you know, next summer. But those are all these different ways to go and force the deal. Obviously, one way that I forced the deal is I went and hustled, right? I went and found the property, I put in the work. I called, I called the, the city. I had the conversations with them making sure this is something I could do. I talked to you. We use zip kits as the company built these tiny, tiny homes for us. And so talking to him and Chris, the owner, is amazing. Phenomenal to work with. He hit all of his deadlines. My contractor, not so much, didn't hit, hit a lot of his deadlines, but Chris did. It was great, right? And work with him was awesome. But I went and talked to him. He was able to customize these for us and create a relationship with him. Right? So different ways that I forced this deal and turned it into a different deal than just going out and buying it. And as soon as we finished the property, which was just really a couple months ago, we had a few offers to actually buy it. And if we would have sold it right then and there, my partner and I, we would have each made probably like 400,000 bucks. We could have like walked and been done there, but we didn't want to do that for lots of reasons. Right. We want a long term holding of real estate investing and all the tax benefits that came with that, as well as the cash flow and everything to look forward to. Plus this was only one of the three losses. So the last thing I'LL kind of say in here for you guys that are listening still is. When I negotiated this deal, it was good enough with the two out of the three lots. It made sense that part of my thing was like, hey, this is what the projections look like based on these two lots. I want to keep this third lot. I don't know if I want to do a cabin on it or more tiny homes or whatever, but, like, I want this one to be mine. This deal is only going to involve these two two lots. And so it's kind of like, take it or leave it. Does that make sense? Does that still work for you? And they're like, yes, I still like the deal. The numbers still work for me. And so kind of like another bonus with this deal, which is really fun for me. I now have this lot that's completely paid off, right, That I can do what I want with it, and I can leverage it being paid off as my down payment to either build more tiny homes or to build a cabin. And the cool thing is, even though we're into each of these lots of 50,000 bucks, right, we bought the whole thing for 150k. Each one has gone up 3x. And part of that's because we got a good deal, and part of that just timing. But each lot is worth 150 grand each, right? So kind of cool there. Like, that's just stuff that's happened. So if you look at, like, the whole deal as it. As it kind of has unfolded, for me, yeah, there was a lot of work that went into it, and there's different experiences that I've had that led up to this deal. But all in all, before the deal was even done, you know, my net worth probably went up half a million bucks plus, right. Without me putting money into the deal, obviously, I put that 5% down. But even without that, my net worth went up probably half a million bucks right before it even started renting out and doing what it's supposed to. So kind of fun to look at this thing. We are in January right now, and I got just a January, not projection, but with the existing bookings now that we have for January, and from my property manager two days ago, so on, or three days ago, January, anyhow, it was like January 5th or 6th or something like that. And after expenses, the stuff that's kind of been pulled out, like, you have cleaning fees, you have different tax fees and everything that we take out. But after all that, and keep in mind, it's still the beginning of the month, and there's lots of room to collect bookings, but it was over 14,000 bucks or 40,000 bucks. Our expenses on the property are right around $10,000. Utilities, everything else, you throw in another little less than a thousand bucks. And so we should, this month for sure, go, go and do well over 20,000 bucks, well over 25,000 bucks. And the goal is for that to kind of be the floor as we build up more reviews, more momentum. We'll keep going with this one and hopefully get close to those 40, $50,000 months if all goes according and as planned. So hopefully this was good to dive into this with you guys. Hopefully you took something out of this and you can take it and apply it. Obviously, this one goes deep, deep, deep, deep, deep. And there's still, there's still a lot, a lot more to cover, honestly. So reach out if you guys have questions. I always love jamming on this stuff as well as if you want to go stay there, you can go to Unplug Resort on Instagram and the link is there to all the Airbnb so you can check them out. Even if you just want to go look at the pictures and heart the listing, you can do that for us. And with that being said, thanks for tuning in, thanks for listening and we will catch you next time.