The Prefab Pod

Prefab Review

Hi, my name is Michael Frank and this is the Prefab Pod presented by Prefab Review where we interview leading people and companies in the prefab and modular housing industry. Today, we're speaking with Jason Webster, owner of Huntington Homes. Welcome, Jason.

Huntington Homes

Hey, Michael. Thanks for having me.

Prefab Review

To start, can you tell me a little bit about the history of Huntington Homes and how it got started?

Huntington Homes

Sure. So, Huntington Homes, we are a modular manufacturing company. We're based in Vermont. We were founded in 1978 and we build throughout New England. The company started, Huntington comes from the original owner a man named Hank Huntington who was a dealer in the 70s for one of the original modular home companies in New England called Continental Homes. And he built, I don't know, a bunch of houses in Vermont and then decided you know, towards the late 70s that he thought that they could build them themselves. And so he rounded up a group of builders in the area and then figured out and built Huntington Homes. One of the people that was part of that group and my connection to it and how I ended up here is that one of the people in that original group of people putting the company together was my father, who has been there since 1978.

Prefab Review

That’s great. And could you provide with a little bit of a fast forward to where you are today?

Huntington Homes

Sure. So in ‘78 when we started and through the early 90’s we were very much like all of the other manufacturers and some of the manufacturers today where, you know, we were a kind of a wholesale manufacturing company that sold through a dealer network. We operated that way definitely through the 80s. In the mid to late 80‘s opened a manufacturing plant in Massachusetts and we operated out of one of those plants. That plant was only operational for a couple of years. All manufacturing moved back to Vermont. In the early 90’s my father had an opportunity to purchase the company from the group that owned us through the 80s. And he really started transitioning the company. Then, in the early 90s to what we are today, I mean, we are still a manufacturing facility. Currently, I'm sitting inside our 100,000 square foot shop here. But we started transitioning away from you know, a kind of traditional dealer-based system to where we are today, where we sell everything directly to consumers.

Prefab Review

Yeah.

Huntington Homes

And we have packages that we offer to that client depending on where they're located. If they're close to us - meaning they're within forty miles of our headquarters, we offer what we call full turnkey packages, where we offer full general contracting services for the whole project. So obviously, we oversee the plant stuff and all the on-site construction as well. If they are in the rest of our service territory, which is the rest of New England but outside of that forty miles, then we offer what we call a modules with set crew package, which is where we provide the modules, we provide the delivery of those modules, and we provide the set crew to physically set them and make them structurally secure, airtight, and watertight; including a shingled roof or a finished roof. And then, the client then works with their, we've developed a really good set of documents to define the scope of work, the client then works with their own contractor for the button up work from that point on.

Prefab Review

That makes sense. It's funny, you're kind of close to Vermont sort of scope of services where you do everything, I would say when we have people come to us, it's basically what clients ask for. And what you’e able to deliver. I mean even you guys are able to deliver a very small minority of services just because it seems like the local aspect of construction means it's really hard to be vertically integrated across a project. Do you find that? I assume you find it's probably a little smoother and a little better on the projects where you can do the site work as well?

Huntington Homes

Yeah, I mean clients certainly prefer when we offer the full package, right? And you know, I kind of joke that it's one neck to squeeze.

Prefab Review

Right? Because then you don't have multiple contracts and stuff like that.

Huntington Homes

Yeah, it's certainly an easier project for a client to put together when we're managing the whole thing. Everything from preconstruction to the end because they ask one set of questions and they get one answer right? So then when they ask what does it cost? I answer their question. 

Prefab Review

Right. You don't say, “hey, here's the module price. Go find some money and the answer for the site work”, right?

Huntington Homes

Versus yeah, go find the builder. And you know, you don't even know what questions to ask them because you don't know what they have to do and they've never done it before so they don't know either. So it's definitely evidenced by backlog, right? Now you know we're in weird times right now. Everybody's backed up. But, you know, our turnkey services are right now in Vermont we have a 24-month backlog for those.

Prefab Review

Oh Wow, so does that mean that for people who want, is that true on your line in-house as well?

Huntington Homes

The line right now has an unprecedented backlog as well, of about twelve months whereas historically the line might have been a 3 to 4 month backlog.

Prefab Review

So that does that mean some local people are just, I mean, if I have an impatient guy, probably being in this are just like, “Okay, it's not totally optimal, but let's just find a local builder.”

Huntington Homes

Well, yeah so that's how the first conversation goes, right? The client calls, hears the schedule, and they're impatient and saying, “well no, I'm gonna go look for somebody else.”

Prefab Review

Yeah.

Huntington Homes

They make 4 or 5 more phone calls, especially in our market, to find any honest, reputable contractor. The builder is booked out that same length of time right now, and then they come back and they say, “okay” and that a unique thing. It's a weird time that we're in right now for that. I suspect though, that it will shorten that lead time as we go forward.

Prefab Review

Yeah, being in front of the customer experience, you sort of hope it will, right? Because one of the theoretical advantages of what you do is being able to build it faster for people.

Huntington Homes

Correct. So right now, we can't beat the drum that we're faster, but we can certainly continue still beating the drum that we're a more controlled way to do it. You know, we are still building fixed-price contracts.

Prefab Review

Totally.

Huntington Homes

Whereas you know, most site builders that we know have moved to entirely time and materials contracts. Yeah, exactly.

Prefab Review

Yeah, that makes sense. So can you tell me a little bit about your product line today? Particularly about your true home product?

Huntington Homes

Yeah, so when clients come to work with us, in terms of what it is we're building for the client, we have kind of 3 design paths that we can go through. We have the stock homes design path which is on our website. We have 70 or 75 stock floor plans that a client can choose from. And then we have a list of materials that they can choose through and it's a list of standard options and upgrade options. Clients can modify those floor plans and then I call it, you know a choose your own adventure. As you go through our materials, to kind of pick what you want and it's it's a way for us to deliver to the client a product that is, you know, they had choices as to what they get, but it's within the swim lanes that we laid down. So they're staying within our vendors and mechanical systems and all that kind of stuff. So that's one design path called stock homes. A couple of years ago, we created a product line called Truehome which is a much more standardized build. Where you know, we we don't allow clients to modify the designs. And then, we've also already picked out the materials and so you know, the kitchen cabinet layout is done. You know the siding materials have been picked but the benefit of us having all of this stuff picked out is that there is a buy it now price on our website. And so you can go on and there's a price for you know, modules package or a turnkey package. But it tells you what that price is.

Prefab Review

Right? And that's all hard cost, right? That does not include soft costs, right? Yeah, but I guess theoretically there aren't going to be heavy design or engineering soft costs here. It's mostly just like permitting and stuff like that, right?

Huntington Homes

Correct, so there's a permitting cost. It's all basically you know, local building permits and engineering costs that are additional. Plus what I call the site prep and utility cost - so septic, excavation, well, driveway, power.

Prefab Review

Yeah.

Prefab Review

Right? Which is site specific.

Huntington Homes

But the reason we created TrueHome was not only so that there were more clients who knew what the house was going to cost them upfront. But it's also a way, the designs of the houses are really tailored towards our production system and what we're doing in the shop. And it's a way, the designs are such that we're able to drive the maximum amount of value from our shop to the client. And we took some of that efficiency and turned it into you know, absolute cost savings to the client. But we took a lot of that efficiency in the cost savings and actually plowed it back into materials, and mechanicals for the style and the types of houses that we all want to live in ourselves. And so we really focused on high quality - simple, durable building materials. We looked at stuff, you know, we were choosing materials with a high recycled content. Basically stuff that can return to the earth when it's done. We're trying to avoid the use of plastics. You know there's no vinyl siding that's happening. You know, we're using cellulose insulation, wood clapboards, and the other thing is that all TrueHomes are designed to operate without the use of any fossil fuel-fired mechanical equipment. So they all have building envelopes robust enough that even in Northern Vermont climate zone 6 they can operate with just electrically driven air source heat pumps. And if a client wants to go further, you can buy power from the utility company or you can go the next step and put on your own solar panels to generate your own electricity and go to this concept of zero net energy. So all of is part of the standard package, a standard True Home package.

Prefab Review

One of the interesting things about them, so there are only 4 of them right? If I'm looking at the website right.

Huntington Homes

There are 4 of them now. We have fifth that that has been developed. We're just working on getting it uploaded to the website. And the idea is, as we kind of go, they take a lot of time to put these packages together.

Prefab Review

I imagine. Especially if you're putting dollars on a website with commodity prices being pretty volatile.

Huntington Homes

Yah, and so anybody that's built a house knows there's a lot of problem-solving that what a client is interested in and what the builder sorts through are very different things, right? Where clients are always focused on the big picture and they want the cosmetic stuff, right? They saw this photograph and they've sent you their pinterest board and you know, they want the blue cabinets with you know, Lacquer Brass hardware and that kind of stuff. Whereas the builder is sorting through making sure that the drawers, when they open, don't hit doorknobs. And so one of the things that's nice about the TrueHome package is that one, we've put we put a lot of time into the designs so that the designs the designs can facilitate the mechanicals in the operation of the house. So that we’re making the mechanical runs as simple as possible and not really tangling them in the structure. Just being thoughtful in how the design is being laid out. That's not to say that we don't have issues as we start building. And we run into small problems that we find, but the nice thing about standardizing the package and we know we're going to build that that again, is that we just go back into the engineering and we correct those problems. So as we go through each time, there's continuous improvement in those designs. So I don't eve think we're gonna get to the point where we have 30 True Home designs. Hopefully we get to the point where we have 10 of them.

Prefab Review

Yeah. Great. Yeah, so the thing I thought was interesting about it, I mean I love the concept, right? Coming from a high volume site with a lot of people wanting a lot of stuff. You know, being able to have things that are well thought out, I think not everyone necessarily wants that but we connect people with companies, we connect them with custom architects, and a lot of people want to feel good about the cosmetics and want to feel good about someone having thoughtfully done the work versus making a rash decision. So I like that concept. That was interesting that none of them are very large from a square foot standpoint, right? The largest one is 2,000 square feet. Is that indicative of, without knowing too much,  is that indicative of the average home you build? Or would that actually end up being a little larger than the kind of range of homes you have, or is that kind of standard for you?

Huntington Homes

The majority of the homes we build are somewhere in that kind of 1,500 to maybe 2,200 square foot range, yeah.

Prefab Review

Are you mostly building primary residences or secondary residences or working with kind of investors? What are the use cases that people are coming to you for?

Huntington Homes

Yeah, in Vermont I mean, we definitely have resort towns here and so yeah, I don't know what the breakdown is. If I had to guess, I'd say 60% of what we build are you know, primary residences and 40% is you know, second home ski homes. And to go back to your question about different clients, and clients wanting different things - some clients come into a build where they very much want to build a custom home and that's not what the True Home package is designed for. You know that's not the itch that True Home is going to scratch.

Prefab Review

Right.

Huntington Homes

True home is for the client base that doesn't want to go through that, they just want to smash the easy button. And we find that the millennial group is there. They want to do their research. This is generalizing right, this  isn’t everybody but it's as a group, they want to do their research. They want to know what to expect. And then they just want to smash the buy now button.

Prefab Review

Yeah, yeah.  I think the cost certainty of it is also a really appealing aspect of it for people.

Huntington Homes

Yeah, and then there're the kind of on-the-move group. Which, you know, they have their house. They have a family. They need more room and that group tends to go towards the, “I want to build a custom home.” and then really interesting is the downsizer group which is coming back to the, “I did that custom home once and now I just want to smash the easy button,” because it was an experience. I'm glad I did it but I maybe didn't derive a ton of life benefitout of it. Like let's just make this as easy as possible.

Prefab Review

As someone who does a lot of non-easy home projects with our clients, and personally there are a lot of days where I'm like that sounds nice.

Huntington Homes

Yeah, which kind of bringing this back to our industry, for that group of clients that wants the custom home especially in the North East where we operate, and in Vermont definitely, there are a lot of really good custom home builders. And I don't ever argue that our shop can create value to that type of home right? We're not necessarily driving value to that project. We might be a way to build that project but we're not doing it any better than a custom home builder could have done it because it's bespoke, right? Every single thing is being decided and changed. You know, we’re kind of leaving that custom old market and saying, “look if that's what you want, that's totally fine, but here are these other builders that I think are really going to give you that product better than we are” and you know instead, we're really just focused in on standardizing our offerings as a way to build better houses for less money for more people.

Prefab Review

Makes total sense. Do you have any like favorite projects that you guys have done recently or in the last few years? One that you might want to talk about or give as an example?

Huntington Homes

You want me to pick my favorite child. We have done a lot of building on Nantucket islands.

Prefab Review

Yeah, I'm looking at your website. So definitely if you're speaking specifically let us know because people oftentimes look at websites like I'm looking at this.

Huntington Homes

Yeah, so there was a project that we did and it was probably seven years ago, now. It was right in the downtown core, historic district of Nantucket. If you've ever been to Nantucket, it's right across the street from where you come in on the ferry and it's right across the street and it was a staff dormitory for the Nantuket Yacht Club. And it was right in downtown. And from a design standpoint, we had to kind of merge all of these items, right? So because of its location, because of the very stringent design requirements on the island itself. But definitely in the core district. You know the house and the dormitory had to look like it had been there forever, which means certain windows have to be used. So all single pane. You know single pane wood windows that we source from a Vermont manufacturer. And at the same time, that has to meet all of the current building and energy codes and in that location you know, meeting a high wind standard as well.

Prefab Review

Great.

Huntington Homes

And so it was really from an engineering standpoint, it was a fun project to kind of pull together all of those you know, sometimes conflicting requirements. And the project turned out to be a great project.

Prefab Review

That's cool. I was going to ask you to in the fire round, but let's get to it now. We actually have yet to do a project that requires putting modules on barges and I can see you've done a few of those. I assume that's how you're getting them there and what are the nuances for that?

Huntington Homes

We've built about 600 houses on the island of Nantucket.

Prefab Review

Oh, Wow!

Huntington Homes

Yes, we’re actually out there this week setting one and we're out there next week setting one and we're out there the week after setting one and we were there last week setting one.

Prefab Review

Wow, how many sorry, to the extent you get to, how many homes are you doing per year if you've done 600?

Huntington Homes

Yeah, so as a manufacturer, we are small compared to some of the other ones. We're you know, currently, we're doing 75 homes a year. There’s a rush right now to get to Nantucket and the reason there's such a concentration of stuff is that we don't ship out there in the summer because the barge comes in at the same dock that all the tourists come in and it's in the town. The town doesn't want that. You know, houses and tourists in the same place at the same time it makes a lot of sense. We don't want to be there either. I don't know what the statistic is but we're not the only modular company that goes ther.

Prefab Review

It makes sense. So are there a few crane companies that just hang out on the island?

Huntington Homes

On Nantucket, there are a couple of other companies that go out there, I would have to think that Nantucket Island is the largest concentration of modular or prefab-built houses in the country. It's just constantly modular homes being sent out there. And there's a crane that stays out there.

Prefab Review

That's actually good to know. But there's just one, that's interesting.

Huntington Homes

Just a crane on the Island. It goes from spot to spot because the town limits where it can sit. When we deliver modules, we're considered a house move. And they only allow one a day.

Prefab Review

Yeah, so they consider one at a time but like any number of modules? Y

Huntington Homes

Any number of modules. But the project is one a day. So to barge it out there, there's a large company, we deliver modules to New Bedford, Massachusetts. Then we load them on a barge and they go over to Nantucket.

Prefab Review

Othe true homes right, that adds cost understandably. What does that add from a cost perspective?

Huntington Homes

Correct. So True Home, that's actually a really good question. True Homes were never designed with Nantucket in mind. So the cost doesn't include the barge cost but the True Home would never pass the design review of what happens out there. In terms of per square foot costs, plus or minus $20 a square foot for transportation and barge costs.

Prefab Review

That's what I would have guessed. When we've priced out certain parts in Maine, it's kind of the same thing. And when we've priced out Hawaii, it's more like $50 a square foot which is actually, given the distance, seems like good value.

Huntington Homes

Yeah, that seems inexpensive for that distance.

Prefab Review

I think the thing is there's a lot more commercial freight sending and this is from Washington. Sending people to point that might even be more expensive now. This has been awesome learning a bit about your business. If you don't mind, can we transition to the fire round? In this sort of little section, we ask sort of quick questions that we get as frequently asked questions from our audience, so we can tap into people with expertise like yours.

Huntington Homes

I’ll  do my best.

Prefab Review

I guess one question is what should people really care about, and I'm sure this is sort of definitional of what you do, when building in really high snow load areas? So we’ve done a couple of projects recently in Tahoe and Jackson Hole where there's like 200 pound snow loads. 

Huntington Homes

Yeah, so I mean pitch doesn't really matter, right? Snow’s gonna pile horizontally or vertically. So we build as any modular prefab company does. wWe have to build to the local codes for where the project is being delivered to or being built. And so as part of our engineering review, we find what the requirements are. For that, I mean snow load requirements are for that reality. And then we just build from an engineering standpoint, we engineer our roof system or our truss system to that snow load.

Prefab Review

Similarly, you were talking a bit about are there things you do specifically from the actual home standpoin? From an installation standpoint etc?

Huntington Homes

Yeah, so it's just kind of our offerings to clients. We have 4 different wall packages that we offer. And so we start with just a basic, you know, 2x6 framed wall with dense, you know, high levels of air ceiling. So under 1/50 air ceiling values on everything we do, no matter what the insulation value is. But then, that standard 1x1 wall is going to get an r-21dense back cellulose. The next wall assembly we do, which is the standard wall assembly, and the True Home product is what we call a 1x8 eps wall assembly. Where we still build a 1x1 wall but on the inside of every stud plate and you know rough opening, we layer a strip of eps foam and then we attach the drywall to that. And so we're making the cavity deeper so that we can get more cellulose in the cavity but we're also introducing an r-5 thermal break at all the framing members. So it's an r-26 wall or an r-21 plus 26 cavity. Then we do a ten-inch wide double stud which would go to an r-35 and we do a twelve-inch double stud which would get to an r-41.

Prefab Review

Next question, obviously for a lot of your areas it sounds like people are maybe from your network or maybe elsewhere, they're finding local contractors to do a lot of the work. I understand that you're still doing the set, but are there specific things that people should look for in terms of finding sort of GCs and builders that will do the job?

Huntington Homes

Yeah, one something that's really interesting right now is a lot of the inquiries that are coming into us right now are younger contractors. They are seeing the writing on the wall that stick by stick construction method is not the future. And so we are fielding a lot of questions from those younger contractors, right? Now, how can they get involved and how we can do projects together? We have, I'm just thinking about you know the projects we have under contract for the summer, and the handfuls of them, the clients are here because the contractor brought them here and you know the contractors are realizing, “hey, my square foot price is much higher than your budget.” They're also starting to realize that their square foot numbers were starting to get really crazy. And that they're exploring this as a way to get the prices down for a client. It's also a great way for them to have us do the heavy lifting, right? So we take care of the framing and mechanical rough-end and the insulation and the sheetrock. Basically the entire building envelope, and then they get to come in and do what most of them want to do which is you know, the details, the trim work, the cabinets. You know the detail kind of stuff. So for clients looking for contractors, I always encourage them to make sure that they’re looking for a contractor that has bought into the system and wants to be there. And then we have just developed a really good set of documents to define out the scope of work as to what comes in our package and what the contractor still has to provide. And so the client should be looking for a contractor that wants to be there. The client should also be looking for a contractor that's confident and honest and is gonna actually sit down and read those documents so that they know what they're getting into in the project so that they can provide you know good budgets.

Prefab Review

Yeah. Will you typically have the builder come to the factory to understand?

Huntington Homes

If they want to, for sure, right? If they're interested and they want to come here or if they have questions about our documents, you knok, what does this mean? Where's the handoff point? Then if not visiting us, they absolutely should be calling us to ask us those questions.

Prefab Review

Yeah, well when possible, especially because a lot of times from a financing standpoint, the way I don't know if this is true for your projects, the way this works, is the GC kind of owns the prime contract and you're almost a subcontractor for the GC like as the margin.

Huntington Homes

So yeah, most of the projects we're involved in, our contracts for the modules go straight to the client and then the builder has a contract with the client.

Prefab Review

You'll do two separate contracts. That's the way many of ours work too. But anyway I guess you probably know more. I think the GC still maintains a lot of the liability.

Huntington Homes

It depends on the state. So in the state of Massachusetts you know, construction supervisor who pulled the permit, it is their license that is responsible for every subtrade that's on the project, us included. No matter if our contract is with that CSL or the client. And so that's how it is in Massachusetts. In Vermont, it's not like that because there are really no enforced building codes for single-family residential, right? There's no engineering.

Prefab Review

Interesting. And then last question and this is something that we can get a lot of questions about but I think I'm always interested in how you're dealing with it as well. With the current supply chain issues, particularly I'd say windows and particularly in custom projects, are there things that you see holding up projects more than almost anything else? Do you have solution?

Huntington Homes

Yeah, so fortunately so we work with a couple of different window manufacturers. We get kind of weekly updates as to what their backlogs are and what their lead times are. And we're just ordering everything way in advance and we have projects that we're building in October or November and their windows are already on order. And so we're just we're staying ahead of it. We also have learned the hard way what window products are kind of quick ship products and what windows and what colors and what styles and what series are long lead items. So we're just doing a good job on managing the preconstruction aspect of it to get those projects flagged into the purchasing so that they're ordering that stuff well in advance. There's no question that our inventory levels are low right now. Are you know, we're inventorying three x more than we historically did, you know we, like everybody else, relied on an absolute just-in-time inventory system. And now there are still things like windows and cabinets that are still just in time inventory because they're unique to the project. But were really stocked heavily on the kind of commodity stuff of framing, sheet goods, insulation sheet rock. You know, we're just stocking really heavy on that stuff so that we don't run out of it and then, we're just dealing with it right? So you know, stories of just today you know, we went to place an order for roof shingles for a house that we're about to start building to find out that that color's not available. You know, we went to order the flooring to find out that that color was discontinued or that stain was discontinued. So we're you know, going back to the client and you know, picking out substitute materials and fortunately most clients at this point, know the drill, right? We're not the only people in their lives that have long lead times. So they understand it and they're working with us on it.

Prefab Review

That's good. It's been terrific learning a bit about your company and we really appreciate the all this stuff. The final question, I ask this to everyone. What are you most excited about for your company or for the industry in the near future?

Huntington Homes

I think all of us that are in the industry all think that we're the next big thing. We all think that the industry is the next big thing and I think we are the closest we've ever been to being the next big thing. I think that there's a fundamental shift in clients where they're realizing and seeing the value in off-site manufacturing, in home building and that they're starting to not see the craftsman builder. That isn't to say that some of them don't exist. But for the most part, you know, it used to be well, you know my house was built by the master craftsman that lives down the road. That master Craftsman that lives down the road they are either harder and harder to find or they tend to be building the highest-end homes right now. And so there aren't the majority of the home buyers or you know clients out there are viewing our industry as a way to build them a better house. Which is another way to say they're not viewing us as an inferior product anymore.

Prefab Review

Yeah, makes a lot of sense. Yeah, I honestly think a lot of people who we see come to our site are you know, oftentimes they've been like looking at our site or dwell or something for years and they're inspired to own this cool, factory built house. So I'm with you. I think there's a lot of momentum. Thank you so much again for being on our podcast. For those of you who want to learn more about Jason and Huntington Homes visit huntingtonhomemesvt.com and as always you can learn more about the industry as a whole at prefabreview.com. 

Huntington Homes

Yeah, hey Michael thanks for having me. Good to talk.

Prefab Review

Thanks again.

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Hi, my name is Michael Frank and this is the Prefab Pod presented by Prefab Review, where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Chris Jaussi, the owner of Zip Kit Homes. Welcome, Chris. We're glad to have you here.

Thanks. Glad to be here.

To start, can you tell me a bit about the history of Zip Kit Homes?

Yeah, sure. So, Zip Kit Homes. I've been a contractor most of my life. My dad is a contractor. So I grew up in the industry and went to college. I decided I never wanted to be in construction and somehow I ended up back in construction. So I've been a contractor for the name of our parent company - Timber Hawk Homes. I own that company, my wife and I. After the 2008 financial crisis, as a general contractor, we went from building close to 100 homes in 2008, and in 2009 we built like 2 or 3. So we had some factory space that we owned. And we weren't building anything, so it was basically out of desperation. I was like, "man, we've got to do something different because nobody's building any houses and you know we're going to end up bankrupt if we don't do something." At that time we said, "okay, let's try to figure out how to build more of the house in our factory space rather than onsite." And so that was 2009 and kind of started slowly. And we tried a number of different things. We tried modular. We tried panelized. We tried big panels, small panels, little houses, big houses  So you know, for three or four years, it was a lot like throwing spaghetti at a wall and just kind of seeing what sticks. So it was a business that almost developed out of desperation caused by the 2008 financial crisis. So really 2009 to 2012 is when we really started going with Zip Kit homes.

Got it. And are you still doing the contracting, like site work? Or are you now 100% in modular homes.

We're doing a hundred percent kit and modular. So no more site work. We've done it in the past and even somewhat recently. But now, not at all. We're just doing the modular and the kit homes.

Cool. What's the scale of your business? Can share how many homes you are building a year?

Yeah, so I mean it depends. Last year, I think we built like 65 homes or something like that. This year, we'll probably do quite a few more because we're going to focus a little bit more on our small little zip pods. Which is a small 400 - 500 sqft. If we go with the smaller pods, I bet this year we'll do 100 to 125, or something like that.

Cool, and I guess one of the things that I mentioned to you before which is interesting about you all. So our site's been around, I don't know, four or five years at this point. A few years at least, anyway. There are some companies where they had a couple of beautiful plans on their site. You know in 2019 or 2020 and now they still have the same you know, 5 beautiful plans on their site and it doesn't seem like a lot of their product offering has changed whereas, you all seem like you've done a lot of iterations both in terms of your actual products. But also kind of who you're selling to. Can you talk a little bit about that evolution?

Yeah. I mean, maybe those other companies are a lot smarter than we are because sometimes those evolutions aren't the best thing, you know? We've probably made too many switches and changes and evolutions. But so we started you know, 2009, '10, '11, and we've tried big really fancy modular homes and we found that we didn't really like doing that. Right now, and we didn't really plan on this but we've kind of ended up selling our kit homes more in really expensive areas and you know again, we didn't plan on doing that when we started the business but it just kind of turned out so that is really expensive, hard to build areas, we have a much bigger cost advantage. Or there's the bigger benefit of building it off-site in Southern Utah where we're located and so you know, probably one of our biggest areas been up in like Jackson Hole, Wyoming.

I was and would say we've actually heard from some people who have said that they built usually it's I don't know if it's Jackson Hole, but right, isn't one of the towns right outside Jackson Hole at least, we've heard of a couple of years going up.

Yeah, so right outside Jackson, you know, Victor and Drugs, Idaho is just over there. So in those areas, any kind of resort, ski resort, kind of remote areas, construction costs are like.

Yeah, I think Driggs was the town that we've heard of a few. Yeah,

Crazy expensive. And because it's so expensive, there's a bigger cost advantage than if we're just sending it. You know in the same area where we're building, there really isn't that big of a cost advantage. So you know, just kind of by nature, that's the way our business has gone to selling our kit homes in kind of the high-end areas.

Great.

And we have some really nice modern homes. You know, probably our style, I would say, is kind of the mountain modern style. So it's kind of yeah, it's modern, but it's you know, contemporary. 

That's how I describe you.

But sometimes it's got a lot of natural wood or metal or things like that. So it could fit in a ski resort, a mountain-type environment. But it's modern and that's kind of our style. So anyway, our panelized kit homes are one of our areas but you know we're kind of focused on the more expensive areas because that's where we can have a little bit higher profit margins and everybody wins. And then on the opposite end of that, we're selling, our little Zip Pods. But we'll sell them. Just about anywhere but those are, well with all of our products where we try to be in the modular space. There's kind of the affordable side, which is you know your Clayton Homes and Fleetwood Homes and things like that. And we can never compete head-to-head with those guys cost-wise because they have great big factories. And then on the upper end, you've got the method homes and blue homes and some of those guys with really cool architecture and some really cool stuff. But those were expensive. You know they could be $400 or $500 a square foot. So we try to be in the middle. So we try to say, "look, you know we're going to be more expensive than your Clayton Homes or Fleetwood Homes. But we're going to be definitely less than the Method Homes and we're going to offer some really cool architecture.

Yeah.

And you know, some good quality products. We're trying to fill that kind of middle space I guess.

Yeah. I think you do that effectively. Are you selling your kit homes direct to consumers these days? Or on your website, it looked like you were actually selling them more to like developers etc.

That's something we've gone back and forth with a lot. So yes, we will sell directly to consumers. But we're not doing any customized to consumers. So what we try to stay away from is that, with consumers, you have to be careful because they say, "hey, can we just move one window two feet?" And sometimes little changes have big implications on engineering and things like that. So, we'll sell direct to consumers. But it's our basic product. We're not making any changes. Yeah that'll take care of all the structural engineering and the design.

And those will come engineered etc?

You know, everything like that. And we've had a number of people act as owner-builders and build our kit homes and for some, it's gone really well. Some I can say, it hasn't done that well. So a lot of it depends on who the owner, builder or the consumer is. And I think the people that go in understanding that even though it's a kit home, it's going to be a lot of work and there's going to be a lot to it and they go in understanding that, they actually do really well. The ones that think, "oh, it's just going to go together and everything will be quick and easy. I'll have this new house." Those people really struggle. I try to tell people - it's a little bit like, I'm sure you've gone to Ikea Furniture and you buy a desk you're like, "oh yeah, this will be easy to put together I'll just do it tonight after dinner." And at like 3 in the morning, you're like, "I hate Ikea. I can't put it together. It's like that. There's a lot more to it than most people realize.

Right? On handling the structural stuff. So, we've done a number of projects in areas like Driggs, Jackson, name your ski area we've had people through our site do it.  And one of the things that often happens right, you have all these sorts of special sort of challenges, right? Whether it can this handle two hundred and fifty pound snow loads. Like, "oh, this is being built into sort of a hill" etc. Are you doing those on a one-off basis? Or would then someone hire a separate sort of structure beyond your house?

So we take care of all the structural engineering. So that's not a problem. We can handle whatever snow load, seismic zones you know the building requirements. That's easy. Yeah, if it's really site-specific, like where you have to get a geotechnical engineer involved and you know use bad soil or it's off the side of a cliff requires a lot of like on-site expertise that's where we say, "no, we don't do that. So you need to find a local guy that's going to do that on site stuff." And we could send them to Colorado, Montana, Idaho, Wyoming, and Utah not a problem. The one area that we kind of stay away from right now is California.

Yeah. Great!

And you know, the reason we're not, we've done stuff in California in the past, but the challenge with California, is there is so much bureaucracy that it can be a year to get the plans approved. And the requirements to get the plans approved are just insane. And so you know, we would work in California again. But right now. There's so much business that we kind of looked at it and said, "you know, is it worth  the pain in the ass factor of working in California?" So that's kind of why we stay away from that end. I would also say,  we're only in the Western United States, so people that want you know houses in Florida and the East Coast, we're just not there yet? We may be in the future and we've talked to different people about some possible franchise opportunities where they'd actually set up a factory on the East Coast. That's something we're definitely interested in, and in the future we may be there but right now it doesn't make any sense for us to build a panelized kit home or a modular unit in Utah and ship it all the way to the East Coast. It just doesn't make sense.

That makes sense. It almost feels like if you did California, the way to do it would just only offer your smaller homes as like ADU-style things. Just because those are a little bit lighter from a regulator standpoint. It just can't be like more than 1,000 square feet. Where you can't be approved like municipally we don't want any pardon that yeah right.

Now the one place I would say that we would look at California is, you’re right - our little modular units. We would do that but probably only for a big project because if somebody comes to us and says, “hey, we want to build 50 of these units in California.” Then it's worth it.

Sure, right. And the title 24 stuff and everything else. Yeah exactly.

You know, working through 50 homes but it's the individual consumers. Yeah, but it's not worth the brain damage to go through all that for one home, but for big projects. So I think, you know, the small modular units in California, for big projects we would do that and we are interested in that. And I also know that some interesting things are going on in the state of California right now with ADU regulations and laws; where they're going to issue permits a lot faster and so as that changes, I think it would make sense for us to be on top of that and look at that opportunity.

Yeah. They're not perfect right now. I mean our biggest markets in terms of places we serve, are outside the Bay Area and outside New New York. So we get a lot of exposure to those laws. And the ADU side in California is, usually you're required to get comments back within sixty days and it's a little more straightforward. So I guess it all sort of dependent relative to building a signal family home, it's easier. Okay, so this is one of the questions we get a lot and probably a little more complicated for you all because you're pretty explicit about what you are and what you're not. At least on the kit side. This is around cost. So maybe we can kind of work through that in a way that's pretty logical. So you're in Utah, right? So if we take an area that you probably do a good amount of work in that's probably not particularly cheap. Let's say Salt Lake City, or Park City and assume you can pick the unit. Assume that we have some mythical, pretty flat, urban-infill style piece of land. So you know, we have connections and stuff to the property. No crazy hills or anything like that. Do you think you could maybe walk me through one of the homes you know what your package would cost, and then at least like some ranges and expectations around what some of the other parts, in terms of finishing the rest of the house and the house might cost?

Yeah, I mean first of all, on our little zip pods, that's really simple because our pricing's online. And so yeah, you can just go to our website and our smallest Zip Pod and I think that’s $69,000. If you want it on a chassis, it's a little bit more. If you go to our largest, that is at pod is 470 square feet. I think that we're selling it for $119,000. And I mean, that's done, out the door. There's a little place you can plug in how many miles away you are and shipping, so you know those are pretty straightforward.

Right. Yeah, that's great. Do those come with drywalling, appliances, already finished up? 

So those are done.

So in terms of connecting to utilities, are those using actual normal connections or those RV style connections? How does that work?

Basically, we have it set up now. So you need to run 100 amp service to the pod. And so we have a junction box and so an onsite electrician just has to get 100 amp electrical service to that location. And he opens the junction box, makes one connection, and it's live. They're super insulated. Right now they're 100% electric. So our heating and cooling is a mini-split system. So like a Mitsubishi efficient mini-split system. And then it's an electrical demand hot water heater. So you don't need any gas or any propane. You just hook it up to 100 amp electrical service and you're going.

But okay, and all those appliances and everything comes in the unit?

All the appliances, all the cabinets, counters, I mean everything ready to go. The only thing it does not have is the actual furniture itself.  It comes 100% move-in ready.

Ah, right. But that's cool, so you're actually shipping it with all the siding and everything on the truck, cool.

It is done. Yeah, I mean seriously. We drop it either on a foundation or if it stays on a chassis, and your Electrician plugs it in and then water and sewer lines are just stubbed out the bottom. So you have to have a plumber make a connection to a water and sewer line and you're good. You're live. You're going.

Nice and it looks like it's a placed on, was it a stem foundation?

Yeah, we're looking at it right now. We can do, yes a stem Foundation. It’s not really slab but we're looking at some stuff down in St. George where you don't need to have a deep foundation because there are no frost depth issues and so with that, I think we can pour like a ten-inch by twenty inch footing and then set it right on top of that footing. And make the connections through an axis palm.

Yeah. I mean, I've seen manufacturers just going on walks, it just kind of depends. And then are these built to modular code or manufactured code?

Modular code. So they're built to the IRC code. We've never done the manufactured or HUD code. It's just straight-up IRC code.

Cool. That's awesome. And then, how are you seeing people finance these?

So I mean, I would say the biggest market for these that we've been selling is second homes. So it's maybe the affordable second home market and so people seem to just have cash. So you know, whether they're doing refinances of their primary residences or what they're doing, I don't really know.

Yeah, home equity or just cash.

