Trends: Industrial Markets, Low-Income Housing, Taxes and Government

Today we were planning to discuss Industrial Markets, Low-Income Housing, Taxes and Government. Instead, we went on a field trip to see two green built homes.

The first was done by the daughter of a green builder. They’d bought a completely run down house near downtown Fort Worth and renovated it. If memory serves me correctly, they said they bought it for $110,000 and put $80K into repairs. They said it only cost them 10-15% more than a conventional rehab would have. Now their electric bill averages $70 while they have neighbors paying upwards of $700 for their drafty old home.

They’d done things you would typically associate with green building – spray foam insulation, double paned windows, tankless water heater, etc. They said they put a Class 4 roof on it which reduced their insurance by 40%.

Both the homes we saw used mini split units which are basically ductless HVAC units. Evidently they’re the green thing going these days. They cost more than central AC units when put in multiple rooms but save energy by only controlling the climate of the rooms you’re using.

The second home was custom built and qualified for a LEED certification but they didn’t want to pay the extra to get it certified. It was a modern design – open kitchen, dining and living room floor plan. Some of the features included a flat white roof, tankless water heater, hardipanel siding, and spray foam insulation.

They have a detached garage which improves air quality in the main house by keeping fumes from vehicles and garage chemicals away. They have a direct vent gas fireplace which doesn’t draw heat out of other rooms like traditional fireplaces and retains 80% of the energy versus 10% traditional.

The most interesting feature was a real time digital energy usage readout near the fireplace. It tells you how much energy you’re using at any given moment. The funny thing about it was that the husband would monitor it from his mobile phone and had called home to ask his wife about spikes in energy usage (she was drying clothes).

After the tour we returned to class briefly to discuss our topics. If you trace back to cloud computing and mobile devices, you could guess that warehousing and logistics are doing well in the industrial market. Companies that run warehouses of servers are locating themselves in cooler climates to keep their cooling bills down.

We didn’t discuss low income housing, taxes or government much. What I’ll say about that though is that the best way to create more low income housing is to build smaller units. Subsidizing housing discourages new development and reduces property values. No one should get a free ride to be able to live in nicer areas just because they make less money.

As for government, we have SOPA going on. Our intellectual property laws have been amuck for quite some time now. If you read foreign accounts of it, the US patent office usually favors US companies even when foreign companies try to register first. That’s been going on since before Edison’s time. And now we have companies patenting living organisms – seeds and even DNA last I heard.

SOPA is the stop online piracy act. We already have intellectual property laws that allow the enforcement needed. The only thing this law would do is give government permission to shut down websites it doesn’t like on technicalities. Just like now, thanks to laws like the Patriot Act, all you need to do to ruin someone is decide they’re a terrorist or have even the remotest association with someone who is associated with someone who might be a terrorist. If you consider the six degrees of separation, we’re probably all 2-3 degrees away from someone who isn’t happy with US foreign policy and could therefore be labeled a terrorist.

In the news was GoDaddy.com who came out publicly in favor of SOPA. Their backlash from their customer base was so strong that they were forced to retract their position and now oppose it. Given the fact that they helped draft the legislation, many of their customers still don’t trust their intentions and have permanently switched providers.

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Trends: Retail Markets, Internet and Technology, and Social Media

For retail, mobile technology is a game changer. Everything about retail is being changed by the internet, technology and social media.

What’s not changing is that retail establishments that want to do well need to have well trained salespeople. It would be a mistake to get all the newest technology but still have poorly trained staff due to high turnover.

E-commerce will continue to grow. The question in part is whether to emphasize online sales or not. If you do, you need to do it in a way that you’re not going to compete with Amazon because you’ll most likely lose that competition. If you’re going to emphasize your brick and mortar operation, you need to make your store an experience. Think The Apple Store. I’ve only walked by but every time, it’s the most packed store on the block. Evidently you have to make an appointment to get in now.

We saw a video about retail trends in which computers will be able to give you personalized recommendations or suggest complementary purchases based on tags on the clothing. It sounds a lot like what a salesperson would do. The only thing with that is that if you take the human interaction out of the equation, you take out a lot of the reason for people to get off the computer and come into the store.

And again, mobile is changing things. More consumers are comparing prices while in the store before making purchases. More people are using QR codes to get more information on products. They also have apps that will show information instantly while viewing products or locations through an iPhone camera.

As for the Internet and real estate, we looked at a number of websites that are enabling consumers to do more of their home buying without agents. Some of the sites we looked at were:

  • Money360
  • City Data
  • Revestor
  • Walk Score
  • Zillow
  • Texas RE Center
  • Netro Online
  • Padmapper
  • Hot Pads
  • Realtor.com

What we’re seeing is that real estate agents are going to have to find more ways to add value to the transactions. The only information they are privy to at this point is selling prices. They show that in some states but evidently not in Texas.

