I've been getting a lot of email recently. People really do read my posts. I'm not surprised that people are talking about building again and I'm happy that they are taking a look at alternatives like cargo containers. Every body that writes to me already sees the value, sustainability and low cost as being what people need right now. There are a lot of questions about how to approach the building department. As you've read in previous posts it's not the technical part that's difficult getting a permit, it's the cost. It seems like costly system development fees and long drawn out design reviews put a lot of people off. There is a way around that.
In most neighborhoods in cities built early in the last century there are houses which didn't get regular maintenance. Even before the current fore-closer mess houses sat vacant. If there not tuned up periodically nature takes them back. Sills rot and roofs leak causing all sort of damage. Usually their small and it didn't make sense to redevelop back in the boom. If you want to build a container house this is the thing you want to buy. The way the rules work in most municipalities if you save part of one wall of an existing structure than your doing an extensive remodel, you are not doing not doing new construction. The water pipes to the meter are still there and the sewer is already hooked up. This saves vast amounts of money on permits. Picking the right place could save you the cost of a small container home. Fee's in Portland, Oregon for new raw land construction run about $34,000. I built my last house here for about $32.000.
Thursday, December 15, 2011
Monday, March 21, 2011
Hall Mark
This month when I picked up the rent check from the people that live in my container house I realized that I'd reached break even on my project. They pay $850.00 (usd) a month and I have been cashing a check for that amount every month for the last three years. My total cost to build that house was $30,000 and change. From here on out, excluding whatever maintenance costs may come up, I will be making money.
Aside from the other benefits of building green housing, container built residential construction makes money, fast. Amortizing the total cost of an investment over a three year period is very fast. Where else are you going to double your investment capital in three years? And that house isn't going anywhere. I'll continue to cash rent checks every month from that property for years to come. Building green has been the best investment I have ever made.
And this has happened during the worst recession in history. Sure I live in an area that has good rental rates but the truth of the matter is that because of low project cost I have been able to set my rents in the low end of the available housing market. This guaranties that I will always have renters lining up to live in the home I've built.
I challenge you to look around the rental market in the area that you live in and see if you can't make a little money for your family too.
Aside from the other benefits of building green housing, container built residential construction makes money, fast. Amortizing the total cost of an investment over a three year period is very fast. Where else are you going to double your investment capital in three years? And that house isn't going anywhere. I'll continue to cash rent checks every month from that property for years to come. Building green has been the best investment I have ever made.
And this has happened during the worst recession in history. Sure I live in an area that has good rental rates but the truth of the matter is that because of low project cost I have been able to set my rents in the low end of the available housing market. This guaranties that I will always have renters lining up to live in the home I've built.
I challenge you to look around the rental market in the area that you live in and see if you can't make a little money for your family too.
Friday, July 30, 2010
Commercial Space
So far I've covered the use of containers as residential structures. In this post I want to discuss a project idea that was brought to me by a local commercial property developer. I think maybe, first, a little background material that will help illustrate my point. The commercial property market in the United States, as a whole, looks pretty bleak right now. Nationally we have huge amounts of vacant commercial space. So much so that the underlying equity value of commercial property is open to question. Projects that were financed and constructed during our recent boom times are still carried on the books at the value they were projected to be worth during the boom. The truth is that the current actual value of commercial properties is much, much lower than book value. It will take years for this difference to equalize, if it ever does. The market recognizes this but it's not in anybodies interest to rock the boat. During the good times you could use the equity value of a preforming property to finance the construction of your next deal. And so now most commercial property is leveraged sky high and the underlying values that supported all this expansion have vastly depreciated. Nobody wants to be caught holding an empty bag so commercial property financing has dried up. If you can't build equity in commercial property at the moment then the next best thing you can do is create cash flow.
