SBC Magazine March 2017 : Page 20
Seeing the BIG Picture IN SMALL SPACES Just as there’s no one-size-ﬁ ts-all housing solution, there’s no one-size-ﬁ ts-all business model for CMs. BILL NEEB, OWNER OF TETON TRUSS in Etna, Wyoming, is quick to admit the downside of his increasingly high-profile side business: “It’s tough to make money building tiny housing.” As Neeb points out, there are two conventional money makers in home building: building in sufficient quantity to realize economies of scale, and using large, simple, and comparatively cheap bedrooms to offset the high per-square-foot cost of mechanical and appliance-heavy kitch-ens and bathrooms. That business model doesn’t work for the two dozen 400-square-foot units Teton Truss cut its teeth building, giving a luxury hotel feel to the Fireside Resort cabins in Grand Teton National Park. It’s a business model that doesn’t truly apply to the 36 slightly larger units Teton 20 sbcmag.info • MARCH 2017
Seeing The Big Picture In Small Spaces
Just as there’s no one-size-fits-all housing solution, there’s no one-size-fits-all business model for CMs.
BILL NEEB, OWNER OF TETON TRUSS in Etna, Wyoming, is quick to admit the downside of his increasingly high-profile side business: “It’s tough to make money building tiny housing.”
As Neeb points out, there are two conventional money makers in home building: building in sufficient quantity to realize economies of scale, and using large, simple, and comparatively cheap bedrooms to offset the high per-square-foot cost of mechanical and appliance-heavy kitchens and bathrooms.
That business model doesn’t work for the two dozen 400-square-foot units Teton Truss cut its teeth building, giving a luxury hotel feel to the Fireside Resort cabins in Grand Teton National Park. It’s a business model that doesn’t truly apply to the 36 slightly larger units Teton Truss is now finishing for Etna Shire, a housing development featuring both the one-bedroom module and a 700-square-foot, two-bedroom style that does add a bit of inexpensive space to a relatively unchanged window, kitchen and bathroom package.
For the sky-high prices and seasonal swings in the Greater Yellowstone area, tiny houses are uniquely suited to the needs of both buyers and builders.
“It’s a business model that’s been difficult to make profitable,” Neeb admitted, but it’s one that makes sense for Teton Truss, primarily because of the harsh Wyoming weather that brings construction to a standstill. “In our case, we had people and assets idle for three to four months in the winter time,” explained Neeb, “so our goal was to keep our people busy and break even doing it.”
Along with the local annual sales lull, the national housing downturn provided incentive for Teton Truss to make the slow months profitable. In the mid-2000s, Neeb recalled, “we were kings of the world, like every other truss plant. When the recession came about, the bottom fell out of that business model and left everybody scrambling. People weren’t producing for profit; they were producing to survive.”
"Even if we break even, it's much better than going into spring with a loss. We pay our bills, and then make money in the summer."
Business practices suffered along with companies’ bottom lines. One example Neeb gave: “we didn’t buy tires for five years because we couldn’t afford them.” The tough times, however, proved a rare opportunity: “All of a sudden we had time to look at floor trusses, wall panels and modular houses. We were looking at new ways to keep busy because building trusses had become much less profitable.”
Keeping busy meant changing gears, using the 80 percent drop-off in business over the winter to switch from building trusses to manufacturing tiny homes. It’s not, Neeb emphasized, a get-rich-quick change: “we lose our shirts every winter and spend the summer time trying to make it up!” Yet, producing something during the slow months is better than the alternative. “Even if we break even,” Neeb argued, “it’s much better than going into spring with a loss. We pay our bills, and then make money in the summer.”
While it’s certainly been good for Teton Truss, Neeb sees the tiny house venture as both company innovation and market response. “There’s excitement out there,” he said. “There’s a movement. People want an alternative to suburbia.” Well before the Shire development got underway, Neeb gave plenty of tours to interested buyers of tiny houses—people looking for an affordable option in the breathtakingly high-priced Wyoming housing market.
“Everyone was very excited about them, but they couldn’t get financing and they couldn’t find a place to put them,” Neeb explained. Code regulations and zoning restrictions have tripped up tiny house enthusiasts around the country, and would-be homeowners with tight budgets aren’t well-positioned to pay in cash or purchase land, even if, as Neeb noted, the $80-90 thousand price point of his tiny homes in Etna is well under the $700 thousand starting price of the homes an hour north in Jackson.