They're just paying with cash or they can finance some. We are offering it on a chassis but this is kind of new to us, where we get a VIN number, and then you could finance it as an RV, yeah.

Then you can finance, it is our view, which is honestly more expensive from… I think those are usually 20-year loans and are slightly higher risk.

Yeah, but you could finance it with a conventional 30-year mortgage if you're going to put it on spot footings or a stem foundation. I mean, it's a standard house built to the IRC code. It’s no different than a site-built house. So I imagine you could get a regular 30-year mortgage, I think. You know, the only challenge might be when you go to get that mortgage. They're going to appraise it and they're going to look for comparables and I don't know that there's a lot of 500 square foot homes to compare it to. So that might be a little bit of a hurdle, I would say. Your right, it depends on location.

Yeah, honestly, if you're a billionaire in Jackson, I'm sure you could figure something out. So going back to the cost thing sorry, just because this is what we get as our biggest question. So let's take your Columbia or your Bozeman. There's one of these to look at on the site.

Yeah, let me take the Bozeman. So explaining the Zip Kits, that's pretty straightforward. So it’s a complete panelized kit on our website. Now it is $129,000. So what you would get with that is the complete kit - all of the exterior and interior walls,  stairs, you know everything. Our installed windows and sliding doors is an additional 1$6k, so now you're up to like $145,000.

And then, the way we're set up now is depending on where it is, that would include one of our guys to go out and help set everything up, but you'd have to have a couple of framers there. You know, we're not going to send our whole crew for that price. And then, usually, that represents maybe half the cost of the home.

Oh, really. Wow, that’s less than I would have guessed, but that's great.

And yeah, so that really is like maybe half because, you know, we used to do interior finish kits. But we're not doing that anymore and so there's still a lot. You've got to have the whole foundation that you’ve got to pay for and then you’ve got all your cabinets, flooring, fixtures, drywall, all that kind of stuff. So imagine a Bozeman unit. You know, let's say it's you're going to pay us $150,000. Let's say you're going to pay.

Yeah, I would have guessed it would be more like 30% of the cost. But if it's 50%, that's amazing too.

Yeah, so you know, you're gonna probably get it built for $300,000 - $400,000 but I’ve got to be careful saying that because you know if it's in Alaska.

But if we assume that this is in like east Salt Lake City or Park City and that is that in line with those markets. I assume you…

Yeah, and so I would say somebody could probably get the Bozeman built for the $300,000 - $350,000 range but again, you’ve got to be really careful because that's in Colorado or Jackson, Wyoming, you know the electrician that charges $15,000 in Salt Lake City might charge $40,000. So instead of $350,000 you might be at $600,000 you know, who knows.

Yeah, but okay, but that's still all relative. but like. I mean, we're doing projects in Tahoe right now that are $500 square foot all the way through. So it still seems like you're, on a cost basis, you're a little bit lower than some of the other groups. Which, I mean, makes sense, because most custom companies we see actually, let's see so sorry. So what did you say? The Bozeman would be in terms of just your kit cost.

You know for the kit and all the windows and everything, so you know the outside is completely you know dried-in, weather-tight it is probably $150, somewhere in that range.

Yeah, okay. So that's probably a little lower than others. We see a lot of times the kits would maybe be a little less comprehensive than yours. We'll see it like a $125 square foot. So that's probably a little bit less than that. That's cool. And yeah, so I guess when you talk about the development of where you are now, and again my recollection is not that your product line has been that different but it seems like there's been a bunch of different sorts of skews and products. How do you end up on these?

These are our most popular plans that sell well and that are easier for us to build. They are higher profit margin products and we're always trying to scale back.

it seems like you're trending bigger in some ways, in like potentially a little more modern than maybe you were a few years ago. I don't know. Maybe I'm wrong, just observationally.

You know, we have forty plans that we could throw on the website but we're trying to limit ourselves. I would say where we've kind of gone away from that a little bit is in the middle. So it's either a small little pod that's 400 square feet or we're going to go bigger or nicer where we have higher margins. It's you know, the middle. Sometimes you know we haven't done as much work. We would love to like help with the affordable housing crisis that's going on all over the world but we’ve got to make a profit as well. So we're always working on that. But we haven't really dialed that in so that we can actually put our thumb on it and say, “we figured it out.” We're not quite there yet.

Yeah, what are the requests that you haven't done yet, but you get all the time? 

Well, the biggest request we get all the time that's kind of frustrating for ourselves, yeah customization is a big thing but then people all the time call and they'll say, “Hey, we're in Tennessee. And we just want you to give us a quote to build the whole house.” And we go, “Okay, first of all, we're not sending to Tennessee, and then second and all we are not the general contractor. We're not going to give you a quote to build the whole house. That's not what we do.” So that's the biggest thing that people just can't get past sometimes is everybody just wants a turnkey bid. That's not our business model. We're not going to give you that. You know, we're more like home Depot than a general contractor. You know we sell a product, not a service.

Right? That makes sense. And then tell me a little about your multi-family products. Because one of the things we get is for some of these small multi-family plans and offerings. What inspired that and can you tell me about some of the projects you've done?

Yeah, so multi-family you know, is modular and panelized. We haven't done huge projects like hundreds of units, but we've done you know fourplexes six-plexes eight-plexes. There's a project now we're looking at that's about 120 units but they’re four-plex units. We just finished a project up in Idaho that's 16 single-family homes. But they're all individual homes. But they’re 6 bedroom 6 bath employee housing units. 

Cool.

You know things I don't know that we're super interested in. You know, we don't want to be doing the thousand unit apartment complex. That's not really our wheelhouse. But you know, a fourplex a six-plex, some employee housing, things like that.

Right. Yeah, that's great. And then do you end up having to cut just because of the scale and all sorts of commercial issues. Do those end up like.

Affordable housing in expensive areas - we really like those types of projects.

There are some companies that basically the plans on their site are basically just advertising and they never build them. It sounds like in your case on the modulars and really on your kits, that's mostly not true. On these multi-families, do they end up actually getting a little bit customized?

Yeah, a little bit. So we'll customize it a little bit. I mean, the biggest customization we've done, there's one we're working on now that we haven't built, it's in the design phase where he's taken one of our units and he wants the bottom floor to be commercial and then the top is living with some minor modifications. So we're doing that. And then the other thing, depending on how big the project is, we would customize it a little because sometimes it has to fit certain regulations or a certain size lot or things like that. So you know, we'll do customizations on bigger projects because it's worth the effort to make those. We just don't do them on you know, single-family units.

That makes sense. And are you seeing a lot of people building your homes as investments as opposed to owner-occupiers on the single-family side?

Yes, I would say so. I mean, there are a number of them that I think are like Airbnb. As I said, our biggest mark is probably the affordable second home and so that's you know, somebody's going to build a let's say a $400,000 second home, and then, I think they do you know Airbnb out or rent them out. But it's also their home. So you know that's kind of a big market right now, I think.

That kind of the owner-occupier investor person. Cool, that makes sense. And then I guess one of the questions in terms of timing - I get this a lot. So I come to your site. I've got my shiny piece of land in Park City or whatever and I really want to put a Zip Kit home. What does the timing look like then in terms of the process? Do I just select what I want online and then what are the sort of next steps and timing for me as a consumer?

Yeah, so you just go online, and then there's a button that says, this is what I want to submit, and then we get that back to you and we'll go back and forth a few times to figure out exactly what you want. If you're super interested and ready to go, the next step is we sell you the complete engineered floor plans. So you know, the first step to build that house in Park City is you’ve got to get a set of plans submitted to the building department. That's going to be approved and so we charge you anywhere from $4,000 to $10,000 depending on the location, which house it is, and then we go to work and we get you in.

And you'll stamp those and all that stuff?

Yeah, they're stamped by an engineer. The energy codes you know res-checks all that kind of stuff is done. So we'll get you the full set of plans and then you submit it and then it depends. It could take anywhere from a week to a year to get that approval depending on the location and how hard it is to get the approved plans and things like that. When you get the approval, then we'll try to work you into our schedule. You know, scheduling is really hard for us because the buyers, if people say, “yeah, we're working on our zoning and we're going to get it in July.” I'm already thinking in my mind I'm they're going to be ready in November.

Like December. Yeah, exactly.

Yeah. I mean, it's going to take them four to six months longer than they realize. And so anyway, we try to work around your schedule the best we can and then, you know, work you in but right now we're super busy through the summer and through the fall and even through the winter. So if I put you in a production schedule, I'd say you know, in January we can start your home and deliver it in March. But there's a good probability that people think they're going to be ready in September who are really going to be ready in December. So I call and say, “hey, if you want to go earlier we're going to have this opening.”

Got it. Are you doing a set on these homes as well or is that someone else?

So we're always juggling that. It depends. We do the set and it works best if we can do the set. The only challenges are that we’re only licensed contractors in Utah and Idaho. And so if we're outside of those 2 states then we're kind of in a legal gray area. Where I think we'd be in trouble by doing the set without being a licensed contractor in that state and so generally, outside those 2 states we'll usually send a guy as kind of a consultant to make sure that everything goes well. But they would have to provide their own.

You’ll send someone who will help be the instructor. And people are using cranes for these for the most part?

Framers to put it together. Yeah, cranes or most of them can be done with a forklift or telehandler. One of those rough train telehandlers can do it.

Cool. That's awesome. Well, thanks so much. Do you have any particularly cool homes or examples of homes that like, “Wow, I'm really happy that this person did this for this reason or in this place”, etc?

Like homes that have been built? There was a guy in Reno that built one of our houses and he kind of had a Youtube following because he's a Bush pilot.

Oh, I think I saw that one - the drone guy or something.

Yeah, the drone guy. So that guy, they were owner builders. And they built a house kind of in the foothills of the scares over in Reno. And yeah, but anyway he did a little video and put that up there and it's I think, it's at over 3,000,000 views now. So we've sold a number of homes off of his video.

I saw that. That was a cool one. Nice views and stuff.

That's probably two and a half to three years ago and but the price is dramatically different. We just had someone the other day, and the lady called and said, “I saw that video where he said he built it for $200 per foot. We're ready to go. We're ready.” And we're like well it's probably going to cost you more than $200 a square foot because you know, the supply chain and costs have changed dramatically over the past two years.

That makes sense, awesome. This has been great learning about your company. So if you don't mind, I’m hoping to transition you into the sort of our quick fire round where we ask you frequently asked questions from our audience, and yeah so I guess question number one is: around finding a GC, do you have any tips on what to look for in a GC that would be a good fit for putting together your homes?

Yeah. I would say usually a GC that's a little bit younger and a little bit more open-minded. Sometimes the older GCs are not as open-minded to something different and just not as interested. So we've had more luck with an open-minded GC that's ready to try something different.

Got it. And tell me a bit about it. It sounds like you don't do California but obviously, some of these nicer ski towns certainly have design review processes. Have there been or is there anything specific that people should know if they're going with a kit like yours, where the specs are pretty defined from a design perspective to have design approval go smoothly?

Yeah, so with the design review committees, there are pains sometimes. We can usually work around small issues. Like they come back to say no, we want more with sighting and the windows have to be black. I mean those are easy fixes that we can do. The biggest thing we run into is a lot of HOAs or design review committees that have kind of antiquated or older rules that are set twenty years ago and one of the biggest ones we run into is there are rules that say it has to be like a six-twelve pitch or a five-twelve pitch that are very flat roots. 

Yeah, and you guys are what? One and a half 12 or something?

Yeah, they're very low slope, like a 1 or 2 - 12 pitch. And so people come back and say, “Hey, we just want to get the Bozeman plan, but can you do it with a six-twelve pitch?” And the answer is absolutely not. I mean, it completely changes the design and the aesthetic and the structural engineering and everything. So before you get too deep in it, I would make sure that there's not a pitch requirement. That's something we grow into.

Got it. That makes sense. The last question here, I think this is from your Instagram or something related to that. It sounds like you have a culture of adventure sports with your company. Can you tell me a little bit about that and how that developed?

I mean, we live in Southern Utah and we've had employees also up in Idaho. So I think it could just be because of the locations where we're located, I mean, there's awesome mountain biking, rock climbing, snowboarding, skiing. You know me and a number of our different employees, that's what we do after work. I've got my mount bike loaded up in my truck, so after work today we're going to go ride a trail and that could just be because you know, we're here where everything's close and so, the other thing I'd say our culture is maybe it's because you have to be a little bit more open-minded, but we've had better luck with younger employees than when we get like old-time contractors that are 50 or 60 years old. Sometimes it's hard to teach an old dog a new trick. So we've had better luck with hiring younger, more open-minded people. So maybe that's kind of blended itself too.

Got it that sounds cool. I mountain bike a bit myself and that sounds very fun as long as you don't have too many injuries which is a constant fear of my life, right now.

You know, it's funny. Some guys that used to work for me wanted to build a little motocross track. We have some extra land and I finally let him do it and the guy broke his leg the second day. That's a terrible idea.

Yeah, oh wow. It’s still unclear where the line is sometimes on this stuff. So you did a great job with the fire round. And so, final question. We ask everyone this. What are you most excited about for your company or the industry for the near future?

I think that the housing industry has not come along with the rest of technology in the rest of the world. We're still building houses and 90% of the homes are built the same way they've always been built. And there's a huge affordable housing crisis throughout the United States. I mean, everybody knows that buying a house is so expensive. So I think whatever company it is, whether it's our company or another company. Whoever finally figures it out and could build a house faster and more efficiently and better and less expensive than the competition is going to kill it. I mean, the sky is the limit. So you know, I'm excited and passionate about being involved and figuring out a way to just build more efficient homes and hopefully make a dent in the affordable housing crisis.

That’s awesome. That's definitely a worthy goal. Thanks again. Chris, I really appreciate the time. For more information about Chris and Zip Kit Homes visit zipkithomes.com and as always you can visit us and read about the industry at prefabreview.com. Chris, thanks again.

Thanks for having me.

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Hi, my name is Michael Frank and this is the Prefab Pod presented by Prefab Review where we interview leading people in companies in the prefab housing industry. Today, we're speaking with Jake Knoth, CEO of BarnPros. Welcome, Jake. Well, as we were just sort of talking offline, I think it sounds like you are, I don't know, a pseudo-family business. So it'd be great to learn a little bit more about the history of BarnPros.

Absolutely. Yeah, I would call it generational. You might say the history of our company is pretty interesting. Basically, we have been around for just over 30 years. We had our 30th birthday about a week ago. Actually, so a little bit before that, our 2 founders had been working together. But it basically, looks like this: throughout the late 80s, our founders met and were working on a number of spec projects and a few custom homes together. And throughout the 90s, this is just outside of Seattle, Washington, on the east side, if you're familiar with the area. They began to build homes. Realistically, they had built their first barn together and this story becomes really interesting. I'll try to keep it short for the podcast. But basically, that barn went really well, they fell in love with the post and beam style of construction during that process and they began to do more. It started to catch on in our area and then really, as Seattle grew, especially as say Microsoft moved in a couple of towns over, we kind of got on their bulletin board and then all of a sudden, we began to really catch on in our area. And so, throughout the 90s we became kind of a large regional general contractor specializing in barn construction. And really do barns. We would do indoor riding facilities. We would do shops, but the focus was really on these high-quality, high-end barns.

And was this 100% on-site at that time or was there sort of a kit component the whole time?

So this was 100% on-site. They were really, you could say, going through the motions, but the learning as it pertained to doing the same thing continually, but they were doing it on-site. And this is over dozens and dozens of projects. Towards the end, they had about 3 full-time crews operating.

Yeah, yeah.

But eventually, they opened a warehouse locally where they started to do some of their door components - the things that took them a long time on site. And they realized that they could do it faster and more securely in a contained environment. You know, you're environmentally controlled. You're inside. It's warm and you know, that was the advent of a little bit of prefabrication for us 25 years ago. So where the story gets exciting, is in the early 2000’s about 2002, we opened our first website, and if you go to the way-back machine, it's pretty interesting to go see it back on Microsoft Front Page, but they began to advertise. And they did so with paid search in like 2003 way before it was cool. And it really exploded for us. What happened was, we were advertising supposedly locally but it was so new that it was getting national traction and so we'd have folks calling up from back east saying, “Hey. I'd love for you guys to come build for me.” And for us, we're sitting here in Western Washington going, “Wait, you know we can't really service Georgia?” And it became kind of this confusing thing because the internet was so new for everybody. And so basically, our founders looked at each other, their names were Jeff and Steve, and they looked at that and said, “you know what? I bet we could provide the value that we have here in terms of architectural experience. Probably hundreds at that point it's hard to say, but hundreds of iterations gained in terms of, again this was primarily horse barns at that time, so stall configurations, sizing, what the components needed to look like, what made for a high-quality horse stall.” All sorts of stuff that's pretty deep into the equestrian world, but offer that value on a national scale. And so that was the first time that they began to do kits. That was in 2003. And from 2003 until right up to the recession in about 2007, we grew almost in a couple of years over 100% per year. Literally four or five years in a row. So, it was an incredible timeframe moving in.

Was this all barns? We'll get to your products, like you do barns, but you also do all sorts of other sorts of barns and things. Was this all barns at that point?

Certainly. Yeah, at that point it was all barns. That's correct. And a quick note on that, so today barns are the heritage. They are the namesake. They are the style but true equestrian or equine facilities are probably 30 to 40% of our overall project base if you will. The vast majority are residential and but it’s barn-style homes, right? And then there's a lot of shops in there and a lot of our favorite projects. We do a ton nowadays of breweries, wineries, event venues, wedding venues, yeah pseudo commercial. That's a really interesting topic in terms of permitting and the technicalities.

Right? Commercial stuff. 

You know, commercial versus not. But anyway, yeah, the barn-style wedding venues were definitely a fun ride for us over the past decade or so. As that really was in vogue and becoming very popular. But yeah, so the recession came around and it slowed down a lot of builds for us. It curved the say 100% year-over-year growth to something more normal, twenty-thirty percent. Still great. The advantage that we found during that time was because this is a package or kit, we call it a materials package for a couple of reasons, but you're leveraging the expertise of a local contractor, or back in the day, you know twenty years ago, permits were not handed to you but they were a little bit easier than they are now and general construction practices were simpler for a number of reasons.

Yeah.

And you know a lot of homeowners on the smaller structures could take a stab at it themselves whereas today, you know, our average footprint is about 4,300 square feet. So it's not quite approachable to do it yourself. But during the recession, we had work and that's something that really helped in terms of our clients or our customers finding somebody to work with to bring their project to life for them. So post-recession things picked up again and kept moving. And you know, that's almost 12 years ago, to where we are today. And the last decade has been very interesting in terms of product expansion and watching changes throughout the industry. The biggest changes happening in the past couple of years with what's been going on in the world and I'll pause on that cause I'm sure we'll get into the logistics of covid and how that's affected everything. But.

Yeah, so so let's talk about kind of product, expansion, etc. So when you talk about residential. I'm just looking at your website now, you have you know, five sorts of residential structures. And I think they're in kind of a couple of different sizes. Are those the basic models you're creating packages for? Or are there other ones as well?

So all of our model configurations are on the website. The biggest changes that you'll see, so basically, you have a starting package, and on our website, you'll see starting at pricing: what that means for us, though it's based on options.

Yeah.

It's really a common configuration. So we'll take you know, our Denali. We can use that for a couple of use cases here. That's our most common model a Denali 48, so the way we term our models is, the Denali is the use case. It's you know, the level of engineering that dictate foundation style. It dictates framing style. And then 48 is the length. So again, Denali 48 is very common but we just did a Denali 108 down in Nevada. And so you get variance in sizing. And then from there, we design these to be very configurable. The biggest competition that we would see is, basically you know, you go find a local architect and maybe a local engineer and you put together a custom build. For us, we achieve near-custom through heavy configuration. And that really is our approach to that.

Right. So I'm looking at the Denali plan which, at least based on your site is, right? It's essentially an open floor plan where the barn would be and then right, it's like a pretty big 3 or 4-bedroom kind of full-size apartment on the upper floor. When people buy that, as you're saying it's very configurable, are they frequently also using the lower floor for residential, or is that you know a garage or for horses?

Great questions. So more and more commonly, folks are using the lower floor, which makes a lot of traditional conversations much easier, be that around financing be that around comparables because you don't have a 2,000 square foot home over a 2,000 square foot shop.

Right.

It can be very hard to figure out the value of that. Just from a comparables perspective, is what I mean. But yeah, so usually downstairs there's always at least 1 entry room that has to be fire blocked, right? So that's always a minimum and then oftentimes folks will expand that just to have maybe bigger mudrooms, say a bathroom with a big shower. And that's a really common thing. More and more commonly though, folks are doing entire living rooms downstairs with you know, big open to above floor plans which are really pretty cool. The buildings are really tall. That Denali is about, it depends on a couple of factors, but usually lands between a 26’ and a 28’ ridge. So if you're standing on the ground floor, and you're in a great room, it's just has a massive open feeling to it. And so yeah, more and more commonly folks are adding that downstairs.

Right.

Actually, one quick note on that. Recently, a couple of years ago, we expanded. The Denali’s little brother is a smaller mountain peak the Huntington. And we expanded that to have a true,  you know, we designed it to be a two-story model. That's our Rainier Barn Home. Yeah.

Yeah, cool. And then on these, I guess one of the questions I had is, are there internal beams on these things, or is it all external? How does that work in terms of configurability?

Yeah, awesome. So basically, this is true post and beam style construction. We have some hybrid kind of timber frame elements in there and then in some of the residential models, we will leverage bearing stud walls tastefully. So basically, the structures are built upon a grid system and it's that repeatability that you'll see as a pattern through a lot of our business. And what we do on those 12’ grids, so if you follow the outside of the structure, you know to that point, you'll have the primary beams or in this case, the primary posts, all located in the exterior walls and then you'll have a couple on the inside of the floor plan. So, generally on a 36’ for example, you'll have four. So there will be just 4 inside. Usually in a barn that's where you'll mount your stall components to upstairs. You'll have a kind of intersection where a hallway meets a bedroom and it's in a wall anyways. And then kind of one nice center point in a great room to give you that kind of lodge feel. 

Yeah, yeah.Got it. And how do you sort of develop and come up with these different options? Because as you're saying, you've certainly been in this industry a lot longer than I have. But I mean on our site we get thousands and thousands and thousands of requests every month for people who are like, “I want to build a barn modular or you know, some kind of variant on you know a barn feeling, but residential. So there are a gazillion different options you could go with. How do you sort of hone in on the specific plans you have?

So the part you mentioned about the requests is really a driving factor for us and it's really interesting to see that flow over the course of a couple of decades. So basically, we are lucky to have very high volume traffic to our website. And just in general, over the last 20 years with a couple thousand structures out there. It's taking in the feedback and trying to build that into institutional knowledge. A small use case example is the Denali which again, is our primary residential model. That's what folks will go for. It came from our Olympic. And the Olympic has basically envisioned that same roofline. So for those of you listening, it's a 9-12 roof pitch. So it's not cathedral steep, but it's a nice steep roof pitch. It's got a couple of gable dormers to add some architectural flair to the roofline.

It's pretty steep. Yeah.

I'll simplify that a little bit, It's about a 12’6” sidewall and in the case of the Olympic it's a true barn. So that was kind of the original BarnPros barn design that really helped us grow throughout the 90s, kind of in that version 1 phase before we went to package format. What ended up happening is especially in the late 90s and early 2000s, I mean it's kind of happening right now again with the changes California has made in terms of the ADU buzz that's been going on. But that was happening a lot at that time. Everyone called it a mother-in-law suite. But they were adding apartments into the Olympic. And so what that drove was, “okay. you had this apartment-style Olympic apartment. And we made kind an offshoot with some modifications to the Olympic to make it better suited. In those days, we were using grids on the upstairs wall framing to hold the siding because it was true post and beam. But eventually, we switched that. So all the upper gable framing and upstairs framing as a whole was a stud wall. So when people added an apartment, it made sense. And then eventually, we thought well why don't we just make a barn that is literally made for this? And so now, our Denali, you know we basically change some of the grades. So the loft grade is a little bit taller. It comes standard with a wider array of dormer options that get you the clearance you need upstairs in a true barn apartment. The style is you know, so popular but a true barn apartment with a steep roof where it meets a loft, it's not that usable on the sides because you get too low clearance. So we have, we call them shed dormers. But it's basically, lift the roof pitch in that area from 9/12 to say 5/12. So you get plenty of head clearance to have this usable apartment space. Other things we did with the Denali were converting to what is most commonly now known as a stem wall style foundation as opposed to a true embedded post design in the original. In this case you hang it on all your floor joists which works amazingly. In a barn, the point for that is you get head clearance because you don't have any beam work below your floor. But the problem is, when you go to do it in a house you can't drill through those levels and you don't really have a great chase for plumbing. But it's harder to insulate. There are a lot of challenges. So all our residential lines have a more conventional design. There's a glue jam beam below each loft section and then the loft joists just run over that like you would see on the first floor in a home that's over a crawl space. For example.

And do you work with outside architects? Are you designing them in-house? How does that work?

So the cool part about the history is a short answer. Yes, we've had a lot of both. So basically we did in 2017 maybe 2018, we did a revamp on the Denalis. And we did an entire set of floor plans with an outside architectural firm. So that was advantageous in the sense that the stock floor plan was fully thought through, and that flows nicely. You get good views and then additionally some of the floor plans and designs will be client-driven. Over the years there is some stuff that we try to keep architecturally interesting or make sense. But there are some features that folks continually ask for and we'll try to work those in where we can. For example, our decks grew as a result of customer requests.

That makes sense.

But the really interesting one, that's probably the most fun, is a lot of our clients or customers are architects and so what's interesting for us is our primary user is the person receiving the value. The customer, the homeowner, right? But due to the way our program works, we get a lot of folks who are general contractors who have a client and they want to build whether it's a barn-style home or an actual barn or you know the outbuilding, and they come to us because they can see the expertise and it simplifies it for the builder. The same thing for an architect. Usually, what'll happen there is if you have raw land and someone's building a new home, the architect is focused on the home and they are delivering their value into this really nice custom home. But they want to compliment that with a beautiful barn. Maybe they either don't have barn experience or don't have the time. That's where they search, “hey can I find a barn?” They find us and then it becomes this great compliment to a custom build. Or something on raw land from that example.

That's cool. So let's talk about this from the consumer perspective. And if it's cool, let's assume, actually it doesn't really matter what plan we would use for this exercise.

Sure.

Let's say I'm coming to you because I want to do something residential in nature with you all. And you know, I see some plans I like on the website. What are the next steps and how does this work to sort of go from, “hey, I think I want to build this with you all.” To, “I have a certificate of occupancy and all that stuff.” What are the sort of steps in terms of working with you all, hiring GCs. How does that happe?

Yeah, thank you. That is a perfect question. So, one call out I'll make is a resource center on our website that is geared towards this. It's something we're really working on right now to continue to help folks depending on which phase they're in, whether it's a long way out, or if they're starting in the near term, or if they're like, “no, I want to build this right now. This summer. I'm ready to go.” We kind of gear that towards the different phases of planning if you will, but it basically looks like this. So usually, folks will have found our website and oftentimes they will be interacting with our marketing and our resource materials. We have a beautiful print catalog we do. There's a beautiful winery that we did over in Chilene, Washington this last year and you know they had been looking at the particular barn model for almost a decade and it's this beautiful story. So during that time, usually they're doing the research. Almost always, these are folks where, “you know, I sold my house and I want to build this dream house” or “I bought my house but I want to add an ADU, I want to add a barn” and something like that. Usually, they're doing some planning but in the most conventional way. They've looked at the website and experienced some of the resources. Maybe they've found the prefab review and they're learning but they call us up. Our sales team is geared less towards sales you would say, and more toward helping understand the needs of the client and matching them with the right structure. Our absolute success is to get the perfect structure based on understanding the needs of the project and moving from there. I can you know, pause or skip past this but basically, when they call, there's a big question of, “okay, I want to build a barn in my yard.” Usually, folks will have an understanding of what they're looking for and they might have a model they've already looked at but the basic intent is to figure out what are their goals for the project, if we can prioritize those to where you know, if you ran short on room, or money, or time, or whatever, would you rather have 3 bedrooms or 3 stalls or 3 car garages; and prioritize those so you can really get into design from there. It's looking at parameters be that the land itself. You know, we say the dirt drives the design in a lot of ways. So what can the property truly fit? You don't want to put too much building on a property and ruin the sort of feel.

Right.

Also building not enough building can leave you feeling dissatisfied. Not dissatisfied but leave you wanting more, I guess, is a better way to put that. So what does the dirt have to say about it? What does the county or the jurisdiction have to say about it? We use county because almost all of our projects are rural. Probably 15% are the city and the other 85%, if there's permit, the County is usually how that goes. And then, the last parameter is the financing of the project. How will it be paid for? Financing is probably a different topic. But how's it going to go so what equals the budget and that all leads to design. And so for us, our goal is to help share institutional knowledge with our client base so that they can kind of understand. Okay, so based on the information that I saw and in talking to BarnPros I now have an understanding that I'm thinking the Olympic 60 is a great fit for my property, hopefully during this time. They have been looking for a local builder or you know usually folks will oftentimes already have someone. They've found someone that they want to work with to build but they're so early in the process of, “hey, I want to build something” that they may not have selected somebody yet. So either they've already found a builder they want to work with or they know someone. Or they choose a model with us and now that they're armed with an initial set of elevations and a couple of weeks later a set of full site engineered blueprints, they're armed with what they're actually building and can go find a general contractor if they haven't already.

Yeah. So how does that work because in terms of you all, you obviously provide the package of materials - a kit. But for some of these municipalities, some level of permitting is almost definitely going to be needed. And at least some level of construction docs are going to be needed to get bids, oftentimes from the GC. So sequentially, is there a deposit or some amount of money in order for you to provide whatever plans are necessary for that, or how does that work?

Yeah, so our goal at the beginning of the process is to in our opinion, overdeliver on value. So we will do the entire structural blueprint set and elevations and the construction dock that they would need from us. Starting from just a flat $10,000 deposit. We don't ask for any money again until it's time to ship the structure and that depends on the structure. But basically, usually it's a progress payment of about a month or six weeks prior to departure and then the final about three weeks prior.

Okay. So basically $10,000 should hopefully get you through, is there engineering involved with that as well, or is that not an engineered plan?

So all of our projects are fully site engineered to meet or exceed any code. It can be really tricky sometimes. And like Wyoming or Tennessee, where there's really no jurisdiction to talk to, and so then you basically go with the flow.

Right.

If you're in Washington or California, it's super easy. You flow from the state to your local jurisdiction. But obviously, there are standards and you know to expect places where there's no local jurisdiction. We just flow from the state and flow downward to the most specific information that can be found and go from there. So usually, the state will have you know which version of the IBC. Or their flavor of it. If they're California, on what they want to do. And so it's working downward from there. But it's fully site engineered and that is included in the price of the package as well as shipping to the site. So in the one price that we provide it's exactly everything that will be included. And we're not going to throw in add-ons and say, “oh, engineering is variable or you know, shipping is variable,” or whatever. For the core product line, it's just included.

Okay, got it. That's helpful. So then, basically the consumer it sounds like they normally hire, do you have a network or do they normally hire the sort of GC directly?

So yes, and no basically in the current moment we've gone through different phases of this and it's interesting. We can speak about the pros and cons of different phases for a long time. We maintained an actual builder network that we were referring to where you know, it was a full sort of full-service program. You know, here's a builder and then there have been other points in time where you know, especially in the beginning, where we didn't have much to offer. Nowadays, we've laid it on. What we prefer and what we found to be most successful, which is basically we have a long list of folks who have built our product before and that our customers have worked with. Then, if the customer enjoyed the experience, we'll share the contact information. We're careful with that. So there's a couple gentleman in Texas who are one of our favorite builders. He's been building with us for a decade. He's done dozens and dozens of these and pretty much everyone loves him. Because he's a great guy. He's a good old boy. Really good builder and has good pricing. But you know, not everybody gets along and so you know 10 clients have had a great experience with this builder. But then you have something that isn't perfect on another iteration and so it can be tricky from that perspective because we're not doing it in-house. So the way we approach that again, is looking at the success that clients have had. If the client had a good experience. If they had a good experience with their builder. We will recommend from there but beyond our referrals or recommendations, really our preferred method is basically this: we design the package to be very buildable. So one of our primary filters when it comes to design intent, how we engineer, and how it goes together is to put it simply, buildability. But let's use that Denali. For example, we switched from a foundation that I might argue is more affordable via you know say a very simple thickened edge. Because it's possible. But we've moved that to a stem wall foundation by standard. And what that does is basically you can take this to a guy or a gal or you know a general contractor who has never built one of these before but if they have experience building homes or if they've ever touched post and beam, we design the packages to be approachable. So another way is we do have a list of folks that we can recommend from but more importantly, really, this is designed to be built by you know any licensed general contractor who can read a set of plans.

Got it. And then in terms of site feasibility et cetera. Do you need a crane to put these up?

Yeah, that's a cool question. So that’s a really interesting topic and that's what we call hybrid prefabrication - where you don't need a crane because it's not you know, a series of twelve foot pre-done panels or sections that get craned-in. It's primarily sitebuilt but a crane can be useful depending on the size of package. Basically, that answer gets tuned for are we talking about a 2,000 total square foot shop or are we talking about a 6,000 square foot wedding venue? There's a big discrepancy there. But we have a series of buildings that are meant for indoor horse facilities -  horse riding. It's called an arena, that has a sixty foot steel beams. Obviously you need to crane for that. But for our most common designs - barns, shops, et cetera. It can almost always be done with just a telehandler. So you know the favorite machine for that is usually like an 8040 what they call them. But it's an 8,000 pound lifting capability, 40’ boom machine, is usually all that's needed.

So, we deal with kits, we deal with modular. One of the things from a feasibility standpoint we always try to figure out is, actually build this house, what are the pieces of equipment you need in terms of trucks to get the material? Because we have all sorts of people trying to find the coolest, most remote, piece of land possible, and build stuff. And sometimes that's feasible and sometimes it's not. Some of the more fun, possibly outlier-ish things we get a good amount of requests from people, are for party barns. I'm sure you get some of those as well. Can you to talk a little bit about your experience with those?

I love that you mentioned party barn. That is a fun outlier because it lands smack dab in the middle between this is a barn and this is a house. It is both but it's also neither. And they are, I would say, if I had to throw a percentage at it, I don't know. It's a high percentage of what we do because usually it'll start as some folks will come in straight to a party barn. That's usually if it's going to be a venue. They already know what they want and, “hey, this is what I need.” But usually what happens, is they're going to do a barn or a shop or whatever, and they realize, “okay, well they were thinking about the first floor - so where am I going to park my boat? Where am I going to put my Rv? Where am I going to put the toys? Or the workshop? Or the blacksmith’s shop? Or the woodshop? Or whatever it is?” And then you have upstairs and usually that started with, “we'll put the Christmas ornaments up there.” But then you realize that it's you know, twelve foot clearance in the middle and you've got a ton of room and all of a sudden, It's like wait a minute, we can have a lot of fun with that. Let's put a pool table up there. Let's start to add to it and before you know it, you have this really cool party barn. So for us, basically what we do is try to figure out the intent - if the party barn is just the occasional hangout but it's primarily meant to be an outbuilding, be that the shop, we will recommend one of our barn structures. The reason being, it's way more cost-effective to build an embedded post design where it's applicable and where it makes sense. But if someone's going to do something where, “hey, I want my party barn to be, you know I'm not living in it. But I want it to have a bathroom. I want it to be fully insulated. I want it to be basically a house but it just doesn't technically have a bedroom from a code perspective.” Then we'll go to the Denali. We'll go to a residential model that you know it's built for that. So with the biggest thing on the party barn situation gets into code. And you know what you can do, my biggest recommendation for folks when they're getting into this, especially in rural areas, the tendency that we notice is, “I'm just gonna build what I want to build and I'll worry about the permit later.” Depending on where you are in the country, it's not a big deal and it's funny if you talk to somebody in Tennessee and you mentioned doing a permit. You're maybe not crazy but you know I don't need that at all. That makes perfect sense. But then in California or Washington where, if you talk about skipping it, now that doesn't make sense because it depends on how that state operates. Anyway, so yeah, the big thing on party barns is what does the jurisdiction look like? What do they allow or not? And then you know, is it going to trigger a guest house type code or an ADU type code that needs to be considered. And that's a conversation that we're pretty fluent with. Our team is able to discuss that in such a way, and where I would say we have pretty a pretty high level of success, is getting them into the right path based on what they're asking of us and where they're talking about wanting to go.

