Tiny homes

Foreword

Tiny homes are fun, but it's not really for the fun that I am interested in tiny homes. I believe that tiny homes are a wonderful asset for the hardwood economy, but at the same time, they have the ability to solve many social and economical problems.

 

From 2010 to 2012, I have conducted a research about the hardwood industry in France. My research had two main streams of investigations. First, "following the books", what everybody says about the industry. Second, "following my instinct" what drove me to the field. I met all kind of people, forest owners, forest managers, forest engineers, forest workers, sawmills, lumber yards, small and big industries, carpenters, associations of carpenters, guilds of carpenters, professional organizations, mayors, public laboratories, construction engineers, county development, bankers, pension funds, investors, university professors, researchers, startups, business owners, etc...

I managed the research to define a business model to carry my innovations. I had created a new way to make carpentry but a technical innovation is nothing without a proper economical model what means that I had to propel an innovation in an old fashioned sector with new economical products, something that the landowners would buy, that the engineers would buy, that the carpenters would buy and that the final customer would buy. But I could not sell anything to a final customer if I had not sold my ideas to all the other sectors before. Imagine a theater where everyone is an actor, I was the person taking the risks with my own money to promote new revolutionary ideas to the old world.

As reasonable I could be, I designed a prototype that would sum up all my ideas, something easy to sell to a final customer, easy also to calculate for an engineer, easy for a sawmill to respond my demands and easy for the same sawmill to anticipate the evolution of a market without taking risks (stocking too much) and without break down (not having stocks). When we talk about wood, we talk about forestry, what means years to grow a tree, years to dry it, only one day to load it on a truck and deliver to the construction field.

My personal goal in this project was sure to prove my technologies, but I needed to prove also the logistics behind,  what involved as a project manager, that I partner with landowners, land managers and sawmills. I had to make sure that a final product had the "industry" behind to coincide with the market and MY market was the green construction. I promoted my product as a green product with sustainable management of the forest, sustainable management of the sawmills, sustainable management of the logistics and sustainable construction.

In some ways, I was making politics. I had a program, I went on the field to talk about my program, raise the support of the people in this industry and create a final product, what means an orchestration that works like a watch in wall street, managing stocks, lobbying, influencing, creating the value and the products within. In fact, the final product was only an easy way to show up all the machinery behind. This tiny home project has exactly the same impact in the US. Therefore, I invite you to read the page about the economy and the politics.

Tiny homes are not tiny

When I created my model, I wanted to create a shape as versatile as possible. With one kind of structure, I wanted to build tiny homes, offices, commercial buildings, base camps, RVs, be able to change the size but to keep the same technology, what means the same "kit" to build it. The form of a container came as a logical standard and the technology I have put inside was largely inspired from my prototype on high thermal insulation structures.

What changed with the design of the tiny home was the hardware and the modularity, what means that above one container kit, I could add another structure which was inspired from another patented technology. This technology has been tested on an engineering computer and validated. The container kit had already been engineered and the first prototype had been built to verify the engineering and the logistics.

The challenge, with tiny homes, is to fit inside the existing regulations, then to find a land and to bring all the services such water and electricity. I did not want to go in the market of tiny homes because this market tries to copy the housing market knowingly that the regulations are different. Instead, I wanted to regulate my tiny home market as if it would be a mobile home or a RV market. In the housing market, each tiny home is different and it is meant to be built on a private land following the rules and regulations to obtain a permit. The singularity of this market is challenging each construction and within, it is challenging all the innovation that we can put inside. On the mobile home market, once a model is approved, it is sold as a final product, delivered in a mobile home park and the container box is completely independent from everything around what makes it quite easier to custom. All additional level is valued as an individual product meant to be built as an add-on. This approach of the tiny home market was the main strategy to define my business model.

To define a business model, I had to target the profile of a buyer. What kind of buyer was more likely to buy this kind of product, what was the average income of this buyer and how much he would be willing to pay monthly. On the French market, considering the cost of the land, water, electricity, insurance, monthly expenses, I had identified that the income of my target was about $2,560 a month, the monthly payment was 12% of this income for a loan of $346 each month during 8.5 years. The price of the tiny home, when sold, shall be limited to $28,709 to pay the construction and the loan. The final price that a buyer would pay for a container kit would be $35,292.