There are several parts of Portland that continue to thrive in spite of the national trends. As in almost every major city in the country there are areas that continue to gentrify. These old neighborhoods are undervalued to begin with and so draw the kind of people that always are looking for cheap rent, the creative community. Young families soon move in to these new enclaves and the property values rise. Eventually more traditional property developers begin to recognize whats happening and support the new community with commercial growth. The Alberta Arts District, here in Portland, is my local example. Most of the larger commercial buildings along Alberta Street have already been redeveloped into cute retail spaces, restaurants and the ubiquitous coffee bar. There are, however, several vacant undeveloped lots along Alberta Street. These are being rapidly filled with Portland's latest craze, food carts. The city of Portland to encourage entrepreneurial enterprise made it legal to operate restaurants kitchens inside mobile trailers. The quality and diverse selection of food this delivered very quickly caught on. There are now, in almost every neighborhood, previously empty lots packed with as many food carts as will fit. The property owner simply had to provide a network of power supplies and a shared water source, creating instant cash flow. Inevitably there will be a shake out as the weaker businesses fail and the large number of the locations contracts to right size themselves to the market. What I find most interesting in all this is that the people that owned these vacant unproductive lots have found a way to turn a small initial investment into a cash machine.
The same week that the Bethel Island project dissolved I was contacted by a local commercial property developer. He has several vacant lots on Alberta Street and is farsighted enough to see the eventual contraction in the food cart market and so doesn't want to over invest in that kind of improvement. Rather, he is open to the idea of creating an arcade of small retail spaces by using a combination of 20 and 40' containers on a 10,000 square foot L shaped lot in the heart of the Alberta Arts District. Really this whole concept was his idea, its brilliant. The financial thinking is that you invest just enough to create cash flow and forget about expensive equity building improvements. The rents while individually lower are collectively as high as you'd expect for a strip mall per square foot and he won't have a huge mortgage to service. It's exciting, sure there will be a bunch of turn over but by pricing each 20' unit at around $400 he won't have a shortage of people waiting for a chance to try their hand in a retail space on a good street. If it pans out this concept could spread to newly gentrified neighborhoods all over the country.
There are several parts of Portland that continue to thrive in spite of the national trends. As in almost every major city in the country there are areas that continue to gentrify. These old neighborhoods are undervalued to begin with and so draw the kind of people that always are looking for cheap rent, the creative community. Young families soon move in to these new enclaves and the property values rise. Eventually more traditional property developers begin to recognize whats happening and support the new community with commercial growth. The Alberta Arts District, here in Portland, is my local example. Most of the larger commercial buildings along Alberta Street have already been redeveloped into cute retail spaces, restaurants and the ubiquitous coffee bar. There are, however, several vacant undeveloped lots along Alberta Street. These are being rapidly filled with Portland's latest craze, food carts. The city of Portland to encourage entrepreneurial enterprise made it legal to operate restaurants kitchens inside mobile trailers. The quality and diverse selection of food this delivered very quickly caught on. There are now, in almost every neighborhood, previously empty lots packed with as many food carts as will fit. The property owner simply had to provide a network of power supplies and a shared water source, creating instant cash flow. Inevitably there will be a shake out as the weaker businesses fail and the large number of the locations contracts to right size themselves to the market. What I find most interesting in all this is that the people that owned these vacant unproductive lots have found a way to turn a small initial investment into a cash machine.
The same week that the Bethel Island project dissolved I was contacted by a local commercial property developer. He has several vacant lots on Alberta Street and is farsighted enough to see the eventual contraction in the food cart market and so doesn't want to over invest in that kind of improvement. Rather, he is open to the idea of creating an arcade of small retail spaces by using a combination of 20 and 40' containers on a 10,000 square foot L shaped lot in the heart of the Alberta Arts District. Really this whole concept was his idea, its brilliant. The financial thinking is that you invest just enough to create cash flow and forget about expensive equity building improvements. The rents while individually lower are collectively as high as you'd expect for a strip mall per square foot and he won't have a huge mortgage to service. It's exciting, sure there will be a bunch of turn over but by pricing each 20' unit at around $400 he won't have a shortage of people waiting for a chance to try their hand in a retail space on a good street. If it pans out this concept could spread to newly gentrified neighborhoods all over the country.
Monday, July 26, 2010
And this is how it ends
I got a call last Monday from the client. He let me go. The project had gotten too expensive. This wasn't really a shock, I'd sensed for some time that he was getting frustrated. It was a decision he took based on the most simple economic model. Other comparable houses on Bethel Island have been losing equity value over the past couple of years due to the effects of the burst housing bubble. Our current estimate of costs, which were driven at least partly because of county requirements (more on that later), had risen past the recent sales prices of these other comparable homes. To put it simply you should never build the most expensive house in the neighborhood. The average home on the levee at Bethel Island that was built high enough to overlook the water currently sells for about $350.000. The client paid about $100,000 for the lot. You'd think that building with containers you could construct a home overlooking the water for $250,000, well, not quite.