A Realtor needs to do more than a competitive market analysis to justify a 3% commission.  That’s why we’re seeing more web based discount brokers. If you look at listings on Realtor.com, most of them are poorly done. Teenagers upload better pictures to Facebook. And the writing needs help too. A marketing consultant should be able to make a killing consulting to consumers who’d like to sell their own.

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Trends: The Office Market, Sustainability and Green Development

For the office market what we’re seeing is that there’s currently enough of it already built. Some consultants are encouraging companies to downsize their offices – do more in the same amount of space. Companies are also generally avoiding long term leases. Owners are offering more benefits along with their leases.

We watched a video of the Googleplex which is Google’s headquarters. They have more amenities than you can imagine. They have free lunch from something like 18 full service cafes. They grow their own food on site. They have places to take naps. They have free electric rental cars. And they have lots of places to collaborate.

The thing with Google is that it’s probably the exception rather than the rule. Few companies would feel it’s justified to go to such great lengths to retain a demographic of employee. No doubt Google’s employee loyalty is much higher than many other companies. Everyone has to stop and think about what business they are in. It’s definitely possible to create a great work environment without extravagance.

The trends affecting all the topics we cover are the movement toward cloud computing and mobile device applications. So office spaces are less needed with workers that can work from anywhere (not just in the office or at home).

Most of the younger talent is part of the Millennial Generation (aka Generation Y). While Baby Boomers were traditionally into corporate advancement and corner offices, Millennials want more collaboration and equity. The thought is that if you’re going to make people get in the car and drive, there should be a purpose other than having to sit in a cubical and attend an occasional weekly meeting. The office should be more like a living room or coffee shop.

Another big trend is flex space. That’s space you can use for office and convert into something else depending on the need. Planning for that kind of space is a little different and should be marketed carefully. Personally, I wouldn’t put “flex space” on a floor plan because most people haven’t heard of it.
Sustainability and green building are close enough that I’ll mention them both together. Obviously the big trend is government endorsement for LEED. And while LEED is a good standard, it’s not all inclusive. It doesn’t cover things like the PassiveHaus approach. It’s not fully considerate of the cradle to cradle approach. It’s not concerned with net zero energy. And it doesn’t take into consideration the role of landscaping and storm water management. I’ve heard there’s a landscaping score in the works.

It seems like the main trend in sustainability is toward transparency. Right now, just about every company is claiming to be sustainable. One difference though is that before it was purely for public relations intentions. Now, companies are finding cost savings through reducing, reusing and recycling at different points along their supply chains.

Also with transparency, one big reason the real estate market has been reluctant to embrace sustainability is because consumers haven’t. Developers build what consumers want. Many of them offer sustainable upgrade features and consumers opt not to purchase them.

Another important trend in sustainability is measurement. It’s one thing to claim sustainability but another to be able to give exact numbers for return on investment. That’s one reason solar power hasn’t taken as much as it could. People don’t want to go to the trouble and expense of installing solar panels (nevermind that some cities have zoning laws making it difficult to do so) if it’s going to take 20 years to recoup the expense. Why not wait 5 years and see if the technology improves enough to get that time down to 5 or 10 years?

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Trends: Personal Interests, Education and Employment

Our first class was on our individual personal interests, education and employment in real estate trends.

My personal interests in real estate trends are in the interconnectedness of cities. I think there’s a lot more going on there than either planners or developers take into account. For example, we didn’t use to know that Vitamin C cured scurvy.

Today a lot of people don’t know that Vitamin D prevents cancer and Vitamin B17 cures it. It’s also just about impossible to get enough B12 in your diet as a vegetarian but it won’t catch up with you for about 7 years.

The key is to eat food that’s as organic and local as possible. I think our cities are that way too. We don’t know what ingredients may be missing until we look at it and see there’s something not right. I’m interested in seeing how all the pieces fit together.

I’ve gotten interested in Permaculture lately too. Here in Texas, most of the cities around here are going to water restrictions and the price of food has been increasing for everyone. But then when you look at the vast majority of homes, they’re designed to have the water run off the house and into the street as quickly as possible.

Instead, we need to look at the patterns and systems that can sustain food production. We need our land to work for us instead of us slaving to maintain our little patches of green grass that does nothing for us. I’m interested in seeing how that all plays out and doing my own permaculture experiments.

Finally, I’m interested in our changing demographics. As baby boomers age, they’re going to start needing more intensive health care (many from simple Vitamin D deficiency). Many will move back in with their kids for the care.

And then Generation Y (aka Millennials) are sometimes moving back in with their parents after going to college. With the state of the economy, we’re having a variety of different living situations emerge.

