Starting a Small Development Company

Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes

Hello!

I am excited to finally have enough cash to start a small development company. The idea is to buy a piece of land (0.5 - 1ac), build a unique small house (500 - 1500sqft), then sell the property, and repeat! I want to do the whole transaction and build in cash.

I am looking at doing this in a small mountain town in Colorado that has a lot of natural wonders and a growing tourist market. These small houses will be great for people wanting to rent it out as a short term rental!

Is anyone else doing this? Do you have any tips or advice?

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James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

@Vincent Pirrone I have a fear that there may be a component of "Engineers Tunnel Vision". Where so keyed into the product, that your completly without insight into the sales side of everything.

And truth is, it should be opposite, that sales should lead product.

Your talking high-end luxury, and "tiny", these are not 2 things that pair well, kind of like pineapple and peanut-butter.

I question if you've done any market studies to find (a) who the buyer demographic is in the desired price point for that market (b) what that demographics expectations are. (c) what the strength of that market demographic is in volume measure.

It just reads like a miss-match and maybe a bit too much "if I build it they will buy it".

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Dave Meyers
Developer · Cottonwood, AZ · Member since 2018 · 75 posts · 21 votes
3y
@Vincent Pirrone love this!
1 Reply
Dave Meyers
Developer · Cottonwood, AZ · Member since 2018 · 75 posts · 21 votes
3y
@Vincent Pirrone
Do you have blue prints and construction quotes already? Is the municipality friendly to development or do they make it hard to build new?
0 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Dave Meyers
I am a licensed structural engineer, so I am drawing up all of the plans as we speak!
The building department definitely seems open to allowing new construction. There are a bunch of lots for sale, and I've heard good things about building in this area!
The only issue I've heard is the well... apparently, the water table is really deep in that area. But the guys at the Colorado Water Department are a great resource, so I will be reaching out to them before purchasing a piece of land!
0 Reply
Barry Ruby
Developer · Boulder, CO · Member since 2018 · 530 posts · 365 votes
3y
@Vincent Pirrone
Hi Vincent, congratulations on your venture
The best advice I can give you is to start your financial analysis by establishing its net operating income to ensure that it produces a satisfactory return on the cash and time you invest in it
Feel free to reach out to me if you need any help in running the numbers
3 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Barry Ruby thank you so much for the advice! I will definitely reach out if I need help running the numbers!
0 Reply
Rafael Pinho
Developer · Reykjavík Iceland · Member since 2023 · 37 posts · 19 votes
3y
Sounds like a great plan! How long do you estimate it would take to complete a project in your area?
1 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Rafael Pinho I would like the project to be pretty quick, especially since it will all be cash and the house would be small. My optimistic estimate is about 4 months. Maximum amount of time I'd say about 8 months.
1 Reply
Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
3y
To me the Big Dog in the Room with things like this seems to be Equal Housing is going to apply to your little trailers....

and when investors buy 80% of them and move in junkies, hookers and ex-cons because they are cheap units--what then.

Congratulations you have just created a crime hole neighborhood (trailer park), and your dream of a little enclave of friendly tiny home dwellers who all share the same interest in owning a tiny home will become a predators vs prey situation....of move outs of the owners and selling to more investors who will do the same things to the recently vacated units.

This seem to me to what happens to cheap priced houses...or trailers...(Which I believe you mean when you say tiny house).

You can't steer certain buyers to your neighborhood and steer others away, the Federal government won't allow it.

Because of the low price point and the (lack of desirability for most mainstream buyers to live in them) I think they will soon turn into very low cost dangerous slums (like some standard trailer parks are) with endless Police problems.

Just my 2 cents.

1 Reply
Rafael Pinho
Developer · Reykjavík Iceland · Member since 2023 · 37 posts · 19 votes
3y
Quote from @Vincent Pirrone:

@Rafael Pinho I would like the project to be pretty quick, especially since it will all be cash and the house would be small. My optimistic estimate is about 4 months. Maximum amount of time I'd say about 8 months.
When you say "a unique small house" what features would you be focusing on? Do you think a cool design, or sustainability/energy efficiency would add considerable value?
0 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Scott Mac I am going to be building high end luxury timber framed houses, then selling to investors for a premium. Definitely not attracting crime..
0 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Rafael Pinho I'll definitely be focusing on the design and efficiency of the house since they will be in mountain towns.
1 Reply
Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y
Quote from @Vincent Pirrone:

@Rafael Pinho I would like the project to be pretty quick, especially since it will all be cash and the house would be small. My optimistic estimate is about 4 months. Maximum amount of time I'd say about 8 months.

It's going to take you 12-14 months.
1 Reply
Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
3y
Quote from @Vincent Pirrone:

@Scott Mac I am going to be building high end luxury timber framed houses, then selling to investors for a premium. Definitely not attracting crime..

How can they be high end if they are (tiny), the high end segment seems to want uniqueness and showy, tiny = poverty...

