Tiny House, Big Returns: The Financial Potential of Tiny House Communities with Steven Harrell

Artwork for podcast Truly Passive Income

Episode 68 • 23rd September 2024 • Truly Passive Income • Truly Passive LLC

Stephen Harrell: 00:00:42

We're pretty vertical. People come to our website and they learn about tiny homes. They learn about our tiny homes that we build.

We get on the call with them, we let them know, hey, we build them a home, we transport it, we set it up, and then it's on the land that we own. So literally we're connecting the dots for them.

Neil Henderson: 00:00:56

Welcome to truly passive income. I'm Neil Henderson.

Clint Harris: 00:00:58

And I'm Clint Harris.

And today we have a friend of ours, Stephen Harrell with tinyhouselistings.com comma, also owns the company tiny house listings, building and manufacturing tiny homes right here in Wilmington. Stephen is a friend of ours been coming to our local meetup. We hosted one of our alternative investing mastermind meetups at your facility.

It was one of our more well attended facilities. And because you're local, actually have you in the studio today for a conversation, which is great. So thanks for being here. Excited to have you.

Tell us a little bit about, let's just get started with who you are, what you do, your background with tiny houses and kind of the scale that you've taken that to.

Stephen Harrell: 00:01:32

Yeah, man, you know, man. Stephen Harrell. And again, like I said, I'm the owner of tiny house listings.

And so I've been doing this for about 15 years now and I've been kind of around since the beginning of the movement. Just like there was a handful of people that kind of were around when the tiny house movement started.

And I was luckily positioned myself to be there right when it all started. So the whole thing, we kind of started out as a marketplace and we've kind of grown beyond that to where actually manufacturing them now.

And I'm sure we'll get into all that. But yeah, I mean, I would definitely say tiny homes are my career because I've been doing it for so long. I have a twelve year old daughter.

She doesn't know anything else that her dad does other than tiny homes. So it's kind of interesting. But yeah, I made it to win it with tiny homes.

Neil Henderson: 00:02:06

When did you start the company?

Stephen Harrell: 00:02:08

you know. Well, I started in: 2009

I was living in Denver before then, and I had a marketing agency and I had kind of just fallen out of love with that whole thing and I really was in love with it. So I just kind of packed up my bags and headed back home because I'm originally from New Bernth, not far from here. When I did.

I kind of came across the concept of tiny homes at that time. My good friend Kent Griswold, he owned tinyhouseblog.com. that was really the only tiny house resource at the time.

I always tell the story how it's funny because I'd go on the website and just hit refresh, like waiting for a new one to be featured for that day.

Clint Harris: 00:02:42

Right?

Stephen Harrell: 00:02:43

I eventually reached out to him, told me my plans, told my plans what I was going to do and launch a marketplace. He's like, well, there's no tiny homes out there. It's like, okay, we'll still launch it because I failed at the time.

know, still the fallout from: 2008

It was still this infancy, but, you know, all those things kind of came together, was like, man, this would be a good way to do it. So he mentioned me on his website, and that was really how I got my start in the tiny house.

Neil Henderson: 00:03:09

So what was the opportunity, can you recall with the opportunity you saw?

Stephen Harrell: 00:03:13

Yeah, I mean, like, there's a lot of people, again, at the time, we're uncertain.

And then also, you know, Airbnb was kind of coming along at the time, and it felt like to me at the time, I kind of had my head wrapped around it that people were starting to prefer experiences over things. And I'm sitting there thinking like, okay, what is the biggest thing that most people have? And that's their home.

So if your house is downsized, all of your belongings will naturally downsize as well. So what better way is to have a tiny house takes ten minutes to clean up, lock your door, and you're out the door.

And then you go to Airbnb, you go do the things that you guys are always talking about, being nomadic, whatever, right? Very limited expenses while you're gone. And so I started seeing all that.

I'm like, okay, the real estate fallout, there's a lot of ups and downs in the market. I kind of felt like a lot of people just don't want to ride that.

Someone's like, wow, you could pay cash for a home or finance it really quickly and just pay it off in a few years. All that came together in my head. I don't know, all the stars line. I'm like, something's going to happen here.

I feel like this is tiny thing is going to be big. So I hopped on.

Clint Harris: 00:04:10

So a couple of things that I want to say upfront here, before we get too far down the track, Neil and I are aware that the name of this podcast is truly passive income. Right.

That having been said, there's a lot to unpack with what Steven has been able to do or what the marketplace they've created, the houses that they're building, and the opportunity and the way that we've seen a fad really grow into its own niche in the market. And theres a lot to talk about there.

And I think that theres a big part of that on the back end of this conversation that puts people in a position where we can have the discussion about how this could potentially be a passive investment. At the front part of this conversation. This has been something that youve very actively built over a 15 year period.

This is something we havent talked about before.

So lets unpack the economics of the projects, the marketplace, everything else, and then keep in mind, theres always a tie in at the end from an educational standpoint as to what this looks like for an investor and understanding that it may or may not be passive. And its always on a scale, right. I want to make sure that people understand who we're talking to and the marketplace that we're talking about.

So tinyhouselistings.com is the equivalent in my mind. These are my words. But it's the zillow of tiny homes.

Stephen Harrell: 00:05:20

That's right.