Cool. This has been awesome learning a bunch about your company, the company's history, and products. But if you don't mind, when we have experts on the show, we try to bug them for a few minutes with general questions. We call it our fire round. Just to kind of tap into your expertise. So if it's all right, I'll ask you a couple of questions and if you can keep answers to one minute or less, great, but you know it's all good. Okay, so I guess question number one, it's sort of related to the last question. Can you talk a little bit about working with people using barns and your different buildings as investments and how that works and how the experience would be different?

Absolutely. So, I'm just trying to think about how to do that in a minute. So the type of income-generating facilities that we see are either you have the higher, more heavy-capital investment-end, you have wedding venues, you have general event venues, you have wineriess and breweries, and those are usually if they're financed. They've done on a SBA loan most often. They're a full business in the outbuilding world. You have revenue-generating activities through usually boarding, so folks will take our barns and they actually work well as boarding facilities because they're beautiful. There's a ton of value built into the package. Those sometimes are on SBA loans. But usually, that's through a farm loan, like a farm credit. And then the one that I think you're probably getting to is more of the, “I built a rental property and I want to rent out the apartment that's in it.” So that one is probably the most common. Basically, it comes down to: where's the financing coming from? So, from an investment perspective, if it's a capital investment obviously anything in the construction world that is by far the fastest and the easiest. You are in total control. Second best to that is obviously going to be the HELOC. So if someone is a homeowner and they're building this on their property and they have equity in the home. I know there's probably a ton of episodes that discussed this topic but the HELOC is still king because it's basically your cash. And then the construction loan. The construction loan is obviously challenging. This does fit decently well because it's still site-built, so I know it.

Yeah, it's pretty easy. You don't need modular specific financing?

Yeah, that's exactly what I was going to say. I know that obviously going a modular path or a full completely done in a factory can be hard to get financing under say, a construction loan. But so that's the funding side of it. But on the return side.

It's a little more complicated. Yeah.

The biggest thing and our biggest goal as a company is to help. Basically it's one thing to offer a good client experience and I hope everyone says that, but the reality for us is what we want to target. And that is a smooth experience because to us, smooth is fast. Sometimes slow is smooth, but smooth is fast. And so what we mean by that is helping plan. Okay, so can we talk about your sequencing. We can talk about you know, don't clear those trees until you do your permit, please. But you know is it going to flow quickly through because if you are looking at this as an investment, a long period from the beginning of putting your capital toward it toward when you can actually have occupancy and start renting, that's a liability. That can be really challenging. But once they're in it, you know, does it make sense? I would say affirmitive. Yes, there are Reddit communities that follow BarnPros projects and look for existing ones that are coming up for sale. There's a beautiful riding facility in a little town called Kashmere, Washington for example. Right now, that's for sale and so you know that would get called out. But the most common scenario was like somewhere between 850 and 1,200 square foot residential apartment that's going to be rented out.

Oh cool.

The amount you can rent that for obviously varies so much based on where you are in the country. Yeah, but the general feedback we get is that it makes sense for them, I can talk to build costs a little bit to contribute. But that again varies so widely. But there are some principles behind it.

We never talked about costs. We're gonna do a quick detour from this. This is the most requested thing. So this is no longer a fire round question. Okay, yeah, so on one of your residential floor plans, ideally one that's fully house versus kind of apartment, say the blue ridge or the Rainier. Can we go through and pick your sort of big West Coast area, right? Like we get a ton of requests for barns in California wine country which is an expensive area but has flat land etc. I'm sure you guys get them as well. 

Yeah, yeah, we do. Napa and Sonoma are two of our biggest counties and then south of everything,you know San Diego, we do a lot of stuff together. Yeah.

So let's say I'm looking at your Rainier Home, like 48 by 36 footprint. I guess that's like 2,000 square feet or so. Yeah, I see that it says starting at a $33,000. Let's just assume a pretty flat lot, pretty easyish there. And it has power and sewer and all that stuff. What do we usually see in terms of finished costs for something like that?

Wow, I Love this problem. Yeah, super good question. So the way I'll frame it is and actually I really appreciate the way you lay that out because I was doing the math in my head, “I'm like well, really the biggest thing is always the site, right?” You know, your point on accessibility, your point on equipment, all of that plays such a big role.

Yeah, especially for material providers like you.

So we're gonna assume we have a basically a flat site. I'm going to take out sort of site prep, the driveway, utility. So basically the materials package pricing's on the website. It's not an option where okay, the price I see for the Rainier, I need to go add a bunch of stuff to that. The intent is to offer, if you were to just come to us and say you know I want the Rainier Barn Home. Perfect, you can add zero things to it and it's a fully deliverable home. There is literally nothing else needed. If you want, most folks want to configure. So usually folks will grow that, oftentimes it comes in less cause they'll remove stuff.

Yeah, so it lists at $130,000 and you know it turned out to be $140,000 or something like that.

Often we'll grow say ten to twenty percent or more. But yeah, that's pretty common sometimes if folks really want to make it bigger. That's where you'll see that. But fortunately the Rainier, the way it's engineered, It's really a 24  foot wide structure that we've added to. Shed roofs, to use our nomenclature and so that one yeah, that's a pretty good assumption. So April of 2022, call it $140k to $160k range for the materials package. So that's going to have from a construction-specific look, all of the wood. All of the frame material. It's going to have all the siding. That'll have all your exterior doors and windows in that package. You'll have all the interior framing. So the low floor and the beaming and then we include all of the stud walls material as well. All the hardware. And again, that's shipped to site. Everything is good to go. So from a purely material perspective, you're looking at, that also includes house wrap. I left that out. What's left to be built? So kind of the next bucket is what we like to use the term general construction. It's close to kind of a dry-in but a little bit further because you end up with siding, the windows, and trim. But basically in kind of bucket A here, would be the materials package as we just discussed, the big bucket of construction being general construction. So what is that? That's basically the material and installation of the foundation. So fortunately in the Rainier. It's a conforming house. The foundation most often is a stem wall. There’s nothing crazy even with the point loading of the posts that gets distributed. There's some rebar in there to do it. It works really well. So foundation, usually there's slab on grade so that's slab and then you know, construction of all those wood products. So you frame it, you install the doors and windows. So labor for that. And then you're fastening your nails. And then lastly, roofing. So we stop at the roof sheeting. There are so many options of what folks want to do. So they'll be providing roof underlayment and the roofing itself. 

Right? Whether it's standing steam or tyvek or whatever.

Yeah, exactly. It just depends on where you are in the country. But usually, you see like a 30 year architectural comp. We try to recommend away from screw through fasteners or metal roofing just because there's, I mean I don't like the idea of thousands of grommets on my roof but maybe that's just me. So that bucket. That's the big one, right? So we had a materials package. We used about $150,000.

Yeah.

General construction, it's difficult because it depends on where you are in the country. We notice a massive insane discrepancy between like Texas versus in Washington. Washington's kind of a middle ground towards the expensive end.

Yeah, oh sure. Yeah, Sonoma or whatever is going to be a lot more expensive than Ohio or something. Yeah, exactly.

Often we'll see about, say $65 per general constructed square foot. And that's total square feet. So to your point that's about 2,500 square feet.

Oh okay, so you're saying that's way less than that. But okay, so you're saying that like that they're finishing the house and that would cost basically the same amount as the house. Okay.

So that's general construction. That's before finishes. And so we break it out for folks so they can really dial in if that makes sense. So the first bucket, in that case, being the price of the package that bucket. We just discussed that number was around to your point, a little over the price of the package.

Yeah.

It can fluctuate depending on materials i.e. the cost of lumber versus concrete can change that percentage. But basically, that second bucket, in our case, that's about $160k to $180k. I would say you took our package. It's built. It's roofed. It has a foundation. You're ready for your finishes on the inside. And now you're talking, your inside finishes are just gonna be your plumbing, electrical, insulation, wall coverings, flooring, and appliances.So the nice part is there is a massive fluctuation and also a lot of our folks are looking more for the empowerment versus handed to them, if that makes sense. So some folks will pay a GC to go completely start to finish. But usually, what'll happen is they'll have a GC go through the general construction phase. They'll have them do at least the rough-ins. But a lot of folks will get involved at that point to help with the finishes. They'll do their own sheet rock if they want to, or flooring. And cabinets if they have woodworking experience. But that number can range anywhere from say $75 a foot to a finished square foot on the inside up to like $150 if you're importing things and you know doing really smooth walls and stuff like that. It really depends on the level of finish. But I like to use say $80 to $100 a foot as a good average once you are framed in, just to get your last phase. That's your finish-out bucket. So in the case of our example, you're at 2,500 square feet. Basically you're coming around that same range. You'll land around say maybe $160 - $180? It lands to kind of an all-in number, is usually where I like to go from a translucency perspective. Talking about the mechanics can often get really in-depth as we are just now.

Yeah, yeah, yeah.

But realistically, we see a lot of our products especially in a whole house, landing somewhere in between say $225 to $300 per finished square foot built. So including the pack, including the inside, including stuff. And by stuff I mean you know, kitchen walls and all that stuff.

Yeah. For this time in the world, that's quite competitive with what we see in other places.

So yeah, and that's appreciated and so that's our goal. We do our absolute best to keep the packages value-oriented. The point in that, is it's a really high-end product but we do a large volume. We have thousands of these. You know, we have a 3/4 acre indoor facility where we're doing our prefabrication and adding our components. And so really, from a financial perspective, so much rides on how smoothly does the execution go and the level of finish. That's the big one. 

Yeah, you know and what's the timing? So if I order the Rainier from you all tomorrow, if I'm in an area of the world where I don't really need much from a permitting perspective and have my GC lined up and all that stuff, between like queue and time, how long does it actually take to get the package?

Yeah, so super good question and really what it comes down to, again, we have such a wide product. We'll stick with your Rainier example. I like Rainier pretty standard and you're in a place that can be pretty readily engineered so you know, most of our products end up either near water or in the mountains. Near water means high wind. In mountains means you know big snow. And if you're on the west side, that means seismic to contend with, as well. And if you're in California, maybe liquefaction. And there's a lot of things to kind of get into. But if you're in I think, this mythical place that we're discussing today is outside. Now it's flat. There are builders and there's not a lot of permits. So we're outside Nashville. I'm happy. So we get started with that deposit usually within about a week. We'll basically a 3D design and set of elevations for you. So what that looks like is the first say 3 pages or 4 pages of a set of plans. So you'll have your isometric views. You'll have a lot of the detailing. You'll have your front sides and rear elevations and you'll have your floor plan views. So usually that's within about the first week. And basically what we're doing there, taking any configurations the client has. Our favorite scenario is if folks take the stock floor plan. But that almost never happens because everyone has a need. Maybe the closet needs to be a little bit bigger or I don't need 2 bedrooms actually a office. Or you know, I really want to grow this kitchen. That sort of thing. So really personalizing that layout. That's about the first week. It just it depends a little bit on time of year and is really heavily driven by the complexity of engineering. But in a great scenario, we'll have another, fully engineered, site-specific set of plans to them after another 3 or 4 weeks. Right now, today and throughout the last year, we are running little bit longer. It was kind of bittersweet in the sense. We're very lucky to have an insane amount of work come to us in the last year but it also led to a little bit longer engineering timeframes for us throughout say 2021. But we're pretty much back to normal now. So in the scenario you and I are discussing, you call us today. We can probably have you a set of plans in say anywhere from 4 to 6 weeks on the fast side in a simple zone or for most of our clients in heavy snow or heavy wind more like 8. But now you are good to go and so from there, permitting. If we're in Tennessee, and there's nothing going on in terms of a permit, amazing. You could pretty much proceed straight to building. And so the actual prep timeframe where we are doing the prefabrication for the select components and preparing the rest of the package, usually we need about 6 weeks for that. Sometimes we can do it in less - 4 or 5. Other times we can do it if you have a manufactured truss, that might take a little bit longer. That might be like 8 to 12. It just depends on, last year around December for example, the truss manufacturers were quoting 18 weeks. And you know, the big track home builders were buying plates for the trust manufacturers and just owning them. So we ended up shipping trusses from out of state to make it work. Anyway, the total timeframe on that again, right now blueprints probably between you know 6 to 8 weeks and in a good scenario. It's kind of an average. And then in terms of once you're land is ready, the second part of the timeframe, when you are ready to build. We really only need about six weeks. So I'll lay it out this way. The way that works well is most often, folks have a permit to contend with, so while the permit is going on we'll provide help if there are any red lines on the structure. We'll get those you know turned around as quick as we can for them. Usually, what happens once that permit is approved that's about the perfect time that they'll call us up and we’ll get the actual production pipeline started. Usually with their approval, any remaining site prep that they need to do, they'll get that handled and then the foundation. So if you have any plumbing in the foundation or radiant slab or anything like that, you need a few weeks to do that. So final prep, doing this slab and then in the best-executed scenario, the package gets delivered to site maybe a week or two after the slab is complete. So it's set up, ready to build on, and they can just proceed smoothly from there.

Awesome! Well Jake, thank you so much. This has been incredibly helpful. Sorry for going a bit out of order compared to our normal stuff. But it's been really great learning about your company and about your personal journey. For those who listening who want to learn more about BarnPros, their website's got a lot of awesome content on it. Barnpros.com. And as always, you can visit us at prefabreview.com. Thanks again.

Thank you very much, Michael.

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Hi, my name is Michael Frank and this is The Prefab Pod presented by Prefab Review where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Ryan Abernathy, the founder of DROP Structures. Ryan, thanks for joining.

Thanks, a lot man.

Well, it's great to have you. Just to start, can you tell me a bit about the history of DROP Structures?

Sure. So DROP Structures started in February of 2017 over a chance meeting and beer which is always a good start to a good story. And it was myself and 2 other people - brother-in-laws. And I previously built a small unit and the first 2 people were my partners Brandon and Matt and they had built one. They'd had an idea for doing small spaces for about 6 years I had built one and actually approached someone about doing it: my brother-in-law. And he was busy and couldn't do it,. And then I got heavily involved with photography and advertising. And then, when we met, we we like, “hey, let's do this.” We had a couple of beers shook hands. And then we started to build the first one in February of 2017. We incorporated in October of 2017 and we've been along on the ride ever since.

That's awesome. And it sounds like you said your partners have backgrounds as builders?

No, so I'm from California and the first job site I remember being on was in Pacific Palisades and my dad's been in construction. So I've been in construction on and off my whole life. Brandon was in Restaurants. I guess you could say that he had started a couple of restaurants and Matt was an amazing all-hand and he does everything. Each of us have a lot of skills in a lot of varied areas. But yeah, I'd say I came with the most construction background knowledge.

Got it. So you built the first unit. And yeah, then what happened?

So we built the first unit in the back of an Arctic Spa warehouse. Artic Spa is a hot tub company. And it had no electricity and no lights and was based on a random design but we built it. The reason that we shook hands and got started is that three weeks later, we entered it into a home and garden show here locally in Canada and had some amazing responses and then it was like a handshake deal. It's like, “hey we've both had or we've all had this idea, let's just see if this works.”

Oh, cool.

It got tons of reviews and did amazingly well which was really good but then, when we were like, “okay, we're gonna make a go of this” it was all under just a handshake partnership. We ended up selling the unit. We had to learn how to transport a unit: wrap it and do everything in that regard. And once we sold that one, we were like, “hey, lets have a go of this.” We locked in a massive contract. Well, not massive. It was massive to us at the time. And we got a Caterpillar to build them a portable office. And once we locked in that contract, that got our foot in the door. And we were able to get some capital to get started. We didn't take on any money. It was just bootstrapped the whole way. So yeah, then it just continued to grow from there.

That's great.  And was the that first basically a version of the model that you have on your site or is that different?

No, so it's funny. The “Mono, ”I would say for the time being, was our flagship. It was definitely the most iconic piece. Like our banner picture on our website which was a picture that I took. So it goes on to the design aspect and photography and that was just the amalgamation of nature, material, and architecture. Our first unit actually, what would say now would be our Alpha model. It was a side entrance with a shed roof and patio doors on the front. It was 8’6” by 12’.

Oh, cool. Okay, so then you got some capital and then at that point did you have your own factory? How does this work?

Yeah, that's one thing that's super important for us. I really like Tesla and Apple. I like brands that uncrate things that are super classy and one of the things that's great about Apple is that I bought an Airpod yesterday, and the packaging was awesome. I pushed the button on the back and it seamlessly integrated with my phone and everything else. And so I feel like Apple has done a really good job of looking at it from the client's perspective and being like, “this has to be simple for the client.” We've always built everything in-house. And there was an aspect where we were going from this transitional period of being like, “hey, we're just doing the backyard.” You don't necessarily need a permit. We need a permit and we didn't have the infrastructure for it. We didn't have the ability to build it right down in the area where we live. There's a massive pre-manufactured home builder we like. And I think this is really good and interesting, where a lot of companies divert and go different ways. It's like, “hey you know what would be really easy? We've got our plans. We will get these guys to build it. And so we had this other company build it.

Yeah, I mean we see that all the time. Like ADU builders that are you know, building their homes out of a Champion factory or something like that.

Yeah, Champion is a really good one. They actually have a facility or one of their subsidiary companies has a facility here in the town that we're in and you know it's just different. I'm not saying one's better or worse. It's a lot about the owners and what they want to do with their company and where they want to go and…

Yeah, and one's more capital intensive than another etc.

Oh for sure. It's not my concern, as long as the client gets an amazing product. That's the end goal: have a happy client. We actually went through a third party and if you go to our website or our Google website, we have a 100% horrible review and it's actually my favorite review ever. Because we stepped out and went with a different company. We lost control of the process and unfortunately, the client had to suffer the ramifications. It was like February, 14th of 2020 in the middle of winter, and I get a phone call. “There is water leaking underneath the unit. I don't know what's going on.” One of my guys and I drive out there and we had to rip out the whole underside of the building because the dishwasher or the laundry was discharging into the sealed floor and wasn't actually draining anywhere. So for the previous nine months, it was just collecting water. But yeah, he was hands-down one of the best clients we've ever had. He's phenomenal. His name's Chris. I'll leave his last name out but he is amazing. But the reason I love that review is because well first, it shows the reality of we're human. No company is a 5-star company. Every company has issues. But in the comment, what he said, “the guys at DROP structure are amazing,” and then for lack of a better word he said that their product is shit and I love that because it was in that where we decided that going and outsourcing it limited our control on the quality of the product and since that day, we build everything in-house and we will continue to do that. I'll be honest, it's a lot more work. We've had to scale for that. As an owner, there's a lot of risks. I lie awake at night and I'm like, “holy cow, we've got so many people working for us.”

You’ve got a lot more overhead. Yeah.

But for me, I'd rather take that on and know that we kick out a quality product that I can literally walk five feet or not five feet, let's be realistic - fifty feet behind our office and I can go and see every single unit that we're building. That's really important to us. But I guess that's a very long answer to a short question. Yes, we build everything in-house. So it's been really interesting.

No, that's awesome. So what scale are you at now? How many structures do you have going at one time? What can you tell me about sort of where you are now?

On average, we would do anywhere between 120 to 180 units a year. And so that 60 unit gap is, we have a lot of what I would say are your standard offerings. We have 12 different offerings that are drag, drop, click. And just be like, “hey, I want this one.” But we're really starting to get into more of the custom and that's something that's been really interesting for us because every unit that we've ever put out, we have done one of two things we have thought, “hey, this is a really cool design - we'll build it in-house and then we'll just see if they like it or not. But we're going to start with we're gonna build it and I think that's a good point to start because if you're passionate about it, then you have a lot of energy and zeal for it. And we'll get clients that are like, “hey, I actually want to try this and so we actually have, it's called “Arlo” and it's from a client. And his last name is Arlowicz and it was like Arlo and it just went in line with our Mono, Duo and so we called it the Arlo. And it was a design that he came to us and he was like, “hey, I'd really like to try this.” And so we were like okay, we'll try that. And so we partnered with him to do that and it became one of our standing offerings that people can come and purchase but with that, there are a lot of custom projects that have come our way and we're like, “hey, this is really cool.” We're pretty simple. We're like, “hey, is this cool? Yeah, okay, let's do it.” Obviously, with a business, does it make us money? Yes, so that's a good check to have. We have to make some money but with this custom aspect we're finding that area for us is really growing so much so that we took on another facility specifically for building custom units. So there is a big gap. We'll do between 120 - 180, as of right now. We were just in the states last week looking at another facility, so that might grow as well.

Yeah, that's super cool. I love this. You're not explicitly crowdsourcing it, but you're sort of understanding what the market or your customers want. It's funny. My suggestion for that, just because we get a crazy volume of people who are like, “where can I find this? Where can I find that.” Not a lot of small structures, I don't know if this would work for all kinds of areas with high snow loads with roof decks. We get a lot of people in like Southern California who want to put this small ADU in. But they have like a 4-year-old and don't want to give up their whole backyard. And they want to know, “can we do something with, you know, just moving my backyard up twelve feet or something?” So I think there are some reasons that it doesn't exist now. But that's my it's my special request.

Oh no, that's actually really interesting. So we send a lot of our units to California and so hearing that, I get excited. And don't get me wrong, I love my business. I absolutely love it. I'll be very honest. I love my business because the people I work with are absolutely amazing. I'm like man, we could do something else. We could I don't know, go pick up manure somewhere and if I'm doing it with these guys, then it's awesome. The team is really good. But it's also really exciting because once you see like 60 Monos go out, it's just another Mono which is great, because our clients love it. But I like new iterations and so with our team, we will go over designs and one aspect that you actually mentioned with the rooftop patio, was there's an engineering element to that and then there's a safety element to that. And it is complicated but one thing is that when I say that we have things in-house. So we've grown at quite a large rate and we continually grow, and as we bring things in-house, there's a faster turnaround time. And engineering is one of those too. And so it's finding engineers. So we have an engineering person that we work with. But as kids based in Canada, just finding someone in the United States and seeing if we can get that, and instead of outsourcing that stuff we are bringing it in-house. Because then we can design and iterate and we'll build it and that's what I was saying is, “that's a great idea.” You know, instead of putting it out to market, let's build it and build it for ourselves. And then, because you never get it right the first time -  I wish we did. And I'm sure every business was like, “I wish we got it right the first time.” You always make mistakes. We'll build the first one and say, “we think this is awesome.” So we'll put it out to the market, and if it takes off it takes off, it's awesome. We're lucky enough that it's like, “hey, we got to build it.” It was awesome and even though the market didn't like it, we liked it.

Yeah. If you guys actually do that one, we'll send an email out to I don't know, 50,000 people and see if they like it. I'm totally serious about that.

Ah, oh nice that that sounds awesome.

All right, so we talked a little bit about kind of the variety on your site. It looks the primary focus is on small spaces and offices and then I guess almost like, would you call them one bedroom units? How would you describe your product selection, right now?

I don't know. We have a variety of options for anybody, anywhere. That would be a good description, I guess. Yeah, so there's what you see on the website and then there's a reality of what we're doing. So a little bit of history, I come from an advertising background  - all of the photography and all of the design and everything was something that we've done in-house. And we haven't actually updated our website or anything in almost two years. And so you'll look on there and it's like, “oh yeah, they build up to 400 square feet.” We have units that are up to 640 square feet right now. And we just haven't had time to put them on and get them out there for people to see them.

Yeah. You know, are they all essentially one module wide, or do you do things that are more than that?

Oh, that is a great question. We get asked that question all the time. And what we found for us is, a good basis of what we do is anything 640 square feet or smaller is a single deliverable.

Yeah, yeah.

We want to be the best at it. The engineering and everything that goes into doing modules and connecting, if people want that there's another company. They're about 5 hours away from us. Their name is Hona Mobile. Yeah, they are amazing. Like Matt, he's one of the guys that actually shows up on site. He helps with everything. Then you’ve got Cam and Daniel. And Cam's the one that's actually running a lot of it. Daniel was the one that originally started it. And so when people come to us, we've really gotten cool with just being like, “yes we want to do that.” Like I would love to do modules. Don't get me wrong. There's a whole new field of excitement. But right now, we're really focusing on just 640 square feet or smaller and being the best at that. But knowing the people like Honomobo, that's like, “hey, you want to do a module. You're in California. You want a 1,200 square foot bungalow that's on top of a concrete garage. Man, you guys should contact Hona Mobile. Talk to this guy.” There's other people that do modules that are phenomenal at it. And I think that we are really okay with just being like, “hey, go talk to these guys,” and just stick in with where we're at and refining and getting better and better at what we're doing.

That makes total sense. So can you tell me a little bit about the process of being a customer? So I come to your website and I see, hey I really like this unit. What are the next steps and the timing from there?

Yeah, so I like this answer or I like this conversation because we always try to view it from the client's perspective. And so, if you hear back that this is not how that process is, we would love to know. People usually come on our website and they'll fill out our contact form. Then, it goes to our two salesmen: Corey and TJ. They're phenomenal and their whole job is to answer questions and provide everybody with as much information as possible. You will deal directly with Corey and TJ and we have a single main office. They are five feet away from our drafting. They're five feet away from me our accountant. Our operations guys is right in there. So you'll send an email and be like, “hey, I'm interested in a Holo Plus,” but you're trying to decide between the Holo Plus and the Holo off-grid because you have a really cool piece of property. It's located up in, let's say Big Bear. And you have the potential for deep services but at the same time, you don't. And so you're trying to figure out what should I get, the Holo Plus or should I get the Holo off-grid? They will spend a lot of time with you either via email and answering questions back and forth or we really suggest a Zoom call. It's usually face-to-face and with email while we absolutely do email. We try to make sure to track everything so there's a document so we ourselves can go back and confirm everything. When you get on a Zoom call with either Corey or TJ with a lot of questions that you asked, they can actually answer them right there, which then leads to more questions which, they have an amazing amount of knowledge. They can answer, I would say, 90 to 95% of the questions that are asked. They'll be able to answer those questions. And then there are upgrades. There are options. You'll have a conversation with them and then we will send you a contract. And the way that we work is we take a 50% deposit that secures the build queue and actually gets you a tentative delivery date. Once it's in the build queue, it will be buit. So anything 240 square feet or smaller, once it gets into the build queue and we start production, it will be five weeks. Anything larger than that goes up to eight weeks ,depending on it. And then there's usually 3 or 4 days in regards to delivery and arriving. And the whole time, we're communicating with you and making sure that, “hey, delivery is this date and the crane needs to be there.” And on the majority of our units, we actually, it is a really fun situation, we communicate and help with transportation so much so that we started an in-house transportation company because we ran into a really awkward situation where we had a unit that went down to California. And we used a third-party I was getting phone calls from the actual trucking company saying, “hey. this is crazy. We can't do this. We're taking away this unit and you're never going to see it again.” And we had already paid the brokerage. Like so much money. And they're saying we need more money and it was just a really bad situation. So we took on transportation. And so once it gets close to the end of the build queue, you will be put in contact or you will be in contact with Luke. We call him the minister of transportation and he will be arranging the arrival date and delivery of the unit. And at that time, we require the final deposit.

That makes sense. So, that totally makes sense. And I think you have stuff that sort of makes this point on your website -  the kind of non-design review areas of the world. I mean, so we mentioned California. There, it seems like every planning department we run into for ADUs in California had some kind of fun in common. Yeah, so in those situations, are people just doing a design contract? Are you like sending them permits that they submit and then there's potential opportunities to slightly tweak your house or how does that work in those situations?

Yeah, so the original question is a very good question. And I realized I answered 1 of 3 ways you can answer. So when you go to places like North Dakota or Montana where they're very open to things showing up you don't really need permits. You just drop it off. And sometimes I would just say those are the wild west where they ask, “is it built? Well yeah, okay, then just drop it off.” When you go to California, there's the permit route, and then there's the custom route. And so whenever we're going to do a permitted route, you'll contact us, talk with TJ or Corey. We get asked a lot of questions by the clients about, “hey, what's going on here. Do you know what, your local jurisdiction is going to be doing?” And what we found, is that a lot of times you have people that are in these high-density areas that don't know the answer to the questions. The people we’re asking, they didn't even know those questions exist. So we do one thing where we'll take a permit deposit and we will work, we have someone in-house, that will work on their behalf. And I can tell you, we have between 15 and 60 of those deposits right now. We're working with clients to go through this process. I know there are locations like San Jose where they're very fast. I think that there is…

They're fast.

Abodu has something really big there that they have streamlined theirs. 

Yeah, we had their CEO on maybe a month ago. And I think John is a nice guy and he was talking about how they can do it in a day in San Jose as a turnaround.

Oh oh man, that's amazing and if you talk to them again, his designs are spot on. I like his designs a lot. But in these areas, we realize again, from the customer perspective and the client perspective, these people bought a house. They don't know what to say when we're talking setbacks or zoning or what's the density in this area? How close are you to a bus stop? If it's going to go down the ad route, a lot of these things. If we are to leave that on the client to figure out, we actually just created a problem for the client. While we’re for all intents and purposes, trying to sell our product. And I don't think that's very kosher to the client. And so we started taking on the process of, “hey we'll jump in.” There's a fee that you pay and there are some documents that you can sign, where you sign off and allow us to… It's like when you build a house and you sign so the GC can represent you in front of the local jurisdiction. We're going down that path more and more. A lot of this growth is stuff where we're going into these areas because we believe this is an area with high demand.

Yeah, sure.

We designed the product we think is going to go really well and then once we get into it, it's like, “hey, we have a solution for this.” And once you put that solution forth, you find out there's still a lot of problems that you have to deal with.

Right You end up playing whack-a-mole for all these other things.

Exactly. And I think we've all had a really bad customer service experience where you feel like you were just left hanging. And for us, we don't have any shareholders. We don't have anybody that is coming and telling us we need to make a certain percentage. We have no debt in this company which allows us to pivot and say, “hey, do we think we need to hire?” It's me and 3 other people on the leadership team. Do we need to hire this. Do we think this is going to be a problem? Yes, we do. And we will go out and we will find some way to fix that problem instead of having to go to a board and get things justified. We're able to pivot really fast and be like hey this is a problem. It's not necessarily a problem for us. It's something that the client is capable of doing but it's a problem for the client. So let's take that problem on and take it off the client. At the end of the day, it is helping to sell our products which then we sell more products which, we are a business, that's what we're going to do. But it takes a lot of the client lying awake at night wondering, “okay, so I need to have a half-inch of drywall on both sides of this unit or just on the side. That's got the fence on it or do I need sprinklers? And stuff that, they could be doctors and they're trying to figure out like a double bypass heart surgery, and all of a sudden, they're thinking about drywall and zoning. And so we'll take a lot of that on and don't get us wrong or don't get me wrong, it's a learning process. We're still learning.I would say we're not the best at it. But I think with today's society and with ADUs and how there rarely isn't like are you title 24 are you a 27 even are you HUD code? There're a lot of unknowns and I think there're a lot of people and a lot of really good companies out there that are trying to get this nailed down so that we could all work through, and first and foremost, show up with an amazing product for the clients.

Yeah.

And also a product that endures and lasts forever but also makes it easier for the client. So it's not a headache for them.

Yeah, so one of the questions we constantly is just trying nail down cost, right? The number one question we get are people being like, “okay what's this going to cost?” So, you guys do an awesome job of listing everything in the starting price. For the unit on your website, I assume, but I don't know if the Holo Plus is the right example, but assuming it is, does that cost include transportation? Does that include any foundation etc for a unit like that? You can pick any geography you’d like, just be specific. What would you expect, and let's just assume a flat site, from an all-in cost standpoint. How much does the sort of post modules leaving your factory end up adding in costs?

Yeah, there's a massive range on that. And that's one  thing that I don't think clients or for us, it's communicating that, “hey, this is something that's outside of our control but we will help with this whole process.”

And I understand that there could be a tremendous range.

We've got units all over the United States. So one thing that we do enjoy doing, is when someone comes back to us and they're like hey is this pricing fair? You can tell right off the bat that it's like $36,000 for 6 tubes. That's a little bit crazy. You’ve got to be doing some dynamite or something like are there other variables leading to that? And we'll work with our client on that. But with pricing, this goes back to something that in inside our company we had a conversation about. And we we're like, “do you guys like not knowing what the price is?” And nobody in our company was like, “I hate going to a website and they're like, ‘call for price.’” And so we made the decision that we would put our starting price for every single one of our units. You're not going to have to email us to find out what the starting price is.

Yeah, it's smart. I think it's dumb. I think that if we made any contribution in the industry, it's that we do our best to list this, but I think you're helping your salespeople out by doing that too. Because them answering that question over and over is.

Exactly. And well, our sales guys, they're like, “we're here to help clients.” So I mean they don't enjoy it when they get more answers on the website.

You're using their time better if that's listed.

But it gives everybody a good starting point. If someone's like, “oh, I really want this.” And they saw somewhere that it was and we had a specific situation where the price that was given went out to a lot of people was not the correct price and all of a sudden we were inundated for like three or four months because the company wouldn't change the price. And everyone's like, “oh, I saw this picture and it's this price.” And we had to say no, “it's actually 3 times that amount. That was a mistake.” So we will always provide the price for the unit. I'd say, look at it like Tesla. You can go onto the website and you can choose the car you want. They're a bit further ahead because they're well, they're Tesla. And they're amazing. To where you have a configurator and you can drag and drop put these in. And we have a lot of those options. We have a brochure that we can send out that has those options as well. I think the biggest thing is we don't want people to get sticker shock. We want clarification and communication to be clear. So with us, a really good example is transportation. If it's going to be 240 square feet or less and it can go a little bit bigger then we're having a conversation with the client and we can get you a very good and accurate transportation quote. So when you purchase your unit from us, it's all included on the site. 

So we're going to California and we're gonna take a Holo plus. We know it's going to generally be about $7,000 because we're hauling it and we can actually put that price in. And one thing good about having a transportation company: pricing for third party pricing has doubled in price. So over the last three months with fuel surcharges and everything like that, we've seen transportation costs go from like $9,000 to $19,000 just because of that and we can't control that. Whereas a lot of these transportations we can control because it's in-house which is, if I got quoted $9,000 then it came back at $19,000, I could just buy a really nice used car for that price. So we will deal with that. That's the price when you pay us, it is for the unit to show up completely wrapped to your driveway. Other additional costs are going to be cranes or however you're going to offload it.

I was going to say, yeah, how do you do these get installed? Via cranes? Do you roll them off the truck? Like how does that work?

We've done so many different things. We've had a tilt deck that we chained to a telephone pole because that was the only way the client could do it. And we drug it off her trailer. Crane is the preferable way to do it. There is a bit of a sticker shock when people are like, “well how much is this going to cost.” And I would say sticker shock most places with the crane there for about 4 hours and some of the larger ones you're looking between $400 to $600 and that's for the larger ones if we can pull up right next to it. You're looking at about.

That's not that much. I think because I'm so used to us doing these enormous modular homes with you know, 150-foot cranes for a full day. It's much more expensive.