It didn’t take Neeb long to realize that a housing development, with space for permanent units as well as park models perched on high-quality, five-axel chassis was a sensible long-term investment. It’s affordable housing for those willing to commute, ready to commit to the small-space lifestyle, and looking for the flexibility of tiny house home ownership. As Neeb points out, a tiny house is easy to take with you when you relocate. You can pay for it quickly and be ready to re-sell in just a few years. Buy a larger house on a piece of property where you can park your tiny house, and you can re-purpose it as a guest cottage.
Efficiency and exuberant style are two key ways tiny houses stand out from previous versions of small-space living. “We don’t want to look like we’re a manufactured housing outfit,” Neeb explained. “We’re trying to keep them a class above manufactured trailer housing—several steps above.”
That means going the extra mile to make a high-end product instead of trying to “sell tiny homes to kids who don’t have any money.” Making any craft work as a business endeavor means understanding what the market will tolerate and also where efficiencies are possible. “You want to create something beautiful,” Neeb said, “but when you do so you’re driving the price up.” It’s a balancing act that’s not unique to tiny house building.
“Trying to get creative but stay on budget and stay on task is a challenge,” admitted Neeb. He’s developed a few strategies to help. First, just like a general contractor, he relies on skilled subcontractors. “We keep the level of quality high by letting the tradesmen do what they do best,” Neeb explained. “You’re not taking a truss guy and putting a drywall trowel in his hand.” Second, he offers a turnkey product. “It’s easier for us to build several of them and sell those units as they are.” That means letting a few customers with specific ideas go elsewhere; it also means that Teton Truss doesn’t need to worry about managing clients’ shifting desires.
“People weren’t producing for profit; they were producing to survive.”
Finally, of course, there’s the efficiency of componentization. “We panelize the roof, the walls, and the floors,” Neeb said. “We build it as a box, and then we’re not losing cubic feet. Rather than build an eight foot ceiling with a six-twelve roof, we’ll build an 11 foot ceiling with a flat roof so the unit feels bigger.”
Tiny house building has put Neeb in the position of looking at the big picture. “Whether that’s whole house supply, or BIM [Building Information Modeling],” Neeb explained, “we could supply the whole house or the panels, or the modules, instead of being five percent of a conventionally framed house.”
As a component manufacturer in the traditional business model, argued Neeb, “You’re a small part of someone else’s big problem, which is how to build a house.” Some builders are great at solving that problem—and some (Neeb says every component manufacturer will agree) aren’t as good at it. In building tiny houses, Teton Truss takes on that challenge itself and realizes the full benefit of finding solutions. As Neeb puts it: “If we can be a larger part of the solution, or become the solution to our own problem instead of being a little cog in someone else’s wheel, that’s more profitable for us.”
Neeb is mindful that tiny house building upends a business model that worked for component manufacturers for years: “come to us with a set of plans, and we’ll build your trusses,” as Neeb explains it. And if your geographical region, seasonal changes, and profit margins mean you’re making good use of all your assets throughout the year, he won’t be the one urging change. Rhetorically, Neeb asked, “for the component manufacturer who makes money 12 months out of the year, why bother?”
His scenario, he points out adamantly, was different. The downturn crippled his financing and the cold keeps his customers away for months at a time. “Because we were a truss manufacturer in the recession,” he explained, “we were red tagged; we were a pariah to the bank.” Building tiny houses was a way to use “the assets we already had to produce something in our spare time. We didn’t have to go out and finance new shop space or equipment.”
“There’s a little bit of a Robin Hood feel to it. You’re creating housing for people that need affordable housing.”
In short, explained Neeb, his new venture is a good fit for Teton Truss because, “we didn’t build a facility to build tiny houses.” Instead, Teton Truss already had downtime, employees, space and a good market—so they used what they had. “There’s a fairly large learning curve,” Neeb warned; had he been making money all year selling trusses, it might not have been worth it to learn everything he needed to about crafting tiny houses that were up to code or developing critical relationships with building inspectors on both sides of the Wyoming-Idaho state line.
“It gets exponentially more expensive to build small,” Neeb said, but the thin margins are margins nonetheless. And the new initiative comes with some personal satisfaction as well. The well-appointed Etna Shire units are certainly not stand-alone equivalents of cheap apartments, but they are within the financial means of many who can’t even consider housing in Jackson. “There’s a little bit of a Robin Hood feel to it,” he said. “You’re creating housing for people that need affordable housing.”
