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back to Trust the Process, the podcast where
we talk about real estate, new home construction,
the housing industry, and everything in between.
Glad you joined us today. We are going to talk
about disruptors to the housing industry, an
industry that is somewhat stable and has been
for obviously many years and kind of how we got
here and some of the things that could disrupt
that or have disrupted that over time. That it's,
it is a difficult industry to disrupt. So go
ahead and take it from here. I know you've, you've
thought about some of the things that have over
time. You felt them, the impact of those as a
broker. Certainly you recognize sure, sure. I
mean, now as the builder developer, you're able
to really feel the impact of those disruptors
or, or not feel them, right? They aren't able
to make it. Something should be disrupted, right?
There's, there is. So I wanted to talk about
this topic because it feels like. in the last
decade or even five years, almost every industry
has been disrupted in some way with new entrance.
I mean, you don't get a taxi cab anymore. You
get an Uber. You don't buy your own groceries.
Sometimes people go to Instacart. Insurance is
all on the phone and even self with mobile. There's
just all these kind of new entrants that have
been kind of clawing at the old guard. of not
only the old guard of companies, but also the
way that we used to do things. And there was
this big push. I feel like COVID kind of was
a great reshuffling and a lot of things were
attempted to be disrupted. And I think there
was a lot of appetite for investment and risk
at that time. And people loved, investors and
venture capitalists loved the idea of disrupting.
They just want to disrupt everything. Facebook
disrupted the friendships in more ways than one,
but it just kind of rethought everything. And
Google disrupted search engines. I mean, if you
think about the original angels of Wall Street
and the tech sector, they were disruptors, right?
They did an old thing and reimagined it. So I
think that for a while, I remember even before
COVID. As a broker i saw a lot of attempted disruptions
in the real estate industry and real estate market
kind of sales market and it was to almost a more
remote everything in that period seems like it
went from being very connected right into a more
to click to sell your home yes right sell your
home and for virtual tours. available, you know,
you were doing, you know, walk throughs with
people on their and many times not even selling
the home on the open market, you would go to
open doors portal signings that would come to
you. I mean, a lot of stuff just or even just
sell your home directly to one of these guys.
Yes, that had all this private equity and all
this venture capital behind them. And these companies
were losing 10s of 1000s of dollars per house.
If you factored in their admin costs or holding
costs, the debt carry Um, it was a really money
losing venture. And I, I, we knew when the industry
and Vegas was a, was a target for that as a growing
city that has a pretty. Consolidated housing
market. We don't have a lot of suburbs, right?
We're just kind of one giant suburb. So was it
easy for a hedge fund to. to kind of get in there
and brand it as, oh, we're, we're open door.
No, I'm gonna get in trouble for saying company.
I'm going to say all of them. So then, you know,
they can't get a lot of one off guys just with
some money in their pocket that we're doing that.
Well, I'll buy your home. I don't care the condition.
I'll buy exactly. And again, talk about disruption.
That model has been around forever. Oh, direct
wholesale. People have been wholesaling property
forever. but it was kind of taken to another
level and they tried to bring in automation.
I remember Zillow was really proud of having
AI software that could detect from photos you
sent in what kind of kind of upgrades you had.
And if your color palette was on par with, they
were trying to automatically, you know, trying
to automate the valuation of homes, but they
were making good on that number because they
were buying them directly. They had an instant
offers portal that you would put in your home,
photos of every room. descriptions and they would
pull everything else from the tax record and
many times they wouldn't even have a person a
human being representing that company until the
very end they'd walk through and say is the house
still here okay there we're giving you five ten
for it it says here do you want to your worst
he's still good with this and they buy it and
of course The biggest surprise of the century
is that that didn't work out. And it turns out
you can have artificial intelligence value homes.
There's too many other factors. I remember they
would even say, well, we can detect if where
it's at, if it's close to a street or we're going
to give, okay, well, can your AI detect overhead
power lines? Can your AI detect that that school
is about to rezone next year? Maybe that affects
its value. Can your AI detect that? It might
look good in photos, but it's not really, you
know. Or even the dynamic of the family. You're
getting too old for the stairs now. Can your
AI detect that? Right. AI detect that, you know,
mom's expecting a new baby and the family's growing.
They will need another bedroom. So some of those
things that are... You can't. Right. You just
can't. Yeah, reflective of an actual person,
human. That can kind of have that dynamic. That
can happen in the human context. To me, it was
an answer to a question I know one asked. Right.