Clint Harris: 00:05:20

Like this is the marketplace. You are selling more tiny houses than any other marketplace, maybe more than all the other marketplaces combined.

What kind of numbers are we talking about in terms of houses that I know you're building them and you're using your marketplace to sell them. But on your marketplace, how many transactions are we talking about here?

Stephen Harrell: 00:05:40

So as of today, we're coming up on about 30,000 tiny homes that have been sold through the west.

Clint Harris: 00:05:44

30,000?

Stephen Harrell: 00:05:44

30,000. And we have the traffic, we have the measurements and the data and the analytics to know like the average price, average size, all that, or whatever.

So yeah, we're coming up with about 30,000.

Clint Harris: 00:05:53

So obviously this is an astronomical number and it's not going anywhere. I'm 41 years old.

I can remember when tiny homes first came up because it was conversation around the dinner table when I was at home visit in my family. It's, oh man, look at these tiny little things.

And it people immediately start visualizing, and for some reason it's cooler than an rv, the same size, right. But people are like, oh man, we could go live down by the river like my parents always wanted to retire to the mountains.

They want to have a vineyard and, like, live by a trout stream and all these things, right? It sparks imagination, and it creates a narrative, and people buy into the story. It's romanticized.

So I kind of thought at the time, foolishly, I was like, this is a fad. It's cool. Let's see how long it lasts.

And then we've watched this go through several different phases, and it's really a combination of what bad fiscal policy in the United States has done to the ability for people to afford housing that for the next five to six years, with the exception of what we're talking about here, it really is less expensive for most people to rent than to own a home. The dream of home ownership has been crushed for a lot of people, especially depending on where you are in the country. Then we had Covid.

Zoom was already there, but the ability for people to work location independent changed significantly faster way than it was going to. We probably had ten to 15 years worth of change of people being able to work remotely. That happened in the twelve to 18 month period.

And then you have technology, you have Starlink, you've got solar, you've got the ups and downs that come with potentially being off grid, and that technology has really come a long way. And then on top of that, you have, what's, you know, is my background, which is what's happened in the short term rental market.

And the short term rental market really push tiny homes out there as an opportunity for people that can't afford a beach condo or a house and use it as a rental. You can get a tiny home for like 60 to 80 grand or something like that, sometimes multiple, and create a tiny home village.

And just what you said, even for people that may not want to live in one all the time, they want to experience that. And it is an experience, right? It's not a hotel. It's a whole experience going there and being part of it.

You got people trying to put stuff out on social media and Instagram. So we've watched this giant, like, this tiny home movement has morphed into something that's significantly bigger.

It's a solution to the housing crisis. It's an affordability situation. It's opportunity for people that want to work remotely and travel.

It's a low barrier for entry for people trying to get in the short term rental movement, it's something that's not going away. So where do you see this going? Who's your number one consumer?

And then what are the ideas that you have with what you're doing in ways that you're taking this and turning it into an investment vehicle.

Stephen Harrell: 00:08:36

Well, as far as where it's going, I see this as being a permanent housing category. Now, tiny homes are a category.

You know, you got townhouses, multifamily, whatever this is there, it's kind of like reach the saturation point permeated culture to where it's not really going away.

So, like, if someone's in a certain situation financially or if you're an investor, you're going to at least default or at least have that in your back pocket thinking like, okay, this is a good way to go in terms of a solution for housing. But, you know, I do see there has been for many, many years as far as, like, how am I helping out with all this?

Parking has always been an issue, these signing homes, a place to put them, right.

So if you're an investor, if you're someone like myself who's in the business, you see the communities as an excellent way to have somewhat passive income and also solve a solution. Because, you know, if. Let's just kind of give you a quick example.

Clint Harris: 00:09:24

Please do.

Stephen Harrell: 00:09:25

Yeah, you know, like, I recently bought, I'm actually about to buy another one, an rv park, older rv park. And a lot of times those zoning and building restrictions are grandfathered into that piece of property.

So when you buy that, you're buying that ability to quickly be able to put tiny homes into that property. Now, if we talk to so many people, we have so many sales calls. I have one on the way over here.

There's a lot of older people and younger people, too, and they can't figure it out. They can't connect the dots between buying the home, getting it there, you know, getting the land, the zoning. They just can't connect it.

So there's a lot of pain points, or there's a lot of pain there.

So if you're someone who can solve that, if you can figure out a way to get it to where people can put their tiny homes on your property, that is an excellent way to solve a problem while also having a good source of somewhat passive income.

Neil Henderson: 00:10:11

So you brought up such a great point here, and I want to make sure that people understand it. In many ways, buying and building tiny home is the easy part. Like you said, the hard part is where to put it.

Stephen Harrell: 00:10:21

That's right.

Neil Henderson: 00:10:22

There's a lot of municipalities that are hostile to them because they view them as mobile home, or they just have housing requirements that they feel the tiny home doesn't meet. They've got their own local regulations, things like that. So how are you helping people solve that issue?

Stephen Harrell: 00:10:39

So we're pretty vertical. I mean, people come to our website and they learn about tiny homes. They learn about our tiny homes that we build.

We get on the call with them, we let them know, hey, we'll build you a home. So they found out through tiny house listings, they found out about us.