There are a number of business opportunities associated with these trends. My parents do residential home care for 3 elderly persons (you don’t need a license for up to 3). My wife and I plan to start a Montessori school in our home (but may need to call it day care for zoning reasons).

And of course tiny houses fit into that equation too. The returning parent or kid can have their own place in the back and come and go more independently.

I noticed that Austin has an Alley Flat Initiative. After taking a real estate development course, I found a number of issues with it that planners may not have considered.

Yes, it makes sense to increase density inside the city – at least for planners. People generally like more space rather than less. And no one seems to have thought about what would happen if we parked an extra car on the street in front of every house.

But for the Alley Flats, the idea is that you invest about $100K to build a really nice tiny house (think social equity) in your backyard. For a fee, the city will set you up with a designer and fast track all your permits. But then you’re required to limit the rent you collect to $750 for a number of years so that you’ve just created affordable housing.

I haven’t learned to do the other numbers yet but anyone can see that cash flow isn’t going to work out. The point would have been to create more affordable housing which is a city interest, not a property owner interest.

For the property owner, this is what you may have just done – you got a home equity loan for $100K and after 6 months or so, you’re now collecting rent that’s equal to your new payments. If your renter moves out, you’re now in the hole an amount that could cause you to loose both properties. How’s that for affordable housing?

The other two topics of the class were education and employment.

I’m particularly interested in education as I was a substitute teacher and middle school math teacher in Austin for about a year. I’m also coming off of a bad educational experience in architecture where I wasn’t getting adequate feedback on my work. And then my wife is a Montessori teacher. And I’ve been working on accelerated learning projects for a few years now.

The main topics we discussed are the trend toward moving education online. My real estate development class was half in class (the discussions) and half online (tests and assignments). It worked out really well. My current class in Trends is requiring about 3-4 hours of research before class each evening.

The old model of teacher pouring knowledge into students and then checking that knowledge with multiple choice tests is dead. The only reason people are still getting away with it is the massive institutions that have been built up around it.

As evidenced by my tiny house, people can learn just about anything they want on their own without a degree. Some of the best architects in history were unschooled. Even so, there’s something to be said for going through a structured program and adding to the body of knowledge.

There are plenty of other educational trends. You can see most of them in TED talks. The top 2 out of the top 10 according to the Huffington Post were on education – The World Peace Game and Khan Academy.

Another facet of education in real estate in particular is LEED. Government has selected this particular certification as THE certification for sustainability and now requires new federal buildings to be LEED Silver. Of course LEED doesn’t address a number of important sustainability issues like a full cradle to cradle analysis, low impact development or permaculture. It also leads to weird designs like bike racks where no one is riding bikes. But then it’s a step in the right direction.

For employment we talked about the changing workforce. We’re moving toward a more knowledge worker based economy. That was going to happen regardless of any economic bubbles. A recession just makes people tighten their belts and get more creative to be more competitive. The people who are able to articulate real value are doing well regardless.

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Expanding Tiny House Topics

I’m in my second course in my Masters program in Real Estate now. For a class on Trends and Issues, we are to blog on class discussions. Since this site is already talking about tiny house as a real estate trend, I thought I’d use this site to post on the other trends going on in real estate.

I’ve added a new category, “Real Estate,” for this purpose. If you were only interested in tiny house topics feel free to disregard the next two weeks. We’ll probably be blogging again for another class though. It will all be pertaining to real estate though.

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It’s Better To Build With This

I have another tip to share about materials selection but first this:

While the Tiny House Design Build program has sold at $97, I was hoping to get it into more people’s hands. I’ve been busy with architecture school and hadn’t been paying much attention.

I recently changed from architecture to real estate development and have time to stop and look at how things are going.

It occurred to me that most people who are interested in tiny houses aren’t so interested that they’ve already decided to build one. While the product is a great help to anyone in that category, I think folks still thinking about it ought to be able to get it without having to look twice at the price.

So for an undetermined amount of time, I’m reducing the price as an experiment. All the same content is now available for $17. That’s less than what the Small House Book is going for.

If you’re at all interested in lessons learned from an amateur built tiny house, this is for you. There’s even a preview of one of the videos there:

www.tinyhousedesignbuild.com

That tip I promised: I’d recommend using paneling for your walls instead of drywall. It might cost a bit more but you won’t be up at night worrying that it might crack if you move the house. Secondly, you’d be able to get inside the wall easier should you need to. Finally, it weighs much less.

Another tip: If you affixing the house to a trailer, do so with the idea that someone might want to take it off some day in the future. Secure it well but have a backup plan.