I want to sell my biggest asset. With no work,
you really don't want to do anything and did
sell your biggest asset. You don't want to talk
to multiple people. You don't want to get multiple
opinions. You don't want to do a little bit of
rolling up your sleeves and do some things to
get more out of the house. I mean, okay. There's
a subset of people that want to be early adapters
and they love seeing an industry is disrupted.
And that was their audience and it costs them
handsomely. And of course we saw that. Prop up
and add fuel to the fire of the real estate market.
It was a speculator that came into the marketplace
effectively and acted as a backstop because you
always had a Zillow offer. You always had an
open door offer. So if you knew, you know, you
knew that, okay, I'm going to put the house on
the market, but I always have this, I could,
I always have this other exit if I have to. So
not only does it create scarcity because it took
a lot of homes off the market and took them out
of the general circulation and it would take
them. sixty ninety hundred days to turn them
back over depending on how much they did. And
that time kept those doors out of the circulation
and caused even a tight market even get tighter.
But moral story with the disruption to the brokerage
business we've seen that try to disrupt and with
varying degrees of success I feel that to give
them credit Zillow has wildly disrupted the real
estate market and I think in almost. every good
way possible. It gave buyers a lot more authority,
gave buyers a lot more knowledge of the market.
Buyers can watch kind of how everything's trending,
but more than that, sellers also know. Many times
a broker's going to walk into a house and a seller's
already going to know within 5 % of what the
home's probably truly. That's how sales prices
are set, right? You're looking at the comps.
That's right. And the sellers are well aware.
Those resources online look really great. That's
right. Right. So it really democratized the whole
housing market to where brokers did not hold
all the info and the amount of data just in photos
of homes. I mean, you, you don't even need to
go bring your neighbor a jello mold anymore because
you've already seen 55 photos of their house
before they bought it. So, you know, your neighbors
know your house as well as you do in many ways.
Right. So it just kind of was a, was in my opinion,
a great positive disruptor. made a great, a wonderful
database. It's, it's great as a builder to advertise
on those kinds of platforms. And it was great
as an, as a broker to leverage those and see
a lot more. I felt like it created a lot more
liquidity in the market. But what I wanted to
talk about more than any of that was the disruption
in construction and how that has our disruption
in housing supply, but more or less. So not just
disruption and construction, but disruption in
just the kind of homes we have. how they're built
and how they're delivered to us, right? How do
we, how do we add rooftops to a city? How can
we disrupt that? And there's a lot of chatter
about tiny homes and prefab, manufactured homes.
And again, that's taking an old science. So if
you look at it, I'm not going to say a name because
they're a Las Vegas company, but they've kind
of made that a sexy thing, a prefabricated home
and it unfolds and it's, I mean, Looks like a
construction trailer. But that's just my opinion.
It's not opinion. It's not my taste. But I see
where their vision of their company is going.
And I come in and admire them for it. And again,
I think it you know, spawned out of that kind
of COVID disruption type attitude. And I think
a lot of the funding behind it, I feel was probably,
you know, the result of all that. And I think
that you look at how challenging construction
has been to disrupt. And almost every other industry
has been disrupted in some way. And even being
a player in this industry, I cannot picture how
it could be adequately disrupted. How do you
disrupt adding rooftops to cities? How? One would
argue, build them in factories. Okay, well now
you have freight costs, shipping costs. What
about onsite inspections? What about permitting?
How does that look? Are those homes built in
a factory three states over? economical to ship
three states? Or do they meet local billing codes?
Do they meet local tastes? Do they meet, do they
fit law and site specific issues? And all we've
done is recreated the mobile home. After all
that, after all that mental, after all that intellectual
horsepowers expended. Oh wait, all we did is
recreate a mobile home. So you think, okay, well,
factory built homes aren't the way to go. Uh,
not to cure, you know, housing supply crunch.
Um, okay. What about prefabrication? What about,
okay, we just fabricate homes and sections. Well,
then you're kind of getting the worst of both
worlds. You have all the issues and tribulations
and trials that come with a full factory bomb
that's shipped on site. Now you have homes being
transported with the wall missing, right? It's
wrapped. And then the onset crew is dealing with
a several ton, thousand ton, special equipment,
special equipment, and then everything has to
be such precision because the house was built,
you know, to that exact foundation that you're
going to plop it on. And now it has to be perfect,
because you didn't just go from the ground up
and site specific conditions that maybe, okay,
the foundation was an inch over, it's okay, we
just frame the house and then show it's fine.
It's, it's Plus or minus is two inches in either
direction is completely fine. It's built on site.