The first big hit came when we found out that the soil we wanted to build on was composed of peat moss. The soils engineers' recommendation was that we sink a number of piles at least thirty feet into the ground. He specified 14" square pre-stressed concrete piles. I checked around and the best price I could find was $3300 each. When I asked the structural engineer how many we would need he told me about twenty. When you add the grade beams that had to be formed, rebar added and poured the cost of the foundation could easily have risen to over $80,000. I talked the engineers into letting us use 12 round wood piles instead but the final costs still would have run about $50.000.
The next huge hit was due to the clients need to overlook the water. That is the big draw to living on the river but it came with a cost. In order to build the house high enough to get above the FEMA designated flood zone we had to put the habitable space above the second story. As you can see from the plans we had two habitable floors, a modest 2500 square foot home. However you cannot built a Type 5 residential structure higher than three stories or 40 feet.
The rules for building a Type 5 house are the ones that most people are familiar with, standard wood frame construction. It is also the least expensive form of residential construction. For our structure to qualify for the Type 3 designation we learned that to begin with all exterior walls had to have a two hour fire rating. As the walls of containers are made of non combustible steel you would assume that that wasn't going to be a problem. You'd be wrong. The fire rating of walls has to do with the combustibility of the whole wall system. And as we found out there is no UL rating for steel container wall assemblies. If you've really set your heart on this sort of thing you can hire UL to do this sort of testing but bring your wallet it's expensive. The alternative was to completely frame and sheet the structure with UL fire rated materials. I'm not sure which alternative would have cost more.
Lastly there was a water issue. This, however, didn't have anything to do with actually having water. All the houses on Taylor Road are served by a private water cooperative that run three different wells supplying 65 lbs of water pressure to each home. My initial inquiries about joining the co-op were well received. I was told there wasn't going to be any problems. But then something unexpected came up. Part of the county requirements were that we should have 8000 gallons of reserve fire fighting water on the property. This is not unusual when building in a rural area where there are no municipal water mains with fire hydrants to hook up to. What I didn't know was the communities history with the county's fire department. In order reduce their budget, because California is broke and they have to, they are planning on closing the fire house on Bethel Island. For decades the community had a volunteer fire brigade that was very effective. But a few years ago the county, because they thought it would be better, built their own fire house on Bethel Island and demanded that the volunteer fire brigade disband. This caused a lot of bad feeling in the community which only got worse. The new county fire department quickly got a reputation for letting houses burn to the ground rather than fight the fire. I'm sure they had excellent reasons for just controlling the possible spread to other homes but that didn't make the person whose house caught fire any happier. Really, how may of us have enough insurance to pay for a complete rebuild. To say that the residents I talked to about this were bitter is a vast understatement. When word got out that we were going to comply with the reserve water request all hell broke loose. The current residence which control the water co-op see this as the thin end of the wedge, a prelude to making them all install fire fighting tanks. The result, I gather, was that we would be drilling our own well (200+ feet to get to clean water). Wells aren't cheap and it's hard to get a permit besides. What makes this particularly bizarre is that we were building next to a river.
I'd like to build a house for somebody in the Bay Area. I've got the use of a factory to fabricate in. I've got great guy's that I trust to work with down there. But this is the second time that I've looked at a project there and until the state of California gets it's act together I doubt I'll be interested in investing my time or energy further there.
The first big hit came when we found out that the soil we wanted to build on was composed of peat moss. The soils engineers' recommendation was that we sink a number of piles at least thirty feet into the ground. He specified 14" square pre-stressed concrete piles. I checked around and the best price I could find was $3300 each. When I asked the structural engineer how many we would need he told me about twenty. When you add the grade beams that had to be formed, rebar added and poured the cost of the foundation could easily have risen to over $80,000. I talked the engineers into letting us use 12 round wood piles instead but the final costs still would have run about $50.000.