The existing market of mobile homes in France showed me that the profile of a buyer was educated, in his 40-59, probably having children, maybe grand children, and that this buyer was buying a mobile home for holidays. This buyer would spend $4,152 each year for one month holidays, maybe some weekends and some parties. Additional to this cost, the buyer would have to rent the land and the real difference of profile among all the buyers would be the cost they would afford to pay for the land and its facilities. The mobile home product was in fact a real good product only because of the facilities around and in fact, most mobile homes in France are sold from the mobile home parks who chose the standards they are willing to receive. Most of the time, the mobile home parks partner with the financial institutions who will contract the loans to buy the mobile homes. Mobile home parks generate revenue from lending the land, selling mobile homes and having commissions on the loans.

My first goal was to create an impulse from the buyer, "I love, I buy". This is the method of most share times who sell their products when customers are on holidays. In the Hilton of Las Vegas for example, on first day arrival, I was invited to a share time demonstration. All facilities offering share time follow the same strategy to sell on impulse, "I love, I buy", and mostly "I love" because it is easy. The process to buy a share time is way less complicated than buying a house or a condo and it creates opportunities to travel without the trouble of paperwork.

My second strategy was to create a product that would create the impulse "I love the idea, I love the ethics, I love the goals" and this is when I bring the buyer with me in the story of forestry, how we manage the raw materials, how we buy, how we guaranty that our business is totally green from the seed of a tree to the ridge of the house. "This is because I love this idea, this ethic and those goals that I buy this specific product", because "when I go on holidays, I participate in a sane and sustainable economy. Not only the economy of the business that created the model and built a final product, but the economy of a chain of businesses that all profit from me buying". I bring my buyer into my project to follow my path and my expertise.

Also we have many technologies to be able to dry hardwood, we still not know how to dry a lumber of oak as small as 3x3 inches other than outdoor. It takes four years for a lumber of oak 3x3 inches to dry, four years storage on a land that will generate absolutely no profits. Four years during which a lumber yard will pay taxes, maintenance, management and buildings. This money lost for drying hardwood has killed the local economy lowering wages and pushing the workforce to other sectors of the economy. Small sawmills have closed and the large ones still survive with balancing their costs on a market that threatens them every day. When they buy wood to store it for a minimum of four years, they take a risk not being able to sell it better. With tiny homes, I completely annihilate the risk since the tiny homes are meant to dry the wood. I created the technologies meant to dry the wood in the structure.

Using "green wood" is not new. In fact, carpentry built with green wood tends to be stronger than a carpentry built with dry wood but the assemblies and the technologies are different. Green wood is heavier than dry wood. Green wood will lose water what may create stain from the tannin. Green wood will shrink. It might twist and bend. Green wood will crack and move as long as there is water. The only way to remove the water is to ventilate properly the structure, otherwise greenwood will develop illnesses. There are many many constrains that prevent the use of green woods in construction, but the technology of tiny homes can incorporate the cycles to build, un-build, recycle and rebuild as long as the economy of the tiny home market is innovative enough to finance the drying process.

So instead of thinking a tiny home individually, my product is not one single tiny home but a park of 150 of them. The park is divided in 30 islands and the people who manage the park are organic farmers registered as an ESOP company. The farmers produce the vegetables, the fruits and the meat for the inhabitants of the park. They also have a small market on the park to sell their products to the public. They follow an ethic for raising the live stock and they manage the slaughtering with a spiritual guideline to offer the best ethic humanity can create. Every livestock has a statute that recognize its spirituality through emotions and pain.

The tiny homes are built collectively by the farmers who are in charge of the islands. Each farmer has specific knowledge in electricity, plumbing, roofing, carpentry to manage each part of the construction process to build, un-build and manage the drying process of the wood. The furniture, inside the tiny homes, is designed specifically for this purpose to be able to pack and unpack easily to reuse the wood of the tiny homes.