We build them a home, we transport it, we set it up, and then it's on the land that we own. So literally, we're connecting the dots for them. So we laying out a roadmap to like, hey, here's how you can live tiny.

And for your audience out there, people who want to get investing with tiny homes, that's excellent plan. We're working with multiple tiny house communities throughout the country that we're building for.

So we hop in on those calls and we help solve that solution. So that's kind of how we're doing it.

We're kind of doing it from beginning to end solution for people who want to go tiny house that, quite honestly would probably not be able to connect the dots and figure it out themselves.

Clint Harris: 00:11:25

Yeah. So you're building these communities. Talk to us about so people understand, like, what kind of amenities are in place.

Who's the average consumer moving in? Like, are they retired? Are they working? Give us a background for people that may not be familiar with the tiny home community.

Stephen Harrell: 00:11:38

Yeah. So the tiny house communities.

The great thing about tiny house communities is most people prefer to live in a rural environment to be outside of the city. That's what we're finding, at least. So if you're an investor, you can purchase land for cheaper but still charge primary market prices. Right.

So the biggest demographic that we're seeing are people who are retiring, about to retire. But the biggest single situation is that they're selling their home and they're taking the money from that home and putting it into their tiny house.

Someone has come to some sort of life event where they're at a crossroads and they're ready to make a big downsize in their home, and that's when they come to us.

Clint Harris: 00:12:13

Got it. This is creating, you're potentially shaving years off of a retirement plan.

There are a lot of people, unfortunately, that have realized the hard way that most of us are no longer a way to save our way to retirement. A lot of us are one health event away from your plan going out the window. And this is a new option.

If people realize they could go tiny, taking your phrase. I love that they could go tiny and shave five to seven years off of a retirement goal that they may never have reached anyway.

And it's still inspiring a sense of community. Right. People in that community that are still connected in a meaningful way.

Okay, so then I love the fact that you solve one of your own problems, right. You're a marketplace. Then within that marketplace, you're using your own marketplace as a manufacturer to put your own facilities out there.

And one of the problems was people didn't have a place to put it. Right. So then the next step is like, how do I solve this?

How do I create a community where I can sell a tiny home on my marketplace and it can go straight into this location and basically fill it up that way? Talk to me about the investment strategy that you're seeing overall.

So, like, you're looking at these basically defunct rv parks that are sitting on the market that are probably lackluster. Nothing's happened there in a long time, but it's zoned appropriately.

Either the infrastructure is there or you have the permitting, zoning, and you can do the engineering and put the infrastructure there. So you're selling the tiny home to the people that are staying there and then they're renting or leasing. Right.

So there's a lot fee and I'm sure that they can get the property up and move it, but it's being installed in a way that it's likely going to stay there for years, if not longer.

Stephen Harrell: 00:13:48

The larger the tiny home, the longer the likelihood that it'll stay there.

Clint Harris: 00:13:52

Okay.

Stephen Harrell: 00:13:52

Right. So there's some that we're putting in there. They're only 20ft long, 8ft wide, very, very mobile.

There's a good chance they might stay there for a year or two, which we require a year lease, and then they might move on, which is part of the original allure of tiny houses. Right. You got to think most people used to live in the same house and have the same job their whole entire lives.

That's definitely not the case anymore. So why not have a home that kind of matches that lifestyle? Right, but the people that are older. Yes, for sure. They most likely.

We've heard this is going to be the last place I stay before I moved to a rest home or whatever. Right, so we've heard that a lot. But yeah, the defunct ones, the people, there's a lot of baby boomers who started investing in rv parks in the.

During the hippie movement and all that. And they've aged out.

Clint Harris: 00:14:28

Right.

Stephen Harrell: 00:14:28

So they're ready to move on.

So that is going to be your primary target if you want to go for an rv park where it's kind of over the years, like you said, going up somewhat defunct, the paperwork's not in order, the financials aren't in order, and you can kind of get in there and do what you got to do.

Clint Harris: 00:14:40

So this is pretty interesting, and I don't want to talk down to this by comparing it to a mobile home park, but there is a similarity in the fact that the value of a mobile home park is typically determined by the net operating income. And you've got a couple different ways that mobile home parks work these days.

It's become a very popular strategy over the last five to seven years, a big syndication group coming in, buying mobile home parks that a lot of times they own the park and they own the mobile homes in the park, and they're typically their rundown. The people living there are renters, so they're not taking great care of it.

And the model is you fix them up, you make them nice enough that you can sell them, hopefully to the people that are already living there.

So they're buying the mobile home, even if it's cheap, you're shifting the burden of maintenance to that person, and they own it, but then they are still paying for the lot underneath it. You're making two, three, $400 a month per lot, and then you have 100 of those, whatever it may be, right? Maybe a thousand. Who knows?

You might buy the RV park that is defunct for, call it a million dollars or whatever, but the real value of that facility is based upon the net operating income. So then you're selling properties to people in their nice new, tiny homes with very little capital expenditures because they're basically brand new.

Those people are living in there and they're paying you for the lot. And so now you're creating a lot of value in that piece of dirt. And that is value that you can borrow against. You can leverage.

You could refinance eventually, you could sell that if you want to, but it's, you're buying it as one thing and basically converting it into an entire community that has a net operating income. Once it has a stabilized net operating income, it drastically increases the value. And it's not predatory.