The next huge hit was due to the clients need to overlook the water. That is the big draw to living on the river but it came with a cost. In order to build the house high enough to get above the FEMA designated flood zone we had to put the habitable space above the second story. As you can see from the plans we had two habitable floors, a modest 2500 square foot home. However you cannot built a Type 5 residential structure higher than three stories or 40 feet.
The rules for building a Type 5 house are the ones that most people are familiar with, standard wood frame construction. It is also the least expensive form of residential construction. For our structure to qualify for the Type 3 designation we learned that to begin with all exterior walls had to have a two hour fire rating. As the walls of containers are made of non combustible steel you would assume that that wasn't going to be a problem. You'd be wrong. The fire rating of walls has to do with the combustibility of the whole wall system. And as we found out there is no UL rating for steel container wall assemblies. If you've really set your heart on this sort of thing you can hire UL to do this sort of testing but bring your wallet it's expensive. The alternative was to completely frame and sheet the structure with UL fire rated materials. I'm not sure which alternative would have cost more.
Lastly there was a water issue. This, however, didn't have anything to do with actually having water. All the houses on Taylor Road are served by a private water cooperative that run three different wells supplying 65 lbs of water pressure to each home. My initial inquiries about joining the co-op were well received. I was told there wasn't going to be any problems. But then something unexpected came up. Part of the county requirements were that we should have 8000 gallons of reserve fire fighting water on the property. This is not unusual when building in a rural area where there are no municipal water mains with fire hydrants to hook up to. What I didn't know was the communities history with the county's fire department. In order reduce their budget, because California is broke and they have to, they are planning on closing the fire house on Bethel Island. For decades the community had a volunteer fire brigade that was very effective. But a few years ago the county, because they thought it would be better, built their own fire house on Bethel Island and demanded that the volunteer fire brigade disband. This caused a lot of bad feeling in the community which only got worse. The new county fire department quickly got a reputation for letting houses burn to the ground rather than fight the fire. I'm sure they had excellent reasons for just controlling the possible spread to other homes but that didn't make the person whose house caught fire any happier. Really, how may of us have enough insurance to pay for a complete rebuild. To say that the residents I talked to about this were bitter is a vast understatement. When word got out that we were going to comply with the reserve water request all hell broke loose. The current residence which control the water co-op see this as the thin end of the wedge, a prelude to making them all install fire fighting tanks. The result, I gather, was that we would be drilling our own well (200+ feet to get to clean water). Wells aren't cheap and it's hard to get a permit besides. What makes this particularly bizarre is that we were building next to a river.
I'd like to build a house for somebody in the Bay Area. I've got the use of a factory to fabricate in. I've got great guy's that I trust to work with down there. But this is the second time that I've looked at a project there and until the state of California gets it's act together I doubt I'll be interested in investing my time or energy further there.
Monday, May 24, 2010
This Is How It Starts
This week I'm going to order a survey. I'll have a drawing done for a retaining wall and hire a crew of guy's to build it. When it's ready we need to start back filling soil onto the site. You can get free dirt dropped on a piece of land but it doesn't all arrive at once. Each time a dump truck shows up you need to have a guy with a tractor push it around. That's the real cost, the guy with the tractor. Fortunately Bob Aiken's lives three doors down. Bob's one of them guy's that never retires. He runs the tiny water company that feeds the houses on our part of Taylor Road. Three separate wells are connected together and provide pretty good water pressure. When I called on him to talk about hooking up our water I found a well maintained tractor in his yard. He works on an hourly basis that's very fair and he knows the local guy's with dump trucks. It can't get more automatic. The average dump truck holds about twelve cubic yards of dirt. On the back of a napkin I figured we will need 180 yards of dirt just under the building envelope, let alone bringing the entire property up to grade. This all takes time. I figure that if I start calling for dirt within two weeks that it will take the entire summer to get enough on site to do the job. If you try and rush this it will consume vast quantities of money. Patience is called for here, not something I have much of to begin with, but let's consider the alternative.
www.bbtandex.com
Check out this guy's website. He's a local Portland builder with with the right equipment and experience to do the job. Try to imagine how much he has to pay out every month to keep his doors open. I can assure you that he's not getting rich doing this kind of work. I don't begrudge him a penny of what he charges to do what he does. It's hard work even with the equipment. So you can imagine how lucky I feel that Mr. Aiken's lives three doors down.