WHAT’S THE TINY HOUSE APPEAL?
“I’ve always been a proponent of modular housing,” Bill Neeb admits. That attitude is probably part of what got him interesting in having Teton Truss build tiny houses in the first place. The economies of scale that could be realized with tract housing always made sense to him, he says, but that just wasn’t an option in a rural area like Etna, Wyoming. Small, modular housing is a much more practical option for the location, Neeb argues, and he sees lots of possibilities for it.
“If there were tiny house communities where, on the left side of the acreage were the millennials and on the right side of the acreage were the retirees, I think those would make good communities,” Neeb says. He’d also be open to a scenario where buyers had a little more leeway. “I would prefer to sell them unfinished,” he says of the tiny houses Teton Truss is building for the Etna Shire development. While the turnkey style is most economical, Neeb says he’d be delighted to offer base models that gave owners more opportunities for personalization. “Let someone else take that six-sided blank box,” he says, and do just what every college student does with a dorm room or apartment: run to the nearest home goods store and make the place their own. “That would resonate well with the millennials,” Neeb thinks.
Even for those who aren’t compelled by the close quarters of student living, tiny houses have their charms. “You’re looking at cubic feet rather than square feet,” Neeb says, and a lot creative ways to make the most of that space. Lofts, for example, are a practical choice. “You don’t need to be sleeping with eight feet of space over your head.” And, Neeb argues, “the smaller spaces, when they’re done right, they feel cozy.” There’s a certain naturalness to gathering around a small coffee table rather than sprawling under an immense vaulted ceiling in a formal great room. “We’re kind of den animals,” suggests Neeb.
Alongside the economic and lifestyle arguments for tiny house building and living, Neeb can justify his venture with a level of personal satisfaction. “It’s fun,” he admits. “After 23 years of processing trusses…that gets monotonous. It gets tough to do the same thing over and over again for decades.” That’s not true for everyone, he’s quick to add. But “for the person who wants to go a different direction,” Neeb says, tiny house building is “an opportunity that could turn into something.”
TINY HOUSE LIVING: NICE, BUT “NOT FOR EVERYBODY”
“It’s not one-size-fits all,” said Neeb. Single adults with working class paychecks, like nurses or teachers; one-child families; millennials looking to get out of cramped apartment or condo living; retired couples—all are potential entrants to the tiny house market. “The 38-year-old couple with two kids can’t really do it,” Neeb said. With that kind of family, “you need a big garage; you need that conventional 2,000-square-foot house. But the 22-year-old graduate from college or the freshly-married young couple who want their own place—those seem to be the segments of the market that are gravitating toward tiny houses.”
It’s a segment interested in up-scale downsizing. The absence of a state income tax in Wyoming attracts a lot of customers for high-end housing. “In Jackson,” Neeb explained, “you’re not spending thousands of dollars on architects and engineers,” it could be tens of thousands—or more—for the run-of-the-mill luxury structures that inflate housing prices. With those homes as a basis of comparison, the tiny homes Teton Truss builds don’t skimp on the highend touches.
“Yeah…they’re nice,” Neeb admitted, describing the granite counter tops, birch cabinets and stainless steel appliances that adorn the Shire units. “The windows are high enough, you get a lot of light—but you’re not seeing your neighbor,” he added. In the foothills of the Teton Range, tiny houses are ideally located for solar gain. “It was about 10 below this morning,” Neeb noted last January, and on a sunny day at that temperature, the tiny houses in Etna might easily warm to the low 70s, 10 degrees above a thermostat setting, by mid-afternoon.
“If we can be a larger part of the solution, or become the solution to our own problem instead of being a little cog in someone else’s wheel, that’s more profitable for us.”
Neeb’s daughter Ruby enjoys a day on a jobsite with her dad.
ABOUT THE AUTHOR: Dale Erlandson joined SBCA staff in fall of 2015 as the assistant editor of SBC Magazine. She has written for a variety of publications over the last decade and thrives on the challenge of learning something new and passing that knowledge along through the written word.
Read the full article at http://www.bluetoad.com/article/Seeing+The+Big+Picture+In+Small+Spaces/2717561/385881/article.html.