Who is your target market....Mercedes E drivers wish they had an S....but won't (or can't) spend for it.
Who is the target market, or is it if you build it they will come?
1 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Scott E. I actually built a 950sqft guest house in about 8 months during the pandemic when things took forever to get there! So that is where my timeline predictions are coming from.
0 Reply
Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
3y
This is a high end mountain home--it s not (tiny):
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
@Vincent Pirrone I have a fear that there may be a component of "Engineers Tunnel Vision". Where so keyed into the product, that your completly without insight into the sales side of everything.
And truth is, it should be opposite, that sales should lead product.
Your talking high-end luxury, and "tiny", these are not 2 things that pair well, kind of like pineapple and peanut-butter.
I question if you've done any market studies to find (a) who the buyer demographic is in the desired price point for that market (b) what that demographics expectations are. (c) what the strength of that market demographic is in volume measure.
It just reads like a miss-match and maybe a bit too much "if I build it they will buy it".
4 Reply
Greg C.
Member since 2022 · 40 posts · 34 votes
3y
The fact that there are a bunch of lots available in this Colorado town would actually make me a little nervous, although the idea seems creative and interesting.
There are places here in the Smokies and Blue Ridge Mountains where subdivisions have been platted for smaller houses, but none were ever built. I have seen lots of these parcels on delinquent tax lists, and even some listed with Realtors for under 10k with little interest from buyers. I think the issue with these subdivisions is that they were always speculative without a committed buyer base.
I'm not a developer, and what the OP is doing seems very novel, but I am not sure who the target demographic is for something like this. If investors looking for STRs are the desired buyer, will these units be offered at wholesale prices? Are there other comps nearby that are similar in size that could be used to demonstrate proof of concept? How accessible would these tiny homes be 9 months out of the year to tourists?
1 Reply
Rafael Pinho
Developer · Reykjavík Iceland · Member since 2023 · 37 posts · 19 votes
3y
@Vincent Pirrone aren’t you talking about something like Isaac French’s Live Oak Lake?

2 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@James Hamling I appreciate your insite! Engineer tunnel vision is definitely something that happens to me sometimes, but the plan is to market these as vacation rentals. Especially if I can build more than 1 on the property.
0 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Greg C. The neighborhood I'm looking at has a good mix of vacation cabins and hunting cabins along with residential houses. There are good comps in the neighborhood, and access to the area should be just fine most of the year. Even in the winter, the town isn't too far from big ski towns.
1 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Rafael Pinho yes! Definitely channeling that modern style of tiny house, I would even like to build multiple on the same lot if possible!
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
Quote from @Vincent Pirrone:

@James Hamling I appreciate your insite! Engineer tunnel vision is definitely something that happens to me sometimes, but the plan is to market these as vacation rentals. Especially if I can build more than 1 on the property.

But that's the crux of it all.
What makes many STR's perform at the level they do is there uniqueness, and supply/availability directly ties into that.
So the more you make on any 1 site, is at the sacrifice of the groups uniqueness, and self-competing.
Not to say a few will drop rates significantly, maybe not, but your words here are of site DEVELOPMENT, and development intones an idea of on-scale, a multitude, and a multitude in close proximity for STR is just a resort, or a detached motel of sorts.
And with that comes the risks of suffering the woes of resorts and motels, and that is you MUST keep occupancy UP, as it forms a kind of feed-back-loop. So as I said, I think you may be a bit too product focused at this point and not enough sales and marketing side focused.
Of first knowing do you have market demand to justify the product. When mini-storage sites go up, there is no guess work, they have done feasibility study and know exactly the market demand in the now, near future, long term, and they build to that. The feasibility study dictates the unit sizes and assortment.
I have looked over your posted former project, looks great, but a cluster of them would diminish the value of such and with each added one, diminish it more.
When doing a "development" as your talking, which being STR it's not a development, it's a resort. So, if want to find success in operation, follow the rule of Resort Development, not SFH development. Owner occupant and tenant occupant is a whole different universe from STR occupant especially when talking Resort.
Look up such places, they are strategically placed to significant tourism draw areas. They have certain community amenities, features. because again, "A" STR and a resort of STR'S is a completely different thing.
2 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
3y
OP congratulations on your investments. Your numbers look great. Love the Covid period build. People like location, rocks, water, trees, walk outs. You nailed the trees leaving them standing and the walk out. Can't tell location. Nice crisp structure. Expand on your landscaping appeal with boulders and water features for easy curb appeal.
You have a business model already. Your next step is to make a plan to scale, if that is your desire. Your biggest issues will be financing and construction team. Pick a team you enjoy working with. I would reach out to several Real Estate Agents and tell them the type of properties and towns you're interested in. That way they will keep feeding your funnel.
Congratulations.
Start small and Make Your Big Mistakes Early.
1 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@James Hamling thank you so much! I will definitely look into it further!
0 Reply
Vincent Pirrone
OP
Developer · Denver, CO · Member since 2017 · 55 posts · 19 votes
3y
@Henry Clark thank you so much! I'm very excited for my next journey!
0 Reply

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