There is one company to design the products, one company to manage the park and one company to manage the construction and the drying process. There is one customer to buy a tiny home with a loan of 8 years but there are 5 different profiles of buyers.

The park buys the tiny home for a cost of $56,760 paid to the ESOP that builds the tiny homes and manages the maintenance. The park receives a tax refund. In France, the amount would be $9,460. The amount varies in the US. The ESOP receives annually the amount of $1,137.50 to maintain the tiny homes. This amount is provisioned with the tax refund. At the end of the 4th year, when the wood is dry, the tiny home is un-built, the dry wood is sold for the usual construction market and the tiny home is rebuilt with new green wood. The insulation is re-used and restored. The tiny home is entirely fixed and refreshed. After 4 years, the tiny home starts anew with a higher value than an other mobile home the same age.

The park buys the tiny homes, but it will resell the tiny homes to 5 different profiles of owners.

Profile n°1 : The buyer has no credit and cannot be given a loan from a bank. He files for housing in the park and if his request is approved, an investor will pay the amount of the tiny home for $56,760. This investor could be a council, a city or a non profit organization. It can be an association of inventors to promote the construction of prototypes.

The park buys the tiny home for $56,760 with the money from the investor and the park receives a tax refund of $9,460 that is provisioned for four years. The tenant will buy the tiny home with 0% loan on the amount of $49,600 but at the end of 8 years rental, he will buy the tiny home with or without a loan for $6,580. The park, or a non profit organization can assist the tenant in the management of his money to save the full amount of $6,580 or a part of this amount as down payment for a small loan. During 8 years rental, the non profit organization will assist the tenant to build his credit.

The tenant pays a monthly lease of $350 plus an annual rent of $2000 for the land. During 8 years, the rental of the land will pay the investor. After 8 years, the tenant will continue to pay for the rental of the land.

After 4 years rental, the tiny home is unbuilt and the wood is sold with a minimum profit of $2,500. The tiny home is repaired and rebuilt with a budget of $14,060.

After 8 years, the initial investor as made a profit of $6,900 what represents a profitability of 12.15%.
The ESOP has made a profit on the construction of the tiny home and on the 8 years maintenance. The park has not made profit, but the purpose of  this profile is to create a demonstration and financial product that can sustain housing for very low income people. Only 20% of the park can be filled with this profile.

The following profiles represent the real innovation compared to a traditional share time. In a traditional share time, a buyer may only use his asset 1, 2 or 3 months maximum in one year. In the profiles 2, 3 and 4, the tiny home is sublet only 90 days of the year while the owner can use it for 275 days. If the owner decides to rent more than 90 days every year, the park receives 46.94% of the rent to manage the property and support the maintenance of the park.

Knowingly that the people who buy tiny homes may have smaller incomes than share time investors, we suppose that they use the tiny homes as a main way of living. This is usually the case for people at work in a city while their main house is located in a different state. It can be also the case of students or seasonal workers. In the case of students, after 8 years rental for their own purpose, they can become the owners renting to a tenant and get back their initial investment with profits.

To value the profitability, we consider that the profiles 2, 3 and 4 buy the tiny homes without a loan. They have savings for the full amount of $56,760 to buy the tiny homes. They use part of the tiny homes for their own profit, and part of the year is sublet to generate an additional income. What we value here is the amount of this additional income without any initial loan.

Profile n°2 : The tiny home is sublet during the summer with a rent of $120/day what generates an income of $10,800/year. The park will pay $1800 in taxes. It will pay the owner of the tiny home $4420/year what means that instead of paying $350/month, the owner receives $368/month with only 90 days rental in a year. The park will receive 38.25% commission on the rentals plus the annual cost of the land for $2000. In one year, the park generates $5,442.50 profits for only one tiny home.

Profile n°3 : The tiny home is sublet during the winter with a rent of $90/day what generates an income of $8,100/year. The park will pay $1,350 in taxes. It will pay the owner of the tiny home $3,030.5/year what means that the owner receives $252.54/month with only 90 days rental in a year. The park will receive 38.25% commission on the rentals plus the annual cost of the land for $2000. In one year, the park generates $4,582 profits for only one tiny home.

