Contractor Cuts
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Contractor Cuts
Multi-generational Living Is Changing How We Build and What Clients Want
The construction industry is evolving beyond traditional renovations and new builds, with emerging markets like ADUs, barndominiums, and multi-generational compounds becoming increasingly popular among homeowners. This shift reflects changing demographics and lifestyles, with the average age of independence now 27 years old and one in five adults between 25-34 still living with their parents.
• ADUs (Accessory Dwelling Units) are typically cheaper to build than home additions because they're new construction rather than renovations
• Financing and property valuation remain significant challenges for alternative structures like barndominiums
• Multi-generational living is driving demand for compound-style properties with separate living spaces
• Sustainable living features like gardens, water retention systems, and animal habitats often accompany these alternative structures
• Research rural zoning laws and building requirements before entering this niche market
• Develop relationships with local permitting offices to navigate regulations more effectively
• Create preset designs and pricing for quick client proposals
• Energy efficiency knowledge can provide additional value through government subsidies and tax benefits
• Different labor crews with specialized experience are often needed for barndominium and ADU construction
Visit ProStruct360.com for contractor software, consulting, and business growth services tailored to help you break into these emerging construction markets.
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Welcome to Contractor Cuts, where we cover the good, the bad and the ugly of growing a successful contracting company.
Speaker 2:Welcome back to Contractor Cuts. My name is Clary Turner, I'm James McConnell. Thanks for joining us again this week. So today we are talking first of a few episodes where we're talking about the future of construction, and so today we are going to be covering what people are doing besides just renovations, additions and new construction. There's a lot of emerging markets out there. We're going to kind of cover some of them how we've seen the trends changing, where we think construction is going now and in the future and kind of our experiences with these different types of new types, types of construction.
Speaker 1:Yeah, from the hip, from the hip and uh, just like precursor, this is definitely more opinions yeah, for sure.
Speaker 2:I think this is when we're talking about the future. Obviously, we don't know. It's got to be our opinion, yeah, but but. But. But I think we've got some experience of over the last year, two years, three years. We've started building things we never even knew of in the past, right, barnuminiums and what are ad like. I think we're talking setting this, this podcast up of 10 years ago. I didn't know what ad you meant, right, and it was a small niche of a market where, hey, I really want to have an office in my backyard, so can we go ahead and build a little ADU out there? To now, it is a full-fledged, very, very large business that people service just ADUs.
Speaker 1:ADU is a pretty toity term, yeah, I don't know who came up with it, but accessory dwelling unit, unit, yeah.
Speaker 2:It's. It's really covers a lot. We there are other things that we see in tiny houses, barn to mediums container homes. There's a lot of different types of ADU, right, just a freestanding kind of smaller house that you build on a smaller slab. So, james, getting into ADU, adding on that, walk me through the difference of me doing an addition on my house to add an extra 1,200 square feet versus adding a 1,200 square foot ADU. An extra 1200 square feet versus adding a 1200 square foot ADU Pricing wise, value wise. What's going to be different in that process from the contractor side to add a freestanding master suite as opposed to adding a master suite off the back of a house. What's the?
Speaker 1:difference. All right. Specifically, from the contractor standpoint, it's the difference between a renovation and a new build. There's a lot less to contend with in terms of what are we going to find inside the wall? What do we need to do to augment the foundation? What do we need to do to tie into the roofing system, do we? How do we match the shingle? How do we match the siding system, do we? How do we match the shingle? How do we match the siding? There's a lot of things in the renovation that add cost to your project that, with an ad, you're not necessarily embarking on.
Speaker 2:Yeah, there are some challenges, though as well as upgrading a lot of different systems, like electrical system you might not have, like you might have to do a full sub panel and run new wires and upgrade the rest of the electrical because the house is old, the HVAC right. If most HVACs are sized to the square footage, you add 1,200 square feet, you might need to upgrade the whole level right, going from a three ton to a five ton because of the square footage that you're adding in. And so now I'm running new duct work in old walls. I'm upgrading everything where, if I'm doing an ADU, I could do a mini split. I could do a small unit in there. I can just run a single electrical line out there for its own subpanel, for just the electrical in that unit.
Speaker 2:So oftentimes those ADUs are going to be cheaper than doing an addition with the same apples to apples, what you're doing inside of it. I think the negative side, though, is if you're on septic, what are we doing about that? Septics are usually sized based on the house, the bedrooms, how many people can be in the property. Adding an addition on for a master suite versus an ADU? Both of them Different places, have different rules and codes about two units sharing a septic tank versus an addition on one.
Speaker 1:So there's a lot of different intricacies depending on where you apples to apples. Square footage wise, doing the same thing inside as an addition onto a property, I'd say 85% of the time, yeah, yeah. But that kind of bleeds into the the Barndo thing too, because what people generally want in an ADU or you know, whatever they've seen, are higher end type of things. Like, well, we've got this ADU, we've got this like really small kitchen, so we're going to do quartz countertops and we're going to do, uh, you know the, the big sliding glass doors that are $20,000. Like, people want the. What they're seeing on Instagram, what they're seeing on social media is, uh, and that's not the cheap stuff, you know.
Speaker 2:Yeah, well, and I mean there is a wide range, and so, talking about ADUs, where people are going more than just a standard house, I think there's all the way down to. You can buy a shell from Home Depot for like $26,000.
Speaker 1:Even less than that, really. Yeah, oh yeah, you can buy a shell for home depot for like twenty six thousand dollars even less than that, really.
Speaker 2:Yeah, oh yeah, you can buy a shell for eight thousand dollars. Yeah, that's crazy.