You're giving these people a place to live, you're giving them a community. You're doing it in a way that's helping people, and you're creating a lot of value out of thin air while also solving your own problem.

And the problem for these people is to like, yes, I can buy this, but where can I put it?

Stephen Harrell: 00:16:35

Yeah.

And if you don't mind me hoping it real quick, the biggest difference between mobile home park and tiny house community living, very, very similar, except most people who move into a tiny house community have some expendable income and they have passive income somewhat, whether Social Security or whatever. So if you're in a mobile home park, you have to be close to some sort of employment, right. You have to have some sort of opportunities.

People in the townhouse community, they're moving there because they have an option, right. And so, you know, for example, all of our tenants are on auto pay. They have to be on auto pay.

We don't allow any check receiving or anything like that. And it makes it really easy.

And we always know that people are having their Social Security check, retirement check, you know, 401k, whatever it happens to be.

So that's the biggest difference you can be out in the country, away from, and you just need some Internet and a little bit of facilities, a piggly wiggly Walmart, whatever, somewhat close by. So there's a big difference between that, because let's just say if your tenant gets fired and their blue collar person, whatever, not talking down.

I'm just saying they're kind of on the fringe somewhat. A lot of time. That is definitely not the case. So if you're an investor, there is more stable income coming in.

Neil Henderson: 00:17:35

So one of the interesting phenomenons I think we've seen over the last, let's say, three decades is that most people have not saved enough for retirement. Most people have the majority of their net worth tied up in their home. People bought a home back in the seventies, and it's appreciated in value.

But at the same time, we're in an era post pension. Some don't have pensions unless they're in the military or an old school union shop that still had pensions. But those are few and far between now.

That's the crisis that I kind of see coming up with a lot of these boomers is there's a great many of them that maybe have an additional, I think the average amount, what the average savings for retirement was for baby boomers, it was like $180,000.

Clint Harris: 00:18:22

It was less than 200 grand.

Stephen Harrell: 00:18:23

I don't have to live on it.

Neil Henderson: 00:18:24

No. Unless you sell your house that you have a bunch of equity in for, let's say three, $400,000 you own free and clear.

And now you downsize to the point where you significantly lowered your expenses, your living spaces and things like that.

Clint Harris: 00:18:39

Yeah.

Stephen Harrell: 00:18:39

And you know, moving into a tiny house community, for example, if you sold that home that had the equity in it and you want to retire and live off that income, the amount of money, in my opinion, that you would save by living in a tiny house could be the difference between actually having a life to where you can travel time to time, right? Because just because you own a regular home doesn't mean you don't have those taxes and those ongoing expenses.

So that downsizing, you're just talking $500 a month in lot rent, a little bit of insurance, because with our parks, everything's included, right? So you're just kind of moving there and it's all one payment.

That could be the difference between having a quality retirement where you can actually still go do things and have the income left over, versus not being able to.

Clint Harris: 00:19:16

You know, it's funny you bring that up. Abby and I had lunch together yesterday. That's my wife, and we were talking about. That's kind of on our horizon.

We got a four year old and a one and a half year old. Like, look, over the next couple of years, let's split it up.

Let's take a couple months every summer, and, like, while they're young, like, this one's going to be North America, and then it's going to be a South and Central America, and it's going to be a western Europe, and it's going to be a Australia knew.

And then it was like, you know, what if we're looking to do that kind of travel, like, kind of get weird with our life and give our kids exposure to different cultures, and so hopefully they create a sense of empathy and gratitude and see, realize how great we have it here by seeing other things, other places. I was like, man, we live on an island at the beach, and it is not the most expensive place, and we don't have the most expensive house.

But if you think about, like, okay, I'm going to be gone a couple months out of the year, and just like, I don't want to rid out our primary residence, and I'm just going to have thousands of dollars of outlay that we're just paying just to have this place here. It's like, ugh, you're paying on both ends. Like, even if you're doing inexpensive travel, but you've got this big fixed, you know, expenses at home.

I was like, boy, I really see the benefits of. I was like, babe, we just had one of those moments like, let's sell everything and live out of a duffel bag and just travel right.

Neil and I interviewed someone recently who did that. He sold, you know, $20 million for the self storage facilities. And he's like, yeah, everything I got is in this duffel, in this backpack.

And I've been in Brazil for six months. And I went home, and I was like, babe, let's sell everything.

The reality is, I jokingly started a conversation of, like, what do we want out of our life and what do we want to do? And the reality is, like, for a period of time, all you really need is a home base.

Inexpensive home base so that you're not all the money you're saving on travel and doing it inexpensively. If you got five, $6,000 a month in bills at home, like, that's not changing the financial velocity of your life in a meaningful way.

You're just spending a little bit more than you would if you'd stayed home.

And now you're talking about the parity of, like, okay, these people can have a place that they're paying lot rent, and they're like, they've got some stuff there, and it's a place that they can come back to and they can step into, but it's the difference of, like, otherwise, they would have their equity tied into a home.

They'd be staying in one place, and they would still be living on the dreams that they had about what they wanted to do in retirement, but they can't afford to do it because their equity is locked up in a house.

And it's the difference of being able to unlock that, still have a home base and open yourself up to have the kind of retirement that you really want to. Yeah.

