How do I find investors interested in higher risk investments.

18 Replies

Hey all!

I'm curious to know where I could find an investor(s) who work with riskier (more risky?) type investments. 

I'm attempting to develop a template tiny house village/community that would solve the primary issue with tiny houses for any city or county across the nation. With a few tweaks for local codes and culture.

The issue is, it's been a movement for the last 10 years and most jurisdictions aren't sure how to handle them. I have a county willing to work with my conceptual design. The design was completed by myself and a local engineering firm. I've identified the perfect property and even have 31 people (not including myself) willing to be founding residents in the Denver community.

Because this is a new industry trying to solidify itself and tiny houses have been on the fringes since their inception traditional banks aren't willing to lend toward it. VC's want 10x their money back, which defeats the purpose of keeping living costs low. 

So, I'm at a loss right now.

Thoughts?

With humble gratitude, 

Joe

Hi Joe.

This is just my take on it but VC's want 10x because they feel it's proportial to risk. Why would I put my money in an unknown venture if it was only going to return 8%-10% when I could get that in sticks or a syndication deal?

What kind of returns would your tiny home community provide?

Are tiny homes still booming? I heard a lot about them a few years ago and saw a good number of builders but it seemed to dwindle. Probably because people couldn't find places to park them or because they can't tow them with a Subaru JK.

I'd love to see what others have to say on the matter.

@Cam Schumacher - Thanks for the reply Cam. Tiny houses are still booming. There's a lot of movement on the code front and more jurisdictions are coming privy to needing changes in zoning. I've been trying to stay in the 20 - 25% rance for ROI but more than that starts removing the affordability and desirability aspects of the development. (This will NOT be another "trailer park"!!!!)

Once I can get a few of these things open and lived in, cash flow will become easier, it's getting that first one up and running. 

Towing is a thing, and it's actually funny... I drive a little Prius C and people ask me all the time how I'm going to move my GIANT tiny house. I always say I'll just stick the gooseneck in the sunroof and hold on tight!



My tiny house build

Nice tiny house you have there!

Back to your original questions. Have you put together any marketing materials for your "Tiny Acres" communities? You should look up local real estate investor meetups to find other local investors and maybe get a chance to pitch your idea. You could also create your own Meetup event. If people really have a number of people that want to move in early, can you collect reservations/pre-orders/deposits?

Tiny Acres!!! I love it!

I'll dig into meet ups, I agree. I've been involved with the SBDC and Denver Chamber. Even went through their "Trout Tank". Bombed my audition and wasn't selected to pitch.

There is an option for deposits. However, many people that I've consulted with say that deposits are just that. WHAT IF, so-n-so wants to back out and get their money back. I wouldn't feel right doing something NON-refundable. But, it's not entirely off the table.

Real Estate isn't cheap nor is the development. I'm looking for $1.8 - 2.5M. 

Not to mention... Check out Tiny House Enthusiasts - Colorado http://meetu.ps/c/2vn3x/tBrzc/... on Meetup

and what's wrong with trailer parks. They're already a proven vehicle for delivering affordable housing. They exist within a set of established codes and regulations. You could market your project as a 5 star or class A park. There's plenty of investors interested in manufacturers housing.

For the record I think tiny houses are not the best option for developing new affordable housing. I would like to see something passed in Colorado similar to this... 

https://www.google.com/amp/s/w...

eliminate mandatory SFH zoning and now you're talking about affordable housing.

@Joe Callantine

Hi Joe,

I am assuming some of the lack of Investor enthusiasm might be coming from the business model itself.

You are proposing to add "Low Cost" SFH's that are substandard to normal SFH's to keep prices low for the buyer.

Many areas already have "Low Cost" SFH's. Typically these areas are end up housing the areas High Crime Violent Type residents mixed in with the areas lowest income type residents. In short an area of the city with the least desirability to live in. They become run down quickly because the people living there either do not have the money to spend to fix them up or spend that money on other things (whatever those things may be).

You propose to build a substandard size less desirable structure than the surrounding area, which seems to indicate  (based on other similar price points) that it will quickly become one of the most undesirable places to live in that area due to High Violent Crime. You have no way to prevent this.

