Backyard Homes Produced in China

Backyard Homes Produced in China

San Diego , CA · Member since 2018 · 87 posts · 28 votes

Here is a strategy I've been working on. I have a business where I design products and have them mass produced in China. I ordered over $200k in wholesale orders last year, so I am very familiar with the whole China production and import business. I was looking into some business models where I can marry my China import skills with real estate. I came up with buying kit homes produced in China and putting them in people's backyards. 

These homes are semi pre built and fold together to fit into a shipping container. They come with plumbing and electrical already built into the home. They can be made with any finishing you'd like and can be designed to meet local standards. There are several sizes, but I would go after a model that is 380 sqft. It includes a full kitchen, full bath, and a small bedroom.  

There are new regulations in California that allow tiny homes to be placed in backyards very easily. These homes are called auxillary dwelling units (ADU). You can read more about those rules here. If the unit is under 500 sqft, meeting fire code, and a few other small requirements, it should be very easy to build these homes. 

I can produce these homes for $11k each. It costs about $4k to ship them. I figured I would add another $5k in costs to transport the home to the end customer and assemble it onsite. That is a total cost of $20k/home. A home this size in San Diego, CA rents for at least $1,200. I verified people would be willing to live in a space like this by making a Craigslist ad. I got over 100 responses in under 24hrs (see the screenshot) so the demand is real! A unit that rents for that much should be worth about $150k, right? I figured I could charge $40k-$60k to do the whole thing for the end customer. That's a $100k value proposition to the customer. And I would make $20k-$40k on each sale. 


I have already talked to several people who are willing to buy my first sample home. I just need to do all the work to get them this home. Right now I need help finding a contractor that could help me oversee this project and a permitting people to help navigate the whole process. 

BP forum, please poke holes in my business plan! Or give me some advice on where to go next. 

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
8y

cost seems incredibly small......how much additional work is needed in setting them up?  Also, if the structure does not sit on a structurally sufficient foundation it is personal property - like a mobile home - rather than real property.  There is a huge difference in value.

Also, your valuation of the value of the structure based on potential rent does not account for the value of land, which you are not providing.  Although every case is different, in San Diego county approximately 60% of house value is land.  

Private Mortgage Financing Partners, LLC
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  • Greensboro, NC · Member since 2015 · 125 posts · 74 votes
    8y
    Andrew this is a great idea. Have you only looked into C.A or other states as well?
  • Rental Property Investor · Aviano, Italy · Member since 2016 · 2 posts · 0 votes
    8y

    Awesome idea! I can see that this will do well in similar locations where rents are highest and people are looking for additional income. Are there space requirements on yard size? Are these ADUs considered home improvements?

  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    8y

    cost seems incredibly small......how much additional work is needed in setting them up?  Also, if the structure does not sit on a structurally sufficient foundation it is personal property - like a mobile home - rather than real property.  There is a huge difference in value.

    Also, your valuation of the value of the structure based on potential rent does not account for the value of land, which you are not providing.  Although every case is different, in San Diego county approximately 60% of house value is land.  

    Private Mortgage Financing Partners, LLC
  • Marlton, NJ · Member since 2016 · 13 posts · 4 votes
    8y
    @AndrewErickson Hi, This is very unique, totaly interested and I have a question, how will you hook up plumbing / sewer / electric to your project if not in place already ? The contractor will take care of that during assembly ? Deniz
  • San Diego , CA · Member since 2018 · 87 posts · 28 votes
    8y

    @Don Konipol, yes it is just $20k for the home. It would cost another $15k in foundation and utility hookup costs plus another $5k-$10k in marketing and sales commissions. Still, it is about $40k to get a 400sqft home. 

    That is a very good point about the land valuation. I know real estate finance people have certain rules of thumb for valuing properties. However, this is a income producing asset. An asset that generates $1,000/mo ($1200 rent - fees) should be valued at $150k assuming you expect an 8% return. It's worth double that if you want a 4% cap rate. 

  • San Diego , CA · Member since 2018 · 87 posts · 28 votes
    8y

    @Deniz Cengiz, Yes, the contractor would set it up for you. You would have to dig for the utility hookups and have the city connect you. Plus you need a contractor for the foundation too. 

  • Marlton, NJ · Member since 2016 · 13 posts · 4 votes
    8y
    @andrew erickson Andrew, I’ m more or less in same position, I design and import my products from overseas and pretty familiar with the whole game plan.. it’s been awhile I want to use my skills in RE business and was considering of setting up furmished tiny home park and rent them on airbnb.. Let me know if you are looking for extra hand for your project, I can invest too.. btw, I ‘m able to source same 400 sqf home lower than $11K ( including sinks / faucets / tub ) , I can send you couple of pix if you would like to see. if you are interestef pls PM me (dont know how to do that :) Deniz
  • Las Vegas, NV · Member since 2014 · 732 posts · 137 votes
    8y

    Andrew,

    Great idea, tiny homes are the craze. Developers I know have a contract in China with shipping containers to build storage unit parks. Lots cheaper to import from China I would assume? Cost per square feet is quite cheaper that building the buildings from the ground up.

  • Investor · Syracuse, NY · Member since 2010 · 166 posts · 76 votes
    8y

    Sounds like a good idea but that comes out to about $100 per sq ft.  How much would it cost to build in place?  I would think you could do it for that and eliminate the whole hassle of shipping it in here?  Maybe Im wrong?

  • Las Vegas, NV · Member since 2014 · 732 posts · 137 votes
    8y

    @Andrew Erickson

    How is your project coming along? Very interesting and well worth perusing.

  • Kevin FoxPro Member
    Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
    8y

    Hey @Andrew Erickson

    Very interesting idea. 

    A big potential cost that I didn’t see you mention (might have missed it) is the cost of installing separate meters for the unit. It isn’t required, but certainly a big benefit from a managerial standpoint if there’s a way to make the #s work. 

    Having said that, I definitely think you’re on to something. I’m going to shoot you a PM so that we can chat about this in greater detail. 

  • Wholesaler · San Bernardino, CA · Member since 2015 · 84 posts · 15 votes
    2y

    Any updates? 

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