Yeah, you're looking like 27 or something like that. Exactly and then there are some crane companies, I know in California and we've done enough crane lifts that we have some really good companies we like working with. They do a minimum of either 4 hours or 8 hours just depending on the location. So there will be crane costs and then all of our units are designed to go on a bunch of different foundation options. It's one thing that we're really proud of - the way that we design these so they could go on tubes, they could go on helical screw piles, they could go on a fully finished concrete basement. They can go on stemwalls. They can go on a grade beam. They could technically sit on blocks or on grass, if necessary. Now we don't recommend that because you need a gravel pad or some substrate that's compacted. But that's where we'll work with the clients. Part of what we provide is we a foundation document so the client's like hey, we need screw piles. It's like Kate, “here are your screw pile locations. Here are the dimensions. Between this range is what they need to be. This is what we recommend for your size. Depending on where they're going, the size is dictated by geotechnical reports. And there are a lot of times where you have to get a GeoTech you have to get an RPR and all of these other things by local jurisdictions. And we have a pretty good idea of what that's going to cost. 

If you were like, “hey, so what are we looking for?” So for a 240 square foot, you are looking for a foundation plan, I'd have to be awesome and say you're looking at between $40 to $400 a square foot depending on where you're at. Where you're going, Montana, is great. It's a good example.

Yeah.

There're a lot of places you can just drop this off, but there're actually a lot of places where you have to get dynamite involved because you're blowing out the side of the mountain to make a flat spot. And there're massive costs that separate those two.

Right. And then one of the things which is true in a lot of your photography, is you see snow, which is awesome. We've done some places in Tahoe and there are areas that are like 200 pound snow loads etc. Can your units handle snow loads like that? Or are there special engineering requirements that you have to do? I mean, is that just not something you had to worry about yet?

Oh no. We have a really good example. The environment that we build in, it's in Lethbridge, Alberta, which is in Southern Alberta. It's a very flat and windy place. We're about an hour and a half east of the Rockies. And just the other day it was, I’ve got to convert this to fahrenheit, I've been out of America too long. It was negative 20 and we had massive amounts of snow. So where we build, it actually makes us sound awesome. It's been very strategic actually because we deal with so many different environmental changes that our units are actually built for that. And so our snow load is actually rated for one of the heaviest snow loads in Canada. It's this location called Revel Stoke. If you're getting ski, go to revel stoke. But that's one thing that we really enjoy about being able to build in-house is that sometimes when you build an advanced framing, which is just a style of framing that is is amazing. If we do go to places that have heavier snow loads or seismic requirements that we don't deal with, or wind requirements. So like we've had a couple of units go to Miami, Florida. Having everything in-house and being able to control that, we know that when you're going to Miami that you're going to need hurricane-rated wind or hurricane wind-rated glass. We can grab that and it's very easy. There is a cost associated because it is enough.Unfortunately, everything has costs associated. 

On the Miami units are they also adding mini-splits or fans or something like that?

So we don't send mini-splits down because of the frion, it can be considered a hazardous. But we send down plans. And the location for the mini-split to go through, we prep it for a mini-split that will actually have all the electrical in place. And it's like, “this is where you put your mini-split. And that is a warranty aspect and is really big for us. If it goes to Miami and we send a mini-split from Canada down to Miami, then the client has to find someone to deal with the warranty on the mini-split. Whereas, if someone locally puts it in, they can rate it. They actually can put a warranty on that mini-split. So if anything ever happens, there are many auxiliary options. The mini-split is the most common of our auxiliary options. We work to make sure that it is included in the design, where the location is going, but then we allow the client to purchase that so that they can actually get a local person to come and inspect and warranty that.

Awesome! That's really cool. So this has been really cool learning about the history of your company. While we have experts like you, we try to ask questions that have to do with your business. In this case, it’s probably it's gonna be a little more about your business. But these are questions we get all the time. So these are our fire-round. So if you can answer in a minute or less, that's awesome, but no big deal if you can't. So, question number one. Can you talk about building these small units off the grid. We get a lot of interest in that and most companies we work with actually aren't that well equipped to do that.

Yeah, so building off-grid, you have to define what off-grid is. Is it truly off-grid? No water, no electrical, no septic? And then from there, move forward. We have a bunch of different options with our off-grid units where they can be completely off-grid. Set up for solar, there're composting toilets. We can be truly off-grid or it can be partially off-grid. It's like, “hey, we actually have a septic. So we have septic and water. We don't have electrical.” That's one thing that is really important to us is to be able to take these and drop them off anywhere. The bigger question that we run into is, if it's going to be off-grid, what's the location? And can we actually get it there? We have a really cool project coming up where Helicopters are going to be involved.

Really cool. Wow, that's crazy. You'll be able to do some cool videographies because I mean we've done boats to islands in Maine and Hawaii.

And so we're really looking forward to that.

But yeah, I haven't seen Helicopters. That'll be a first. Yeah, insurance sounds like an interesting thing there. Do you have examples of people using DROP Structures as investments? We get this all the time. Like, “these units are beautiful. Can I Just toss them on my farm and have some nice AirBnBs?”

Yeah, so that is one aspect. We have a large commercial project we did down in Escalante, Utah. There's a company called Beyonder and so that's more commercial investments. So you're looking at, what I would say is, a lot of. We're moving away from a lot of the traditional go stay at a hotel to, hey, let's go have an experience. And there's a lot of companies that we were working with that we have projects upcoming with using it as a commercial. But it's more of like land development and commercial investment in regards to your question.

Are there RV-style hookups? Or how does it work from a plumbing standpoint? 

Yeah, so we can do whatever is required. So if it's actually going into a backyard and you're hooking it up to a house, we will actually have our drop. It accepts a typical house drop. Generally, the drop for your water is an inch and a half versus an RV is like a three quarter inch. So again, that's one of the things that we continually, that's why we want to build in-house because we can very easily pivot. There are a lot of people that we find that initially start, we've had, I'd say, about 20% of our clients that are like, “hey I'm going to use this for an AirBnB. And they will. The location actually determines that a lot because, say it's going to California, it's going to be used as an AirBnB and not office. There're different rules and regulations with that one thing. What we have seen is we have had quite a few clients that have purchased our units and then they've sold their house and they've seen a dramatic increase because you can't actually pick these up with the crane and take them away. And when they actually go and sell their house, they're like, “hey, you know what, I'm going to pick this up and take it away because I'm going to do this at my next house.” We've heard of quite a few of our clients being able to get that as an actual selling feature.

And then financing. How do most people finance these sort of smaller structures? Because that's a pain point for a lot of these. A lot of sort of smaller companies are just like, “ you can use home equity,” and then after that the answers get a little more complicated.

Oh man, that's a great question. And so that's a problem that we are seeing all the time. Yeah, we've actually thought about starting a finance company. So if anybody is interested in starting a finance company. We have an opportunity for you.

Yeah, yes, there's definitely a lot of opportunity with this.

Exactly. The way that we work is: we require 50% down and move forward with that. The 50% is, we're guaranteed the job and for all intents and purposes, the guys that are working for me, when they start working we know we've got this job moving forward. Obviously, it is in the price range that some people can't actually achieve financing. It is really interesting, here in Canada, the code for it does allow for it to be classified under a mobile home.

And a mobile home means? Sorry.

So they can put a mortgage on it. Well yeah, on a mobile home. So it's interesting. It's a mobile home and that's another really good thing because a lot of people, when they ask what we do, just to clarify things really fast, I just say we're tiny homes but we're just not on trailers. But when you look into getting financing on a tiny home that's on a trailer, it is way different than getting financing on a mobile home. And this is one of those things from a client perspective that I there's a lot of empathy because there's not a lot out there for people other than a home equity loan. And then they just spend that money on what they want to spend. It's something that I think is really interesting because I think in the next year to two years, you're going to see a lot of companies come up and have solutions. We're going to see in the next one to two  years some amazing financial opportunities in this sector that are gonna be coming up. 

That'd be awesome. I feel like we've seen some interesting stuff come up and honestly, most of the interesting solutions end up still being painful construction loans with like different wrapping on it. So operationally, they don't end up being that much and that easily is the biggest issue.

Yeah, exactly. So whenever I think about this, I'm like, “man, if I personally did this.” Because I always like starting things, if I could get a hold of a couple of these other companies that are in the same building sector as ours, we could probably come together and be like, “hey, we have this and this and this” and there could be a $100,000,000 to $200,000,000 with the work that's just waiting there to get financing. And then I'm like, “okay, like Fannie may might look at it or something like that.”

Oh yeah, easily.

And that's why I think in the next year, this sector is growing so much. When you have people like Boxable and Abodu and I don't want to throw my name in there.

Yeah, there's if you're including the like a full-blown 1,200 square foot ADU providers. There are hundreds of millions of dollars of volume in probably California alone.

Yeah, so I think that's this sector. Outside of this sector, like in finance, instead of the building, I'm really interested in seeing that and I think once something happens, it's going to blow the sector wide-open, more than it is right now.

Yeah, affordability. I'll definitely agree. Cool and then I guess last question but you talked about this a little bit. So we get this question constantly - so from a site selection. So if I love DROP Structures  and I want to put one of the bigger ones either in my backyard or on a piece of land I own, what are the, I mean, I guess with your helicopter you have quite a variety. But for typical projects, what are the things that homeowners should evaluate to understand, is this a fit?

I think that they need to go back and just really ask themselves, “okay, why am I getting this? What is the intent and purpose of this? And is that intent and purpose worth going through the process of there being things that I don't know about that I'm going to have to deal with?” Contacting contractors to get a quote for the foundation, dealing with city inspectors for getting their utilities ran, their electrical ran. A lot of just like, “hey, why am I doing this?” And then if they're like, “this is why I'm doing this,” then there will be a lot of hurdles that they're going to have to look at for their site. And it could be like, “hey, I'm on a slope, the backyard slopes. It's got like a 10-degree slope. If you can't drive an F-350 along the side of your house to a flat spot in the backyard, then there are going to be things that you're going to have to deal with. That's where, in that situation, I really recommend when you're looking at a site, the person or the company that you work with, there're some really good companies out there, I'd like to think that we're one of them as well. That the people that you end up having the conversation with will be able to help you and negotiate those different things.

Yeah and you guys have you, I assume you have done pretty steep slopes with like post and beam or big pylon additions.

Yeah, we've done, oh, man. We've done anything and everything. We've worked with the Army Corps of engineers on marshlands. And that project never ended up going forward just because they had a site in place and they were able to go to a different site right next to it that was more feasible. So we've done almost anything and everything. It feels like and yeah I really enjoy it.  Some sites that we see because generally on the Zoom calls we will actually have the client usually they're on an Android or an iPhone that they can video. They'll actually go in the backyard and show us the site. And we'll Google Earth-it and we'll do topographs. That's where cranes are really awesome because the cranes usually show up and the cranes have to do a site visit so they make sure they can do it. There're some sites that we’re like, “hey, this is really easy” that ended up becoming really hard. And then there's some that we’re like, “oh man, I don't know about this one.” And then it becomes really easy. Again, that's part of the transportation. Whenever we send units down, the drivers have been to almost every site and they're a huge asset for on-site work. One time the crane company actually admitted, they didn't come to the site and there was huge power lines and they're like, “we just talked with the client and were like, ‘hey do you mind if we actually pull this post on this fence because if we do this, the crane can back in here and we can get this done.’” And we ended up making it work.

That's cool. Thank you so much. This has been awesome to learn both and get your knowledge on these issues and also learn a bunch about DROP. Final question, we ask this to everyone - what are you most excited about for your company or for the industry in the near future?

Two things. One we touched on - I think the finance aspect, which actually has nothing to do with our company specifically but with the general sector as a whole. I'm really interested in seeing what happens in financing. And then for our company personally. I'm really excited that we're still growing. I have an amazing team. There's me, Connor, who's an owner, Casey, David, my wife. This is the whole team that we have and we've done this over the last three years. And the way that we have grown. And I think we have such an amazing team. The guys in the back, Kyle, Trey, and Key. And we're really excited about where this company is going in the next year or two years. And a lot of the different opportunities. And I'll also release a lot of the units that we have built that nobody's ever seen. I mean have a 640 square foot, 2-bedroom full bath, full kitchen, that no one's ever seen. And just seeing the traction and seeing a lot of the new clients coming in and meeting new people.

Cool. That's amazing. Well anyway, it sounds like, I didn't realize that you actually started in the last five years or so, so that's really cool. How much progress you've made and I'm sure you feel that way.

Oh, you just see it in the gray hair, man.

Yeah, that might not translate to podcasts. But I assure you anyway, thanks again, Ryan. This was great. For more information about Ryan and DROP Structures - dropstructors.ca and as always you can get information about the entire industry at prefabreview.com

Awesome! Thank you very much.

Thanks again.

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Hi, my name is Michael Frank and this is The Prefab Pod presented by Prefab Review where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Steve Weissmann the CEO of Tumbleweed Tiny Homes. Nice to have you here, Steve. Thanks for joining.

Hi, Michael. Glad to be here and spend some time with you today.

Awesome! So just to start, can you tell me a bit about the history of Tumbleweed Tiny Homes and how you became involved with the company?

Yeah, so I was actually downsizing my life for personal reasons back around 2001 - 2002. And at that point, I was completely unaware of the tiny house movement, or the small house movement as some called it. But I progressively got into smaller and smaller places. And at one point, a friend of mine says, “hey, I've met this guy who lives in a house that's even smaller than yours. You should meet him because he's getting some press about it. And so she introduced me. And he was in a Tumbleweed. I just fell in love with it and that was in 2006. And I started volunteering my time with the company and then in 2007, I wound up buying into the company.

And so at the time, Tumbleweed was just a small business somewhere in Sonoma County or Sonoma proper.

Yeah, I was living in Sebastopol at the time. And to call it small would be generous. It was smaller than small. It was tiny. It was a tiny company. You know at that point in time the revenue was about $4,000 a month and mostly came from selling plans for people to build their own. So originally, the first Tumbleweed was built in 1999 and it sort of morphed into a business over the following years as people were like, “hey, I want one.” and so when I got involved, Tumbleweed had a few house plans that you could buy and build from.

Got it. And this is just like carpenters doing something in kind of a non-scalable way in like someone's garage or a small warehouse or something like that?

And maybe every year one house would get built. Yeah, but the people who were buying the plans were even less skilled than carpenters. So I think it was a lot of dreamers, a lot of idealists, that were wanting to do something radically different than everybody else. They really wanted the place. They were doing it because they wanted to live there and they wanted a place that would say something about who they are. It was a form of self-expression.

Got it. And did you have a background in carpentry or anything like that?

Yeah, a pseudo background. So my dad was a contractor and I was on-site with him a little bit. You know, especially when I was younger like in high schoo - spending summers on the job site with him. I got some practice and then I did do a couple of fixer-uppers on my own. So I had that experience. And besides that, I had previous business experience as well. I did real estate investing and I owned several restaurants before getting involved in Tumbleweed.

Awesome. Okay, so where we left-off. You're a small company doing a few thousand dollars a month of revenue building on kind of a standard trailer chassis? Can you talk a bit about the evolution?

Yeah, so that was 2007 when I bought in. And of course in 2008 the housing crisis comes and hits us and now we're scratching our heads saying, “well, where does the future of this go?” Everybody was getting out of their homes. The price for homes was coming down and the way to buy one of these in the past was people would refinance their home and buy it. So recognizing that the sales of the tiny houses were going to all but disappear, we really focused on the DIY aspect. So we started doing seminars in person around the country. And that actually turned out to be pretty cool. It was a pretty good business model. We came out with a really nice book that sold very well and so that kept us alive and the movement started to catch on. And as we were the pioneer in the industry, the movement grew in the late 2000’s. From that we started getting a lot of web traffic and by, I think it was about 2013, we really hit high on the web counts. And we had 5,000,000 visitors to our website in one year. And at that point, tiny houses were really starting to become a mainstream thing. And the next evolution was we werre going to actually start building these en mass. And we became a licensed RV manufacturer so we got a plant and we actually got licensed and started building these.

Got it. Okay, so that plant was in Sonoma? Because you're in Colorado.

No. So that was in Colorado Springs. So before, as I was mentioning we'd sell about one a year and I'd work with somebody. We'd often do a backyard build and then, as we said, we're going to get serious about it, that was in Colorado. And it's kind of a funny story. There were these brothers that grew up Amish and they came to one of our workshops and said, “we want to build tiny houses.” And we wound up partnering with them. And so they had a factory where they were building sheds and chicken coops. And so they started building some tiny houses there as well. And as it grew, we got a much larger space. So that's the current factory. Where we’ve now got a 20,000 square foot space. And when it grew, they didn't want to move on with the tiny houses. I think that they had their own ideas of where they wanted to go. so I wound up buying them out and doing it on my own starting in 2015 - 2016. 

So then, what does your operation look like today in terms of the number of homes being built?

Yeah, absolutely. So one of the things I'm going to mention too, is that when we talk about this being a home, technically, it's an RV. So we build what's called a tiny house RV. So everything we build is on wheels. The wheels are permanently attached. And we have our factory running in 2 lines. They're both run shotgun-style, which means that we just roll the house up from front to back. So it's a 5 bay process. And pre-pandemic, we were building about 80 a year. The pandemic really took a bite out of our sales. And so we dropped to maybe three a month. And so we went from about seven a month to about 3 a month. And right now we're trying to build back up and that's a whole new challenge because

Wow and that's a consumer demand thing. That's interesting because we haven't heard that from other parts of the sort of adjacent industries.

Right. Well, one of the things that's kind of unique to us, so a lot of tiny home buyers buy in cash. But there's a certain percentage of the market that buys with financing and that's really where our niche is. So almost all of our customers are finance customers and when the pandemic happened, a lot of people were really hesitant to take out loans and so you know, the buying behavior really changed. Our cash sales did not decrease, in fact, they increased but our sales, which I think it's like 80 % of our sales, are finance sales. They all just went in the tank. They were hard to find. Even people that we had in the pipeline. Some of them were struggling to get their loans done.

So I want to get into the models but as you're talking about some of the ways the purchase happens, what are people primarily using your homes for? Are these primary homes? We want to touch a little bit on the hotel stuff you have on your website, which is super cool. Are these, as I said, rentals or is it like multi-generational living, like how does that break down?

Yeah, well, it's a combination of all of the things that you can imagine. So you know they're the largest share of the pie. But I think everyone imagines, “oh, we were deciding they’re for people to live in.” And that's not true. So there are people who live in them. There are a lot of people who buy them for rentals. So either businesses or even individuals buy them for rentals and just put them in their backyard. Some of the rentals as you see Airbnb rentals but there are some people who do it just as a monthly rental. And then there's a lot of people who are getting them for I guess, I’d call it an in-law cottage. So it's amazing, especially nowadays. There are so many families where maybe they have a parent or a child who they're getting this to have them in their backyard. But it's not a permanent situation. But they will choose this as an alternative to having them live somewhere else. So we actually see this with a lot of middle-aged adults caring for their parents, having a parent in the backyard. Or a lot of families with maybe a child that's an adult child that has special needs. So that's another common theme. And the other one too is we get people who use these as a getaway.

When you talk about a getaway, do you mean they're actually pulling these like RV style? 

Okay, yeah, great question. No, so when I say a getaway. They'll have some other piece of property where maybe they've got some land and they'll put this on the land. But you did bring up an interesting point about people who travel. That is a small percentage of them. But they are out there. Of those, in particular, there are two types. We've actually had quite a few traveling nurses get the Tumbleweeds and you know, it's for them, it's just a regular RV and they go from RV park to RV park, and every three months they're on the move, and then the other is military. So the military will move people around every six months to a year and they'll often pay those transport costs.

That makes sense. And you can just connect these to like a pickup truck and pull them? Or does it have to be something with more capacity than that?

Yeah, so your regular half-ton pickup truck will not work. In the early days, the tiny houses were smaller and over the years they’re getting bigger and bigger. And the number one question we get asked is, “what's the biggest tiny house you build?” And you know, back when I started, the biggest one we built was under200 square feet and now most of them are about 260. And so the weight is pretty substantial with the larger ones. Technically, you could drive it yourself but I would not advise that. Anybody who's doing the traveling RV is getting a smaller size than the big ones.

Right.

So you know, you asked me about the models. So we have 4 models & 2 of them have been around for a very long time. The Cyprus and the Elm. And they are much more traditional, craftsman-looking homes. And then we've got the two modern homes we call them the Roanoke and the Farallon. Um, and so that's the combination. We keep it really simple with those. Over the years, we've had different models but I have a general rule that if something drops below 3% in sales I just cut it and then I'll find something else to replace it.

I see. I was gonna ask you about that because right, you've had 4 models, again I understand that there's sort of been a rotation. But right, like you have some models that have sort of stood the test of time and you know, some companies have what like 16 skews or 20 skews or whatever. So can you talk a little bit about sort of the development of the different models etc.

Yeah, well the Elm model was the very first tumbleweed that was ever built. And that's the one that has the full front porch and that iconic gothic window. And you know, I suppose even if that model dropped below 3%, I'd probably still keep it. It is the image of Tumbleweed. It is what people identify with Tumbleweed. So that one's here to stay. And luckily, it's not ever going to. I don't think it will ever get that low in sales. Then that model evolved into our Cyprus which has a bay window on the front. The large triple window on the front. So those are the two classics that have been around forever. The Cyprus is our all-time bestseller. And then in 2017 we came out with some newer models. So we had older models from over the years. Like a lot of models have come and gone. The most recent is the Farallon and the Roanoke, they've both been very popular. And so I'll tell you this right now, like the Farallon is our number-1 seller. It's the number-1 seller largely because it maximizes the amount of space. You know you're limited and so the more of an absolute box you can build, the better. The trick is how do you do that and make it look pretty? But that one has the most size in every dimension. So just by default, that's our number one and the Roanoke has the worst loft space. So by default, that's our worst seller. So next month we're coming out with a redesigned Roanoke that fixes the loft problem because, in that one, you can only sleep one way instead of either which way.

Right. That's interesting. And people are actually quite utilitarian when it comes to this stuff. It's actually not what I would have guessed the Farallon would be a best-selller purely because we have, I don't know, a couple of people come to our site every month so we get I get a sense of a sample size of people who visit us, sort of the aesthetics of what they're looking for. So I would have guessed it would sell based on that. But, it sounds like you're saying just sort of the spatial profile has a huge part of it.

Yeah, because our other homes are unique. So there are a lot of companies that make designs like the Farallon and the Roanoke there's nothing particularly unique about those but the Cypress and the Elm were unique so that's going to drive a lot more customer interest. But when they start talking to the salespeople and they start talking about their needs sometimes they'll wind up switching over to the other model.

That makes sense. And when you talk about thinking about design on these, are you designing these? How do you work with an architect?

Yeah, that's a great question. So our design process is really different than how you would design a typical home. And I'm going to spend a couple of minutes talking about this. So a typical home you tend to lay out the rooms you lay out your kitchen, your bedroom, your living room. You put your windows centered over your sink and then the rest of the house sort of evolves. Whereas with us, we're working with a very tight envelope and we really try to focus on a beautiful exterior. We find that that's one of the main draws that we have, is a beautiful exterior. So we design we call it from the outside in. First, we're going to design the exterior of the home. We want to have three windows. We use numbers of 3, so we either want to have 3 windows or we want to have 2 windows with three evenly spaced walls between them. And we try to space all the windows evenly on the wall. That creates a whole host of challenges on the inside of the house. So that's the outside in. And as much as we can adhere to that, we do.So the outside of the house drives the inside layout. It takes a lot more time to design a house, and then there's another factor that really affects the design of these houses and that's the wheels. The wheels actually stick up into the house. And because of that, it affects everything from how you can put your bathroom to your kitchen. And you want to cover those up as much as possible. So you want to put your stairs and your kitchen cabinets over those. And so what happens in all of our designs is that the stairs in the kitchen wind up in the middle of the house covering up the wheels on the interior. Yeah, so we design them all in-house. I would say that a lot of customers come and they want to modify it. We've done a lot of that. More of that in the past and we've really honed into these are the designs and you can change where the windows go on the bedroom and on the living room but the core of the house, we don't move.

Yeah, again, I think given your envelope size, it sounds like you've been pretty thoughtful about a bunch of parts. That makes a lot of sense. Can you tell me a bit about the process of being a customer? So I go to your site. Your site is actually incredible and this is one of the really nice things about your industry compared to kind of the custom modular home industry I spend most of my time in. Because you don't have as much variability around sites in the way they have costs. At least in a way that affects your price. You know, you can go to the site and you can get a pretty credible quote right away. So okay, so I go through, I find a home I like, and I get a quote that looks good. It's $100,000 or $200,000 or something along that magnitude. What are the next steps from there, from a sort of timing perspective for customers?

Yeah, so somebody goes to the website, they design a quote, they wind up contacting us and setting an appointment. We talk with them and we usually do a lot of discovery questions in the first call. So we try to understand where it's going and what's their timeline, right? And how they're going to pay for it. So the biggest challenges people have are 3 things really - as I just mentioned, when do they need it, where is it going to go, and then how are they going to pay for it. And so the two obstacles in paying for it are you know, if you're not a cash buyer, where is the down payment coming from? And can I afford the monthly payment?  So before we ever get down further we have a very quick prequel on our website. It's a custom software I actually made myself, so someone can go in there and it doesn't ding their credit but we can actually match it with the different lenders that we use and give them a very good estimate of what their payment's gonna be. So once we have that and we say okay, now we know that this is gonna fit your budget let's talk about your site. And so we talk about the site and you know most people say, “I know where it's gonna go when it’s ready.” But even then they still need time to get the site set and I believe that most people underestimate how long it's going to take. So if you're going into an RV park, snap of the fingers, it's delivered and hooked up. But if it's going in a backyard, where most of them go, there's actually quite a bit of work the customer has to do. And it's pretty simple but it can take some time, especially in today's environment, to get the right people lined up to get this work done. So if it's in a backyard, you know often there's access, you know do I have to remove the fence? Then there's the grating of the land. It doesn't need to be a concrete slab but the dirt should be compacted. And then once it arrives, how does it hook up. You know there has to be a pedestal for an RV and it's typical RV hookups but you need 50 amps of power. You need your water in and you need to water out. If that's not available, you go with a composting toilet. But then there's still the greywater question.So people have to think through that first. And what we've learned is when we've had houses in inventory. We typically only build to order but when we have some inventory and people want it, then they'll buy it and they'll go, “oh wait, I still need two months before you deliver it.”

That makes sense. So I guess a bunch of questions there. So it totally makes sense on the kind of infrastructure involved etc. And I know you've written a couple articles about this on your site, it seems like one of the things about  RVs and tiny homes, in general, is there's sort of this romantic view of, “I'll like take this thing, I'll park this on this piece of land.”

Oh absolutely.

Ideally, you know, they'll have a wonderful view and we're good. So you know, we get I don't know, of great ideas like this: “I just found this amazing piece of land in Nevada. It's $10,000 and you can see a hundred miles. Can I get a tiny home and just park it there? So obviously you talked about some of the realistic infrastructure stuff. From a permitting standpoint which is another thing that I don't think that we necessarily advise people, like you need a permit though. But we do advise people to understand how your local municipality feels about whatever you're going to do. Yeah, how do people handle that?

Right. So that's a great question especially since we are an RV and not a house and I think that really confuses a lot of the end buyers. So let me go and talk about the two differences. There's the building department and the zoning department. The building department says, “this is the code that you need to build a house to.” So we're not a house. We have a different code and if the RVs don't meet that code then there's the zoning department which says, “this is what you can put on your property. These are the sizes and these are the requirements for that.” So we fall under zoning and as a general rule, if you're in a city, it's probably not allowed, and if you're in a county it probably is allowed and one of the strange things that I found is that the more progressive the area is, the less likely it is allowed to actually have a tiny house on your property. So if you look at red states - blue states, if you're in a blue state, you probably can't or it's a lot harder and if you're in a red state it's a lot easier. So unincorporated Texas, you can almost do whatever you want. It all has to do with the zoning codes. And zoning codes are if you think about it this way, zoning codes are to…

This is just a red tape thing for the most part.

To create an environment where it makes good neighbors. And so the more people you have in an area, the more likely there's going to be restrictions on what you can and can't put in your backyard. And then the more out you are in the middle of nowhere, it doesn't really matter so much. There's not going to be that same level of requirement and typically if your intention is to live in one of these, it's almost impossible without a primary residence on the property. It's not like you can get a certificate of occupancy for an RV. So what's been happening in a few municipalities is they're saying, “Okay, well we're going to allow people to get that certificate of occupancy and do that.” But that tends to be more in you know, mobile home developments and things like that. So you might see it where you can buy a piece of property but maybe it's part of a mobile home park that's not developed yet but you can just buy a plot of land there.

We've seen it in a few exceptional areas, I believe Plaster County which is kind of Lake Tahoe area is one of them, where they do have these sort of tiny house on wheels sort of progressive legislation almost as kind of an extension of the ADU laws but it seems like that's kind of it more the exception to the rule.

Yeah, absolutely. It's changing slowly like you know Los Angeles County is now allowing for these in the backyard and at one point I don't think's on the website, at one point I remember writing an article about how long this is going to take, and I saw this as a 15 to 25-year sort of progression to where it actually got to a point where it could get to a tipping point. It tends to be an s curve and we're still at the beginning but it's starting to move a little bit faster to where now if there's a city or municipality that's looking to change their codes, there's actually other municipalities that they can look to and say, “okay, well this is how they've done it in their code. We can just borrow from them.” So that's made the process easier.

I think you may have mentioned this already. But I missed it if you did. So once people actually order the home from you and get financing if they need it. How long does the actual home take to build for you all?

That's a great question. So it depends on our build timeline and you know, if you if you're at the end of the year, our timeline usually drops to about two months, and then in the peak of the year, it'll go up to about 5 or 6. So right now everybody wants one for spring and summer. So we're probably about five or six months out but then come winter, it'll drop to about two months.

Okay, the home still only takes a month or 2 to build.

Yeah, so typically when there's no material issues, the home will take four weeks to build. But right now we're having as you know, so many challenges, so more like six weeks.

Mostly just windows are what we see from a lot of people or is there all sorts of stuff?

It's funny you should say that because I'm dealing with the window apocalypse right now. Yeah, so we luckily used to do all custom size windows, and years ago we decided that we're just going to go with standard size windows that you could buy off the shelf at Home Depot and Lowes. In case one of our windows break,s so we did that and that's saved our hyde right now. Our windows got delayed and fortunately, we can buy the same size windows at Lowes or in Home Depot. They may be a little more expensive but we've seen problems with everything from composting toilets where it was just this one part was stuck on a barge, and you know for months to we couldn't get stovetops. Air conditioners were a problem. And you don't know what it's going to be. Every month it's something different and it's like we're playing whack-a-mole and you know we've got sa,y 400 components that go into a tiny house, you can't predict every one of them. So we're starting to stock them. But it's always like we're stocking them after the problem occurred not before the problem occurred because we just don't know what it is going to be.

Makes sense. Okay, there are 2 more key things. One is the financing question. So right off the bat, a big part of your website, in terms of it seems like getting people qualified, et cetera, from doing a bit of diligence on financing for other RV companies, my impression is that if you're looking at this and you're comparing this to like an ADU or a home - financing is shorter-term and more expensive from an APR standpoint, is that right? And can you just talk a little bit about what financing might look like for one of these?

Yeah, absolutely. You’re hundred percent right. One of my key goals was to make it as easy as possible to buy a tiny house. And I have focused a lot of my energy on getting really good financing for customers. So the typical tiny house financing is going to be 7 to 15 years and the rates are usually like 8 to 12%. That's common. We've got a lot of better lenders. So we're doing loans that are 25 years and the rates are anywhere from about 5.50% to 7.50%. So it's slightly more than a home, but not terribly more. And then a 25-year term is almost the same as a 30 in terms of the monthly payments. You know, if somebody qualifies for both we'll give them the choice, you can do 25 years or 15 years but almost everybody chooses the 25-year term and then as far as down payment goes, so if your score is like 575 or higher then you're 20% down. But if you're 650 it's 10% down and then if you've got really good income and credit, we can do as little as like $1,000 - $2,000 down.

And rates are like 5 to 10% right now, more or less?

Well the lowest, in theory, is like 5.25% I think or 5.50% and I've seen that like once or twice most people are coming in around 6.25%.

Well, thanks for thanks for being helpful on that. And then I guess the other area that I was pretty interested to cover is the sort of tiny home hotels. You know, I dug around your website a little bit and looked at a lot of examples of people doing this. Can you talk a little bit about that opportunity and also just how you deal with those? Are you dealing with those people the exact same way as you're dealing with a normal customer? It looked like you had some sort of special financing deals potentially with those technical clients etc.

Yeah, so the tiny house hotel is a very different customer. So a few of them actually started off as regular customers and then converted it that way. But the vast majority say, “hey, I just want to do a vacation rental.” So first off, the financing on those is different. The letter always is going to require at least 20% down and they'll only do like a 15-year loan, they won't go longer. But beyond that, it's a combination of businesses and individuals. And so in the past, we've actually found the park and then found people who wanted it and kind of put them together. But we stopped doing that. At this point it's we're really hands-off, on it. Basically, if somebody wants to buy one, we'll put it on the website. We'll promote. It. You know, we'll do that if you say, “hey, send out a newsletter about it.” I'll send out a newsletter about it. But it's up to them to do it. They'll put it together. We've got one customer that's done a whole bunch. I think they've bought 25 from us now and then there are others where you know, they've bought one then another, you know, some buy three and some will just buy one. And that's all they're ever going to do.

And there's a note there about, I don't remember if it's you doing a 100% financing. How's the finance or is that a thing just because we basically get people all the time coming to our our site and are like, “hey, I've got this winery in the central valley of California. I just do one Airbnb and it's killing it. I want to put four more RVs on that.”

Yeah, okay, great question. So when it comes to you asking about a 100% financing, So business financing is entirely different than individual financing. So yes, it is possible to get 100% financing. It's always tricky and my advice is that it rarely ever is worth it because just putting a little bit down usually lowers the rate substantially. So you know, it sounds nice, but it's not the best. But one of the things we can do is since we are technically a vehicle dealer, we are allowed to take trade-ins. So we have taken trade-ins on used RVs, on a motorcycle, on an airstream, a truck, on a car, and that could be the down payment. So something that you see as worthless to you might actually be worthwhile from the financing point of view. But yeah for businesses, if they wanted to go 100% financing the lender's going to want to securitize the ah RVs when they buy them. They're going to have a loan and their concern is always the same if I've got four of these rentals with this one place on this one property and that's the only loan I'm doing. What if they default? That's a huge portfolio risk so. So they'll probably require some down because if you think about it, let's say the house costs $100,000 there's probably going to be about $7,000 of taxes and a delivery fee on top of that. So by the time you're all done, it's 115% the price of the house. So even when you put 10% down, the loan is probably more than the base price of the house. So there's considerable risk for the lender.

And then are there specific lenders that you've had a really good experience with or that you work with on the site or like can you talk about who they are? 

I probably don't want to give away my best lenders. Lightstream. We do have a few customers who go through them every now and then but they require a 700 credit score or higher.

That's not RV specific. I think that's more of a personal lender. 

And I think it's like $50,000 in income. So not a whole lot of people are going to qualify for those loans. So we do have lenders that will do beyond a 45% debt to income ratio. So we've seen people with a decent credit score say 660 and you know making $2,000 a month get qualified for a tiny house which is really fantastic. So with Lightstream, that's just not a possibility.

Right, that makes sense. Awesome. So this has been awesome. This's been really helpful in terms of learning a bit more about your product. We try to do a fire round any time where we ask experts like yourself a few general questions that we get all the time. So hopefully we can do that with you. And yeah, try to answer in a minute or less but we're not too much of sticklers on that. So I guess question number one was around snow loads. So again, I understand you're not technically building homes we do lots of homes in Colorado and in even Tahoe and stuff like that. And you know we have areas where we have to build for whatever, 250-pound snow loads and that affects the engineering and some other types of things. In terms of your homes, are they basically good to go wherever or are there special stuff you have to do to make sure they're able to perform in heavier snow load areas?