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Tiny House Design Build Video Workshop Live

I finished the ebook on how to design and build a tiny house. I wanted to include the best pictures I’d taken but realized that just wouldn’t be practical given I’d taken over 1,000.

So instead, I narrowed it down to the best 350 of them and made a video presentation out of those. I narrate exactly what I was doing and what to pay attention to when you’re on that step.

People had been asking for plans. I’d gotten a copy of the Popomo plans you get for free if you get the Small House Book from Tumbleweed. I didn’t think doing plans like that would have been all that helpful given I didn’t use formal plans when I built mine.

What I’ve included are my Google SketchUps – a couple of trailers, one with all the framing in layers and a few on different design options – where to put doors, lofts, how to place it on a couple of different trailer sizes. I’ve included other helpful diagrams and my hand drawings as well.

I posted a preview of one of the videos on roof framing on the site too if you’re interested:

Tiny House Design Build Video Workshop

PS. I also included my entire parts list among other items. Go check it out.

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Tiny House Moving Issue

I heard back from the buyer. To quote her comment:

Hi Louis,

I made it – round trip – 75 hours – 2900 miles – $850 gas. Top speed 60 mph for about 10 minutes once (radical sway) average 45 mpg, except the whole part from San Antonio to El Paso where I could only get up to 35 for most of it. (22 year old GMC ) Thanks to all the patient truckers – Flashers on the whole way ;)

The house & I both arrived in California relatively unscathed. The only construction issue I noticed was the vinyl siding overlaps should all have been to the rear. I duct taped the flapping part & kept rolling. Later I realized I should have stopped at a Wal-Mart or Home Depot and paid them $$ to Pallet Wrap the whole house. That would have prevented any problems from wind / dynamic forces, and kept all the pieces intact. The little flap became irrelevant after I hit a cone in a construction zone near Casa Grande, which pretty much wiped out the siding on that same corner. So – by the time I was out in Quartzite Arizona- with loose/missing siding and not even to the area of wind advisory yet… I went to Plan B.

Riviera KOA campground on the Colorado River has RV storage, which they kindly allowed me to use quoted $20/week. I parked it there, and headed home. I will go back Saturday with my kids, some hardware & tools, fix the siding, and stay at the river for the weekend.

*Whew* Enough Relaxing for me- Back to work!

What I recalled in building the tiny house was that it didn’t occur to me to install the siding to face the wind until the third or fourth row on the first side. That’s why there was flapping. That’s the kind of lesson learned I’m putting into the ebook.

It might be worth thinking about adding more robust bumpers on the front corners for transport in the future.

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Tiny House Is Sold

The buyer came and picked up the tiny house on Saturday and the wire transfer cleared this morning.

It was supposed to rain overnight before the date of transfer so I moved the house to the driveway to be sure it would have solid ground to move out from. I was a little surprised to see a mid-sized SUV was able to push and pull the house to it’s next staging area.

There was an issue in transporting the tiny house that I’ll post about next. It was due to a mistake I made in building.

And I’m halfway through writing the designing and building a tiny house ebook.

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Tiny House Is Pending

It was quite an interesting auction. There were over 200 people watching the auction and the end result was within $100 of the auction in January.

So it would seem $4,750 was the price. Ebay confirmed it twice.

The last hour saw 5 bids from two folks that bumped up the price $500.

The deposit has already been paid and now we’re arranging delivery to California.

During the week it was listed, three people retracted their bids stating they’d entered the wrong amount. The bids were specific numbers, not that there was an extra zero or something. I guess there’s not an option to put that you just changed your mind.

Since I spent over $6,000 building it, you might be wondering how this turned out for me. I think I should recoup the loss as a capital gains loss on next year’s taxes. Plus, I’ve started looking at this as the price of my education in architecture.

This was a much better experience (and cheaper) than any year in college could have been. And I’m still anticipating that this project will have been the main factor to have gotten me into graduate school for architecture next fall. I’m waiting to hear back next month.

In talking to various interested parties, I’m now of the opinion that the market for tiny houses is in offering plans to do-it-yourselfers. It just seems there are way more people interested in building their own tiny house than in buying an already built one. I figure that’s also how you end up with 200 watchers and 2 bidders in the last full hour of an auction.

Or perhaps I just missed the market on the low side of affordability. I really started to question the overall market once I learned that Tumbleweed only builds one house per year but makes a good income selling plans and books.

If you’d followed the Tumbleweed newsletters, you would have noticed that last year they weren’t able to sell the one they built. There were a number of announcements regarding hosting it as a vacation rental which is also a great idea.

So for now I’m nearing completion of the book that will focus on the nuts and bolts of designing and building a tiny house for DIY folks. Shafer’s book is the gold standard on tiny houses but there’s a lot of stuff that could have been included and I’ll do my best to cover that.

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