And the problems that you solve, whether staffing,
because people are just reporting to a factory
and they're working 40 hours a week, building
that home and you have multiple crews and they're
not tripping over each other because it's framed
on one day and it's just, it goes, there's no
weather delays or nothing. Sick calls, you can
staff it more appropriately. It's a lot safer
most likely in that scenario than building on
site. Uh, you don't have travel to the site,
right? Some of these sites are hard to get to
depending on where you're building. So it solves
so many of those problems, but then it's, it's,
it's such a blessing and a curse because you're
okay. Well, now how are you going to get this
stuff there? Is the city okay with it? For instance,
uh, the city of Las Vegas, it's that we have
a separate zoning overlay for manufacturers and
the end is the zoning code. manufactured. So
you can only go in certain manufactured homes
in certain areas. And it's a little bit of an
imbi as I'm not in my backyard, they say, Well,
I don't care how nice there I don't want them
here, right in my backyard, because they're all
going to look, you know, the same and there's
a negative connotation. Exactly. Some of those
things that you have an element that I didn't
want to live near. Exactly. Right. Long term.
How does that look? And then there's just a there's
a stigma attached to them. Okay, so we've covered
that. Can't disrupt it by building homes in a
factory, right? Then you get into it. I don't
go more than a week without getting this question.
What about tiny homes? People love tiny homes.
I think there's some sort of a, almost a romantic
novelty to them, right? They're so cute and they're
so easy. And it's a, you know, it's a more sustainable
lifestyle and size and minimalistic. And it's,
you know, it's, there is, there is definitely
a novelty about the tiny home right now. Oh,
for sure. I think it's probably maybe generational,
maybe Millennials that feel priced out of the
housing market see a tiny home as their little
slice of spend all of our time outside anyway.
Right, right, right, right. Kitchens aren't as
important to us. And I feel that it's a question
that is it's so it's a romantic notion. It has
cultural cache. And people maybe for all those
reasons, people ask me about all the time. And
when I go on a rant about how I wish I could
build more affordable homes about, you know,
I go through Which god bless our listeners to
have had to listen to that many times because
it creeps its way into every episode it feels
like but then people say well, why don't you
build tiny homes as if I can just buy a parcel
and plop a bunch of tiny homes on it and Move
on with my life and sell them to a bunch of happy
buyers and it's not realistic So I wanted to
talk about a disruption episode, but I also wanted
to dedicate a good portion of it to tiny homes
and a lot of times there's a lot of overlap with
that too because a lot of tiny homes are factory
built they're not site built many things there's
also a stability question right i mean there's
here in vegas we don't have major weather conditions
but when you're building a structure that's been
transported from elsewhere and even if you put
it on its own foundation you're now more susceptible
to hurricanes and tornadoes and floods and i
mean some of those Natural disasters that come
across other parts in the country. It's actually
a good sec. It's actually a good little tangent
There are things that when we pour a slab where
we have straps that go all the way down basically
to the footer and then those big metal straps
get fastened to studs and the house the house
kind of becomes As one with the earth as it possibly
can but when you're building things separately,
it's basically a monolith right a monolithic
slab and then all these straps and rebar and
tie downs and Bolts and things that keep the
house together Aren't there in that setting and
you're putting it on a crawlspace or putting
it on a basement or something along those lines
That you just you'll never be able to replicate
that that that kind of sturdiness Yeah, there's
just a durability that comes right building it
ratcheting it right there in the ground. Yeah,
so back to the concept of tiny homes when you
think about I Have to explain this so many times.
That's why I wanted to make an episode so Number
one zoning though the zoning is you would have
to have a lot of political will to change that
zoning because Not only do we have minimum lot
sizes. We have minimum setbacks many times We
have minimum structure sizes to see you It would
be illegal to build a 400 square foot home on
that lot. There are certain size requirements
Maybe it's 1 ,500 maybe it's a thousand and that's
saying the lands not in any kind of HOA or kind
of has any kind of special conditions that way
so That's strike number one, right? You can't
put it in somebody's backyard. That's the name
is a lot of other people think too They think
well, I have a truly we're not gonna get a pool,
but we're gonna put it. That's right Yes, now
you become from single -family zoning. Yes. Now
you have two domiciles on that parcel and the
city does not like that again back to this In
congruent with the zoning. So yes, you can have
it. So a little hack will do here if we do build
homes with casitas is that you can't have a stove
which is strange to me that for whatever reason
the county dictates you can have a bed a shower
as now it's a separate dwelling but now it's
a separate dwelling and you can put a two burner
plug in or you know yeah it just can't be permanently
attached it just cannot be a stove that can very
odd it is but you know what it has to be a line
somewhere and i think that was just the line
in the sand and i've even seen it come up on
appraisals because maybe let's say a homeowner
later put a stove in after Every city inspector
has been out of there and the certificate of
occupancy has been issued. And they ran a gas
line behind the wall and before anyone knew and
buried it in there and then pulled it out later
and put a stove in. I've seen that disrupt loans
at the town years later. Oh, there's a stove
in the successory dwelling unit. Is this a two
-family zoning or single -family zoning? Well,
that's it. As soon as that stove goes in, it's
got to be two -family. It is a two -family parcel.