So this is such a great question and it goes beyond just snow loads. If you think about what we're doing, we're building them in Colorado, and then we're shipping them what I call 4 corners and 4 seasons. So we ship to the 4 corners of the United States and it has to survive all 4 seasons. And we don't always know where it's going and just because you put it in 1 spot doesn't mean you won't move it to another spot later. We do sell some to the mountains where they're 9,000 feet or more, and that creates a whole set of issues that are unique. Our house has a snow load of 75 pounds per square foot on the roof. We can up it a little bit. But if you came to us and said, “hey, I need it to be 250.” We would just say, “sorry, you're not going to get there with this house because you probably need to get something like 2 by 10 framing and that's just going to change the dimensions of the house too much for it to work properly.” So I'm guessing that we've gone a little bit past a hundred but that's probably the max and what happens is you wind up putting more posts throughout the tiny house and it can really break up the flow of things. Aand then beyond that, you've got to think about your windows. High altitude windows will crack, so we have to get special windows for those higher altitudes. We now put those in all of our homes because so many of them go all over the place. And then the other thing to consider too is that if you're at those altitudes you're often using liquid propane. So in that case, when you move the house you're going to have to reset everything and a lot of propane water heaters will not work at that altitude.

Got it. So that means you have specific changes you make to make homes work at that altitude.

Well, as I said, we used to. But now the windows are standard. We do the high-altitude windows no matter what. We're only buying the appliances that work at all altitudes. Now you may have to adjust the knobs and fittings on your stove based on the altitude you're at. And you're going to have to adjust the water heater based on your altitude. So if you set it for here for 9,000 feet and then you move it to California months later, it's going to have to be reset. But the snow load as I said it's 75-pounds and then if somebody needs more, that would be engineered on a case by case basis. But if they said, I need it to be two-fifty, too bad we can't do it. But also the other thing is the insulation value, right? The r-value. So that's a question we come up against more often than the rest of them. And we don't adjust our r-values. And the way I describe it is like this-  think of a car. Your car probably has r-1. But you can heat it up really fast because it's such a small space. And it's the same thing with a tiny house. You can heat a tiny house very quickly. Changing the insulation is just going to make that slightly more efficient. But once you do that, the whole envelope changes and everything that we plan really doesn't work if we have to go to 2 by 6 wall framing. It's a whole new house. So it doesn't work. We can. We can put a better insulation quality and maybe increase it from an r -13 to an r-19 in the walls. But that's about as good as it's going to get.

That makes sense. Okay, so that's helpful to understand. I saw there was a Mt. Hood Hotel or something like that. They are pretty high, so they're just able to make it work with your sort of your standard model.

Yeah, our homes will work in freezing temperatures and really hot temperatures. So we send them over with that Mount Hood hotel and it is not an issue. And that was the first tiny house hotel that we did in partnership with equity Lifestyle properties. And they're the ones that have the hotels throughout the country and they do a fantastic job on theirs.

That's great. Okay, so this is actually kind of connected to this last topic. In terms of insulation values, can you talk about the adjustments of your homes for off-grid. Is this something you see frequently? You talked about figuring out compostable toilets and gray wate.r I know your homes are wired for solar but oftentimes, I mean I don't know in your home situation. Sometimes I think being solar-connected doesn't actually provide as much power as people need. So how do they work for the off-grid situation?

Okay, so you're asking me a question that I could probably spend half an hour talking about. So to sum it up quickly, you know there is not a one size fits all for going off-grid and I'll break it down into components. So there's primarily 2 issues for going off-grid. One is your power supply and the other is your water - you know water, wastewater those types of things. So let's start with the water supply. If you're totally off-grid you're going to be bringing in those five-gallon buckets of water. And then we're going to put in a water storage tank and pump. So you're going to pour that into your house. That's going to be a reserve and it's going to pump it throughout. So we've done either a twenty-five or a forty-gallon reserve like that. And then when it comes to your power, you've got a few choices. So solar is one way to go. We do not sell solar panels. We are not solar experts. So what we do is we make the house solar-ready. So that everything's set up, all the wiring's done. We put in what's called a yeti goal 0 and everything just plugs into there and we make it so easy, so you can pick the items that you want. With the flip of the switch, “I want these on the solar and I don't want those in the solar.” And then you would work with a contractor for the batteries and the panels that you need. Depending on where you go in the country, that requirement's entirely different from location to location. So that's something that that person will help you with. In addition, if you think about it this way, when you're doing solar or using electricity it's things that produce a lot of heat that take the power. So you're going to want to go with propane and you're going to have a propane water heate,r a propane heat system and a proprane stove. All the other appliances, everything we do is energy efficient. I mean, you could do the propane fridge but I'd probably advise against it and in general, if you do not need propane I would say get away from that. The other thing is that they can also do a generator but one of the biggest challenges that tiny homes actually have is the challenge of moisture. So you've got a very small space. It's usually very well-wrapped in even just putting a couple of people in there, if you're both staying in there through the winter and it's damp outside and cold outside you're getting all that condensation. And then you throw in propane heat and now you're adding even more condensation into the tiny house. So. It's just it's a risky thing. The other thing is that you've got to keep that air circulating. So one of the things that we do is we put an air exchanger in every unit. But the nice thing about the electric heaters is electric heaters if they're on, they're going to exchange. And they're going to put in a dry heat versus a wet heat and they're going to also pull moisture out of the air. So if you don't have that and you're just going with propane you're really getting a risk of a lot of condensation in the house.

That makes sense. Are you regularly seeing people use your homes in an off-grid situation?

I would say it's probably 20 to 25%. And so that's why we build them so that it's easy to convert. But off the bat, I would say maybe 10 percent have some form of off-grid, actually more than that, it might be more like 25% but it has more to do with the water and the composting toilet. So I'd say a lot of people compost because they don't want to hook up to sewers and then they'll figure out what to do with their gray water. Either they're catching the gray water and dispersing it and carrying it out later or they're using it to garden or something like that.

Then the final question is what do you recommend from a furnishing standpoint. I don't know if you've actually looked into having furnishing packages, but your homes are so specific and so sort of standardized from a room setup, that in some way for certain people, that would actually be easier and I think some companies do this to just have a furniture package but are there sort of products and um and sort of other interior design things that you think work particularly well for your homes?

Yeah, so we actually started doing built-in furniture at one point. And we wound up having to take it out because customers didn't really want it. If they want something they'll be specific and tell us what it is. What I've learned is that most people who are getting a tiny house already have the furniture they want picked out. Either they own it or they've got a pinterest board and the only time that we've been asked to buy furniture was on the rentals where it's a business and you know, they want the house delivered with the furniture in it and that's rare and few and far in between.

That makes sense, got it. Okay, cool. Are there certain types of things that you think make a lot of sense? Like certain types of sleeper Sofas etc or is it you know, you see all shapes and sizes?

Yeah, we see all shapes and sizes. There's really not a whole lot of space for furniture. You're limited, you've got an office, you've got maybe your desk space, right. You might want, you can put like one couch. You really can't bring a table in there. You've got your mattress but maybe you could bring in a bed frame if you have something that would fit. But it's really limited in what you can bring in when you think about larger pieces. It's probably about 3 items of furniture mostly you can fit in there.

That makes sense. Well, this has been really great. Tanks. You passed the fire round with flying colors. Sort of final question, we ask everyone - what are you most excited about for your company or the industry for the near future?

Most excited about. So I'll tell you I nerd out on certain things and so my answer is completely nerdy. I like to build systems. And I'm actually working on this new system for our CRM. So we use a standard CRM and I've been building an extra whole set of programming that works in the background That helps us manage our customers because we have about 100,000 leads - people who've done quotes and that's just too many, so you have to figure out who to contact and when. And so I'm actually really enjoying that.

There you go. All right, I don't think we’ve gotten a CRM answer yet. Steve, it's been terrific learning about you and your background and Tumbleweed Tiny Homes. So thanks again. For more information, you can learn more about tumbleweed at tumbleweedhouses.com and as always you can visit us at prefabreview.com. Thanks again, Steve.

Alright, thanks, Michael. I appreciate it.

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Hi, my name is Michael Frank and this is the Prefab Pod presented by Prefab Review where we interview leading people and companies in the prefab housing industry. Today we are speaking with Paul Buraczynski and Michael Hawkes, the general manager and design manager respectively, of Acorn Deck House.

Good morning, Michael.

Great to be here.

Welcome guys. Well, thanks for being with us. It's a pleasure and exciting for all of us. We regularly talk with prefab and modular housing companies. We spoke with one that I think, had been around for three or four years last week and I think you've been around as a company for like 60 or 70 years which is obviously a lot longer than most of the companies we've worked with. Can you tell me a little bit about the history of Acorn Deck House?

Sure. Well, the Acorn product has been around for 75 years, the Deck House product has been around for 63 years. You know, a while back, both of our companies merged together to create one company. We're following the Acorn Deck House name and we also introduce the next house in that. So throughout the years, We've kind of grown together as a product. We've used each other's knowledge and through the past one of the great things with our company is we've kind of done it all. We've seen it all. We're kind of a trend setter in the world. In some ways, a lot of other companies look at us as a parent company. And the follow through of the architectural design, I'll let Michael answer those questions, on that side.

Yeah, so the history of the two is architect driven. If you look back to the founding of both Acorn and Deck House, they both started with architects and they both, I think, owe their legacy to Carl Coke specifically. And sometimes he's considered the grandfather of prefab. So he started Acorn and then also started a company called Tech Built in the 50s and a couple of architects Bill Burkes and Robert Burnell came out of Tech Built and started Deck House on their own. So they kind of all trace their roots back to Carl Coke. And I think that kind of made sense when they came back together because they share that legacy.

Got it. And then so the companies eventually merged and they became Acorn Deck House. Now you're a subsidiary of another builder, is that right? Can you tell me a little about the company's history and how it's evolved?

Now we're falling out of the Acorn Deck House name. And go ahead…

Got it. Oh, like I thought that you were now associated with Trudeau. Is that not true?

Trudeau Homes International is the parent company. They're actually the owner of Acorn Deck House Company. We still fall under the Acorn Deck House name. Trudeau Homes actually has other assets that they are also involved with. But they are the parent company of Acorn Deck House

Got it. Okay and then you were talking before about how there was sort of the Acorn house and the Deck House. When you look at your website there's the Acorn House, the Deck House, and the Next House. Obviously, there are some aesthetic differences, is it primarily aesthetic the differences between these different lines or is there more to it than that?

I could talk about them all. So because they do have that history, the building systems themselves are what also make them unique. And like you've mentioned too, architecturally the sort of the style and look and feel of them is unique.

So the Acorn and Deck House they both come from a post and beam building system and frame and then from there the floor and wall panelization that we do is the same for both of them. Then the bigger difference comes in the roof construction. So the deckhouse uses Douglas Fir laminated beams.

Yep.

And Western Red Cedar structural decking that kind of gives us its name. The Acorn side uses more conventionally framed roofing. Although it is still prefabricated and probably has more of a lighter material, you know, it uses more Oak and lighter materials inside whereas Deck House is more Mahogany and Cedar. Acorn I'd say is more like a New England vernacular. Deck house is more contemporary, certainly mid-century. That's where it sort of gets its roots from and then the Next House is really a modern interpretation of either. But at this point too, we sort of use that as a starting point but we essentially do a lot of hybrids which is what we call them because it's all really coming from the same kit of parts, the same quality system. So you know, we just sort of use that as maybe a general filter at the beginning. But everything is custom made with that building system.

Right. And I assume if you're the design manager you would work across those 3 lines or 3 specs. It's not like you have separate employees for each line, right?

Exactly, right. And so that uniqueness just comes from client demand, what the site calls for, what the design calls for, the budget, and everything else.

The same thing follows under the manufacturing plan. Everything is manufactured the same way for all products that we do here. And everyone is basically trained across the board to do any type of the product cutting or manufacturing of any of the material.

And you're located in Massachusetts, correct? Do you own your own manufacturing and is that also in Massachusetts?

So we have a manufacturing plant here. It's 85,000 square feet. And it's right behind the corporate office. Everything is manufactured here in Massachusetts and shipped out. If we do have homes that we're doing in other states that are further way - Colorado or Ontario, for example, are shipped directly from our vendors to save some of the freight for that package. But the majority of everything comes from here.

Right. So when you think about manufacturing, you mean like the beams, the panelization, that would all be in factories but like windows or something would come from different vendors? Are those the kinds of examples you mean?

Correct. We actually manufacture our own line here. That's been done in house for years. We also are a pear distributor and a Marvin Distributor. So both come from here. Both of those companies can go direct for the windows. And for the local areas that seems to work best for us with those brands and the options we give our customers.

Got it, that makes sense. In terms of thinking through the advantages of your homes - let's talk about your homes specifically versus in general. What are the sort of specific things that, again, we constantly get the question of, "hey, I'm thinking about using a company. What company should I work with?" So let's say we're dealing with a client who's at least like proximally located to you, meaning somewhere in New England, though I know you serve a wider area. What are the specific advantages that separate you all from other, not even just prefab, but other companies in general that you might be able to use to build a home.

I'll let Michael bring up the first part of it and then I'll take over the manufacturing side of it. If Michael could talk a little about the design side of it and what would be helpful for the customer.

Yeah, certainly. So we have product directors here who will sort of vet and talk to the initial leads and clients that come in. They make sure that we're a good fit and so from there they're looking at the site, at what we offer, and then they'll hand that over to us in design to start to work with them. There, we are basically at the earlier parts we're similar to a custom architecture office. And so they're getting a really big value in that service. Early on, it's just that we're using sort of the system and the parts that we have in-house and then we also have standardized the options that they can choose from. That sort of helps the client through that process and then we prefabricate everything after that fact. So there's a big benefit in sort of doing it all in-house. It's almost a design-build but we still give the client that flexibility to change you know, the interior, the kitchen, the walls, the finishes and fixtures and sort of work with their builder on that side or perhaps bring in an interior designer. And so they get the whole custom build all the way through with a little bit more control, and also their own flexibility in that process. And then and the fact that we do have our own factory here is huge. So I'll let Paul talk about that part.

Yeah, a little bit before we even get to the factory we are able to establish cost and pricing for the houses as they're going along to give the customer a more accurate price as we're designing it from beginning to end. My buying power here is direct. We're not buying from the local lumber yards, we're buying directly from the distributors. So I have greater price control in-house. We can buy inventory. We actually have inventory here but with the construction of houses we can control our waste, we can control our environment. By being an indoor manufacturing plant, the weather doesn't stop us. There aren't those delays and then after the house is even manufactured we can store it here for when those sites are available for the delivery of the package, which makes the whole process so much easier for a customer, for the contractor who's erecting the house. Those are some of the major things that can save the customer.

Let me make sense of this. So in terms of where you stop, so you're obviously doing the shell of the house. In terms of interior design, in terms of right, the interior systems, etc, is that all being done by the local contractor? And to what extent are you sort of setting the plan there - purchasing stuff, et cetera, versus them?

So you're correct about the shell and we do supply a weather tight shell. We also supply the interior trims, the stairs and the rails for the interior side but because we're diverse and we're throughout the whole country, we gave it to the local builder to basically help their customers shop along for interior design and finish. We found in the past it's just not worthwhile for us to be shipping sheet rock from Massachusetts to other states and the same with plumbing regulations and any of the electrician side of it. It's easy for our contractors because we have a great network of contractors that have built our houses in the past to take care of that directly with the customer.

Do you end up handling local permitting or is that the local contractor?

Michael, you want to answer that one?

Yeah, the builder still pulls the permit but we set up everything that they need for that. We stamp and arrange the construction documents. We're getting them stamped by an engineer and that's ready for permitting.

Right. You're creating the construction Docs etc. Got it, that makes sense. Okay, so I guess one of the questions that we get all the time and is always a little tricky but maybe you guys can sort of help out. The best you can, around the cost of projects, and I understand there's a gazillion caveats here, but we still try to go through an example because again, it's literally the most asked question we get probably like 5 or 10x. So let's assume, you guys are both in Massachusetts, right? Let's assume, you know one of the affluent suburbs around Massachusetts, Lexington or Concord or one of those. You have a nice flat piece of land. You're putting you know, a pretty modern home. Like one of your Next Houses, says that's around let's say 2,500 square feet or 3,000 square feet. Do you think one of you could maybe walk us through the cost of a project like that? And sort of also explain the cost side of the Acorn Deck House frame and you know, what the range of outcomes would be from a local building standpoint. And you know, the soft costs et cetera. And I understand there's ranges and this is imperfect. Today is March 28th and we don't know what's going on in the future. But just to give people an idea of the range.

So we always look to our customers and give them a rough number like you're looking for. And in that rough number we usually tell them there's around $550 a square foot with the way the market is right now and the craziness that's happening in the world with products and delays. Where in between that and $750 a square foot, a lot goes into a house. A lot of material choices can affect that price but that's kind of the range that we're working with right now. But the nice thing about this company is that we do a sketch for a customer. We actually price the job out. So it's not done by square foot. At that point, it's done a little bit more accurately and as the customer goes forward and we go into arcs that price is actually nailed down pretty tightly. And so we have a better target of where we're going with that customer so that they actually understand the price of their house. We're not going with a square foot price. At that point we're actually going with actual cost.

So moving on to the design side and I'm sorry I'm getting a little feedback from you all or maybe from my side, but moving on to the design side. Again, one of the things that I think is really cool on your you have this survey of wants. I think for people to get started on their house you have a bunch of really beautiful designs. Let's say I come to you all and I want to build something. Can you talk a little bit about how you hone in on sort of a design and vision with a client?

Yeah, so it definitely comes from listening to the client and understanding their site, first and foremost. So we don't have stock plans. We don't have you know, sort of anything that's like cookie cutter and ready to go. We definitely use our portfolio as a way to show what we can do and there may be some similar themes. There may be some similar solutions to common problems, but it really is all unique and cited to what the client's looking for and what the site is calling for. And so we try and keep that sketch phase pretty loose and it isn't an iterative process. But like Paul said too, we can get some accurate estimates from that right at the beginning to make sure that we're going in the right direction and inform how we keep proceeding with the design process so that we don't get too far where you know, we're bidding it out and then realizing we have to value engineer. We kind of nip that in the bud pretty early. And it's a huge advantage to go through that process so we can focus on the design and make sure we're prioritizing everything that matters.

Got it. And then do you end up signing design contracts with customers separate from a production agreement? Is that standard with you all?

So the process kind of goes that we do sketches with the customer for the most part upfront. And I would say the majority of the time we have a sketch or deposit involved with it. After that sketch is approved we go to arcs and they make a deposit. At that point, but both of those two payments actually go to the future package. It reduces the price of the package when it comes to those prepayments. We do have a contract. And then it does go into release to manufacture. When it goes into the shop and the final payment when it goes out. The contract with the GC is separate.

So essentially, you have two contracts. They have a contract with you and then a prime contract with the GC separately. Good. Okay, I guess another question I had that I thought was kind of unique about you all- we actually get requests all the time for people who are like "I love this company's work, can I use them to do an addition?" For a lot of the companies that we sort of cover, especially the modular ones, the answer is no. But in your case, I believe you do additions. Can you talk a little bit about that process?

I'll let Michael take over the design side of it but I can tell you that you know, over the 75 years as companies had clients, those clients are so important to us and they always seem to come back to us like a little club. Everyone's doing business with us. We're on the third generation of owners of our houses. There's original owners from houses from you back in the 60's who are still in contact with us with additions being done. We have a parts and service department that does very well with catering all the older materials that are in houses and even some of the newer materials for upgrades. It's all located here. It's a great way to stay in touch with our customers and we have newsletters with them and they share their opinions and they share their thoughts in ways to keep their house up on their own through a Facebook club page. They're very valuable to us and we have a great relationship with them. I'll let Michael talk about the actual designing of the additions.

Yeah, so that's one of the big benefits too. What we prefer is to do additions to an Acorn or Deck House that has been built in the past because we have archives of all of the plans going back and copies of blueprints and we have the detail manuals and all the books back to the 50s and 60s. And so we really understand all the little minutiae that goes into those houses and how they were built so that we can more seamlessly tie in the additions together correctly when it comes to yeah when it comes to doing additions

That's super cool.

For a non-Acorn Deck House that's where we'd prefer to be sort of self-contained in a way and then lightly touch an existing house. But we get enough requests for additions to existing Acorns and Deck Houses. It doesn't come up that often to do an addition for a non Acorn Deck House.

I see. That's super cool because I imagine, I mean I've seen old plans, but right, like the stuff from 1950, these aren't cad files right? These are just like two-dimensional things that I guess pulling into whatever you're using to design somehow.

Correct. Yeah, there are some pretty great drawings and also what was done historically is that you'd have a plan set that was pretty basic in its floor plan elevation and then a few details. But there was a huge detail manual that went along with most of these designs and that's what was constantly updated. So you're sort of using the standard set of details and assemblies as opposed to reinventing the wheel every time. And so we're still doing that in a way. It's just all, you know, digital and through bim like you mentioned.

Cool. Do you think one of you can take this? One of the things that customers often like hearing is you all talk through one of the projects: and ideally one on the website so people can go and follow along, that you've had a lot of fun with or you think it's particularly cool. Do you think one or both of you can talk through one of the projects you've been involved in that you're really proud of?

Sure, I guess one that comes to mind is a project we called Headland and that's up on the coast of Maine. And the client really helped to kind of push us to see things a little bit differently and really take our Deck House system in a different direction. And this allowed us to really get some expanses of glass for their view and push some of the insulation values and really encourage passive solar design - more so than we inherently do. And the results I think came out really nice. And he needed a lot of great work with the local builder to do some custom mahogany trim work that we provided, did shop drawings for, really customized it, and made it his own. And that kind of showed the flexibility of you know, here's the system of our parts and then here's how you as a client can really control how it suits your personality; how you can help fit it your own. And that one also got featured on Maine Home & Design as a cover article which, you know, it's always a proud moment when artwork is recognized like that, of course.

That's awesome. It's been really great learning a bunch about your company. When we get experts like the two of you on our podcast what we try to do is a quickfire round where we get your expertise on questions we get every day. So if it's okay, I'll toss a few of these at you and you know, we try to get answers in one minute or less, but I'm not too big of a stickler on that. So if it's alright, I guess to start, one of the questions we get all the time is around how do you evaluate land in terms of feasibility? Particularly in your case, let's say for a kit of parts like yours, what are the things that a client should look at?

Yeah, I mean our kit of parts doesn't limit that part of it. So if you know, if a site can build any house, it can definitely build one of our houses. But to that end, what we always say is, "what's the topography? What's the slope? Where are the views and how are those in relation to the solar orientation?" Because all that's going to tell you how you can best provide a passive solar design. "How are you going to use the spaces and how they're adjacent to each other to the proper views?" And, "how are you going to use that space?" And then you know, bigger picture things like what are the local utilities? How can you connect to it? What kind of site work would be involved in it? Is it a lot of ledge or is it pretty straightforward? Are there wetlands and then all the other sort of restrictions that could come up from local zoning? So there's a lot to consider but at the same time, I feel like if you have a feeling for the site, you kind of know why. You know why it works. We've seen every different type of site and everything always has and everyone always has something unique about it that we always try and feature.

That's helpful. Okay, next question is can you talk a little bit about choosing a builder? Similarly, this is one of the questions we get all the time around, "okay, I've found this great company to work with, you know either modular or kit. Now, how do I choose a builder who I know will be good?"

So the way that we work with builders is, over the years of doing business we've accumulated a large list of builders that we call "qualified builders." They've come in and they've worked with us and they understand our project. And we put the customers in a local area. We try to find those particular builders and we actually have them do a bid on the house to see if they come into the right range. We try to give a customer maybe 3 different builders in the location that've worked with us in the past. If the customer doesn't like the 3 builders or there's only 2  builders or even 1 located nearby, they can bring their own builder in. And actually we have them here for training. They can come up when the project is being manufactured in the shop. So they can actually see it being manufactured and they sit down with that design team, directors, and our panelizers, and they go through the entire house together. And then we also give them access to that whole group after the fact so that they can call up with any questions they may have as the job is going along.

And then the last question. I believe you do some sort of custom millwork. A bunch of companies we work with actually do, are there really cool examples of millwork that you all have done for clients that come to mind?

I personally do and let me hit the background on the custom milling. We do have our own milling machines here. So if there's any particular trim piece or anything they need in the house we can actually get the knives to actually do this on our two molders. We also have a five-axis C&C machine with a 14x5 foot cutting deck on it which we can basically work anything that we have in front of us on drawings and try to come up with something that's custom for someone's home. One in particular that I'm thinking of and Michael might have his own, we did an entryway where the customer wanted a glass entry door but also wanted to have a winding plant-looking woodwork in the glass area. We were able to perform that on the C&C machine and actually give the client what they wanted. So they actually went through the main door and then into the light of glass above the door. And the customer was very happy that we did that for them.

That's awesome. It sounds beautiful. I guess the final question for each of you - we ask everyone, what are you most excited about for your company or for the industry in the near future?

On my end, technology is what I'm excited about. It seems like things are moving fast in the technology world. I've been here 38 years.  Now to see how much things have changed. Even in Michael's department, in design, the way that we present drawings to customers now, it's just an incredible thing to be able to work online with a customer and actually visually see what the interior of the house looks like as it's being drawn as a walkthrough. Some of those things are just incredible. I talked about the C&C machines and the accuracy and the speed that we've increased the actual production lines because of these new things. That's what excites me in the future and Michael might have his own opinion on that too.

Yeah, I mean what I've noticed recently too is just how educated the clients have become and what kind of resources are available to them too. So they're getting a better understanding of what the process is like and what options are available. That helps us too. Our point of what we do gives them that quality and that predictability and we're starting to keep removing the stigma that's around prefab. So you know, websites like yours and this podcast are what are really helpful in that as well.

Awesome! Thanks so much guys. It's been great chatting with you. It's been really cool to learn about the history and all the product offerings of Acorn Deck House. For more information about Paul and Michael and Acorn Deck House visit deckhouse.com and as always you can visit us at prefabreview.com. Thanks again.

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Hi my name is Michael Frank and this is The Prefab Pod presented by Prefab Review where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Marc Bovet of BONE Structure -  a building system, I’m not actually sure if you consider yourself a prefab company, that's responsible for homes across the US and Canada. Marc, thanks for joining.

Well thank you, Michael. It's a pleasure to be here.

I guess to start, can you tell me a bit about your background and how you became involved in building homes?

Yeah, well the short version of the story is that like many people out there who have initiated to build a brand new home, and back then I was part of the management at the world class company, Bombardier, and traveling quite a bit and my wife basically undertook the project. So she went out and we hired the very best architects and very best engineers and we laid out the plans and you know, we went through the whole sequence. And with the smallest details because I'm that type of individual and so is my wife, and sure enough when the time came, we went out there and got 5 builders to come in and look at the plans and come up with some quotes and timelines. Believe it or not, when all of those came back there was a delta from 5% to 72%, without having 2 of them close to each other. So back then, we asked the architect, “did you send the same set of plans to everybody because something is fundamentally wrong here or appears to be wrong?” So that's how this quest really started. It really got me fired up and I've been in the apparel industry most of my life. I was in the advertising business. I was a consultant for many small, medium and large companies and bombardier was one of them. And I was part of the management at Bombardier back then and we were implementing six sigma which was the world class recipe to make it right. And so what I did is I reviewed the whole thing and tagged it just as if it was a six sigma project which no one in his good common sense would do for a residential project. I mean people don't even go that far even for a skyscraper or an industrial complex. But this way I was satisfying myself and saying, “you know we'll get things out there. We will be ready. There will be no surprises and let's not fall into a trap of having late deliveries or having not double checked what we were ordering and finishes and so on.” So with all of that preparation and that eccentric craziness of a gantt charting exercise. With all the possible buffers of what a nordic climate could bring to you from an ice storm to a snowstorm to anything. We went along and finally decided to opt for and this is one of the most significant things to be remembered, we opted for someone that we trusted and at the end of the day it was none of the 5 forecomers that we had initially welcomed. So we went on with someone that had to drive fifty miles every single day. He was a GC and he had his own team. So the conditions were clear: finish all your job sites, finish all your contracts and the day that you will come here, you will be fully dedicated with your team on this job site. So he accepted the challenge which he probably regretted when I pulled out the gantt chart and then he said, "oh crap, what am I getting into here." But to a certain degree, we had sort of facilitated his job because he saw that we went into the extreme planning

Yeah, yeah.

And with the buffers and everything else making his life easier. All that being said, and I did mention buffers - we ended up, my wife and I, with four kids in a hotel room. So that got me thinking, if it was a hundred million dollar project, which it was not, trust me, how is it that Mr and Mrs Jones and our architectural firm and John the contractor and our sub-trades can make things happen with rigor and discipline? And keep in mind that is all orchestrated. So we started to do research and it became sort of a pet project at the beginning. So I had some research done personally. I did some research and I've put full people on it. And we've looked at everything and in the end anything that was prefab, modular, industrialized platforms concepts North America, Asia, you name it, we pretty much looked at it. In fact, we looked at thousands of patents even before getting into the game. And the more we were digging the more we realized that this was for good or worse a very artisanal industry which goes by, "well, we've always done it this way" and to a certain extent and to a certain extent with all due respect to some of the best prefabs out there, at the end of the day it's we've always done it this way, but you add on the prefab. So we really wanted to challenge all of this and take the knowledge of people that I've hired and put a team together and really create some sort of A team here where we would just pulverize and come up with a totally different mindset and look back, as far as in California per-s, the first home that was built in California was in 1800 or so. Take it or leave it, for the past two hundred years we've been doing the same old thing with about the same materials. It's just that because of manufacturing facilities, because of different processes, because of certain things nowadays, even facilities, capabilities and digital capacities that we have out there. The industry has reinvented itself and you've seen over the past twenty four months covid being just a sideline to this, seen some pretty incredible big companies which we won't name, that had humongous funding that were supposed to come and revitalize and reorganize and restructure the industry. If you look right now, what's happening in Australia and New Zealand and so on and so forth. So, at the end of the day the way we went about it is, "let's not look at what the industry's been doing but let's look at what human behavior needs and redefine what home is and redefine what the expectations are. What is the relationship between individuals be materials and availability of labor and so on so forth?" So you basically said it well in your introduction: we are and we are not prefab and this is where I personally always try to make sure that individuals who are having a conversation are set on the same definitions of a word or a sentence. For example, prefab in California is sort of cool. It's the fear of missing out. I want my ADU type of mindset. If you go into the northeast whether it's in Canada or the US, it has a connotation of a cheaper product. It's like, "oh you can't afford a real home." Okay I get it, and you're far past a trailer home. But it's prefab, so depending on where you are from east to West to North to South, we are very careful. And this is wh, yes we are much more understood as a building system with integrated technology. That's why we have our own proprietary technology. It's patented in 25 countries with 25 mindset rules, regulations, countries, languages, human species and different habits in mind which is a little bit wider than some restrictions imposed by what the typical quote prefab industry is limiting itself by default in terms of transportation or in terms of availability of cranes or whatever to manipulate those prefabs whether they are modules whether they are walls whether they are so and so. So we've looked at the whole spectrum of not just materials and or labor or manufacturing facility. But we've taken it and completely spinned it totally 360 with the end user in mined and the legacy of that dwelling with mother nature with its surroundings.

Cool. So let's get into, that's an awesome backstory. So ah, let's get into some of the specifics of what makes a BONE home a BONE home. I mean obviously, I believe your homes all have steel frames. But do you think you can get into but I know you don't want to simplify you know this sort of thing, yeah what makes your home special? Do you think you can sort of give me a quick summary of the real distinguishing things about your homes versus maybe another home whether stick built or prefab or kit or whatever?

Yeah, sure because that's the point there's so many offerings out there but there's some pretty good offerings out there and you know there's room for everybody. Let's put it this way. And we're very open-minded. I think we have a culture in our company which is based obviously on innovation and open mindedness that sometimes is surprising because I've had the pleasure to be a speaker at different conferences and sometimes we chit-chat with what could be seen as a competitor and I always tell them, "we're not competitors. We're trying to fulfill a need out there and we're all doing our very best and sure, we can even share some best practices because there's so much to be done to make it a better world. I know it sounds cliche but there's definitely so much to be done to make it better." So yes, at the end of the day, let me take you to one of my favorite analogies which basically underwrites the trademark of our product. The BONE Structure, I mean as we look at what Le coeur bosier, Frank llod Wright, Edison which I call the light bulb guy, even had his prefab system and there's a full drawer of those innovative ingenious people, architects engineers and everybody else. And what we understood as we looked at all these different possibilities, is that there's one concept out there that has basically passed the test of time: the ultimate test of time was design for the utmost best. Never reformatted, rethought structure, which is the human species BONE Structure. So Michael, my turn to ask you a question, how many bones do you have in your body?

Yeah, I'm trying to avoid ah googling that. A lot. Hundreds.

Okay, well let me whisper that answer to you. Surprisingly, even if we don't know each other, I know that you have 206 bones. Same for Mrs Jones the same for Mr Thompson and the same for the 8,000,000,000 people on this planet. So that's what I call integrated design because it's been around for a while and it hasn't changed. Case and point the bone structure was designed so that it survives the tests of time no matter what personality character you would want to dress it up with being architecture, interior design, so on and so forth. So the most important thing about a dwelling, about a home about a commercial building is the structure and it's thermal envelope so that it will sufese the test of time. Everything else is sort of, I don't want to banalize it, but flavor of the month, trend of the year, color of the day, and so on and so forth. So when you look at european architecture, when you look at the buildings, the homes that've been around, and if you had the chance to go to Rome or if you had the chance to travel the world you will see that those that have lasted time and time again, it's not only because of architecture. It's not only because of the personality and the character but there were some fundamentals that were defined at the very basic of the design. So the BONE Structure is different, yes because we use a material that is 100% recyclable. We are using a material that will be there in fifty, one hundred, hundred and fifty years but where we've pushed the exercise is that we've made it simple enough that it becomes an assembly on a job site. Not a modular positioning, not a crane exercise, not a wall exercise. It becomes a skeleton that gives the architects and the architects of this world and the interior designers of this world all the desired flexibility because of its engineering capacity. So for the workers on the job side it's assembled because everything clips one into the other that easy.

For the architects it gives them the flexibility of design and open spaces because we have just about no interior load bearing walls. The same goes for the interior designers, the same goes for the architects and so on and so forth and it enables us to have a living in symbiosis with what mother nature has to offer. Now mind you, sometimes in an urban living downtown San Francisco, you might not have that luxury of having the size of living with your neighbors. But then again, because it is an assembly of parts like a good old erector set, which was there before the lego toy set, it enables you to go and build an infill in one of those crooked streets in San Francisco with the feasibility, accessibility of workers basically clipping parts together so that they can create an environment that will fulfill today's needs and future generations needs because unfortunately, we the human species, have not understood and carefully looked at the history of home building where, even though some of the best practices out there will say yes this home is there forever, but guess what, as people are moving from one size of a home to another size of a home, or from one state to another state, or from one country to another country, and they're coming with their own culture and their own needs some people want two different kitchens. Some people want larger bedrooms. Some people want larger dining rooms. Some people don't want dining rooms. They want a family room. Well, guess what? How is it that these homes are not able to adapt to those new owners? And this is something that we at BONE Structure have been able to do because of our integrated design services being able to fulfill so either with outside architects or within our own professional architects inside because of the basic design of our industrial building system platform, we are able just like the human species, we are able to create 8,000,000,000 different propositions that can be come alive with architecture, with personality and character, with local materials so that we make a significant difference not only in creating beautiful home that live in symbiosis with their environment but also long lasting adaptable homes so that you can remove or add on walls, remove or add on windows, basically reconfigure the whole skeleton. Or should I say the outside shell to adapt to what the skeleton enables you to do so. That's part of what makes us unique, is that we're not just designing homes or having homes designed just to fulfill the needs of the individuals that command us to do it. But we also think fast forward into who else might inherit  it because that's becoming the trend or should I say it will be forced onto American society. Because of the cost of owning a home while now like Europeans have been doing for the past century is that you will most probably as a responsible parent look at the possibility of leaving that home to your succession to your kids because they otherwise might not be able to afford a home for that matter.