Tuesday, May 18, 2010
The Client
I met the client for the first time last week, his name is Clark. I've quit estimating the number of emails that it's taken to get to this point. Before we found out about the delay due to the variance he had booked a flight back from his home in Panama. I drove down from Portland to meet him at the site Tuesday morning. I tried not to bring a lot of expectations of what the guy would be like. I was kind of surprised to find out he looks a LOT like me. Same age, hair line, frown lines, I could go on.
We met with the engineers. We decided to go with the local guy's that were recommended by a construction company on the island. The companies name is Advanced Engineering and the principle engineer is named Gabe Del Porto. Clark wanted to check that the bid was based on a complete scope of work to finish the project. I got the feeling that he was making sure I was doing my job correctly. I didn't mind that, after all, he's got a lot riding on me. We went to the county offices to do basically the same thing We also got a person to talk to at their public works offices. That person is in charge of collecting about twenty one thousand dollars of the permit fee's that we were quoted.
On my previous trip down I had to get the plans stamped by both Bethel Island Municipal Improvement District and the Iron House Sanitary District. These approvals are required before you can apply to the county for a permit. When I spoke with the woman at Iron House she told me that they already carried that address on their books. I asked her to research their history and she told me that there was a house on the site up until 2003. It had apparently been demolished sometime after that. The upshot was that they gave me a waiver from the eighty eight hundred dollar fee that they charge for new construction. With the client standing next to me at the Contra Costa County public works counter I used that information to get a waiver for the twenty one thousand dollar fee they were charging for new "raw" land construction. That made a good impression on the client.
We went to Oakland that afternoon to see American Steel. It's an old steel warehouse that my friend Dan Das Mann has taken over and turned into a three quarter of a million square foot studio specializing in art metal fabrication. It's equipped with a 10 ton trolley crane in each bay. Our steel fabricator, Steve Valdez, has his shop set up there. If you start out with a complete set of building plans with everything detailed you can get any competent guy with a tool belt to build for you. When your doing a design/build you need the kind of creative thinking that an artisan brings to the table.
Clark was deeply impressed by both the scope and scale of activity that happens at American Steel. Just before he left to catch a flight home he told me "I'll be back in October, have a house ready for me." That kind of faith made a good impression on me.
Saturday, April 24, 2010
Planning and Zoning
This is where it fell apart in Santa Cruz. The couple I was building for were blindsided by the cost of the building permits. Santa Cruz wanted upwards of fifty thousand dollars for their permit. This last week Contra Costa county handed me an estimate of thirty-seven thousand five hundred and told me that I'd need to apply for a variance to the height restrictions and limit of floors in a residential structure. They added that it would take three to six months to process. This isn't the type of news you want to take back to your client. Sixty-five hundred of that is to go to the school district. Twenty thousand is supposed to go for road construction. That's about twelve percent of the entire construction budget. I was so pissed off that I almost attended a tea party. The client, like any sane man, said that he'd have to consider his options. I spent my last night in the Bay Area drinking, unhappily. The next morning I found an email from the client asking how soon we could apply for the variance.
The variance was indicated because we'd designed the house to both comply with the flood plane regulations and bring the living floors up above the top of the levee. The majority of the homes on Taylor Road are constructed this way. I'd assumed that the county had realized that grade, being 13 feet below sea level, was going to effect what kind of houses were going to be built on Bethel Island. I can understand that you don't want your neighbor building a four story house next to your two or at the most three story tract home. But nobody builds tract homes 13ft below sea level. I looked into what variances were granted on the twenty homes closest to our building site. Twelve of those houses have had to get a variance. You are no longer varying from the norm when the majority of the houses have the same variance. That seems clear enough doesn't it? And if they processed these things in a timely manner I don't think I'd be so upset, but three to six months? Is this what scars the hell out of people when they visualize a future of government run health care.
This link will take you to the document set that we submitted to Contra Costa county.
The plans are beautiful. I know it's a cliche to remark on how computers have changed everything but these are the state of the art in Building Information Modeling or BIM. The topography is so well detailed that you really get a feeling for how the structure works in it's surroundings. The program, Autodesk Revit, lets you take the basic design even further by allowing you to convert the planning documents into actual detailed building plans that incorporate everything from engineering detail to lighting plans. So cool.
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