Why did you choose this approach over other RE investment strategies?

HUD financing comes with HUD rules - and I am not sure this setup would be compliant. In addition to financing, there are tax credit programs and housing assistance programs - but all with nice sticky strings attached.

Interesting idea.

Are these rooms mostly single occupied? I assume these operate like a lot of man camps who just have their wife and kids somewhere far away while they work.

Stan Crowch said:

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A search for yield and a belief that a lack of affordable workforce housing is a massive issue across this country. I think the largest real estate private equity companies in the world will invest heavily in this space over the coming years. If this works the end game would be to raise a fund to put together a multi-state portfolio of these purchased on comps (probably some new builds as well specially designed for co-living) and then sell based on a cap rate.

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Have you run into issues in existing buildings that would make for a step change in yield if you were to have a purpose built structure?

Super interesting strategy, I commend you!

Fascinating stuff Stan. Did (can) you say where this is? Interesting model that clearly meets a need. I guessing these are almost all single people that don't have a lot of stuff?

Yes, all single occupants.

Rehabbing old houses isn't ideal for a number of reasons. We would definitely be looking at a step-change in yield with new builds designed specifically for this use.

Would rather not get too detailed as to location on a public forum but these are all in Texas.

Stan Crowch said:

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Would rather not get too detailed as to location on a public forum but these are all in Texas.

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I assume then these are in Odessa, border areas, and deep within immigrant heavy communities within cities that aren't NIMBYs.

Glad someone is trying to address the issue. Do y'all have a shoes off at the front door policy?

Great concept and I wish you the best of luck with this endeavor. As another poster inquired, I'd be interested in an investment once you feel the timing is right.

Have thought about this concept in my small town that is experiencing an extreme shortage of affordable housing for the local workforce. Upfront costs associated with infrastructure for parking makes the financials difficult as we do not have public transportation.

This reminds me a little of the man camps back home in west Texas. They are tearing it up right now. I've got a client who quit his job as CFO of a company to dive in full time.

How are you financing? Balance sheet lenders, banks?

We are working on these with a very well-capitalized family office. No lenders involved.

I totally get it. This is likely not a viable living arrangement for most people on Texags.

Stan Crowch said:

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We are working on these with a very well-capitalized family office. No lenders involved.

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How are they going to get their return then? I think this is an excellent idea that is probably a pioneer ahead of underwriting. The exit piece seems a little bit hard because presumably your end buyer is going to need to take out a note or you'll need to refi to pull out equity and I don't know who is offering that product. I suppose if your family office is happy to hold forever with no debt then that's that, but as somebody who sees the value in this from the private equity eye I'd love to think through the financing of this. Reading this thread was a bit of a lightbulb moment for me as the business model seems like a slam dunk.

Malibu2 said:

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Stan Crowch said:

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We are working on these with a very well-capitalized family office. No lenders involved.

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How are they going to get their return then? I think this is an excellent idea that is probably a pioneer ahead of underwriting. The exit piece seems a little bit hard because presumably your end buyer is going to need to take out a note or you'll need to refi to pull out equity and I don't know who is offering that product. I suppose if your family office is happy to hold forever with no debt then that's that, but as somebody who sees the value in this from the private equity eye I'd love to think through the financing of this. Reading this thread was a bit of a lightbulb moment for me as the business model seems like a slam dunk.

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This is certainly accurate and they are comfortable with it. This investment represents a tiny part of their portfolio and a proof of concept. I think we have determined conclusively that there is a market for this product. Now it's about determining what yield premium over traditional SFR makes this undertaking a worthwhile endeavor and whether or not we can we achieve it reliably. There is still a lot to be learned and nothing about this is easy or hands-off.

I LOVE that you are creating the market...well needed. Also the fact that you are not plastered on the Section 8 websites helps with any stigma one may have about living there.

As far as the "platform"; I assume the user T&C's states if you have x violations, then you are removed from the platform (ie. not able to live in any place managed by said platform)? If so, is there any stickyness between renters rights v short term rental rules (a la AirBnB)...? Since they are paying by the week, but can stay a prolonged period of time, the eviction/kick-out process still intrigues me...

when my wife was in nursing school she had to make some rounds to "nursing homes" and went to one place that was a large home reconfigured to a 7-bedroom "nursing home" in Katy.

The owners were there that day and explained to her that it's a goldmine, but hard to find a neighborhood that would allow them to do that. They had homes in Katy, San Antonio and Austin.

The occupants were all rich and their families wanted them in a semi-private home, not some large place where the service isn't so great. I seem to remember the monthly cost was $6,000/bed.

We figured staffing, food, utilities and insurance were the main costs.

Stan Crowch said:

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We have all walks of life. Young tech kids who want the lowest overhead possible, people going through life transitions, divorce, etc. We have refinery workers, fast-food workers, gig economy people, etc. We have people here temporarily for work. One of our homes is all women and they have become friends and a support system for each other and just love living together. It's a very wide spectrum.

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When I first move to Austin the housing market was extremely tight and apartments were way too expensive so I found a boarding house and ended up staying there for 17 years, saved a ton of money but the roomies were something else. The initial house was a ranch house built in the 50's, typical 3 bedroom and one bath but she had built two rooms at the back of the house with a separate shower and then she bought two shacks from Lowes and sandwiched a bathroom between them and those two bedrooms were not attached to the house at all, freestanding in the backyard. Maximum capacity was 7 people but two of them were living in the back yard with kitchen privileges along with use of the washing machine and dryer set up outside under the carport.

At least two or three people didn't have a car so they would ride Cap Metro and parking wasn't a problem. Landlord provided microwaves in each room and a tv, once a week someone would come to the house to clean the general areas and bathrooms.She also provided paper towels and toilet paper. One free house phone, free cable tv and internet, would bring over day old donuts and pastries. She sent over a crew to mow and clean the yard, Thanksgiving and Christmas dinner provided. Depending on the economy the number the number of occupants ranged from 7 to 1(me). The police, parole officers or paramedics were at the house at least once every six months, ranging from Austin PD to the US Marshals.

Like Stan said we had all walks of life, people getting a divorce for sure, a couple of students, people moving but hadn't found housing before they moved. But... when the economy was bad she would put parolees from TDCJ in the house or people just released from Austin State Hospital. My last three roommates were 3 convicted murderers who killed a total of 4 people and had spent 75 years in TDCJ between them. Before that group, someone from each prison gang had lived there at some point. Those guys never caused a problem it was always the low level drug user or other low level criminal or drunk who caused all the problems.

I worked a lot and so did the other occupants so it wasn't unusual to go a week without seeing everyone. Rent was 425 a month when I first moved in and had increased to 580 over 17 years, she also would rent by the week at higher rates.

Sea Speed said:

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You lived in a boarding house for SEVENTEEN YEARS? Are you celibate?

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Apologies for derailing this thread, my reply has nothing to do with real estate so I'm removing it.

So you lived in a boarding house for 17 years and now have a girlfriend of 28 years?

Apologies for derailing this thread, my reply has nothing to do with real estate so I'm removing it.

MAS444 said:

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I wish your replies weren't deleted. I'm fascinated.

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X2

Dude should write a book about this.

Sea Speed said:

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You lived in a boarding house for SEVENTEEN YEARS? Are you celibate?

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Maybe we should make sure he doesn't have a fever with the monkeypox?