That makes sense. Yeah, home prices have certainly gone pricey in a lot of markets. Just to sort of get down to the specifics, so if I'm a consumer and I come to you and I call you to say, "hey, I love the homes I've seen on the site. I'd like to work with you. Do you think you can kind of run me through the process of what that means?" Yeah, to understand, you build the steel frame, you know, are you in this example at least, are you also the architect who hires the local builder? How does all this stuff work?

It's very simple in the sense that we accompany you to make one of those 1,000 decisions you'll have to make in building your own custom home. Meaning that in the past fifteen years we're not using the language or the vocabulary that has become trendy in you know, local sourcing or life cycle or energy efficiency. This is not what bone structure is all about. So as Michael Frank comes and joins us or asks us to accompany him, we will go with a go left, go right, go left, go right, go straight conversation depending on where you are.

Yeah, sure.

And how you want to make things happen, so we accompany you in the process. So let's say for one you say, you know, "my house just burned down in Sonoma and I don't know if I want to rebuild there. I'm really scared, they told us it was a 100 year thing and it's been coming back every year, so I guess I'm 300 years older now and so on and so forth." So obviously we have a better proposition because in terms of fire rebuilds we have the utmost technology to prevent that unfortunate or the result of that circumstance, so we will tell you, "listen, we have an inside architectural service. We can design for you." Well, Michael you say, "yeah, but you know what? I have my friend as an architect, and you know he's been prying me to to get his services and so on and so forth. I Wish that we could use the services." No problem. Let's put him around the table. The thing here is that it's a collaboration. It's getting everybody possible around the table that can make this dream come true. So either we go with your outside architect which then,if you go with us it's very simple, what we'll do is that we'll do a design contract service. Human species wants to go one step forward and one step backward. We don't want to corner a client into a service. So if you're not buying a house from us, you're buying first a professional service of design. We will design it. Then we'll go into an immaterial contract which if you desire to go that way which 95% of people do with us because they entrust us with the service and we help them figure out if BONE Structure is the best proposition for them. Before we start working with them, sometimes we do refer them to other prefab or modular or other traditional builders. We're not shy to do that. We want to make sure that it's not a customer relationship we have. It's a client relationship that we develop. And a client for us is a lifetime experience. It's not a transactional thing. So we sit down with Michael Frank and a convenient partner and we set up and review the wish list from there and we make sense of that wish list and the budget because in this industry whether it's prefab whether it's modular whether it's traditional building, that is the elephant in the room. Budget - does it align with what the market can suffice today and that is are we good to make sure we start with the right interpretation of what these variables are then we get our design team to design it. We're very much into digital design. We've been at it and we've been at the forefront of it for the past twelve years, so when I hear people telling me that, "oh yes, now we've got bim." Well guess what, we've been for at least 9 years now. We've always been on the forefront of making sure that in terms of digital technology we are on the edge. So we designed a home obviously with the implementation in mined with everything that mother nature has to offer with what that lot has to offer and so on and so forth. We present that to the clients and we make as many iterations as we need to. Fortunately, our team is talented. Normally we are able to guide the client to make the right decisions as we go and are able to limit those iterations before they get crazy or we get crazy. So we've learned a lot about that and we're proud to say that we have a very seamless process. So then you have the 3D full version I'll drive you through the home if you want you can put the helmet on and you can visualize your home. You can live it and if you want to buy that version and live with that one, that's okay with me. But we'd prefer you go through and go with the real home. And so then we'll be doing the estimate of what that thermal envelope is going to cost you. That's the pure proprietary system. It's the BONE Structure. It's the thermal envelope. It's the insulation. It's the doors and windows and that's basically what makes us totally different. Before you go into the kitchen counter, think of the conversation or plank floors or whatever outside finishes you want because that is whatever intentions are and you know as we say, everybody has some opinion about home decoration. But that is the most important thing because that is what will make you comfortable. This is where your home becomes a healthy environment, this is where it becomes durable, efficient, adaptable and so on and so forth. And then we go into let's look out there if we have not, have I identified them before which normally we did, we will present you to local builders that we have relationships with. If we don't, we will wit Michael Frank with the potential client look at what the community has to offer as the best builder out there that aligns with the philosophy that the client and BONE Structure have already figured out because a client that comes to BONE Structure has looked at different options and has realized as they were doing their due diligence that they were buying into a premium product. They were buying into what is the best to be offered out there. They know what they're getting into. Because it's simple to understand and it's logical and you know, sometimes one of the remarks we get from our potential clients that have just discovered us is why is it that everybody doesn't build this way? It's so obvious and I always like to say that our best clients are not the ones that know what they want. Because everybody comes in with a wish list. Anyone is and it will not be our best clients. They are the ones that know what they don't want. And you know what, I have yet to come to someone that wants to build a house that hasn't heard stories. Whether that's their own stories that they live through or stories they've heard from elsewhere, the whole project became a nightmare at one point or another. Either because of cost issues which in these days, it's a much more relevant issue and today it's exponential but because of delivery issues, because of sourcing issues, because of labor issues and so on. We're very different at BONE Structure we are still able to control the processes because it is part of it. Integrated design proposition, where the process is at the core of what we do, and that's what some of the big names have tried to do. Coming out from the cell phone industry or this industry, there's a lot of people coming from different trades: trying to bring in the outside processes. Well we've understood over the years and trust me, we've done our hits and misses too. We've done our trials and errors. Well, we've come to realize that the construction industry, the residential construction industry is a local market. I don't care how national your company is, at the end of the day it's a local market and this is where we at BONE Structure have worked with a 182 municipalities and townships so far in the US and in Canada. So we know how to deal with these groups and these municipalities, and our technology is accepted proven and tested and easy to understand because of all of its benefits. So we will choose a local builder with our client with Michael. We'll say, "Michael, this is the builder we would like you to meet. Or we will meet your builder with you and we figure out is this the best proposition." Because at the end of the day, what BONE Structure is really good at, and don't get me wrong, we're not picture perfect, my wife is perfect, but the rest of us are trying very hard, but the end game here is to mitigate the risk and this is what this industry is trying left, right, and center. Everybody's trying to come up with some different options. And from the 20 propositions that you have, and I congratulate you with your prefab podcast and the different interviews you've had with with the industry leaders and they all have good propositions. At the end of the day, everybody's trying to beat nature. They're trying to beat the process out of the human nature. We've looked at it from the human nature and adapted the process to help it out. So it's like the labor shortage in California seven years ago. The national homebuilders association has been, and don't quote me on the seven years, it may be 6 or 7 or 8 we should look at my files, but they said that 27% of builders could not find skilled carpenters. Same review two years ago that was before covid now imagine I should have to check it up, I think it was up to 85% of builders cannot find skilled carpenters. So, it's a major issue out there. This is why it's giving the prefab industry an edge but at the same time, the prefab industry has the same dilemma now they can't find labor to work in their manufacturing plants so they're trying to go industry 4.0 and push the envelope there, but that's capital intensive, as one of the companies you've mentioned. And again, you're trying to beat the process out of human nature. And what we're trying to do is to solve the issues and do it the opposite way. So we present you to the builders we have builders. We make the whole equation. We get the variables out of the equation to make it financially sound and to match your budget and match the timing and the planning that is necessary to realize your project.

So are you doing the procurement even though obviously you're doing the procurement of the framing stuff and it sounds like the windows, but of the non-shell stuff?

No, the non-shell stuff is that we will partner up with the builder and the client. But the builder, the local builder, which normally has his local resources and so on and so forth. We feel, and sure we're worthy, don't get me wrong, in a business sense we're leaving a lot of money behind, but we've understood that we need to do what we do best and we need to get the client's objective fulfilled and to do that, the best proposition is to be able to have everyone contribute with what they have in their toolbox. So that local builder has the ins and outs of what he can source and how and when. He's got his buddies and you can get those local materials and and so on and so forth and it's better for the planet, etc, etc. So tested and proven from Whistler, B.C. with enormous snow loads to Sonoma Valley to Hawaii, we've built in the Nordic climates and the eastern parts of Canada. We've realized that to respect some sort of a timeline to build a custom home that has a thousand decisions and idiosyncrasies and everybody has their own version of everything and anything. We monitor it but we give a lot to the local market.

That makes sense. So in terms of, let's use this Sonoma example because it's fairly flat which is one variable we can take out for the purpose of this example. One of the questions we constantly get from people and I know it's not always the easiest for answers around general cost, let's assume in this example, and by the way it's March 23, 2022, so if there's a a steel shortage tomorrow, more than there already is, you know that's not taken into account, but let's assume that you're building I don't know, a 2,500 square foot or 3,000 square foot house in Sonoma on a flattish piece of land. You know it's to your very high standards but like you know, not insane relative to a normal home you build. What would we be looking at from a cost standpoint and I think a lot of times the way that is helpful to listeners to break this down is sort of like what is the cost of your services from a soft cost and from a hard cost standpoint and then you know whether it's a range or specific costs on the rest of the house.

Michael, I'm so glad you asked this question. I'm sure that out of the 22 or 25 podcasts you've done, this is the question that people push back on. Let me give you my no-nonsense about that and this is one thing I have looked at the industry in the past and I've always come up with the same conclusion. Here's the question - how much does your car cost per wheel? So whether you have a tesla whether you have a BMW an Audi or whatever, you go into a showroom or if you go on any those of those websites and you go and ask how much does it cost per wheel? It would be an irrelevant comparison to what this industry has imposed as an index of cost which is the dollars per square foot which, if you want my no-nonsense about it and even if you don't want it, it doesn't make any logical sense but hey we've always done it this way. The reason is that if you can just imagine with me here and picture this, you have your beautiful lot. You've got this view of the grape vines and so on and so forth and we design a home and sure enough you want mother nature. You want the whole view. You want the whole spectrum. You want those beautiful openings and windows and so we design an eighteen feet ceiling on this beautiful, what you've described 2,300 or let's say 3,000 square foot home. Okay, but then I could show you something just as nice with a twelve feet ceiling

Right. A lot less glass.

Not just less glass. That's 30% less structure. 30% less insulation. So the dollars per square foot do not account for volume entry. It does not account for that. So to prove my point, I will come back to my own frustration when I initiated to build a house 20 years ago. It was already more than that where five builders came back to me with a delta of 72% or 77%. So what I'm telling you is, I  would dare you Michael to take one design and get its cost by every prefab company and every traditional builder you can get your hands on. And I will guarantee and I will have put money down on the bet that with the same specs and the same details you will not get 2 prices identical.

Yeah, I mean mean to be clear we don't usually do this with clients all the time but for what I'm describing for example, let's flip literally. Say you know.

But I know what your question is. Its give me an indication where your proposition is positioned in the marketplace. So we're definitely a premium product. There's no hiding behind that because you know of the glazing, people come to us because of our architectural design because of our large glazing and so on and so forth. So we're definitely a premium product and in the bay area, I mean right now, you can go Bingo and

Right, for $500 or $600 a square foot would be probably.

But then again, BONE Structure technology in its terminal envelope is in the vicinity of 30% of your whole budget. So the big responsibility falls on that 70% of oh geez I saw this new flooring or jeez, I saw this new bathub. It's on that bathub is now only 15 grand versus the nice 5,000 grand bath tub we had planned you see where I'm going. And that's what human nature is all about. So that's what I'm telling you. Where we differ is we accompany as best as we can our clients because it's a long-term relationship not only with them but with our own common baby which is the BONE Structure home they're building. And we know for granted that there's a fair chance that in give or take 70 years from now, that would mean that our clients are in their thirtys and they will have a life expectancy of over one hundred so it's safe to say that 70 years from now there will be new occupants to this home and they will definitely want to change the cosmetics and the opening positions and the inside walls and so on and so forth and for that I must say there's very few if just about no propositions out there. It's definitely very difficult with traditional building and even also a little bit cumbersome with what is defined as pure prefab or modular. So I think that's one of our biggest significant advantages.

That makes sense.

And then the price point. Yes, we are a premium product but at least one thing needs to be said and we've heard it from our clients and even the ones that were, "oh, geez that's more expensive," but you know 3, 4, 5 years down the road when we survey them, they will tell you it was worth every penny. Even more so if their neighbors went through a flood or a fire or some other mother nature catastrophe because one example I've had very recently from a client, the whole municipality was flooded. So everybody out there that had some sort of a traditional framing whether it was prefab modular or traditional framing, one common denominator - most of them needless to say, that you've got mildew. You've got something going bad and I don't care what they're trying to sell you to get rid of that, it will not because that's what mother nature has imposed in terms of characteristics to wood. It will just suck up anything. With a BONE Structure, what our clients did, they just tore out the whole basement, they hosed down, literally hosed down and rebuilt. They were up and running in thirty days as their neighbors are still playing with claims with the insurance companies and trying to figure out how to get out of that mess.

That's great. I had one or two questions about your product before we jump into our fire round. I guess one is that you mentioned cranes whether you need them or don't need them for your product; is that something that's necessary? Just because I honestly in Taho or Marin or you know parts of New York, like one of the places we have clients or people who we have conversations with all the time, have issues with just, "hey, I want to put this modular box here and I can't I can't get it down the road or I can't get the crane down the road." Is that something where there's more flexibility with your product.

Absolutely, it's one of our biggest and I'm not saying we will not use some sort of a boom truck or something like that if need be, but the whole thinking behind it is that you should be able to assemble a BONE Structure system without out any of those materials or any of those. And one thing you didn't mention which is unfortunate as we're all on the same planet and all the echo and movement is making more impact. It seems to try to make more impact in any form when you need to plant or bring in a crane. It's not only to get it there, it's just that they'll have to cut pretty much everything that's on your land in terms of trees to swing that module in place, with all due respect. We've built, I remember that we've built a house and I don't care if you've got a satellite but we've built a house about two miles into a wooded country area that no one in his own right mind would've thought even existed there because even if you would be able to go through the hunt and try to find it, it is so well camouflaged within the woods because we just about cut only the trees that were needed to get the structure assembled meaning the footprint, everything else we left there. So I don't know of any other technology that could have made that happen per se.

That's great, and the one other thing that I assume is also an advantage but we sort of counsel people when they're thinking about kind of kits and other systems versus modular, all the time. I assume your homes are probably financeable with kind of normal construction loans versus modular specific ones because the draw schedule is different, right?

Sure, absolutely. And not only that, you know, depending on the financial institution and so on, we've had some pushbacks like any other modular or prefab company out there in the past. But once we get to talk to them and get them to realize what the product is and the logic and the sequence of it and so on and so forth, very rarely over the years have we hit a hard no. But it's normal. You've got to sit in the chair of that person and in one of those institutions or financial institutions that are basically just filling out a form and they have to click on that yes or no, and they just don't know how to answer it and you help them and guide them and help that client go through that conversation. And like I said, we're very agile at making that happen. And back to your building flexibility, we've done quite a bit of infills.

Awesome.

Um, so like I said if you  imagine doing an infill in the bay area or in downtown Vancouver or downtown Toronto, it's not only that you cannot get big equipment there, it's just that you don't have room to park the damn equipment there. So it's it's more of bring your pieces this morning and assemble those and this is where we are the champions and in that matter even compared to traditional wood framing because even traditional wood framing will have some sort of an issue because they'll deliver bundles They won't deliver parts. If you see where I'm going.

And it'll be a longer build process probably. Okay, so this has been awesome to get a bit more of a sense of your company, of your story. If it's okay, I was hoping we try to give everyone a quick fire round and get to kind of general issues with the building process. I guess so we've actually heard this a number of times when we've been helping people in Hawaii, "oh, BONE Sructures has done a couple projects over there." Can you tell me a little bit about building in Hawaii?

We've done one project there. We did it because it was one of our clients and they were willing to go along and we were willing to go along with them. We're more concentrated and we're very focused on our dedicated markets: California obviously being one, now we're moving into Lake Taho, we're very much into Vermont, we're into New York state, and obviously we're definitely into British Columbia, and Canada, and Ontario, Toronto, and a little bit into the eastern parts in Quebec. But California is one of our biggest markets. This is where we're very dedicated because we're natural for it. We're natural for it whether it's for fire rebuild because of all the advantages we offer that. Whether it's because of energy efficiency, where you know we've been net-zero before they've been talking about net-zero. For us, it's a normal part of energy efficiency. It's not just another checkbox on our our wish list. We are in those markets also because clients like I said, there's more and more clients in California that know what they don't want than what they want. So we don't have to educate a client about energy efficiency and eco-friendly and all of that in California for all the good reasons and I don't have to lecture you on that at the same time. They definitely see the value proposition.

And they don't care how much money you have, a dollar spent into a home you want to make sure you get that value and it's not just about materials. It's to make sure that it's a healthy environment. It's adaptable and so on and so forth. So this is where the whole equation makes it the better proposition.

Next question. I know I've talked to a few people who I believe are developers who have built with you. We work with work with a lot of developers. Do you talk about how, if at all, that's different from a process standpoint?

For them, we're always you know, at one point, just to give you a little bit of background and show you how we're always looking for better ways of doing things, we at one point had offered only our products to our channel of selected builders. But at the same time we're shooting ourselves in the foot because we had so much demand and so many builders were basically wanting to come to work with this new technology and so we're very open minded. For the past five years, we've opened up the technology and we've basically aligned our processes to accompany those builders and their teams with the product. But again the product per se, the technology is helping those builders make a better business. What the builders are foreseeing right now is they have dedicated workers with them and sure enough because of covid or because John is now so capable that he bought his own pickup truck and he's now able to have his own clients. So builders, unfortunately the top builders out there, that are making the best homes, have the same labor issue as anyone out there. So with a technology that basically has the process built-in means that they can bring on someone to the team show them that this is a c bar from BONE Structure. Look, it goes here. Clip, clip, clip, you've got a thousand to do this morning Bob, go. And trust me these individuals coming onto our job sites get very excited because at the end of the day at the end of 1, 2, 3, 4 days they see what they've been working with and these immediate results. And they do not have to redo and that is one of the most underlying hidden costs from a builder's spreadsheet is the re-due line. This door was supposed to be here. We've redone it. We spent another 3 hours of carpentry. We had to bring in some more material. Let's remove this. Let's put this back. Because of the human nature of the clients, because of the human nature of the laborers, because people don't look at or read plans. That's human nature. So again, because of our integrated technology, integrated design into our technology, builders are facing labor shortages and with a technology like ours they do not need specific taining. They only need to line up holes with a bar and clip it. Even the logic about all of our hardware. We almost have only one screw available for the whole system. Not one, but almost 90% of the screws on that job site is the same screw. I dare you to go on a traditional job site and you'll see that you'll trip over boxes of different screws, different attachments, caulking tubes, and so on and so forth. The same goes with some other technology out there. So we're here again. We've turned the process around from human nature to technology. Not the technology imposing on human nature. As you are one of the consultants out there, I urge you to open up and broadcast that a BONE Structure is open to business with builders. Let's bring in their clients. Let's bring in their resources and let's let us help them give them the bones so they can do what they very do best: do the finishes and so on and so forth. Because the dilemma they have is that with a traditional construction, and you know this, they are as good as their last project. This new project is a totally new prototype for them, in traditional construction, every single home, even if it's a replicate becomes a new prototype with all its hidden costs and myths and hits and misses and labor shortages and not to say materials because I mean quality of the materials we're receiving in terms of the wood industry right now, man I wouldn't want to be there. I wouldn't want to be there. I mean I was talking to a builder who told me that the last job 40% of the structural wood he received be had to turn back which that's just diffifult. So it's all about predictability and where we help out the builders is to help them have their timelines more predictable and that is the biggest variable in the dollar equation right now. For a client or for an architect or for a builder or for a consultant like yourself is that no one has the crystal ball right now to fix a cost because of unpredictability on every front. We at BONE Structure mitigate the risk because we have a predictable system that enables us to assemble and then fill up with the cosmetics. Architecture design into a design and finishes and so on and so forth with what's available in a local market.

That's great Mark. Thank you so much for being willing to join us today. It's been really great learning about your journey and learning about BONE Structure for everyone listening, if you'd like to learn more you can visit BONE Structure at bonestructure.ca and to learn more.

That's capital BONE capital s for Structure BONEstructure.ca and I thank you Michael and I look forward to meeting you in person. Because you do have 206 bones and we someday will come back to shake hands. I guess someday, somehow and that will be fun. Yeah this version of covid you know.

Yeah, it would be great. Yeah, as as we start to come out of Covid seems like is happening. Alright, thanks again. Mark this was great talking to you and we'll hopefully talk again soon. Thanks

Thanks

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Hi, my name is Michael Frank and this is the Prefab Pod presented by Prefab Review where we interview leading people in companies in the prefab housing industry today. We're speaking with Joseph Tanney of Resolution: 4 Architecture also known as RES4, a firm based out of New York. Joseph, welcome.

Ah, nice to be here Michael. Thanks for having me.

Yeah, it's our pleasure, Joseph. To start, I know you literally wrote the book on modular housing but can you start and just tell me a little bit about your background and how you became involved in modular architecture?

Well, we started doing research into modular off-site construction in about 2002 right after 9/11 and I think I should back up. We started our practice in 1990 so there's a number of things that sort of led to this. And in the first ten years of our practice, we're a small office and we do, like many small offices in the city, interior renovations and we'd start off with kitchens and bathrooms and they'd grow to apartment renovations and grow a little bit more. And so we had this interest because the spaces are so limited in New York and the square footage is so expensive that we developed this sufficiency of trying to pack in as we can into every space.

We have a national audience, this is specifically for high rises in Manhattan and places like that, right?

Yeah, loft buildings, various high-rises, and different low-rise buildings. But yeah, a whole series of them here in the city, and we did a lot of interior renovations. So we really honed our craft in terms of built-ins. You know we would do a lot of cabinetry and build in a lot of the furniture and tables and millwork and everything because it would be limited space and it'd also be limited time in which you're allowed to actually build something in a co-op. And so we started to rely heavily on built-in cabinets because they were much more efficient. That way, we could build the majority of the project off-site and be a lot more efficient onsite. And we had done quite a bit of this the first 10 years. And then after 9/11, all of our work went on hold. And at that time, we had also just started working on a house upstate and began to realize how frustrating it was to actually find competent contractors outside of the city that had the same sense of urgency. In other words, when you build small spaces in New York the coordination in terms of what bits show up when so you're not having too many materials and things like that inside the apartment are going up in the elevator. So the logistics of the execution of actually putting something together needs to be heavily planned out. We found that working outside of the city with some of these residential GCs there was a lack of urgency. There was a lack of rigor. There was just a lack of intensity in terms of how you make something from nothing. We had a little extra time on our hands because all of our other projects had gone on hold; so we started looking. We started doing some research into off-site construction. You know it was sort of our preoccupation with cabinetry and off-the-shelf materials and long, linear loft spaces that we had been working on, that we felt this sort of kindred spirit with the limits imposed by modular. So that's how it started.

Our work was on hold and we had time, so we started looking into more and more things. Utilitarian nature, if you will, at the time. And in our research, we looked into and contacted as many factories as we could. And what we found was, you probably know this, within sort of this umbrella term everybody uses, “prefab”. There's the way we see it, there are basically 3 tiers: You know on one end of the spectrum you have HUD, you know it's sort of a glorified trailer. But it's a very affordable means for many Americans to have housing. It's low cost but a low opportunity to improve upon the design and on the other side of the spectrum, you have a kind of parts or panelized, if you will. And we've done several dozen of those projects as well. But the one we felt the most kindred spirit with was modular, right in the middle because of long linear limitations, very similar to a loft but the restrictions are very undefined. So you understand you're working within these limits, very similar to working within a loft, so it was a very natural extension of our practice to sort of use this as a limiting tool in design if that makes any sense.

Yeah, it totally makes sense, especially when you think about how row houses are in some ways structurally very similar to a bunch of modules, one on top of another.

They are. As are lofts. And we've done quite a few brownstone renovations as well. And ultimately, as our practice grew and our clients grew, and they began to sort of move outside of the city a few of our clients at that time were like, “man we just want to get out of the city. Wouldn't it be great if you just took that loft you did for us and just parked it out in the woods in New Jersey?” And so there were a number of things that sort of instigated our looking into our natural preoccupation with it. And then literally some clients you know brought it up as a joke.

But the more factories we were able to talk to, and we literally went around the country knocking on doors, you know, talking to whoever would listen to us, mostly modular factories. Especially back then they did not have a need for architecture, nor did they want to work with them.

Right, and I mean the economy of doing a one-off project is still a hard sell for some of them, right? Because they're like, name your mass-market company, wants to build 100 of the same type and you want to build one of these things that are whatever, 5,000 square feet

Well, that's what's interesting, is that the more factories that let us in the door, and the more we really understood how they operated, a lot of the higher-end mod, first of all, I just want to say that we were doing a lot of this in 2002. And what we found was that in the modular realm, at the time, there were, depending on how they classified themselves, say 100 to 200 modular factories in the country. And what we found, is that the majority both in quantity and quality, we found right in our backyard in Pennsylvania. And as you went further south and further west., that quantity and quality just began to vaporize. You get to Indiana and you have a lot of manufactured homes and at the time in California, I think there were maybe 5 and they were all manufactured homes. There was very little modular happening and the majority of it was concentrated in the Northeast. So that gave us the opportunity to visit a few more factories right here in our backyard. And we began to learn what their process is and what their limits are. And the better ones were very proud of themselves, they were not doing cookie cutters, they were doing custom homes, even if it just meant moving a wall or a window. So that allowed us to tap into that and say, “well we're doing the same thing. So we were working with them because we had done this research and we posted some concepts on our website and we immediately started getting hits in terms of people asking, “how do we get one?”

In the beginning, we posted it as an idea. As a concept just to see what we could do with this research and these ideas about working within the limits of the modular industry. So as you say a one-off, what we developed instead was a system which we could design and spit out, let's say, one-off by using the methods of mass production. In other words, this idea of mass customization came out in about the mid-'90s and the idea is that you can create a one-off of something specific using methods of mass production. So that's what we focused on as opposed to trying to design this year's model house to be sold. We focused instead on a process of design that would allow us to design site-specific modern homes for individual clients and various budgets in different locations.

Yeah, that's super cool and obviously sounds very innovative at the time. I've read a little bit about what you all did in terms of, I'll give a quick insufficient understanding of what I know, and then maybe you can elaborate more. So kind of the idea I think it's called modules of use, right? Which it seems like are kind of flexible components and sort of the core things to have in the house which I think is some of what you're alluding to in terms of your system of production. Do you think you can explain a little more about what you all figured out and developed and how you still use those today?

Well, the modules of use. Yes, the idea starts with the limits determined by the department of transportation on what you can ship down the highway. And that's basically 16 feet wide 11 feet high and 60 feet long, in general. It changes per county, and so it's within those limits that we started to look to see what, as you said, could we do within those limits. You know, what kind of house can we actually begin to design? And then we started to break these things down into their different components and we started to call them modules of use. Kitchens you know, communal modules, kitchen dining, and living. And private modules of bedrooms and bathrooms were just simple exercises of understanding the relationships and the scale of these pieces based on what you would actually need for cabinets and couches and chairs and bathtubs and showers and beds and closets and everything that you would need in these elements. They actually have to have whether it's a loft or a house, these are elements one needs to make it domestic. So we started focusing on those pieces and began to find these, we call them emerging patterns. Basically, there are a series of guidelines. And they base on cabinets and widths of corridors and various sorts of common denominators in terms of how one would lay out a domestic space. And so we thought of these contiguous relationships within the limits of each module. And when the program requirements would grow outside of the limits of a module we started looking at the various combinations of both two-dimensional and three-dimensional massing studies. And that's where we developed this idea and type. So we started with very small and grew up to an unlimited idea. And we took an unlimited idea and at the same time tried to break it down into its most essential components - the modules of use. They're conceptual building blocks. They're not physical building blocks of implementation. So we design with these limits in mind and the actual fabrication of the boxes varies relative to a whole series of other things.

That makes sense. So in terms of where your practice has evolved to today, obviously like I'm on your website right now, I see all sorts of beautiful single-family homes as well as a variety of a couple of other types of projects. Are you mostly doing single-family residences now or do you still do a variety of things?

Oh, we do a variety of things. But I think the majority of our work is single-family residences. We have on average about 15 to 20 projects going on at any time; half of those are usually modular, the other half is often split between site-built homes and apartment renovations/loft renovations or you know we're doing right now a couple of mid-century modern renovations up in West Chester. We're doing 3 site-built homes with prefabricated components down in Florida. So we do a wide range of things. And again we're architects so we're a little bit different in this space of prefab in that we don't sell any boxes or modules, we design what we think is the best bang for the buck and identify the appropriate fulfillment partners.

Right.

So we can deliver the highest value proposition possible and a prefab isn't necessarily it every time. That's a really important thing to note.

Yeah, So we find that out, not all the time but sometimes, and I'd say the not the biggest reason we usually find out and let's treat modular a little differently than panelized. But that modular doesn't work for some people because the access needed ends up being prohibitive or complicated, especially we've done a bunch of projects on the west coast, at least in like Tahoe and in Marin and places where it could be kind of tricky getting you know, 40 foot long modules in. Is that the key reason that you end up moving towards site builds in those situations, or are there other ones?

Yeah, access is key. That's absolutely one of the limits of modular construction. There are some other things in terms of if you really want to leverage the modern methodology of delivery. You need to be sure you're working within those lines. It's not only your cranes and telephone wires and hills and the size of boxes. But also in terms of products, it's really important to understand the reason why modular is so effective is because the implementation is so efficient. And the reason why the implementation can be so efficient is when everything is fully coordinated and it's not just about the box. It's also about the setting of the box The finishing of the box. The performance of the box. So, there are a lot of other things that come into play to determine if what we're going to do is modular, panelized, hybrid, or a site-built home. A lot of it also has to do with not only the location but the client's access to particular contractors in that location. A number of things have an impact on it.

That makes sense. Can you talk about the process of someone working with you? Oftentimes people who come to our site are trying to figure out whether they should work with an architect, whether they should work with a design-build firm, whether they should, you know, work with a non-custom plan etc. But we don't have to talk about those options, at least in your case. How does it start in terms of your interaction? So once a client signs up and let's just say you deem it to be feasible, is a site visit next? Yeah, what are the steps?

Well, there's a variety of things that happen. We first do due diligence on the site. We have a meeting of the minds even before we get signed up. We go through an understanding of what the program is, what the process is, what their budget is, the realities of that budget on this particular site. So we have quite a dialogue and interaction with the client even before we put together a proposal to get signed up. And so one of the first things after we understand we're in the realm of possibility here, then we start doing due diligence on the site in terms of zoning, what are the setbacks? What are the limitations of lot coverage, pyramid rule, etc? And we go through the process, the same as we would when we site build, in terms of identifying all the constraints and then using our discretion and those have to do also with what the client’s needs and their budgets and their expectations are. So a lot of that has an impact. So there's a lot of discussions of what's possible and we start very generally and we get incredibly specific. The overall process typically is 4 phases of four months each. So the first phase, we spend a lot of time with the client designing their home, specifying everything down to you know, every toilet paper holder, towel bar. We know every outlet, every dimmer, every window that opens, we know towel hooks, they take off their shoes, where are you going to charge your phone at night? How many kids, how many friends? We go through an extensive process of just developing a program together. And then the process begins like any other process through sketches and then models and by the end of that first phase, we have a complete set of documents that we send to the factory for pricing. 

And when we get pricing back from the factory and it's in line with our expectations we start into phase 2 where we spend a lot of time then with the factory and the engineers. And we go through the coordination of systems built approval because as you know, even though the boxes and they get built in a factory, the inspections are done in the factory for state approvals and it varies and while that's happening we're also putting together a bid set of drawings. For a GC we find 3 to 5 local guys. We vet them and we meet them. We talk through it with them to see if they're actually capable. Will you outbid?

So one question, so are you getting bids from the factory before having full construction of the modules? Is that what you're saying? So you sort of get module costs first and then you do full engineering and then you get local costs?

Oh yeah, we do a full set of factory drawings first to make sure we know what the costs are coming out of the factory and the numbers are based on our experience. Yeah, because of the process, so that's the other thing when it's absolutely a process and so there are many things happening at the same time and that's what allows for quite a bit of the efficiency.

That makes sense. Okay, so then you get multiple bids and you hire your local GC.

Yeah, we create a little matrix and level them so we pick the right guy at the right time for the right price for the right job. It's really important, the fulfillment partner is really key, so you can make great boxes. 

Do they have to have experience with modular?

For most people that have experience with modular, their expectations aren't as high as ours. So we like to find 3 to 5 local people who live in the area. Their kids are going to go to the same school, they're going to shop in the same grocery store. So if you bump into them on the street and we want them to hold their head up high and be proud and not run away. It's definitely a vetting process to find the right fulfillment partner. And it's important. We control the whole process.

And you're doing the set and the install, they're not doing that right? You're doing that or you're working with some specialized contractor for that?

The only way this stuff works is because everybody understands the bits and pieces that need to be coordinated and related. If it's not a fully integrated process, modular construction's a nightmare. If it's fully coordinated from the first idea all the way through moving it's really quite amazing. It's really a special thing. It's easier in a sense to site-build something if you just make decisions. You know as you go along because there are all kinds of opportunities for delay. When you build something in the factory, everything needs to be completely specified. But more importantly, thought out, because it takes more time you know, crossing the t's and dotting the i's than it actually takes to actually build the boxes. There's an excessive amount of planning and coordination that goes into it in advance. And that's happening during phase two. So at the end of phase 2, we have everybody lined up. We have our local permits, our state permits, we've administered a contract between the client and the GC and the GC and the factory and the factory gets a deposit from the GC who gets it from the client, again administered by our process. And that kicks off phase three which starts with the procurement of all the materials, ordering everything. And it takes maybe 8 to 12 months over the last year, that's sort of had a big hiccup in it. And while that's happening the GC is digging a hole and putting in the foundation, utility, septic, well, you know, grading it, preparing the site for the boxes. The boxes go online. They might take 2 to 4 weeks depending and maybe another week in the yard. But you know phase 3 is typically again four months and at the end of phase 3, the boxes are done in the factory. They're shipped to the site overnight. And with a big crane, it usually takes them a day to set and that kicks off phase four, which is the onsite completion and throughout all of these, we're going to the factory. We're going to the site. We have weekly meetings with the GC we create minutes and photographs and follow it all the way through and sign off on all the cost requisitions from the GC to the client so that we're the client's agent. We're the one that coordinates everybody and pulls that all together to be sure it ends up looking like we expect it to.

That makes sense. Again your houses are really beautiful, world-class-looking houses. The next question is of course the cost question. So it looks like you've done a lot of houses, you can pick. We've also done a bunch of projects in sort of the Hamptons or in Upstate New York. You can pick whatever geo you want and let's assume a flat-ish non-insane site because I know that can add a lot of costs. But let's say you were building a house. You get to pick your typical size. Whatever, a couple of thousand square feet or whatever. How much do does the house and the full project end up costing outside of land, if you kind of broke down those components?

Well again, it varies, every project's different, but let's say you're a client and you're calling up and you're asking me this question I'd say, everybody wants to know how much it's going to cost and how long it's going to take.

True.

And architects always have an incredibly difficult time with that because, hey, you don't know what you're going to build. You don't know what it's going to look like when you first start. So the whole idea of prefab sort of alleviates a lot of that anxiety, but we're still sort of creating something from nothing. And at the end of the day, it's always about the cost. It's the biggest anxiety - time and money. But the first one is always money, in our experience. We recommend people, and again, this has changed over the last three months and over the last year and three years, so I'll try to give it some context. Through 2020 we'd recommend budgeting on average, say $500 a square foot. You know they were really about $450 - $550 but $500 a square foot approximately. Half of that, $250 a square foot are the boxes completed about 80% in the factory and shipped to the site; the other half of that about $250 a foot is for the GC in terms of digging a whole foundation, making all the connections, the siding, the flooring, the appliances, the finish painting, so that's where the house is. So say if it's 2,000 square feet that'd be a million dollars. Now in addition to that…

Right. Does that count that on soft cost? Sorry, that's where you're getting to.

