Tiny home community new development - planning phase

[Jordan Thompson]

I'm working with my dad on an upcoming project of his: building tiny-ish homes on his farm (400 to 600 sqft each). The plan is to build 3 homes: 2 for long term rentals and 1 for STR. Land is already his and paid for, building materials will be out of pocket, he and I along with a few friends will do the construction. Septic, well, and utilities are already in place from a previous home that burned in that spot (different story and unrelated to existing utilities). Still some pieces to put in place, but hopefully he'll pull the trigger on getting started. I'm incredibly excited to work and learn.

I love the idea and would like to do the same for myself, but I do not currently have the land. If the logistics and numbers work, I'm committed to seeing this through. My main goal is make a healthy return (definition of health tbd) while providing affordable housing. I already have 2 units that I purchased 11/21, rehabbed, and self manage which surpass the 1% rule, and yield a 14.5% CoC return so I'm comfortable with the physical work, property management, and associated risk.

Now, I'm at the end of my knowledge leash so I'm turning to the pros at my BP home.  

Givens for each scenario: 

1. Land must have road access or room to build one to an existing road

2. Land must either have access to water/septic/utilities or accommodate well and septic and be close enough to run utilities

3. All actions taken will be legal.  I will break the law under no circumstances - I will pull permits and get approvals where required.

4. I intend to build 8 - 14 units and self manage with my existing processes.

5. I know cost will vary wildly with land constraints, location,  fit/finish, size and amenities - this is on my list to determine, but I need to understand the larger map first.

The part I'm having trouble understanding is the land acquisition, zoning and law adherence (I know I'll need to check local guidelines - still haven't determined exact county yet). Here are my ideas:

Idea 1: purchase 1.5 to 3 acres outright with no loan.  subdivide the land into individual lots of ~5k-7k sq ft (I'm open to keeping the land as 1 parcel - advice is welcome), build each unit out of pocket as cash is available.

Idea 2: purchase 1.5 to 3 acres outright with no loan.  Get a loan to build all units (or large batch) at one time.

Idea 3: Finance the land, build the units out of pocket (my least favorite option).

My questions:

1. I know tiny homes can be considered RV's, any idea on zoning requirements and the process of re-zoning?

2. What should I watch out for or avoid altogether? 

3. What is the best place to find current state/county regulations and laws on this type of community?

4. If any of you have done this or something like it, would you do it again? or differently?

All questions and feedback are welcome.  Thanks, Jordan

[Nik Moushon]

Architect and developer here, so Ill give my POV from both a design standard, development potential, and constructability. 

First, don't do all the tiny homes on one parcel. It complicates so many things. Both in the short and long term. Yes, its more expensive up front, but you get some many more options with separate lots. More investment route options and exits strategy options for either when you want out or are forced out if the worst happens. It will also get through zoning and any special permitting needed a LOT easier. Most cities do not understand or like the concept of a tiny home village. They equate it to a mobile home park. If its separate lots, the only difference is the size of the home. Instead of 3,000 sf homes only the rich can afford, you are providing 1,000sf or less homes that are for the working class, which every town in the US needs right now. 

Second, dont build "tiny homes" unless you are very very close to a high density city where you have the demographics of a LOT of single or young couples that will rent them. 300-400 sf tiny homes are trendy and catchy but are a very niche market in reality. Most people who would rent these don't have kids. Be that young couples or retired people. I know a lot of people that tried living in tiny homes. It worked great for them until they started a family...then they all moved out into a traditional home. My suggestion would be to not build anything less than 600sf (same size  as a typical 1 bedroom apt). If it was me, personally, I would size them all to range from 2-3 bedrooms. So 800-1200 sf. You'll have far less turnover if you make something that is small but still comfortable to live in for the vast majority of people. This also allows you to actually market and sell them if needed.

This size also lends you to going to a pre-fab housing route. Not mobile home type pre-fab but where they panelize the house in a shop and then truck it to site either in panelized walls or even in pre-assembled rooms/floors. If you design the layout of all of them the same, you can get even more savings...potentially. This also allows the entire house to be dried in in a matter of days versus weeks or months. 

Third, whatever you design do it as a traditional house construction. Nothing on the back of a trailer or with wheels. Its easier to build, easier to get past zoning and planning departments, and easier to get construction loans and insurance on. 

Fourth, You technically dont need an architect to do a single family home this small. What you need to consider is what you want it to look like at the end and what your goal is. If you want something doesnt look like a contractor designed and built it then hire an architect. If bottom dollar is all that matters, then get a GC that can do plans for you or maybe a drafter. Buying plans online rarely saves you that much money. You have to buy it multiple times for multiple builds and each will need its on specific site plan and there always something you want to change about the plans anyways. In all my years of designing and helping people with online plans there has NEVER been a single person who brings online plans to be and doesnt want anything changed. So by the time I charge for those changes is almost always a wash on cost if I had done a custom design for them from scratch. 

Fifth, for sequencing, you first need to do zoning research and see what, if any, restriction apply to tiny homes. If you do larger 600sf+ homes I wouldnt consider them tiny homes and would treat them as regular single family homes for zoning purposes. Then find a parcel that meets your needs. Start running numbers on the cash you will need for the land purchase and development costs. You can get a construction loan for the development costs but you have to be careful that you arent creating a mortgage that kills your cash flow, especially since you'll have to pay that while you are building the tiny homes. Once you have rough numbers for land and development costs and knowing how many homes you will need on a parcel (i.e. min. 5 homes on 1.5 acres of land or 12 homes on 3 acres of land) then you can start searching for the professionals you will need. You will, at minimum, need a surveyor and civil engineer to get the parcel divided into lots. Depending on the path you take an architect or drafter. Once you have at least preliminary drawing, then you can take those to a contractor and the bank to get an idea of the construction costs and the loan requirements. All those professional costs will have to be paid in cash up front. Depending on the loan type, you can sometimes get partial or all those professional costs covered under the loan (so you pay yourself back) or they can even count towards the equity in the property and be used towards the down payment requirements. 

Lost to consider and coordinate when doing developments. It has its own set of rules and cost factors that are not typical with most investment strategies that people use on this site. So make sure to do your research, run your numbers (multiple times under multiple scenarios), and most importantly....take your time. This is sounds like your first and the learning curve is steep. The market is especially tricky right now and you could easily and unintentionally shoot your own foot off. The one nice thing about about doing 1000-1200 sf homes....they will always sell. Even in a bad economy because there is always a market for affordable houses. Thats one reason having each on their own lot is worth the extra cost IMO.