If you say the structures are not less desirable than the surrounding area structures then supply/demand will quickly drive prices way up. But that's most likely not going to happen.

The business model seems at odds with "Real Estate Investing". What I'm saying is the risk factor of your deal might not be the actual reason the Investors are balking.

If your goal is to provide clean, quality, STANDARD (desirable) housing to people who may have lower incomes you may wish to check out  @James Wise. He has a lot of good videos about this, and seems to have a business model that is successful.

Just my 2 cents,

Good Luck!

@Joe Callantine

This is interesting. Reminds me of something my wife and I looked at about 4 years ago in Philly. Community was buying a big plot to build a tiny home community and wanted investors to buy the units.

Why not offer this as a turnkey or new development model? And then your residents can fund the development, since they are the ones most aligned with the vision. If you rehab the tiny homes and sell them, you can make some additional capital on the spread.

If it's startup costs and infrastructure, then I imagine you would have to go the non-refundable route with this. To be honest, I don't see how you could take this kind of risk without making it non-refundable. Worst case (assuming project completion), buyers can still sell later if they decide not to live there.

Thank you for your insight @Scott Mac .

As a member of the tiny house movement, with myself building a tiny house, I'm directly and intimately connected with the needs, wants and desires of tiny house people. Tiny houses are NOT liken to the "low income" you are associating. Tiny house people CHOOSE this lifestyle. They are, more often than not, educated, employed and productive members of society. They aim to recession proof their own lives and live within their means by foregoing the amassing of material goods in exchange for life building experiences.

One banker I recently spoke with suggested that I build on the "club" lifestyle. Similar to country clubs, without the golf/tennis/etc.

@Emilio Ramirez : I am very involved with the Colorado Tiny House Enthusiast group. I know the event organizers on a personal level and actually helped one of them wire their own tiny house! (I'm an electrician by trade). I do agree with the single family zoning changes and my concept would help address the removal of such issues AND still provide people with a sense of their own private space.

@Trevor Ewen : I am attempting to create a model example, a template if you will, that can be duplicated nationwide. Getting the FIRST example of this created is the hurdle. Using founding resident funds upfront to build is still prohibitively expensive. Financing the purchase and development and repaying over time makes it easier to swallow, provides a means of security for the residents and the primary source of revenue for the development company, I.E. my company to operate toward the next community. There's an estimate 50,000 - 80,000 people currently living in tiny houses nationwide. Assuming 2 people per tiny house, that's 25,000 tiny houses on the low end. I would need to create 208 communities to meet that current demand, based on my current model. My estimates equate to about $16M monthly revenue OR $194M+ annually. AND keeping it affordable for people who already have their tiny house. This is purely based on current estimated numbers, not including new interest.

@Storm S. : While I have full intention to get paid for all the work and effort put into these developments, this is more about providing the resources and avenues needed for the growing population of people choosing the #tinylife in an effort to better provide for themselves, their families and to live a life of their making. This isn't about me. I'd certainly not complain if I were able to quit my day job and focus on simple and sustainable living on a full time basis.

@Michael Lee : Thank you for the feedback. I do agree. Meeting people face to face and looking them square in the eye is worth more than 1,000 words on a screen!

@Joe Callantine

Completely get the challenge with resident funds. 

From a marketing perspective, you may want to consider an impact investing approach. There are certain private lenders and equity investors attracted to that kind of model. Because this is more experimental, but has the eco-friendly aspect, it could definitely work to attract a different (and likely smaller) investor pool.

@Trevor Ewen : Certainly! I've explored those options as well. I've been working with the Denver Chamber and Small Business Development Center. They're take on "impact funds" is not rosey. They say that investors usually talk a lot of talk in that regard, but when it comes time to fill out that check, they're reluctant.

@Joe Callantine

Sadly, that's the reputation. I would say the private money, impact route is your best option, but it's an uphill battle. Good luck with everything. Would be interested in hearing how you manage to get this done. I think the material would be incredibly useful for others that have interest in the space.

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