Yeah, no it doesn't. And so it's soft cost for mechanical and structural engineering in the boxes. It is not a soft cost for architects, we charge 15% of the construction cost. Additional construction costs are say exterior terraces or decks or porches depending on where we are and what we're doing. We'll budget those from you know, $50 - $100 a foot. If we're doing any garages we might budget those in around you know, $200 - $250 a foot. You know, pools are $100,000. Finished basements vary depending on what we're putting down there. So we have a range of costs per square foot. For screen porches, breezeways, all the bits and pieces you'll see on our website, and we have those because we've been able to do similar things over time and we sort of having this data now about the costs and what they are. And that's why I can sit here and say well in 202, you know $500 a foot was pretty good and we were building stuff. And then in 2021 the number started coming out of the factory as opposed to between $225 and $275 averaging $250 they started going from $250 to $300 a foot averaging about $275.

Yeah, yeah.

And in the last three months alone, the numbers are coming in between the last three to 5 projects between $275  and $325, averaging about $300 a square foot coming out of the factory. So this is a really recent thing that's literally just happened since the end of December and there are a number of reasons why. I think everyone's experiencing it.

We're seeing the same across the board. Labor plus supply chain and I said we're seeing the same thing across the board.

Everybody is everywhere. And part of it now is just being able to actually get some of these things. So there are certain issues with windows right now. In the beginning, there were certain issues with rigid insulation. So what's happening is that's having an impact on the schedule because like I said, all of the materials are procured before it goes online. So there isn't a box sort of sitting half-built going down the line. So it's important to understand when all of those bits and pieces are coming in. So it's bumped a couple of our projects right now, some of the window lines by months, so we're in the middle of dealing with that. As is everybody else, right now.

Yeah, we've seen windows specifically being the slowest, especially any kind of custom. You know, very specific specs. And basically, we're telling everyone we work with, “the second you're getting financing with a modular, make sure those are procured as early as possible,” because that specifically we've seen hold up projects. So moving on, last question about RES4. If there's maybe a specific project on your site,  so people can then reference it when they listen to this, that you're really proud of, or wanted to maybe tell us the story. Is there one you'd be willing to walk through?

Without looking at the images myself, probably not. I mean that's like trying to tell which is your favorite child. It's a very difficult thing. I mean the most interesting thing is whatever I happen to be working on, right? Then at the moment, and like I said, we have you know 10 to 20 projects happening at the same time. So it's exhilarating. It's very rewarding. It's a lot of fun. I will mention that we just started on a project - a lake up in New Hampshire. The constraints are very tight and our building envelope is 142’ x 13’ wide. It's a very long lakehouse.

Yeah, that's pretty cool.  A lot of surface area for windows. Interesting.

And so that's been an interesting challenge. It's very cool. So that just happens to be one. We're also replacing a beach bungalow in Belmar, New Jersey right now with a modular in a very modest neighborhood. So we're doing a number, you know you get me started talking about it and I can't stop. We're doing an incredible one up on the Hudson River. We're doing several in the Hudson Valley. So they're all interesting. We're very fortunate. They're all a lot of fun with great clients and we have super talented employees. So it's a total blast.

Yeah, it sounds like you're doing a lot of waterfront homes. That's awesome.

And are there specific factories you work with over and over? I think I saw I don't remember if it was your Instagram or theirs, I saw some of your boxes in the Simplex Factory in Pennsylvania. Do work with them a lot or do you work with other factories a lot?

We've worked with Simplex. They've built quite a few of our houses. I don't know if I mentioned it, we've built modular panelized hybrids from Maine to Hawaii using quite a range of fulfillment partners. And depending on where we build, we'll work with different factories. But yeah, simplex is one of them that we've built many homes with. And it depends also on where the location is because as you know, not all factories are licensed in all states. So it depends on where we're building.

Got it. Okay, this has been great to learn a bunch about your firm and your background. We try to take advantage of whoever we have on the podcast to get them to answer a few fire-round questions so we can tap into their expertise. Assuming you're willing to do it, do your best to answer each of these questions in a minute or less but we won't be too much of a stickler. Can you talk a little bit, obviously you've built a number of houses in the Hamptons area or in different kinds of beach and oceanside areas. Is there anything special you do for those with respect to elements or anything else?

Yeah, the ones on the water you're saying, the ones on the beach? Well, often a number of things. Anything with the salt air, you have to be very careful about everything you specify because it degrades incredibly quickly. Another thing that happens when you build on the sand is making sure, the foundations vary greatly because sometimes you can use a standard poured concrete foundation which is most feasible but a lot of times when the soils aren't stable you need to do piles or castings or a lot of times they'll drive you piers in and do concrete grade beams and then steel frames on top of it. So depending on the situation, foundations change a lot. That's one aspect of it and the other is the rust, you know stain less doesn't mean it doesn't stain it means it stains less.

Got it. So you just have to expect more maintenance and all that stuff?

And you’ve got to be smart about or at least attempt to specify light fixtures and sighting and as best you can, given that often when you're working on the ocean the local contractors are aware of those things. So you can learn a lot from the local GC about any lessons they've learned as well. We try to learn as much as we can from every GC on every project. We do no matter where we are.

That makes sense. Another thing we noticed is that you've obviously, as we said, built some homes in premium locations. One of the things we've had a mixed bag with is oftentimes in those locations you end up having to go through an HOA to build in those places. I'm not sure if that's an experience you've had. But if you have, which I'm guessing you have, do you have any tips for navigating that process?

Well an HOA isn't as difficult as some of the other environmental issues. You need to go through and get approvals but it's the same way. We're just hitting the local codes and zoning. It is first understanding what those constraints are. So with the HOA you find out what you can and cannot do and there's typically something written and even these days it's often posted on a website. But sometimes these things aren't explicit and so there needs to be some due diligence done to see what you can and cannot do - whether it's a slope of a roof or the exterior materials or there's a lot of communities that say you're not allowed to build a manufactured home. So whenever we've had to address that we've often just sort of presented it and had a discussion with the community board and say, “this is what we're doing. This is how we're doing it. This is why we're gonna build it in a factory. Why? Because we're gonna be on-site less. We're gonna disturb the neighbors less.” And so we've worked in a few areas where we've been able to flip it. The reason why they didn't want any prefab is because they all think they're ugly trailers right? But when you show them that's not what this is when you show them that this is something other, and we're using this technology for something that's greener and quicker and more cost-effective, then we typically get a unanimous buy-in.

Yeah, that makes sense. We have a standard deck for almost exactly this reason, kind of explaining there will be people you can't hear building the home versus your neighbors in your neighbor's lot or at least less of that.

Yeah, there's still a lot of noise but there's less of it. Yes, exactly exactly.

Maybe it'll last for a shorter period of time. Then the last question we get, this is actually more for sort of urban infill, we get a lot of people who want to build rooftop decks as a part of their modules. Especially in the Los Angeles area because someone wants to put an ADU in and they're like, “you know, I would love the extra bedroom or 2, or the chance to whatever, have my mother-in-law stay with us. But I don't want to give up the outdoor space in our relatively small yard.” We’ve actually seen a lot of resistance to this from certain modular and prefab builders. But I noticed that you've done it at least a number of times for some of the homes on your site. Are there any keys to kind of making that work just because again, it's something that we've seen pushback from in the past.

Yeah, well we design it. You know we don't ask them to do it. We show them how to do it. So a lot of the things when we started this, we got a lot of pushback as well and it took us time to gain the trust and confidence of the factories. And once we did that and they saw that we were working with them as opposed to trying to tell them what to do they opened up and listened to us and started to then embrace a number of the flash and bat system, the zip sighting, the open web joys, the high-velocity systems. You know, the custom ac slots, they were more open to working with us. So then we were able to provide the details and show them how this would work and they would continue to frame hammer nails and stuff like that. And after we were able to show them how that works several times than it really opened up the floodgates of how far they're willing to Bend. So we're not relying on them to figure it out. We're relying on them to execute it based on what they do best. And that's a really important thing for architects to learn. It's important to leverage your fulfillment partner for what they're able to do as opposed to expecting them to do something they've never done before especially when it's done in a factory. So most fulfillment partners aren't there to sort of figure stuff out. They're basically there to execute. So it's an important thing to know and if they don't typically do that, then it sometimes can take longer and be more difficult.

Sounds good. Okay, so this has all been awesome. You certainly pass the fire around. So the final question, we ask this to everyone. What are you most excited about for your company or for the industry in the near future?

Well, we're in a very interesting situation which could be said of any generation. But the one we find ourselves in right now is we're lacking housing. There's an extreme lack of housing, much less “affordable housing”. And I think with this new and continued interest in prefabrication as you very well know, it's not a new thing. It's been around for a long time and it's always the sort of rebirth of prefab. But what's encouraging is that there's still traction even with some of the big boys going down like Blue homes and Tira and others. There's still traction and there's still interest and people are still pursuing it so what I find exciting is that there's still this incredible energy about it.

Yeah.

And it's more than just architects that are interested and there are developers and VCs and there's interest bubbling which is fantastic. And everybody's getting into the space and while at the same time we need freaking housing, I think there's going to be a great opportunity and we've yet to tap into it because I think the efficiency of building off-site has yet to truly get in sync. And so I have great expectations. I have had them for the last twenty years but I will continue to have them. I think there's a lot of opportunities. I think there's sort of a perfect storm happening in terms of sustainability and efficiency. You know, I think there's no reason why we can't do large-scale, low-rise high density that are energy producers. In other words, a lot of our houses, a majority of all of our houses now have solar panels and geothermal co-generational systems and about ten years ago it with we started with about 6 houses, I think, that actually generated more power than they consumed. In fact, we did one that was completely off the grid but that gave us this sort of feeling. We're excited that this technology is becoming more available. In fact, we just put tesla shingles on a mid-century renovation. We've had clients that have been talking about them for years and years. But this is the first product we're actually and project. we're actually able to get a hold of them. So I'm excited. There's a lot of new things happening. There's a lot of momentum behind this and hopefully, we're gonna hit this tipping point soon of off-site construction low-rise high density and power generating housing. So we're producing and not consuming. I also think there's an opportunity to build fulfillment partners - meaning factories and train people. In other words, I believe we could set up factories around the country, building locally. Just in their particular areas as opposed to trying to design the house that's going to house everybody. But there's a way in which outside of every major metropolitan area we could probably develop a franchise if you will and a network of fabrication and training people in these factories to be plumbers and to be electricians and carpenters and cabinet makers that then could go off and have their own companies, sort of being part of the maintenance of ongoing homes that we need because everything's falling apart. Not only are we short 4,000,000,000 housing units, the ones that exist are shit. So there's a big opportunity. That's all I'm excited about.

Yeah, that's definitely a very big opportunity and thank you for doing your part. We'll keep watching you and Resolution: 4 Architecture. For more information about Joseph and RES4 visit www.re4a.com and as always you can visit us anytime at prefabreview.com. Thanks again. Joseph.

Thanks, Michael.

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Hi, my name is Michael Frank and this is The Prefab Pod presented by Prefab Review where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Alexander Kolbe of evoDOMUS, an architecture firm located in the middle of the country. But that builds beautiful modular homes around the country and the world. Alex, thanks for being with us.

Well, thanks for having me. Yeah, let me just quickly jump in and correct you on one detail. We're not an architecture firm per se, we're a design-build company. We design our own homes. I can explain that more in detail if you want, with of course a background in architecture. But yeah, we're not an architecture firm.

Perfect. Okay, that is an important place to start. So I guess why don't we with your background and to start can you just tell me a little bit about how and why you started evoDOMUS

Sure. So by training I'm an architect. I had an architecture firm in Germany for 12 years or so and then fate happened and we moved to England. I continued my architecture career in England for 5 years and I'm still to this day a licensed architect and member of the Royal Institute of British Architects in England. Well what happened is in 2009 after the Lehman Crisis basically wiped out our existence in England, we decided, my wife is from Ohio, so we decided to go to Ohio and be closer to her family. We came over here in 2009 and that was a tough phase for us. It's not a good feeling to just lose your existence in a country and then move in your mid-late 40s to the United States and start all over.

Yeah, were you working in banking?

I had an architecture firm in England. Sorry for confusion.

Ah, yeah I was a little confused because you said you said you were an architect by training but the banking crisis made England not doable from a living standpoint?

Yes, because England at that point had a very overheated speculation bubble in residential homes and when this happened and people lost a lot of money in stocks and stuff, everything came to a screeching halt.

I see. So there was no new construction happening on the residential side?

It was for us. We were on high alert. We thought this was going to last a while so we didn't want to just wait and lose our life savings and not move.

Yeah, that makes sense. Okay, now I understand the connection.

So we came here in 2009 and didn't really know what to do. I have been working in Germany and in England. And the whole time with two German high-end prefab home manufacturers. One is Huf Haus and the other one is Baufritz. And so I've probably designed around 200 homes for Huf Haus and a dozen or two for Baufritz in England. And so this kind of shaped us a little bit. We were really into sustainable design and into modern homes. I mean I grew up studying and living in Berlin close to Bauhaus. This whole philosophy was kind of ingrained in my DNA. So when we came here we wanted to actually continue doing what we did successfully in Germany and England. But, we didn't really know how because for me, it was next to impossible to get licensed as an architect and I felt I was too old to go back to do an internship at an architecture firm and go through. So I said, “no, I’m not doing that.” So then we reached out to our German guys and said hey Huf Haus would you be open to building your beautiful homes here in the US? I can see a market here and so that's how we started.

How interesting!

Yeah, and we actually built 2 homes, one near Seattle and 1 in Pennsylvania. But it quickly turned out to be a mind-blowingly expensive endeavor to ship an entire house to the US.

Oh so you were like modularizing or flat packing them and then putting it on a boat?

Yeah people call it flatpack, I call it panelized. And they ship panels sitting side by side in a container and then shipped it over and then the whole crew came over from Germany.

Yeah, that's expensive.

I was here. I got the third party approvals. I worked for months and months to get this all approved and get the visa for the workers and stuff like that. So that was a daunting task and after two homes, we decided this is not gonna fly and also the prices were just so crazy. We couldn't do it. And then we had another reset and thought, okay so I guess we got to do this here stateside because this is what we wanted to do. We wanted to build modern, beautiful, green, sustainable, healthy homes.

And so we started from nothing. Michelle, my wife, and I sat here in our little home in Cleveland Heights and thought about our future and decided it really was a bold step for us to start a prefab business in the United States out of nothing. And so we had a lot of good ideas. We had of course given our past, we had a lot of knowledge in how things should be done but we didn't have any connections. We didn't know anyone but luckily we found Bensonwood. And you guys know Bensonwood. And we worked with them. Yeah, and we built our very first home in Connecticut with Bensonwood. 

But then we quickly learned that as much as I really like Bensonwood and the team, it was a great experience, but it was just too unpredictable for us because they only do the exterior wall panels and yeah, so no wiring, no plumbing. Nothing. 

Right? Because they only do the panelized shell of the house, right?

Yep. So that left too much open for local contractor pricing that we couldn't predict. So we felt we would slowly price ourselves out of the market and then we kind of grouped and decided we needed to do modular.

Yep. Have you done modular in Europe before? Or because was it all panelized?

No. Modular is actually quite uncommon in Europe. They do room wells - they do like bathrooms and stuff like that. But the whole concept of modular construction is very unpopular in Germany. It probably also has to do with space. The roads are not as wide and it's just those oversized loads can be a challenge. So we switched our whole concept. That was still a moving target at that point, but we decided okay.

Yeah makes sense.

But modular is probably the way to go. And over the years we established a really great, trustworthy relationship with a modular manufacturer here nearby; and we do now we do every single home with them.

Oh really? Can you say what factory it is?

It's Structural Modulars and they they have been extremely accommodating. They went through a learning experience themselves. We reached out to quite a few modular companies and we very often heard, “yeah, interesting. but no, we don't want to deviate from our standards.” And we had much higher expectations which meant deviation on basically every step of the way. And so yeah, that kind of filtered it down and we ended up working with SMI because they were open-minded. They even sent their workers on certain trainings because we require certain technology in the homes that they weren't accustomed to. So they did their very best to make everything work and that has been a really great work relationship.

That's great. So I actually didn't realize that. I mean we know them a little bit. I think they're in Pennsylvania, right?

They're near Clarion which is also a great advantage for us because it's just a 2 hour drive. So when we have a house on the line being built, we can just go there twice or three times a week and just check and supervise.

Right. That makes sense.

Because every mistake, you know we're all humans we make mistakes, and every mistake we can catch in the factory is good.

Yeah, right? So you don't ship something two thousand miles and then have a change order or something. Yeah, so does that mean because I think that most of the homes that you're doing are kind of East Coast, does that mean you just ship from there to the coast?

So yeah, this is really interesting. When we started, we had no idea how this business would evolve and where we would end up building. It's really interesting. We came into this high-end sector not because we wanted to, it was basically the market that requested that from us. And I can't hide my German accent, of course so people hear me talk and think, “Oh German engineering, great. I want that.” And so people just expect certain things that you can't have with every other modular manufacturer. For example, we import triple glazed windows from Germany with this as our standard. We only use German windows, the nice tri-turn windows and the big sliding doors and they have great performance values. They can do much larger glass panes than most American companies. It's also very interesting how people find us mostly through research. So we deal with a very educated clientele and then these people reach out to us from Colorado, from California, primarily from the East Coast luckily because that's easier for us to handle. But we have built a home in Vail, which is a logistical challenge. But at the same time because of the cost of construction. Yeah, it was fun. We had some fun projects building on Matrth’s Vineyard which was also something to write home about.

Yeah, I was gonna say when you were talking about shipping stuff from Europe, we have yet to do, I don't think we've done a full project on Hawaii yet where we ship the stuff. But we've certainly priced it in. Yeah, usually it adds, like just shipping adds like $50 a square foot or something like that.

Yeah, yeah, I mean the shipping to Colorado was really expensive. But the interesting thing is that the local cost of building is so expensive that our pricing plus shipping would still beat the local market. So that's how this kind of developed. Of course, sometimes people call and they want a smaller home and are downsizing. They want a fifteen hundred or eighteen hundred square foot home.

In those areas we just can't do that because the cost of shipping would kind of eliminate every advantage that we might have. So yeah, so we can only do the larger, more luxurious homes in those areas.

And yeah, luckily we get a lot of inquiries from the East Coast. So we we're currently working on projects in North Carolina near Asheville. We have a project, actually 2 projects, in Long island, in the Hamptons. We've done projects in Connecticut, in and around Philadelphia, and we have a couple projects also nearby. We've done a house here in Cleveland and we have one on the drawing board here also in the Cleveland area.

It has to do with the pricing of property in general. So you know our homes cost, they're not cheap. They cost something between $350 - $600  a square foot depending on those specifications. The size. The complexity of the design. The structural issues, the kitchen the cabinetry, everything plays a role. And since our homes are completely custom we have a pretty far range and we work with our clients to get that to a level they feel comfortable with but we also are very upfront with our pricing information. We have it on the website. We tell everybody this is what you have to expect and luckily there's a few people who.

Yeah, a lot of this is so local. Like I'm sure $600 per square foot and like Cleveland Heights is really expensive, but honestly for your quality of home if you could do that in the bay area right now or outside LA  that would be like.

That would be, yeah that would be very attractive now. You hit the nail on the head there. So a $600/sqft  foot home in Cleveland would probably not fly because of just the value of property and why? You can buy a beautiful 6,000 square foot home, one hundred years old with two acres of land for under a million dollars. So that's when people start thinking about what can I justify as an investment? But there are also people who say, “I don't care. This is my home. I'm going to spend this. I want to enjoy this and I don't think about resale value. And then of course I’ve got to say $600 in Cleveland would be a long shot because the labor rates are cheaper here. Transportation is short. So here, we're looking more at $400 - $450 a square foot.

That makes sense. So I mean, your houses are quite striking. And they definitely, at least from what I've seen on the website, certainly have a scale to them which is impressive but otherwise it seems like there's actually quite a lot of variety in the aesthetics. It's not like, I'd say like there are some companies that, like Turkel Design is another really great architecture firm and their houses have a very sort of common sensibility, whereas yours actually have quite a lot of diversity. Can you talk a little bit about your design sensibility? How you go about it and how that's determined on a house-by-house basis.

Because of our architectural background of course, we love designing. That's my purpose in life. I love designing homes and for us this is what we do and we are very convinced that what we do is the right thing to do but we primarily just love designing. And every home we do is a completely custom design. We literally start from a hand sketch. Of course we have established certain rules for ourselves, certain guidelines that you have to adhere to in order to make it modular. But we really start with a hand sketch and then develop it from there to a 3D model in our computer system and then we can walk our clients through. So we can do a Zoom call or meet in person depending on the distance and we can walk the client through the house, show them everything inside and outside and show them the lot we built even the land around it in 3D. This is a really great process where we get to a point where the client can really see his unbuilt home in front of him and really get excited. And then we massage the design. We toss the ball back and forth. Really like working with an architecture firm. But like I said we are not but we are 

I feel like that's a technical thing, in terms of like, you can't stamp it as an architect versus like you're actually doing stuff that's tactically different. It sounds like.

It's tough because I am an architect somewhere. That's not correct here and people hear me talk and they know, “oh yeah, the guy knows what he's talking about.” 

So yeah,  just your stamp doesn't work in this country or whatever.

That is really important to us. We design based on the client's wish list. They give us a room program or sometimes some clients feel overwhelmed by the thought of building their own home and we take them by the hand and say, “listen we’ll guide you through this. We’ll ask you questions, don't worry about it. We work with you. Develop something where we can show you the 3D model.” And what's also important, I tink what most architecture firms cannot do, is we always keep track of the cost because for us, it is crucial because we don't work for fees. We sell a whole house and we can only make money when we reach a point where the client A, loves the design and B, is comfortable with the budget.

Yeah, so let's talk about that. I know what this is like with a lot of companies but I want to just go through like, let's say I come in and I want to work with you all on building a home. Can you walk me through the steps. Is the first step that I sign a design agreement with you? 

Yeah, almost. The step 0 is that we have a free consultation. So we talk to the client at length. Sometimes we do several Zoom calls before the client signs up and then we have an initial design deposit that we charge something between $15,000 and $25,000 and that includes a site visit. So we go out wherever they are to visit them. Yeah yes, exactly so we.

I see. So you fly out or whatever and you visit the site you walk it?

It entails a lot of traveling but it's part of our business. So we travel out. 

Does feasibility come before this? Or is this a part of this initial thing?

What I do when I have my first conversations, I test the client and I tell them what the expected costs are because I need to know if this is feasible for the client or not because if not then we're wasting our time. So we tried to kind of take that out a little bit and when we feel like this is a match then we go out and visit them and look at the site. Oh I know what you mean? Sorry I misunderstood a bit.

Okay, but so site feasibility comes, because  one of the issues we've had, for example recently, is homes in Marin County have a hard time getting a crane in to do the module.

We inform the clients what the requirements are in terms of accessibility. Oftentimes I tell them, “okay, show me where the site is.” I go on Google earth or Google Maps and just do the street view and check it out and see if I can add something and oftentimes please.

Yeah, great. Right? Go to Google earth and make sure the roads are fine.

Yeah, and oftentimes we send our logistics crew out and say, “hey guys, go to that site and let us know if can you can you get a 200 ton crane there or not.” And so that works pretty well and then really where it starts to is when we do the site visit and physically meet the client there.

And we get a feeling for the locality, for the atmosphere, The views orientation, topography, neighbors, where's the view? Where's the wind? Where's the sun? All these things play a major role in designing a home. Yeah, and then we gather as much information as the client can supply and then we start with the design, that famous hand sketch and I have to admit sometimes I get so excited about a design that I go from hand sketch straight to 3D in the computer without even telling the client and then show them.

How I open is, “please, this is just a sketch. I just felt it was so great I wanted to do it in 3D.” But yeah, once we have that we have an agreement on the design. We still don't have all the specifications at that point but we have a very streamlined process. We use a project management tool for the estimating and then Michelle, my wife, goes in and she actually spends a couple weeks doing a line item by line breakdown of the entire house. Not only our portion of the work.

Great.

There's also a significant portion that needs to be done by the client's local contractor for the site preparation, utilities, foundations, and then the finishing touches after the house is assembled. So we provide that in a long list of sometimes a hundred pages or more. All these line items and we work with allowances, so we put in a reasonable number for one of our beautiful German kitchens or American or Italian, whatever you want. There's no limitation if the client says no, I want a designer kitchen or no brand names here. 

That makes sense. And so they essentially, sorry this is getting a little in the weeds, but from an agreement standpoint, they sign what looks like a production agreement with you and then they sign a different agreement with the general contractor for this work?

Well yeah. Yes, so the client has to sign 2 contracts. We help them to gauge the local contractors and check their references and oftentimes they have someone already. And you know the client who is interested in a modular home usually knows already a little bit about the whole process. So they're not surprised when they hear you need a local contractor.

Yeah, it makes sense. They probably read our site. From a sort of stylistic inspiration, you ask people for mood boards. Do you ask them what they like? How do you decide that?

Yeah, usually we make suggestions. We encourage them, if you client if you have a certain picture collection or you know your loves and hates or whatever it is. Some people go to online portals and have images there. And they share these with us or they just point at stuff on our Instagram or our website and say, “I like this, can we develop something in that direction that works. And oftentimes it's also kind of funny then, people have a certain budget and let's call it tight. I mean it sounds arrogant if you talk about a tight budget at $400 a square foot, but sometimes people show me designs that cost like $5,000,000 - $7,000,000 and this is what I like. Well yeah, not quite in your budget. So we kind of work with them and try to get it to a level that works for them because like I said, this is for us the only way to make money. If we get to a point where the client is happy and confident.

That makes sense. So I guess one of the things I don't actually see featured on your website anymore but I know it was a thing for a while, you talked about how you're actually a vendor for some sort of suppliers that you like a lot. I think it was windows and maybe a few other products.

So yeah, we have a sister company that does imports of windows, several brands of european windows and cabinetry. And it's kind of evolving you know because here's a funny little story: We do mostly modular but we also design homes for people who for whatever reason can't do modular. We're currently building a home in the Philippines of all places. These people have been following us for years and they've been looking for land and once they had their piece of land, right on the ocean on an island in the Philippines, they reached out and I said, “yeah, I'm sorry but I can't ship a house to the Philippines. We can design something for you and we can work with local engineering firms and get it through the permitting process and yet do a full design package for you. But we cannot ship a house. And that happened and then these people said well we also want materials. We want all your great materials and that's when our sister company came in really handy because we could supply them with cabinetry, floor materials, even plumbing fixtures and all kinds of stuff. So it's a useful vehicle if you want to supply people with materials that you can't easily get here locally.

So you're actually doing the design and procurement for not just the outside of the house but the inside of the house as well? Like all the finishes etc.? 

Yeah, yeah, So we typically do the windows, the cabinetry, interior blinds, and ethanol or bioethanol fireplaces. So these are products that we supply. But Like I said, the client is not bound to take them from us. They can do whatever they want 

Got it. That's cool. That makes a ton of sense. And then there are, just before we get into our fire round, I mean you have a lot of beautiful houses and projects on your website that are probably why you have a bunch of fans all over the world. Are there 1 or 2 projects that were particularly notable that you maybe want to talk about sort of the story behind them?

Yeah, one of my personal all-time favorites is the one in Martha's vineyard. This is, I don't know how much time we have left, but this is a story that moved me personally a lot. It was a wonderful client to start with and the wonderful location. It's an ocean front lot in Edgar town and you know it came with a lot of challenges. One challenge was actually how do you get there from Cleveland, you know.

You can fly through international airports like Boston or something and then take a little island hopper from Boston to Martha's Vineyard, and it's dreadful to be honest. And then you have delays in Boston and you can't get home the same day. And which is the reason why that project made me decide to get a pilot license to fly myself. Because we just couldn't handle the jobs anymore. And you know, it's a 13 hour drive just to the harbor from here. If you don't want to fly commercial. Then you have to stay overnight and you have to get the ferry over. Do your business over there for a couple hours and then get the ferry back. And then you have a horrible 13 hour drive back home which you can't do in the same day. So it changed everything for us. I can have a meeting in Martha’s vineyard and be home for dinner. And not that you get the wrong idea, I don't own a plane, I just rent a plane but it made my life. And never, honestly I never ever considered in my entire life to become a pilot. But yes it’s the best thing I've ever done.

It's a very cool reason to get a pilot's license - for the business. Yeah, I'm gonna have to tell my wife that I need to get a pilot's license.

So this project came with this logistical challenge that we solved. And then the next problem was how do you get modules to the Island and how do you find a contractor and how there's no crane on the island. You know our modules are large and there's no crane.

Oh, they don't have a crane?. So you probably have to ship one right? Interesting. So you have to ship that over. 

Let alone a 200 ton crane. So yeah, we had to barge everything you can't get on a ferry. With those, you have to have a barge and you have to prepare a landing area for the barge to get the stuff off the barge and our local contractors. They were a Godsend. They were just amazing. They helped us so much and they made it all possible without them. I think we would have passed okay, but they were eager and determined. They were helpful and it was a really great experience.

And so we got this stuff all over to the island and built this home and it was really beautiful as an experience per se the whole setting, working with the client, working with the contractor. It was a perfect project and you know getting the permits was also interesting.

That's awesome. And is that one of the products on your website? 

Yeah, and this is one of our greenest homes and it has a beautiful green roof. All our homes by the way have super insulated walls and high performance windows. So in the end, we can heat and cool the whole house with heat pumps and mini splits. This house has a blower door test of .78 which is also pretty amazing. A great thermal envelope. It's very tight. It has a really beautiful indoor climate. You can just smell it when you walk into the house. It's really great and then for some unlucky reason, the owners had to sell the house and the new owner sold it in no time and the new owner and that was really touching for me. The owners wrote me a personal thank you letter. I didn't know and out of the blue I received this email from that guy and he tells me, yeah I bought that house and I got to tell you, I absolutely love it. It's beautiful. And this is why we do this, you know.

That's great.

Yeah, we need money to pay the bills, but we work with a lot of dedication and personal engagement on an emotional level basically. And to get that kind of feedback is really very rewarding.

That makes sense. That's a great story. Just to transition, anytime we have experts like you on the podcast, we try to take advantage by doing a little fire round where we ask frequently asked questions we get from the many people who come to our website every day. So I'll ask you a couple questions. Try to, you know, answer each in a minute or less but not too strict. Okay so I guess when we're talking about site evaluation, we talked about that before, what are the specific things you're looking at to evaluate if a site is sort of feasible or not feasible for modular?

Well then, number one is accessibility. Is there enough room on the streets? Can we get there with a sixty foot long module that's sixteen foot wide and a big crane, semi-trucks and everything? Is there a weak bridge somewhere? Even the roads might be okay, but then we actually had a real problem with the project back in the day in California. Everything seemed fine but the bridge wasn't able to carry the crane. Luckily then, the answer is to cut the house in different size modules so that you don't need such a big crane anymore. And that's one benefit that we have: we can just redesign it the way we need it but we'd like to catch this upfront. And then another thing I tend to ask my clients where sometimes we're facing some resistance from Homeowners Associations who are just out of principle against prefab because they have the wrong idea of prefab. They hear prefab and think trailer I got to tell you I mean a house that you can lift up on 2 stainless steel beams that weighs 40,000lbs and doesn't flex. That's a darn stable house. But yeah, that can happen. That's what it comes down to. Everything else we can address - so snow loads, seismic requirements, sprinklers yes, or no, rock. Do we have to blast rock? Can we do our beloved prefab foundation walls or do we need to cast iron in place or a block. For foundations, we like the prefab foundations because they're accurate. They're down to the millimeter. You know if you have a basement that's an inch too long. You can't address that. Your module is your module.

Oh so when you’re saying prefab foundations, those are flat packed right? Those aren't modularized?

Those are flat packed. Yes, they come fully insulated. They have r-21 insulation built in; they can be assembled in a day.

Oh, so that's cool. So you’re actually doing those and you do those in the factory as well.

Yeah, we buy them. Usually we leave it in the scope of the local contractor because those guys want to make some money too and also they have to do it? Yeah but we specify it and we do the shop drawings or we check the shop drawings. We do all the structural stuff for them and then our crew comes in to assemble the house. That's also crucial. Sometimes contractors get a little antsy when they hear modular because they think they have to put it together. That's not the case. We have our set crew that does the assembly for us.

But that makes sense. I guess so we sort of talked about sustainability a little bit. I feel like there are so many, again you can look at our site. We have hundreds of reviews, and so many people come to us and say, you know we're a green builder and it's just like, “okay you built like a conventional house but you put like a big PV or whatever solar system on it and you can achieve your net energy. So my impression is that you're a lot more thorough. What is sort of sustainability when it comes to a house?

Do we have another hour? So it comes down to the thermal performance is one main parameter. That's really important. So we super insulate our walls. We have better insulation in the walls. We still do 2 by 6 framing but instead of fire buffers we use Rock Wool insulation mineral rule we use thicker drywall on the inside and we use zip sheeting on the outside and then we wrap the whole house in an additional layer of insulation which has a double purpose. One is to increase the r value of the wall and two to break thermal bridging through the studs. And that is a very important part of it. So we end up with a minimum of around r-30 to r-33 and depending on what we put on the outside we can get that number even higher. We do a lot of stucco as part of our European designs. And systems with the rain as a rain screen system so we can add more insulation to it and get the R value even higher. Another important part is the use of healthy materials. Of course we use low VOC or no VOC paint. We keep an eye on formaldehyde content of things. You know it's something that people talk about all the time without really knowing that formaldehyde even exists in nature. So it's something you can't entirely avoid, but we try to keep it as low as we possibly can. We make sure that the house is airtight. We try to do outdoor blow tests. Our goal is ideally under 1, you can't always reach that goal also because we are so custom every house is different. Every location is different and with my clients with their ocean views and sometimes the view is the wrong orientation. You know, to the West or East or North. Worst case, we never try to build passive houses. We try to reach net zero. That's our personal goal. So by adding solar panels you can get a house to a really good rating ideally 0. We also do a lot of simple smart things like protecting the glass from the sun. You know there's a summer-winter change. So in the summer we have canopies or balconies. We have protruding volumes on the second floor that casts a shadow on the glass underneath. Because as soon as the UV portion of the light hits the glass, it turns into heat and transmits to the inside and your house tends to overheat. However, in winter you want that when the sun comes lower. Then the roof overhang won't protect you anymore, but it invites the sun into the house and that is a very important part of just using your brain a little bit to create something that works without an excessive use of AC.

Yeah, were you saying, maybe I didn't catch this right, were you saying that you typically use mini splits as opposed to central air?

Yes, we don't do gas furnaces. We have an aversion to fossil fuels. We don't do that at all unless okay, there's 1 project that we had to do it because they require it by code. A driveway, a snowfall system. But usually we only use heat pumps. Preferably air source heat pumps. We're doing one project right now with ground source heat pumps but in our opinion that's just additional money. There's no real benefit in using ground source heat pumps, the modern air source pumps with hyper heat. They do a great job.