Right. So there's now two. families that can
live there apparently. So interesting though.
So we have, so let's pretend there's a neighborhood
of tiny homes and why can't we do that? For all
the list reasons listed above, they, how are
you going to get loans on those? How does the
bank value those? Can you get a mortgage on that?
Right. How do you get individual utility connections?
Can you get individual water meters out there?
You know, individual gas meters is every single
house going to have an individual gas meter,
water meter, electric meter, all these little
concerns that come up. And then that little tiny
home ended up costing you as much as just an
average. There's some, there's a certain threshold
that anytime you build anything, you're just
going to have, you're going to have the cost
of all the utilities. You're going to have all
the site work, which whether you're building
a 600 square foot home or 1600 square foot home,
it's just not that much more. And when you're
mobilizing crews and when you're buying Appliances,
now they're 24 inch stoves instead of 30, which
are oddly more expensive than their counterparts.
Smaller fridge, everything is just now specialty.
So then that tiny home ended up costing you $280
,000 in utilities and construction and material
and all the other things that go along with it.
So they just don't pencil out. Even if in a fantasy,
the city said, you know what, put a tiny home
community there. And on tiny little micro parcels,
well, yeah. You can, good luck. There's going
to be, they're not going to pencil out. It just
doesn't make any sense unless you don't want
running water in your house. Unless you want
to drink out of a cistern. Some people do want
to take their tiny home and pump it off the grid.
Oh, for sure. Yeah, if you want it, yeah, absolutely.
That's a different lifestyle altogether. As a
one -off curiosity, totally. But to solve anything
or to kind of answer an unmet demand in the market,
then it's not tiny homes. Unfortunately, it's
just not. It's not there. None of it makes any
sense. So it's a great fantasy. It's fun to think
about. It's a question I get asked every, I'm
telling you every week. Yes. Why don't you build
tiny homes? If you want to go to Florida homes.
It's odd. Yeah. It just doesn't make, it doesn't
make sense on paper, even if you could get all
the other factors in place and get the stars
to align. So you look at those as disruptors,
right? So you've, you've seen, you've seen these
videos of, okay, we're going to be able to deploy.
All these houses look look what we could do we
can get this approved disaster relief disaster
relief and things like that and it's great if
you can ship them there and it can all pencil
out amazing but again that's disaster that's
a one off what about how do we truly do that
for sure exactly we can't. It's not going to
revolutionize the construction industry oddly
enough what revolutionize the construction industry
was probably the air nailer. Right? The air nailer.
Thank goodness for the air nailer. The joist
plate, because it could have greater spans. The
engineered truss, which allowed for open floor
plans and just easier, you know, you could hide
your duct work in there and everything. Taller
ceilings, things like that. And probably factory
goods, you know, factory -made windows versus
windows made by craftsmen locally. That type
of stuff. Factory -made building materials. All
of those innovations probably happened pre 1950.
So we haven't really innovated in this industry
in 75 years. Yeah. The track tone was 1945 after
World War II. Love it. I got history and you
didn't think I was going to do it. You would
do it somewhere. I'm going to add that as a fourth
one. Real estate market history. So that's kind
of what keeps me curious about disruption. Why
can we not disrupt it? I'm not even anti disruption.
I'm just Interested in the fact that it's an
industry that has not been disrupted and an industry
that really hasn't materially changed in 75 years
Mm -hmm. Like we said in one episode actually
80 years even the cul -de -sac even the way neighborhoods
are laid out has been an Existence since the
40s really since FHA so which is like 30s. Mm
-hmm. So my disruption you're you're not necessarily
even talking about A negative thing. I think
often as a negative, you know, you disrupted
something and now it can't continue as it was.