Profile n°4 : The tiny home is sublet 45 days during the winter and 45 days during the summer with a rent of $90/day in winter and $120/day in summer. The rental generates an income of $9,450/year. The park will pay $1,575 in taxes. It will pay the owner of the tiny home $3,725.5/year what means that the owner receives $310.45/month with only 90 days rental in a year. The park will receive 38.25% commission on the rentals plus the annual cost of the land for $2000. In one year, the park generates $5,012 profits for only one tiny home.

Profile n°5 : For the last profile, we suppose that the owner is renting 200 days in a year, 90 days in summer and 110 days during the winter. The rental generates an income of $19,552.50/year. The park will pay $3,258.75 in taxes. It will pay the owner of the tiny home $6,370/year what means that the owner receives $530.83/month. The park will receive 46.94% commission on the rentals plus the annual cost of the land for $2000. In one year, the park generates $9,648.75 profits for only one tiny home.

A rental of 200 days a year represents 55% occupancy which is the average occupancy of an average Air B&B. The revenue of the park must develop the amenities to create a recreational area that people will buy all the year. With all the different options we generate revenues for a profile of investors who usually don't have access to real estate investment. Those kind of tiny products will help them increase a portfolio of assets to plan a retirement without spending any money.

With a very simple architecture, the idea of this project is to open ownership to a larger public and invest the public into the preservation of its forests, its economy, its jobs, its universities and the wealth of its country.

The flexibility of the container kit can build many other architectures with or without a top. In most cases, I have imagined to build an adiabatic tent to cover the structure. This adiabatic tent adds an additional level to the ground and accentuates the design to reach a larger public.

The initial model to finance the container kit can be extended to build the adiabatic tent at the top of the tiny home. The adiabatic tent plays different roles in the design of the container kit. It maintains the temperature low to not reheat the green wood, it drains cool air inside the structure and it regulates mechanically the temperature of the tiny home. It adds an additional level and it extends the surface of living. The adiabatic tent can become a dormitory, a play house, an office, a ware house, an art studio, a garden, a terrace, an observatory, a kitchen, a living room, a pool house. Quite anything in mind.

The adiabatic tent is built with Sunbrella and vinyl, same as boating materials. The bones of the tent are made with carbon fiber. The system can be built at the top of a container kit, but the design can be adapted to build at the top of cars, buses, RVs, containers, boats, trucks, decks, etc... This system is completely independent from the container kit but both can me fixed together.

To start the development of the adiabatic system, the idea is to generate enough revenue for paying the Research & Development programs, the design and the marketing. While the basement was thought as a social program, the top becomes an accessory asset that increases the architectural value of the project. The idea is to target business investors who would put money on recreational projects to build resorts and mobile parks. 1/5 of the adiabatic systems must be bought by an investor to validate  Research and Development projects. 4/5 of the adiabatic systems can be sold a lower price to non-investors buyers. We need 4 buyers to create one investor project and manage to reimburse the cost of the R&D.

When a full  island of 5 tiny homes has been covered with the adiabatic system, 1 sold to an investor and 4 sold to private buyers, the initial investor makes a profit of $6,900, with a profitability of 12.15%. The park generates a profit of $142,176 and the R&D team receives $26,466 for designing, patenting and marketing the product. The private buyer has doubled the surface of his tiny home for a cost half the price of the market.

For the wood industry, the park bought for $450,000 of green wood the first year that was sold $825,000 on the fourth year. The profitability for drying the wood in 4 years is $375,000. On the 5th year, another value of $450,000 green wood is sold to the park with the provision of the first year. The same cycle of investment could be repeated every 8 years to maintain the flows with the wood industry, but we understand here that each park becomes a portfolio of assets that we use as a money to fluctuate and keep the control on the wood industry. We buy wood when we need to sustain the market, we don't buy when the market is strong enough to sustain itself. We use each park as stock exchange on US hardwoods.

Green woodworking is a very ancient knowledge that modern school of carpentry do not teach any more. Still, you will find few links to schools, videos and books that document this project:

• Green woodworking certificate by Yestermorrow
• Dried wood vs green wood
• The politics of wood
• The economy of wood