I mean we live in Ohio. We have heat pumps at our office and they're not running right now. So it's March and the office is so well insulated and you don't need it. One side effect of building an airtight house is you need ventilation. You need fresh air and oxygen in the house. And we use passive flow certified ventilation systems and guess where they come from. From Germany of course. I'm sorry, it's just so funny. You know all other things that you really need, a lot of them come from Europe and Germany in particular. So we use them because they're very simple. They're decentralized; they work in pairs. So they have a heat exchanger in the wall and so unit one pushes out the the waste air through that heat exchanger which naturally heats up by the warm air and then after 70 seconds a control unit switches direction now unit 2 pushes out the air and unit 1 which is now hot sucks in the the outside air and heats it up and they're like 85% or more energy efficient. So the end result is that you have very very little demand for heat. That's why the heat pumps work so well. What we also do depends on the level that the client requires. We can also do ducted systems. We do, I would say 50% of our homes have ducted heat pumps where you don't see the mini splits on the wall. We can combine that with ducted erv systems with your dehumidification and all the good stuff. So it's really up to what the client wants. Personally, if I were to build a house now, I would probably use a wall hanging mini splits. I don't mind them. If you know, it's $10,000 - $15,000 extra just to have them ducted but it can be done and we do it all the time. Yeah.

Right? So it's just an aesthetics thing right? Yeah makes sense. Terrific. Well that fire round wasn't quite as fast but it was worth it. So final question, and I ask this to everyone. What are you most excited about for your company or for the industry in the near future?

Well, I'm excited about the fact that more and more people are beginning to understand the necessity of building green and energy-efficient homes. Because I don't want to get into politics but we just witness how around the globe, governments fail to address climate change and global warming. So it's up to us, the people, we have to do what we can do and I embrace every client who comes to us because of what we do, this really means a lot to me.

Awesome! Well thanks so much alexander. It was terrific to learn about you and your company. For more information about Alexander and evoDOMUS visit evodomus.com and as always you can visit us at prefabreview.com

Well thank you, and I appreciate the time and have a great day.

Thanks!

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Hi, my name is Michael Frank and this is The Prefab Pod presented by Prefab Review where we interview leading people in companies in the prefab housing industry. Today, we're very lucky to be speaking with John Geary of Abodu, an ADU builder that's, I think, primarily on the West Coast. John, welcome and to start, can you tell me about how and why you started building Abodu.

Yeah, hey Michael. Thank you so much, I’m excited to be here today. We started building Abodu back in 2018 when the conversation around ADUs was beginning to evolve here on the West Coast, so I actually got into this space. I was born and raised in a homebuilder household. My father has been building homes in California since the late 80's and you can imagine being raised in that household, you get quite a bit of exposure to the home building process, to the entitlement process, and the general challenges of building housing, particularly in Northern California. I think that the challenge and that process has always fascinated me which is why I ultimately ended up in what I would call the home building space with ADUs. We started working in 2018, literally with the goal of making the experience of adding an ADU painless and easy for homeowners, while delivering an exceptionally well-designed, kind of architecturally stunning, product behind it. It's funny we didn't set out to build a prefab company. We set out to solve the problems of homeowners that were trying to build an ADU and it actually turns out that prefabricating ADUs makes a ton of sense given that the majority of homeowners are seeing their challenges and just getting one of these ADU projects done. So you know here we are, fast forward three and a half years later, having you know a couple hundred projects underway at this point across Northern California, Southern California and the Pacific Northwest and Seattle in particular. We've really expanded that ability to bring ADUs to homeowners as quickly and easy as possible.

Awesome! Thanks! That's really cool to hear. So I know a little bit about the company. So maybe you can provide some more color. But basically you have 3 models right now, right?

Yep, we have our Abodu Studio, our Abodu One, and our Abodu Two. The Studio is 340 square feet, the Abodu One is a 1 bed, 1 bath that's 500 square feet, and then our Two is 610 square feet with 2 beds and 1 bath.

Cool. We've done a lot of ADU projects with clients and our community and I think in California more or less, though you know these rules better than me. It's pretty reasonable to go up to like a thousand Square feet based on the ADU laws. So 610 is obviously right 61% of that. Why only 3 models and why only up to 610 square feet when you can theoretically permit 800 square feet or a 1,000 feet

Yeah, great question Michael and it's one that we spent a lot of time thinking about as a company and as a business here at Abodu. We really see ourselves as a product driven company and our product is physical space, right? The Abodu Studio, Abodu One, and Abodu Two, but also the service attached to that right? So the experience of working with us from soup to nuts on your ADU project. I think one of the biggest things that prevents us from going much larger at least currently is just the amount of homeowners that can actually receive that big of a unit. But there's quite a few properties across California that can take, call it a 750 - 800 or 1,000  square foot unit but it's actually a lot smaller than you'd think. And so when we started off, how do you get really good at what you do? You narrow your focus on a few core products and get a lot of reps for those products and then expand from there. Our Abodu One with 500 sqft was our first product and really the goal there was or how we kind of settled on that sizing was looking at permit data across California and said, “what is the average size ADU that people are permitting across the state and you know, what is the rough dimensions basically like what are people building right now and how do we gain exposure to that segment? And you'll notice our studio gives us an ability to serve folks with a little bit smaller backyards and our 2 bedroom gives us an ability to serve folks with slightly larger backyards that are just demanding more and more space. You know I think over the course of this year, you'll probably see us come out with a product more on that larger square footage section like you're talking about, probably not all the way up to 800 or a 1,00 and the reason being there, is once you get over 750 square feet you're just subject to impact fees right? So really the sweet spot in terms of max  size is right in that like 740 to 749 spot  there if you're trying to maximize your overall value.

This is specifically in California that you're talking about right?

Specifically in California, yeah. And what we've seen is that people want the process to be easy. They want it done quickly, and you know if we've got a five hundred square foot, oftentimes that wins out against a custom build  that's 750 sqft.

That makes sense. Are you doing these modularly or as panelized? How are you actually building these? 

Yes, we use modular, which you know, the kind of key distinction within prefab is you manufacture or you factory build the housing. We're not going the manufactured route. We're building to local building codes, you know, in California that's Title 24 energy requirements in Washington, that's including the very heavy snow load requirements depending on where you are in the state of Washington which has made things a little bit more operationally complex on our side, but we think that leads to a significantly better end product for the homeowner.

Right? They walk in, they feel the sturdiness of the floors. They know they've got dual pane windows with six inches of insulation on their exterior walls and it really helps overcome a lot of that stigma that can often occur within the prefab space.

Yeah, that makes sense. We have done reviews of, I don't know, 50 ADU builders. One of the distinctions I try to understand is what do you do right? Because on the minimal side, essentially there's like the marketing companies which basically have some predesigned, non-engineered plans and then you buy the plans and basically everything else is built third party and then there's some people who do everything and I don't actually have a strong. I think different varieties make sense for different people. But what part of it do you think about from like design all the way through like local utility hookups etc. What part do you do? What do you outsource etc.?

It's a really good question. So when we really looked hard at this space back in 2018 we wanted to back solve the issues that homeowners were seeing right? So what? We've always said we built Abodu from the customer back. So instead of building a solution in search of a problem we really understood the problem and built the solution to solve that. So I think the key pieces that we're really good at are the key pieces that homeowners think about for their given project. So hey, I can go buy this prefab box. But, shoot, how do I do the site work? What does installing a foundation mean? What does an installation mean? How do cranes work? How do I deal with utilities? What are the cities looking for from me? And I think frankly five- plus years ago that's how the prefab space just primarily worked, not a soup to nuts view but rather we'll sell you this box then you have to figure out the rest. So we took a bit of a different view, and said, “in order to deliver an exceptional customer experience we can't leave our customers high and dry or tell them to figure it out” We really have to own that in order to deliver that. So what does that mean? We're a licensed general contractor in California and in Washington, which allows us to own the prime contract for that site work.

Great.

So we work really closely with install teams in each market that play in to own that foundation, that utility connection, right? Sewer, water, and electric, in a build.

That just means you're the GC and you just sub out or cost plus or the contract with whoever, the foundation person is, etc.

Yes, we actually own that. So we provide homeowners a fixed price upfront and then we have deep relationships in each market we serve that basically gives us flat rate pricing you know, based on, call it like a menu of pricing with our install partners right? But yes, we don't have the plumbers, the Electricians, or the tradesmen on our physical team.

Okay, that makes sense.

And then you look at what do homeowners really stress about - it's the permitting side right? Each city is different, homeowners typically aren't well versed in you know, the comments and plan reviews that come from building inspectors and planning inspectors and you name it, and so we developed a really powerful in-house operation around what we call our planning function and there's kind of 2 big pieces there. 1 is working directly with cities before we've necessarily built a project in that city. Hey, you know we're getting a lot of inbound demand, we'd love to talk to you about and how ADUs work in your city. What are the process things? How do we make sure we get it right to save your team time? But also working really closely with cities that we've done 5, 6, 10, 15, 20 projects in and saying, “hey, let's build a little bit more of a relationship here, right? We're talking to each other every single day. How do we make your life easier? How can you make our life and our homeowners lives easier and in really getting to a lot of the symbiosis? And I think the planning function is one that's often overlooked within prefab, within home building. Within 8 years in particular it's seen as just like this friction point that, oh god we've got to get the permit, instead of how can we use the permitting process as an advantage and a differentiating factor for our clients. I think that often leads to us having to kill projects before we even take them on because we say, “hey, just so you know there's this weird thing within your city that you know is going to cost you a lot more money or is going to you know, be very challenging to overcome and we want to put this on the radar before you sign any contract with us. We would rather have those pieces known ahead of time to homeowners than get into 2 - 3 months of working with them and having to raise that challenge. And so a lot of that is a really developed planning and permitting function. But then you know when it comes to the building piece, we said, “hey we don't need to reinvent the wheel here.” So we don't own any factories. We don't do any kind of you know 3D printing or any of the sorts of like you know, new modern building processes. We've said, “you know cities understand how traditional construction work turns out, there's a ton of modular factories out there. They've been building for decades and they want to work with us and so we've really built these fantastic partnerships with factory providers across the western US that build units in their factory and handle that entire kind of procurement to final touch ups to delivery for us and so I'd say you know where do we index is an exceptional customer experience and the front end of things.

That makes sense, I don't know if you can say this or not but can you say what factories you're working with these days?

You know, we actually keep that pretty close to the chest. The reason being this a pretty competitive space.

Yeah, it's fine. I know some other companies in Seattle work with Champion. It's fine if you guys can't say but just curious. But you work with a few factories?

Yes, so we work with quite a large and growing network of factory partners and really, you know what we're trying to do there, is provide them a great experience as well. We look at our factory partners and our install partners as customers. What can we do to make their lives easier? How can we work better with them? And I think that's actually a more differentiating piece on the supply side, right? One of the really interesting things around ADUs is there's a ton of demand right? This market is growing really quickly not only in California but across the nation and actually the bigger challenge is how do you maintain the right amount of supply to serve that?

Yeah I mean the customer stuff we do is like a year plus wait just to get into a factory.

And I think especially in a construction environment where yeah, just yeah, just to be able to get in, I mean the backlogs and these factories are crazy and that's just the global construction scene right? Just the demand outstrips supply and so I think one of the approaches we've taken a little bit differently, is how do we make life as easy as possible for our factory partners? That means you know having a really open conversation around pricing and margins with them. But also, hey it turns out when we submit our orders we really hate it when you guys do this. Awesome, we'll go ahead and fix that for you. Being open to learning how to change our ways of working to fit within their mold as best as possible because frankly, factory partners are you know, it's a capacity constrained space right now and we want to make sure we earn their respect.

Got it. Okay, but that's interesting, you guys haven't thought about vertically integrating? You think using third parties is the way to go for now? Just because, I guess what, with only only a few like I understand so some of the custom companies we work with I totally understand why there wouldn't be tremendous benefits because it's like okay, everyone's unique, but where you guys basically have 3 frames and right they're all fifteen feet wide, it's not the most complex thing compared to some setups.

You’re spot on, Michael. The case for us owning the factory side is pretty strong with 3 models. You run them down the line over and over and over. I think the way that we looked at this today is starting a factory from the ground up is relatively capital intensive and at a pretty large fixed cost right? Now we've got this huge factory that we’ve got to maintain as well as learning how to staff it but also learning how to think about factory operations and as well as you know, still growing our footprint across the western US from a sales perspective. And the way we've stared at that is saying like maybe one day right? Maybe we get to the point where there's just too much margin we're leaving on the table or we don't have enough control or you name it but where we are currently as a business we have fantastic factory partners. We love working with them. They fill our needs. And we can put all of our focus as a business on growing our geographic footprint, our ability to permit things quickly, our ability to work really closely with customers. And I think the factory piece comes out of that once we've proven even further that customers love working with us, that we can deliver on what we say, and that we can serve a big swath of the US.

Got it that makes sense. In terms of the end user experience, again I I love that you and a couple others are starting to bring more transparent pricing or like easier to grasp pricing. In terms of like this is, like it's not it that you understand the line items within it but you at least understand kind of, to get this box on this piece of land here's the all in number. This is the request we get most, walk us through a standard-ish project. So maybe you said you're in the Bay area, say we're on a flat-ish lot in like Redwood City or some other town like that. And you can pick any of your models. 

Absolutely, so let's take the city of San Jose - that's where we've done the most of our work to date and have a pretty high knowledge of what those costs look like and let's pick our Abodu One, our 500 square foot,1 bed, 1 bath. So that pricing, actually you're catching us right as we're flowing through a price increase, because I don't know if you've heard, but Lumber is back up quite a bit and commodities across the board are up quite a bit. And we've done our best as a business to absorb as much of that as possible but there gets to a point where it just you know it's a confluence. 

Yeah I get it, it's March 14th 2022 and yeah there's a lot of energy and geopolitics all sorts of fun stuff now.

You have to adjust. So anyway, our Abodu One pricing has actually just shifted up to $242,000 as our starting price. And that starting price includes the unit build and factory, that includes delivery of the Abodu One, that includes standard craning up to a hundred feet of that Abodu One, and that includes the foundation and utility connections up to fifty feet of run for each of those utilities, so electric, water, and waste, are what we typically do. And that includes all the services of permitting. So what does that not include? We pass through permit fees at cost. So a city says here's your permit fee bill. It's $6,000. We provide that line item cost to the homeowner and say hey here's what that is. The reason we don't include that in our standard pricing is because cities are vastly different in what they charge in permit fees. It can be $14 to $15,000 in the city of Santa Clara or it could be less than $2,000 in the city of Millbrae those cities are twenty miles apart but that's a vastly different permitting amount and if we tried to build our pricing around that, we would just end up being more punitive to the city or the homeowners in cities that don't have high permit fees. And so we try to say that is something that we can control for, but it's passed through at cost. The other things that we typically see in terms of a site work piece is you know a bit more trenching. So hey, actually in the city you're working in you have to connect up to the front of the sewer line instead of underneath your main home. Or hey, the electric run is actually coming from the front left corner of your property you're putting me Abodu in the back right corner of your property so you've got to run that one hundred feet which means there's fifty additional feet of trenching there. So anyways, we try to build this in a programmatic way, right? How are our costs associated with us and how can we make that super clear to homeowners of where their costs are coming from. So let's say that $242,000 project in San Jose, let's say the average San Jose permit fees are roughly like $6 to $7,000 we have that noted on the proposal up front. Hey in our previous project in San Jose this is what we've typically seen. But it's just an estimate and then we'll say, “hey, actually your property has an extra ten feet of craning. It's that ten feet of craning is at ten feet times the craning cost and then you know an extra twenty feet of trenching for the sewer. That's twenty feet times the sewer trenching cost and provide this estimate for a homeowner. That's like, here's your final number based on everything we've learned about your property. So I'd say like right now in a San Jose flat lot, 1 bedroom, we're seeing property or projects come in all-in with permit fees and trenching all that fun stuff right, around $260k. Now the hard part is…

Got it. And would that include like solar and Title 24 and all that stuff? 

Yup, all in. Now the hard part with that is, that $260,000 was probably $230,000 a year and a half ago right? Maybe even less. I mean we're doing projects at sub like $200,000  just a few years ago and it's just the state of the world where not only is site work gone up, but factory building has gone up, all the material inputs have gone up, permitting timelines have extended. You name it, like everyone across the industry is feeling it right now.

Yep, that makes sense. But I mean you're still at least, I don't know we'll talk about use cases in a second but like you're at least, you are higher than $500 per square foot, which seems crazy. But you're still in the, like if you wanted to rent this unit out, $2,500 or more a month

Yeah, oh yeah. Yeah, like our 1 bedrooms are renting out between $3,000 and $3,500/month for the 1 bedroom.

If you do a 30 year mortgage on this. You're at what, $1,500 a month or maybe a little higher? I don't know. 

A bit less. Like 1200 ish exactly so I mean you've got a pretty compelling case for cash flow there.

Okay, okay so you’ve got some room. Yeah, nice. That's cool. And then, um and then like what -I Know that one of the things you've talked about a lot in your website is being able to really condense the timeline, which is awesome. Do you want to talk a little bit about sort of what you've done to do that and what a normal timeline for sort of a fairly standard project is. Like what we're talking about as a project might take?

Yup, absolutely. So I think you know one of the one of the biggest headaches we've heard from homeowners across the board with any construction project or renovation project is just it took forever and we had no idea when it would be done and it was so opaque. And you know just like if you're not in the construction space, it's really tough to grasp. You know what do you mean the windows are delayed by a week? What do you mean the cabinets? It's like that's just construction right? It's this crazy supply chain that exists and obviously the past year and a half hasn't made things any better. But I think you know, we've taken a hard look at that and said, “how do we make things easier? One is just building the entire unit offsite. Right? So building that in the factory, you get to control a lot of the timelines. Our factory builds right now take three to four months of actual build time. Now that obviously is post procurement of everything and and you know you’ve got to make sure you have everything in stock there but that's a significant improvement of what an onsite build time is, right? An onsite build time when you're waiting for materials to arrive and whatnot, especially for a five hundred Square Foot ADU, we've heard horror stories of those being 2 years of backyard time. I think the more you know, the average is probably closer to nine months to a year. But still obscene, so one is just like building in a factory. You get a little more control. What we've started to do as a business is say, how can we pre-buy inventory of our supplies? So can we go buy a bunch of windows? Can we go buy a bunch of doors? Can we go buy a bunch of long lead time things so that when we're ready to press order, those are actually already in stock with our factory partners instead of you know waiting six months for the windows to arrive before you can even start construction.

Right.

I think number 2 is taking that one step further and saying, why don't we pre build entire units right? Why don't we just build this the way that car dealerships and car manufacturers think about inventory? Or you know a homeowner wants this siding or this paint color great. We can do that in the last three days of production.

Right. And then you just customize the siding and the appliances or whatever.

And homeowners can start just picking these either fully completed units or units that have like a month left in production, and so that's through what we've called our Abodu quick ship program. In the most insane use case of the quick ship program, we've delivered a home in less than twenty days from contract to keys. An investor in San Jose bought the property and permitted it the next day through our San Jose preapproval program, and started site work about ten days to get the foundation, utility connections in, and delivered a fully completed 2 bedroom unit. It took another ten days for final inspections and kind of final touch ups and here we are twenty days post contract, keys in the homeowner's hand, ready to rent out and I think that was a like 

an unbelievable use case of our quick ship plus our San Jose pre-approval. But our standard project right? Let's talk about that normal flat lot. You know in Redwood City, all the standard kind of permitting timeline, we're seeing that right now be about six and a half to seven months and I'd say that's the average right. Sometimes we're hitting that like four and a half to five month timeline and sometimes you know if you've got a particularly challenging local jurisdiction to work in, that timeline can be can be 7 to eight months but I I will say we've done a fantastic job of maintaining really tight project timelines despite the world throwing everything it can at our space to make that really challenging.

That's awesome. That's great. I’m sure your customers are very appreciative of that. A couple of questions about your products. So all Abodus are designed by Koto right? 

Yeah, Yes, our 3 units right now, we've worked really closely with Koto design. They're a UK-based architecture firm that really specializes in Scandinavian influences and the goal there was to marry, you know, the Scandinavian simplicity of small spaces with a kind of California coastal architecture. And that's where you see this kind of iconic design space that has a diagonal gable roof. So a funky roofline, but this really striking presence and the goal there was to give homeowners a piece of art for their backyard right? And really we can match very closely to their home or we can do this very striking, you know cedar siding or Corten steel siding that looks very different but give homeowners that opportunity to have an ADU in their backyard that they're proud to have on their property.

That makes sense. Yeah, and I really do love your design. One of the things that again, we have a couple hundred thousand people come to our site every month, so we get a lot of feedback on hey, I want this, I want that etc. People oftentimes choose based on the design right? They're like, I like the way this looks, so your design's great, but right it's like again, you have 3 models and they're fairly similar. With as you said, a bunch of configurations. Do you think as you sort of start to branch out to new models, you're going to continue this as you said sort of iconics specific design or do you think that is also something where you're going to have more breadth as you scale?

Yeah, it's a really great question. I think, you know if I'm thinking about our product roadmap right now, over the next 12 to 18 months, the core of what we're thinking about is design, right? How do we design a space that is fantastic to live in and built to be lived in for our homeowners - either their loved ones and family members or their rental tenants. I think we will begin to push the boundaries of that design. You know, what does that mean? Does that always incorporate you know xyz design elements or how do we rethink that? Especially as we go, you know say bigger or smaller. But I think that's a very great question of like will a boat always look like their current state, likely not. It's just a business that will need to continue evolving and as we serve different markets they have different design tastes and I think what we're really stretching as a product and design org right now is how do we continually iterate what we provide to homeowners to make sure we're meeting their needs across the board. So I'd say long story short, we're always evolving our thinking about what our structures need to look like in order to win.

Yeah, got it. And then when you sort of talked about this sort of investor use case before, is that what? What are the sort of the different reasons you see people actually building your homes typically?

Totally. I'd say we have 2 primary use cases. There's a long tail of interesting ones after these 2 but typically it's housing for a loved one or a family member or for rental income. And I'd say the housing for a loved one or family member really sprung up a lot during covid where multi-generational households are at an all-time high. You know people maybe felt pinched on their wallets here or there and you know children are back living with their parents, grandparents are moving in with their parents, aunts, uncles. Either way, there's this need for more space and if you look at the kind of California housing stock, we're talking you know 3 bed one bath homes that were built in 1965 or 1975 and haven't really been updated. That's a tough living environment for 3 generations to be under. And I've seen you know a lot of our customers come to us saying we just need more space and it turns out a detach ADU is one of the easiest ways to do that. You're not blowing out your kitchen or adding a bathroom or living through 9 to twelve months of renovation in your primary home. You've got a couple weeks of construction in your backyard and then this unit just arrives. And it's a pretty magical experience to them right? So I'd say that's one of the biggest use cases and then the second one is obviously kind of the return on investment. I'm looking to rent this out full-time to you know a member of our community or traveling nurse or you know there's so many different use cases for rental. But, I'd say about 50% of our units are currently rented out which is that homeowner you know either the homeowner lives in the primary home or is an investor and already rents out the primary home. It is just looking to add another door to their portfolio and is coming to work with us because we provide a lot of benefits there right? Our quick ship program can deliver units really quickly. Time is money for the investor. To set each month is not collecting rent but paying debt service on their loan is hurting them. So if we can deliver that faster and allow them to see that return faster is a huge benefit but also that upfront pricing -  hey build this into your proforma if it pencils for you? Fantastic! Let's get going and if it doesn't pencil for you. But I think those are the 2 biggest use cases. We obviously see some of the home office uses or you know recreational gym uses but I would say those are sub 3% of our total project stack right now.

Got it. And then one of the things you talked about was a sort of investors and  time is money, and I'd say one of the most structurally challenging things we found for ADUs is this sort of financing piece. It seems like almost all financing comes down to I know there's a few like Rentify are doing sort of interesting things that take a while, but like a lot of times, it seems like you're basically either saying this person is wealthy enough to pay out of pocket or this person has a lot of equity in their home and is going to pay for it that way. Is that essentially what you're seeing?

Yeah

Which again it works for certain types of people and certain types of use cases. Is that essentially what you're seeing or are there other ways of financing outside of this too?

No, I mean for better or for worse Michael, those are the kind of the key pieces, right? Someone has a stock portfolio that I guess as of the fall was up quite a bit but maybe now not so much anymore or they're yeah where they've got their home equity right? and they pull HELOC out and it's a no brainer.

Right, but they have some kind of liquid asset they can sell.

I think early last year in late 2020 we saw a lot of cash out refinances. It just made a ton of sense. Interest rates were very low and I think we've seen those off a bit more and so the folks that are around in that bubble of financeability right? Maybe they don't have the full equity in their home or they don't have a stock portfolio worth hundreds of thousands of dollars, we've seen some starting to go more towards construction loans, right? It's a little bit older form of financing and it's definitely a little bit more expensive form of financing but it's a short-term form of financing right? Hey let's go ahead and get this built. Let's get it done as quickly as possible and let's convert that construction loan to a 30 year mortgage or 15 or you know whatever someone wants. And I think we've seen the rise of construction loans. You know, I'd say this time last year. Maybe 5% of our projects were construction loans. I'd say where we are right now maybe that's closer to 10 to 15 so it's going to be interesting to watch that. You know for folks right on the bubble there of financeability. You know, having the right amount of equity in their home or call it cash equity proceeds elsewhere. Construction loans are definitely becoming more in vogue right now.

Are there specific things like we’re constantly getting requests for lenders? Are there specific lenders that you like a lot for your projects who you’re referring people to?

That is a fantastic question. I would say, you know right now we're not a certified financial lender so we don't have a brokerage In-house. We kind of just say hey, here's a list of Lenders we know that our customers have worked with in the past feel free to give them a ring. And I'd say that list is growing. We want to give our homeowners options but I would say there hasn't been like 1 or 2 or 3 lenders that all of our customers have congregated towards, right? It's been a little bit of you know we've had people use groups like rentify we've had people use traditional banks like First American. And I know Umpqua plays a lot within the ADU and just general prefab financing. Yeah, there's definitely banks that understand it exactly.

I wouldn't say they're fast, at least in our experience. What are you all seeing in that just because I can imagine the awesome thing for you is like these homes are pre-engineered, I assume are you I assume you're probably looking at like forty five days or sixty days to get these completed?

Yep, that's about right? And you know how we've addressed that Michael is the very first conversation we have with any prospective Abodu homeowner, we bring up financing, “hey how are you thinking about financing, “you know, we want to give you a range. It can be x to y you know? How are you thinking about paying for this? Is it cash out of pocket if it's financing?” Oh you're thinking about financing great. We recommend getting on that as soon as possible and maybe you don't end up using it but like you need, this is a process that takes 45 to 60 days and the sooner you think about it the sooner that pulls out of your kind of ah call it  the thing you're waiting for in order for your project to get running.”. I'd say we instituted that into our sales process maybe about a year ago and we've now seen folks being more proactive about financing and being ready at the kind of contract phase with financing in hand versus ready to sign a contract and oh wait financing is going to take two months, well let's let's put this on hold for two months.

I think this is hard, which is why no one's done it yet. But when you guys write in terms of thinking about the user facing experience and all the pain points and stuff when I like I think there actually is like a lot of benefits to sort of having heterogeneity in like a number of loan options. But I feel like when you all are able to say like here are 3 or 4 of our fast track partners, fill out this form right? There's going to be expedited appraisals because appraisals itself are our nightmare now. Like I'm just thinking about things that would make the customer experience a lot better. It feels like that was definitely one that would be cool. 

Abodu

Yeah, Michael, what would it be if you could offer integrated financing and build? I mean that just becomes much more like the car buying experience right? Hey, I want this car. Oh I can get approved for a loan in 4 minutes here at the dealership. Fantastic, I think. There's a couple you know structural things that make that challenging but we are continually chipping away at those. And you know with the end goal of being able to make this as easy and clear from point a to point b for homeowners as possible.

Yeah I assume that some companies are just going to end up buying some small bank, like what's happened in a lot of the other banking stuff, so you get all licenses and all that stuff. But I'm not an expert on this part of yeah like or not not like the sort of pain and user experience. But I don't know all the things preventing different people from owning. Moving into we have a quick next section called the fire round, this is when we get to ask a few questions that are probably kind of similar to FAQs you get all the time. So you know do your best to answer each of these in 1 minute or less. So anyway first question, what's what's the difference between permitting in Washington versus in California.

Oh great question. California has a statewide permitting framework so we know going into any city exactly what we're allowed to build. Washington doesn't. So each city is a little bit different. California has standardized four foot rear inside property line setbacks and standardized kind of height requirements and square footage requirements Washington is not as standardized. Let's say. And so there's a little bit more leg work upfront to understand what we can do in each city and what we can't, but frankly, other than that it's a very similar process, right? You’re still required to have a planning check which is typically pretty easy to use, require building review, you require public works review kind of all the and fire review the groups that check it and I'd say like we've actually been able to scale our planning team. The team that handles our permitting across states really easily right? The people that handle our California permits are the same people that handle our Washington permits because the core pieces are similar. I would say a lot more of that upfront work is what's different between the two.

Got it. Can you talk a little about site evaluation. It's a sort of an anecdote here. It's like we had a user we were working with the other day right? And they're honestly not even that steep of a hill but had sort of slightly funny access to their house in Marin County in California and it basically died pretty quickly right? We couldn't get a crane adequately and kind of drop a modular box on, so we're going to go another route. But what are the things that you look for in trying to figure out site evaluation?

Totally. We have a really robust process in-house. The second that lead comes in, so someone submits information on our website, we actually have a team in the backend here that's evaluating their property against the key criteria. So the baseline is: can you fit an Abodu in your backyard? Do you have space for the required setbacks and fire separation requirements from the main home?   After that it's do you have a clear craning path? So that can mean power lines aren't in the way, big Redwood trees aren't in the way, you name it. We have a 3d mapping software that we use to kind of spin a property around and get a good view for that and those are kind of the 2 biggest ones they have. And can we install after that if you know the access roads. And that's been really interesting as we've expanded into new markets like Sonoma and Napa counties, you know, we take for granted how wide the roads are in San Jose and suddenly you get up in Sonoma or Napa counties and some of these more remote properties and you actually can't bring a fourteen foot wide unit down the road because of the widths of the road are only 10 to 12 feet and so those are some of the more the deeper access things that we've been evaluating. But typically, you know we give a really good deep scan that gives us 90% confidence. When a lead comes in and then we have a feasibility study process whereby a member of our team comes out and walks the property with the homeowner. They understand what they're looking for and build a proposal to their exact needs but also are looking for that final 10% of yes we can get this project done or, hey here's a deal breaker and we want you to know that now instead of three months into your project.

That makes sense. Next question, we've gotten a lot of interest in, I think it's called  law SB-9 in California which basically it allows most lots to theoretically split into two. Have you had an interest or experience and people using ADUs for that and do Abodus work for that because I guess technically it will be like a single family home versus an ADU at the end of this.

Yeah, Michael we've had unbelievable amount of interest in that and I think you know we've been tracking sb-9 for a couple years now it used to be sb-1120 that did not pass back in 2020 and then sb-9 passed in 2021 and I think that the theoretical promise is really large, right? Theoretically Abodus can absolutely be used in building an adu and separating that out, I think the reality challenges are still quite large and we've already seen cities taking a very I might call hostile approach towards the law. If you think about how ADUs rolled out and 2018, 2019, the 2020 adu changes. It was a city by city patchwork of adu legislation that in 2020 was able to be patched up and made statewide. I think we're going to need something similar with SB-9 over the next two years otherwise it's really challenging to serve multiple customers at scale. I think what's really challenging is homeowners are relying on companies to just handle this for them. Kind of like wave your hands and make my property sb-9 eligible is really challenging because you know, certain cities are requiring different landscaping or different size requirements or you name it around how to approve one of these projects without guaranteed timelines right? It could be that neighborhood comments are required and it could be you know this is a twelve month sixteen month eighteen month review before this is approved and I think the way that we've taken how we've approached sb -9

Does ministerially approved apply to ADUs?

In theory, yes. I believe the law actually has ministerial approved language in it. But cities are finding interesting ways around ministerial approval. I believe it was the city of Los Altos…

We've heard setbacks as an issue. I don't know if that is,. but again we haven't looked at this very deeply just sort of anecdotally with a few people and…

Totally. I mean there was the city of woodside that tried to say they were a mountain lion habitat and thus couldn't do this period and obviously that was a big uproar. A couple weeks ago that was reversed and I believe as the city of Los Altos Hills said if you're going to do an sb-9 project it has to have this size, trees shielding the home from the main street. It's like you know 10 five gallon trees or whatever. And I think when you look at that and try to serve customers in multiple jurisdictions at scale, it's really challenging and so our approach as a business has been let's let it develop a little bit. And let's watch how cities continue to evolve and you know be parts of those conversations with cities but let's not go make a bunch of promises to homeowners that we have no idea if we're gonna be able to keep, especially in a new market and especially we consider ourselves a relatively new business still at you know, three and a half years old. We don't want to promise the homeowner something we can't keep and I think that's a big worry with the state of sb-9 right now that we’re watching really closely.

Got it. I know like the city of LA and I think the city of San Jose they've done these as pre-approved plan programs that I think you're a part of. Obviously those have been written about a lot, do you want to talk about how those that have sort of materially helped or not helped your business and the customer experience process.

Absolutely. yeah.

Because some of the plans I've seen seem okay from you all, those are being built and some of them especially in LA looks like oh you know this architecture firm probably had a fun hack day but I don't believe these are actually being built as sort of presented on the site.

Yeah, I'd say that's a pretty astute view there and I think, taking a step back right the concept of a pre-approval program is a fantastic idea. Hey, if we're building the same design over and over why should we go through a deep plan check. I think in practice is where the proof is in the pudding. In a city like San Jose where we've been working with them for almost three years in their preapproval program that is still like the golden child of ADU permitting, we can be out of San Jose in less than one day with a permit from start to finish. Outside of that pre-approval program, that's a 9 to 12 month permitting process right now for ADUs in San Jose. So that right there is a massive impact. Not only to our business but to our homeowners to the customer experience. The city of San Jose right now they're getting more units in the ground. I would say other cities have a little work left to do. Even cities that established pre-approval programs you know, it's a little bit more of in theory this should work but then they get into the nitty gritty of like well you know fire review and public works review and building review and planning review and those reviewers aren't talking to each other so you know fire takes a week but building takes six weeks and really the concept of pre-approval just gets eliminated. But we've worked really closely with cities across the state and counties across the state on that pre-approval in the ones where they've figured it out. Cities like San Jose have a fantastic outcome. I mean absolutely what I would consider close to magic in the construction space. But I do think you know even some cities that have announced pre-approvals have some room. Left to grow and continually iterate on their program to actually make it impactful.

Thanks so much for providing all your insight. Final question, and we ask everyone this, what are you most excited about for your company or for the industry in the near future?

That's a great question. I mean it's tough not to be excited about ADUs as a whole right now. I think you know they're solving a lot of really core problems for homeowners and investors across the state. And they're adding meaningful units. What was the last tally something like 20,000 ADUs in California last year. That's a meaningful dent in the number of housing units being built and I think as a whole we're really excited to just be a part of that and being able to deliver quite a few units for homeowners across the western US, I think that's kind of like from the industry side from our company side we've seen unbelievable growth. Over the past year we 5X our business in the past year we've grown our team and we're almost at 60 total employees now serving all of our markets really making sure that we have the right level of support for our homeowners across the board. You know we're beginning to look at new products. You know some of the stuff I alluded to a little bit earlier but also new markets, right? Where else geographically does the ADU concept make sense and how do we scale our business to serve there and I think it's all to say like it's a really exciting time to be at Abodu but also just to be in prefab right? The strides being made, the efficiency being made, even despite this crazy supply chain shortage, prefab is one of the shining lights really finding their way through. And II think it's really tough to point at a time over the past twenty years where it's been this exciting to be in the construction space but it's something that really drives our team's energy and excitement level and we've built a team of folks that just love solving these hard problems together.

Awesome! Thanks again, John. For more information about John and Abodu, visit Abodu.com and you can always visit us as always at prefabreview.com. Thanks again

Thanks Michael.

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