Stephen Harrell: 00:21:28

And another option, too, is while you're gone, why not stick a adu in your backyard if you decide that you want to stay in your home, right. That way, when you're gone, you can go ahead and rent that thing out and help offset some of your house expenses.

But, yeah, no, I agree with you 100%. I mean, the biggest theme I've heard of people who sell everything and travel is they regret not having home base.

So I would definitely say, keep your home base, Mandy.

Clint Harris: 00:21:47

Yeah, but. Especially with kids. But, yeah, but when you walk home and there's toys everywhere, it's like, let's torch it all.

Stephen Harrell: 00:21:54

Let's get out, put in a rubber made container outside.

Clint Harris: 00:21:58

Yeah.

Neil Henderson: 00:21:58

I feel differently about this than my ten year old does, but I hear you, Clint. I have this thought in my head all the time. We live in a vacation home.

Essentially, when we bought it, it was a vacation rental we bought it fully furnished and I have had the conversation where I'm like listen, let's depersonalize it. If were going to travel, lets take it the summer, lets go the high season and lets rent out the whole place for a summer.

Which should theoretically pay for the home base for the entire year if we rent it out for the right price and go and travel for a summer. I do get pushback from the wife on that.

And the ten year old, my ten year old son whos like I like my toys and my wife who has nightmares of trying to like depersonalize the house and hack it all up into.

Stephen Harrell: 00:22:42

A storage facility for do it now though because once my daughter is twelve and she's about to go on 13 and now she's starting to get her little friends and stuff.

So it's like we used to go camping on the weekends, now it's like I don't want to go camping, I want to hang out with my friends and spend the night with them. So it's like okay, that happened overnight pretty much. So now it's like oh man, I guess the fiance and I have to go travel.

Clint Harris: 00:23:00

Yeah neil, I've seen people do that, right? I've seen people buy a house.

It was like well we can afford this but we really have to rent it out for a couple months during the summer and we like to travel anyway. That's something you do once or twice and then after that it's like oh boy. That is not just from the outside looking in.

I'm like there's no way that's not worth that.

Neil Henderson: 00:23:15

It's complete lifestyle shift on depersonalizing the house.

Clint Harris: 00:23:18

So this rambling conversation that we've had for the last two minutes, this is a great example when you find something new, a new asset class that has different financial implications than any other thing that you've had. Like we all have to have someplace to live. The average american right now is spending 35% of their income on their housing expense.

So if you're young and you can find a way to eliminate that through house hacking or something like that, you just gave yourself a 30% to 35% pay increase and you ain't getting that from your starting job, I can tell you that. But the point is when you open up something like this, let's call it a can of worms of like you open up this whole new idea of this conversation.

Everybody, there's three of us. You do this full time. Neil and I know just enough to be dangerous from being friends with you and your wheels start spinning.

Like, wait, what does this mean? What does this mean for the way I get to spend my time?

What does it mean for the way that I get to interact with the world around me and the people that I know and the places that I want to go and the memories that I want to create? And I think this is a great example of, like, we've gotten so pigeonholed with, like, this is the cost of living in the US, and this is what it is.

This is a whole different asset class. And anytime you have something like that, it opens up new opportunity, and everybody's got to just be aware of it. Use it as a tool in your tool belt.

And does this fit in with the life that you're trying to create for yourself? There's always a bigger conversation that we like to have here as how does this work in terms of business verticals?

You've got it pretty well covered. You own the marketplace. You're manufacturing, you're doing community development. Let's talk about scale.

Again, keeping in mind this is called truly passive income. Let me tell you what I see, and you tell me if I'm wrong, is that you're on the way to bootstrap your second rv community.

Now, I know you've looked third. Okay, third rv community. Now, that's going to be a tiny home community. And I know you've looked at a handful in between then.

Probably a lot more than I know about. In terms of the ability to scale, this is a need that's widely documented and it's easy to recognize.

This is something that's probably already sweeping the nation and is going to continue to do that.

Stephen Harrell: 00:25:15

Yep.

Clint Harris: 00:25:16

In terms of the ability to scale, this, in my mind, at some point, the bottleneck is probably capital like either finding the locations, because towns are probably not creating new rv parks, mobile home parks.

Stephen Harrell: 00:25:27

Just the opposite. Just the opposite.

Clint Harris: 00:25:28

Yeah, they're shutting them down, and it's getting harder to find. So you find the ones that are out there. It's a limited commodity, which means the prices are probably going up as this becomes more popular.

Stephen Harrell: 00:25:36

Absolutely.

Clint Harris: 00:25:37

And it's going to become a capitalization issue. You can only bootstrap so many before you're either looking at a joint venture, a debt fund, syndication, capital raising.

Talk to us about the vision of the movement, the ability to scale, and what that looks like in the future and anything that potential investors should be on the lookout for over the next five to ten years.

Stephen Harrell: 00:25:57

Well, the first thing I would say is, if you're an investor, what is your goal, like, do you need 10,000 a month? Passive. Do you need 20? Do you need 50? What do you need? Right. If you only need ten, you can do that in one park. So you don't really need to scale.

Right. If you have much higher ambitions, like myself, you need multiple parts. Right.