Right. In this case, you're really kind of reflecting
on the idea that disruption would better the
industry. The growth industry would get into
something even, you know, I don't want to take
a cap. If I forgot a sweet potato, I want to
go on Instacart and order it. I like it. I like
disruption. It's okay. I don't like disruption
for disruption sake. And I feel like when there's
a lot of money in venture capital, I think a
lot of times you'll see that, oh, we're an insurance
company that instead of doing this, you're just
disrupting for the sake of disrupting. You're
answering a question that nobody asked. Nobody
cares. I would love to see it disrupted to be
interesting, but I just think that I don't see
a path forward. There's some of that, um, whatever
it is, the 3d printing models that come together
and that kind of thing. I mean, there's some
of that happening. They look like the hives,
you know, that in fact, a big publicly traded
company did a whole neighborhood in Texas of
3d printed homes. And it's great. And that's
another thing people will ask me tiny homes and
then somewhat less frequently 3d printed homes.
But the funny thing is what, okay, what problem
did that solve or the framing? Oh, so 5 % of
the whole thing you solved by lugging this. Framing
is a problem. Framing is not even a problem.
Yeah. Well, then where do you put your electrical
line? Everything's now solid. The whole mass
of the house is solid. So you have to obviously
plan for your windows. You can't run any duct
work. You can't run your AC line that goes up
to the air handler. You can't obviously run any
power. You have your framing. It's all exposed
on the front and you have to build a facade anyway.
And you're still framing. So what is the what
answer what you know, what what what what problem
are you solving? Yeah, hey this this one trade
that's five percent of the industry We want to
solve that problem That's not gonna do anything.
So that's why I didn't take off. But I remember
seeing that was it's funny. It's not cheaper.
No, it isn't So it isn't even a, you know, it's
not even like where you were using plastic. I
mean, there's, there are a lot of things about
it. No, you're not. Yeah. You're not solving
a problem. It's just a different way of doing
it. Right. There was a time in the nineties where
concrete, I'm sorry, styrofoam blocks were really
kind of thought to be the new technology that,
Oh, we're going to build homes out of styrofoam
blocks instead of framing them. And I think in
some climates, maybe it is a good answer. And
then they usually fill them with concrete every
few holes or maybe every hole. I'm not exactly
sure. Um, I've never worked with them, but, um,
the thought is that they're more sturdy and they're
sturdier and they can withstand a lot more climate,
but turns out they're really challenging to work
with. So now it becomes a specialty trade instead
of finding a framer who can bring on Couple journeymen
with them and kind of teach him, but he's still
getting a lot of work out of them and they're
framing and he's over seeing it. It's a challenging
trade and specialty, but it's easy to learn,
but it's teachable versus dealing with the 3D
printer or dealing with our phone box or dealing
with these kind of novel concepts that are even
wall panels. And there was a builder in town
about 10 years ago. that's still in town but
they were working with prefabricated wall sections
and so now you're building them off site and
you're building all these walls you have to number
them track them transport them um highway 95
with 215 beltway and what So instead of having
all these neatly stacked bunks of lumber, we're
going to go ahead and make that as bulky and
as difficult to transport as possible. And then
we're going to lift them in with a crane. You
shared your labor field because you've got the
person who builds it, but somebody has to install
it there. So now you're dividing the labor. It's
just newer for the sake of new. It's, oh, instead
of building everything on site, you know, that
wall that we saved about 18 minutes worth of
labor, okay, took you an hour and a half with
a wide load. Tractor trailer with cars in front
of it, leaders and trailers. And the expense
of transport, logistics. Yeah. Shutting down
two lanes. So it's hard. I don't know. It's very
challenging. I just wondered, did all of our
innovation happen? Is this what we're in for
now? Is this just kind of what we're doing? A
lot of our stuff is factory built. The components
are going to a home, but the home itself. I always
tell people this is one of the last things, at
least in the US, that's still hand -built. And
I like that. It's one of the things I like about
construction. Exactly. A new home construction
specifically because it is, it is unique in that
regard. Yeah. And it's something that keeps real
estate probably as a good asset and homes are
not fungible, right? You just can't, yes, maybe
the same model was built three doors down, but
this exact home, you can't just plop another
one. You can, they don't just come off the factory
line. So maybe we should be careful what we wish
for. Maybe this is a great thing that it can't
be disrupted. yeah makes it for a much more stable
business environment for a builder and how nice
would it be if they could be you know you fall
in love with your home but now you've been relocated
and yeah can i just take my whole house that's
right a truck transported across the country
can't do it you gotta sell it yeah so yeah anyway
great information and a great topic really interesting
yeah thank you appreciate your insight appreciate
you guys joining us and we will look forward
to seeing you again next time on trust the process
See you then. Bye bye. Thanks for tuning into
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