And it's going to be very difficult to find enough to scale at least what I want in one area. So you're going to be traveling. Right.

Clint Harris: 00:26:19

Okay.

Stephen Harrell: 00:26:19

So for me, my goal as of: 2024

So now, for the most part, I can focus on the marketing of my business and I can focus on, you know, looking at these and trying to find deals and traveling to them. Right.

So if you're wanting to scale, it's going to be the capital, like you said, but it's also going to be the time because you're going to be traveling. I need to go buy, like, a crop duster so I can hop in that thing and travel around the southeast or whatever. Right. So I have more time.

Clint Harris: 00:26:49

Get you a tiny plane.

Neil Henderson: 00:26:50

Yeah, we have to drive. I played yet. As long as you have a leather helmet and a scarf, that's all asked.

Stephen Harrell: 00:26:54

That's it. Yeah, that's going to be definitely capital.

But if you want to give your audience something they can sink their teeth into, we can run over the numbers of that one part that I have up to.

Clint Harris: 00:27:02

Absolutely.

Stephen Harrell: 00:27:02

Okay. So you might break out your calculator on this one, or you guys do this so much, you could probably figure it out the top of your head.

So I paid 380 for this one, and I've got 50 in capex. So what does it put me at? 430.

Clint Harris: 00:27:13

Yep.

Neil Henderson: 00:27:13

Yep.

Stephen Harrell: 00:27:14

And I bought this in, let's just call it April. And we're up to 14,000 a month right now. Operating expenses are very low, only 20%. We do the management in house, all the property management.

So I went from 430 to what, in four months?

Clint Harris: 00:27:28

So 430 is total and you're bringing in 14 grand a month. And 20% of that is operating expensive. So 14,000 times 0.8 is 11,200 times twelve a year.

And then let's say that the valuation on this is at a seven cap. That sounds right. 0.07. Your valuation on that stabilized park, bringing in $14,000 a month with a 20% expense ratio, is 1.9 million.

Stephen Harrell: 00:27:50

So in four months, I add a 1.5 million.

Clint Harris: 00:27:52

Is that counting the money you made from selling the tiny homes?

Stephen Harrell: 00:27:55

No.

Clint Harris: 00:27:56

There you go. This is 1.9 million in straight up value created out of thin air by establishing a net operating income.

So you could refinance this for 50% loan to value, and you could pull out $850,000 in cash.

Stephen Harrell: 00:28:11

Yep.

Clint Harris: 00:28:11

And, excuse me, $950,000. Yep. $950,000 in cash. So more than twice what you put into it. Tax free, by the way, because there's no capital gain because you didn't sell anything.

And that's likely. This is the Burr strategy for anybody familiar with biggerpockets. And you're doing the Burr on single family homes.

You're buying this piece of dirt, you're selling the homes and making money selling the homes to the people in that community. You're establishing a net operating income in that community at a seven cap, that puts a valuation on the property of 1.9 million.

You could refinance that up to 70% loan to value, but obviously, we're in a high interest rate environment. You don't want to stress the asset. You want to make sure it's going to continue the cash flow.

If you refinance to 50% loan to value, which will cash flow all day long, even after the fact, you're going to pull out $950,000 tax free to move on. And that's your down payment for the next property, or whatever it may be. Right. And you're generating that cash flows.

I think the trick is there's a lot of things here. Right.

Obviously, the benefit is that the vertical integration of you developing the community, and also, like, I'm sure that you're only going to sell, you're only going to allow people to move into that community that are buying a tiny home from you.

Stephen Harrell: 00:29:20

Yeah. Multiple reasons. One, first of all, we want that revenue, but also we want that quality assurance.

Clint Harris: 00:29:24

Sure.

Stephen Harrell: 00:29:24

Right. We don't. Someone to plug their tiny home in, and it catches on fire and burns the tiny house right next to them down as well. So.

And the good thing about that is we have preferred insurance people. So a lot of people, I can't find insurance. We give them two or three numbers, and that's another thing. We helped put together everything for them.

Clint Harris: 00:29:37

Four to five months, and you've created, basically $1.5 million worth of value out of thin air.

Stephen Harrell: 00:29:43

Well, we're doing 40 more spots out there now. We're getting the septic permits and all that. There's already spots out there. So if you want to add that number in, that'd be. What's 625 times 40?

That'd be like another 25,025 grand a.

Clint Harris: 00:29:54

Month on top of the 14.

Neil Henderson: 00:29:55

Yeah, it'd be 39 even at 25% expense ratio.

Stephen Harrell: 00:29:59

Yeah, but we're very low because we do all of that in house.

And so what we're doing now is we're going to have one spot where someone who lives there full time is going to take care of all the maintenance and all that.

Clint Harris: 00:30:07

So caretakers, even if that expense ratio jumps from 20% to 25%, you're adding those 40 spots at 625 a spot. That's put you an noi of around 29,250 a month.

So at the same thing, if we're looking at a seven cap, guys, that's $4.9 million worth of value you could.

Neil Henderson: 00:30:23

Refinance, costing you to build out those 40 extra spots.

Stephen Harrell: 00:30:26

About 100,000. 100,000. Because the spots already there in this particular one.

And that's another thing I'd say real quick, when you go buy these parks, look for as many spots as you can. Simplicity, not a lot of pools and crazy stuff like that, because you have to have someone take care of all that. Right?

You want greenhouses, you want dog parks or walkways, a dog park, stuff that, you know, community center that is very. Your caretaker can easily take care of. But you also want to find. Have extra acreage potentially. We can go through it.

And once phase one, fill that up. Phase two, mow those, or take some of those trees out and add more spots, for sure.

Neil Henderson: 00:30:56

What's the location like? Is it rural?

Stephen Harrell: 00:30:58

ah, in a mountainous setting,: 3200

Neil Henderson: 00:31:10

The plan is all permanent residents?

Stephen Harrell: 00:31:12

Yeah? Permanent. Well, it's a year lease. We had one woman who wanted a five year lease because she's like, I'm afraid you're going to raise the rent.

I'm like, that's a good concern. So she's like, you know, 72, and she's like, this is where I want to stay the rest of my life.

We're building her huge two bedroom, tiny house, 40 by ten, which is big home standards. So she's like, this thing costs a lot of money to get set up and taken there. I want to stay here. I don't want, you know, so I'm like, cool. Gotcha.

one tiny house is renting for: 1400

So you could run the math. That's a good return.

Clint Harris: 00:31:43

Holy smokes. Cash on cash return is 2.2 years. It's incredible.

Stephen Harrell: 00:31:47

Yep.

Clint Harris: 00:31:47

I want to throw something out there that we run into a lot, especially if you're an investor and you have shiny object syndrome. We talk to people that make this stuff sound really easy. You're making it sound really easy, but you got 15 years of experience.

You are a home builder, you are a developer, you are a marketplace owner. We have people that constantly make this look easy.

We have people that constantly make the mistake of thinking that this is something that they could do. And I'll just go ahead and tell you, you don't want to invest in a tiny home, rv park community.

You want to find a Stephen Harrell and you want to invest in him doing it. Right.

The idea is to look for people in my mind, and I'm not saying you're looking for the capital because clearly you're creating value out of thin air that you can recapitalize it, you can scale.

If you want this to get to the point that you want 50 parks instead of five or 15 parks, there's probably a capital play coming in and it's going to be really hard for people to touch what you're doing because you got that top to bottom vertical integration. You're building a list of people that are looking for tiny homes that you build, that want a place to put them.

Stephen Harrell: 00:32:47

That's right.

Clint Harris: 00:32:48

It's going to take you, anyone, years and years to try to come close to replicating that.

So I think in my mind, the idea is like, understand the operators, the people that make it look easy, that's the people that you want to be on the lookout for ways for strategic partners.

Stephen Harrell: 00:33:02

Well, what it is, too, like, you know, like yours, they're sitting at home and some of them might say like, you know, I don't have that many skills or whatever, and I used to be that same person from the outside looking in, and one day you look up like, you guys as well, you're an expert. Like, wow, how'd that happen? Because you got like 1% better every single day over the course of time.

And then you're like, wow, okay, now I'm at the position where I can actually talk about things and share this knowledge, and that's where we're at right now. So I agree 100% what you're saying.

Clint Harris: 00:33:23

And to me, a lot of times we're like, hey, here's an opportunity. Go talk to this. Go look at this. Whatever. This is just something that people need to be aware of.

There's people listening to this that we're going to have heard about this for the first time, and that's kind of shocking. But it's also like, this is the world that we live in.

We're constantly looking and learning and exploring these different opportunities in real estate, and a lot of people aren't.

This is something that, like, if it's the first time you're hearing about it, it's been around for a long time and we definitively know it's not going anywhere. I still heard someone say recently, like in the past few months, that Airbnb is a fad and it's probably going away.

body say that it was probably: 2013

It's one of those things like short term rentals is not going anywhere. Tiny homes are not going anywhere.

I know people say a lot of people are going to get forced back to the office, but there is a large population that is never going back to that, that are always going to be working remote. The ability to have Internet access anywhere in the world is not going anywhere.

And the ability to make money online through your laptop and your phone is not going anywhere.

Stephen Harrell: 00:34:30

Well, you say Airbnb is going away. It's the same old story. What's happening is more people came into the fray. So you just got to be the best. You got to get better.

You can't be as sloppy.

You have to get better what you're doing and tap your loose ends and give away some little chocolates or whatever happens to be right and get those good reviews. So it's the same old story.

Neil Henderson: 00:34:45

Well, the name of the podcast is truly passive income, and what you're doing is obviously Clint alluded to in the very beginning. It's wildly active. Most of your excess income is likely tied up in putting that back into the business.

Stephen Harrell: 00:35:00

Yep.

Neil Henderson: 00:35:00

Because that's where you can get the best return.

Stephen Harrell: 00:35:01

That's right.

Neil Henderson: 00:35:02

Listen, we can get you great returns. Investing passively, almost always an active return is going to be a lot better.

The problem is, as Clint said, getting that active return requires 15 years of slogging and building systems and learning and losing money along the way.

Stephen Harrell: 00:35:18

Grinding it out.

Neil Henderson: 00:35:19

Grinding it out. But you do invest passively as well. And this is not like we don't need to pitch. This is not a.

But you guys do invest, you do place your money, you spread it around a little bit outside of your active investments as well, correct?

Stephen Harrell: 00:35:33

Yeah, yeah. My fiance is actually, hopefully it's okay to say invested with you guys regularly.

Neil Henderson: 00:35:38

I wasn't fishing for a compliment.

Stephen Harrell: 00:35:39

And I need to at some point with you guys as well. And she and myself also started investing internationally, and Costa Rica is one place we've done that as well. But I want to do that myself.

I want to do that minimally.

But the person you're talking about as a passive investor, that's definitely my fiance because she has extra income that she wants to deploy elsewhere.

Clint Harris: 00:35:55

Chelsea brought up to my shout out to Jimmy Thorpe, by the way, good operator that I've been following for a little while because Chelsea sent him my way. He's had an exit recently. He's done very well.

One thing that you guys do that I think is awesome, that Chelsea, I think is probably spearheading is she's very intelligent, really good, especially on the tax side of things. But Chelsea is diversified into passive investments that you guys get to enjoy.

Stephen Harrell: 00:36:18

Yes.

Clint Harris: 00:36:18

Right. Costa Rica. Now, before that it was, I think, the US Virgin Islands or one of the Virgin Islands.

Stephen Harrell: 00:36:22

Yep.

Clint Harris: 00:36:23

And now you guys are just recently had a dinner, I think. Didn't you guys travel for that to meet the operators or.

Stephen Harrell: 00:36:28

Yeah. Yep.

Clint Harris: 00:36:29

So I think there's something that is pretty cool about the idea of, you know, you guys are young, able to travel, own your own business and investing in a way that. Yeah, it's a passive investment, but it's also a lifestyle choice.

Stephen Harrell: 00:36:41

That's right.

Clint Harris: 00:36:42

You're dealing with high level operators and we all know that any property or community in this situation is only as good as the person operating.

Stephen Harrell: 00:36:48

Right.

Clint Harris: 00:36:48

So you guys found a good operator that you like, guy named Jimmy Thorpe and his wife, and you're partnered with them. They're running these different resorts in the Caribbean and you guys get to go travel and enjoy it. How cool is that?

Stephen Harrell: 00:36:59

Yeah.

And, you know, a lot of people don't look at friendships as like a money transaction, but a lot of times money will get you in the door so you can meet those people and establish those friendships. And I know you guys know all about that, so. Yeah, definitely a good way to meet people that are like minded, for sure. By investing with them.

Clint Harris: 00:37:11

Well, I think Neil brings up a good point. It's something that we bring up a lot.

We talk to a lot of investors that are active investors and I just try to straight up tell them like, look, if you are good, we cant touch the margins that youre getting.

Like, if youre a house flipper or youre a tiny home builder or community developer, commercial developer, whatever it may be, youre going to get better returns doing that and keeping the main thing, the main thing than what you can get for us.

Now, eventually, maybe you get to a point in your life where your time is worth more than anything else and youd rather have that you make a little bit less return by investing it with someone else. Maybe thats time for that conversation if you should be a passive investor.

I used to think that a lot of those things were mutually exclusive and Chelsea is actually the one that brought it up to me that they dont have to be. You can invest in something that you also want to enjoy and be part of your travel and something you want to do in your life.

You can invest in tiny homes and have an Airbnb community and you want to be a part of that.

So a lot of times its about aligning with things that youre interested in and good operators and have that just be part of your journey because like you said, you're going to meet like minded people and life is about relationships. Absolutely. Anything else we need to know from you before we wrap it up?

Stephen Harrell: 00:38:15

I mean, like, I'm just saying if you're interested in tiny homes, reach out to us and through tiny house listings. But yeah, other than that, I mean, I think it's a really good asset class to invest in.

Depending on what it is your goals are, it could work out really well for you. I know we've been talking about doing some reits with tiny homes with you guys and I think that could work out really well.

So maybe stay tuned for part two when we've actually started that.

Clint Harris: 00:38:34

So there we go. Love that. Yeah. There's a pathway forward to scale here. I don't know what it looks like, but I know this.

I know Steven and I know Chelsea and I know what they're doing and I've toured their facility and we've hosted an event there. I don't know what it means, but I smell opportunity. Even if it's just for you and I'm just there rooting for you, there's a lot of big things coming.

So I'm excited about that. If any of our listeners want to dig in more, reach out to you personally or through your website and look for contact information.

What's the best way for them to do so?

Stephen Harrell: 00:39:00

Our build website is Tinyhouse listings build. If you go to tinyhouse listings.com comma, you'll see a ton of tiny homes for sale there and you won't be able to get through to us.

Or you can just email us at build@tinyhouselistings.com dot there we go.

Clint Harris: 00:39:11

All right, Steven, appreciate your time. Thanks so much. Thank you for coming by the office for us to do this in person.

Neil Henderson: 00:39:15

Yeah, it was a lot of fun.

Stephen Harrell: 00:39:16

It was awesome. Thanks.

Neil Henderson: 00:39:17

Thank you so much for listening and watching the truly passive income podcast.

If you liked the show, if you think it would be useful for someone else, the greatest compliment that you could give us would be to share the episode. Leave a comment down below, or leave us an honest review. If you have any questions, don't hesitate to let us know. Know down below.

And remember, with truly passive income comes freedom of time, place, and the freedom to pursue your higher purpose.

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