Speaker 1:So you know there is a question is the resale which we talked about earlier? What is going to be sufficient for resale and how can you actually market it? Because a lot of those sheds are built with like two, uh, like two by threes, yeah, as like the walls, yep, uh, which is more of like a modular home, yeah, and you need to actually have a different, um, uh, not everybody can just work on modular homes, like there's like a different insurance or a different, uh, licensing lights. I don't, I don't know what the term is. This is interesting.
Speaker 2:There's a lot of different ways to go with it. I think that the issues with all of these additional dwelling units or the additional tiny homes or the barn dominiums, all of those things is the property value is so difficult. We've worked on some Barnuminiums and some lenders that do nothing but Barn-dos and with them it is so difficult because they're trying to do comps with other Barnuminiums. You've got to have another Barnuminium sell within a mile of your property for them to have a comp on, and they're usually not there. So how are they valuing the loan? How are they valuing the even down to insurance, valuing the property as to if it gets damaged, replacement values, all that stuff. So that's one of the things you have to contend with. If we're talking with and this is more you know contractors listen to this podcast and the goal is to help you guys get into some of these niches and so if you are dealing with homeowners, one of the biggest issues is going to be financing, trying to figure out where that money is coming from If they're not paying cash. It's a whole, nother, whole, nother set of hurdles in terms of getting that job done. But again, they can lend, they can pull like a HELOC or pull money out of the land itself, but a lot of times banks aren't valuing that separate building as its own because it's all on the same property.
Speaker 2:I think, along with that, when you go to resell a property, if I had a house that was $800,000, it's a 3,500 square foot home and it's on two acres, right, and so it's an $800,000 property yeah, thank you, it's a pretty nice place. If I go and spend $500,000 on a barn doe in the backyard and now you know it's not going to necessarily say, because you spent that, now the property is worth $1.3. Someone who's buying a $1.3 million property the house in and of itself is kind of equal to an $800,000 property, right, because it's only 3,500 square feet, but I'm spending 1.3. So it's a smaller buyer pool that's going to want that barnuminium or the second house in the back. Now, those that want that it's a huge selling point and they're willing to spend more.
Speaker 2:But you go from 10 people that are in the market today looking at a house that's $800,000 and what you currently have. Now I'm making that a lot smaller of a buyer pool because you've got to have 1.3 instead of 800. And if you have 1.3, you also need to like the property that we've done. Like to have a smaller home and a barn dominium on it for that price. Does that make sense?
Speaker 1:Again, I'm using random numbers, random numbers coming at you.
Speaker 2:But what? What I'm trying to get at is, um, when you do an addition on a house, I go from 3,500 square feet to 5,000 square feet, and so the house itself's value increases and so it's a larger buyer pool with a 5,000 square foot house for more money than a 3,500 square foot house with more money. And so when you separate it out, you're not increasing necessarily what I'm going to be living in and what does the bank loan on and what's covered in it. So it just gets a little more sticky. But there's a lot more people these days that are helping you navigate those waters.
Speaker 1:Yeah, and we don't yet really know I mean, the banks and everybody's catching up to what society is doing there's a lot of people looking for multi-generational whether that's kids moving back in with the parents again or parents moving in with the kids and we don't know yet what resale looks like on any of these things. But, to your point, your buyer pool gets smaller. But you've got now two incomes, you know, two families or more, a rental property that now have pooling their money together and it becomes more of a. This isn't a as much a financial decision as it is a life decision. Yeah, and that changes. That changes the game completely, because then I feel like at that point you're like what is it worth to these people? Well, if you're pooling your money together, it's less of a decision. Yeah.
Speaker 2:Well, I agree, and I think, now that baby boomers are aging up and it's more of the younger Gen X, millennials that you know, that that age group that's that's moving into the home ownership world the experience and lifestyle matter more than the long-term savings for these generations, and so, you know, the boomers are buying small houses, live in it. It's more of a financial decision where the younger generations I want to live in community, I want to live, I want a multi-generational property to where my kids can have a house on it, and so there's a lot more value in this for people moving into the buyer roles that are that are, you know, the 30, 40 year olds that are spending more money on homes. So that, that being said, you know there's really there's. When you're looking at these, our clients are going to be people who are building additional units for their kids to stay at home, people that are building an additional unit that is going to allow my parents to live here. They're retiring, they live far away. They need someone to watch them. I don't want them to live in my house, but here's a great spot for them, adding an Airbnb and then also office space.
Speaker 2:I have a couple of people that have built them for. Hey, I want to work at home, but I don't want to be in the home. I need to be away from my, I need space for my kids and I want to be able to lock the door and walk away from the office and leave work at work. But I also don't want to commute and rent a space that's, you know, 20 minutes from my house. So there's a lot of reasoning that people are doing. You know we I was looking up some of the stats. In the 80s, 90s and 2000s, the average age of independence was 23 years old. People were moving out on average at 23.
Speaker 1:Age of independence sounds like a really fun movie.
Speaker 2:Yeah, that was my band in high school, was it? Yeah, we were the age of independence, are you serious? No, I'm just kidding Dang, but right now it's gone up to 27. So 27 is the average age, I think. On top of that, 19% of adults between 25 and 34 years old still live with their parents or in-laws, so one out of five adults between 25 and 34 are still living at home. Right, and so that's the A.
Speaker 2:I need to get this kid out of here. They need their own space. I'm just going to add a house off the back. I'm going to do, you know, let's do a tiny home. They can move into it and live for free until they get out on their own.
Speaker 2:So there's a lot of that that's now normalized than 10 years ago, 20 years ago, 30 years ago, to where you know, and 30 years ago, being 34, living at home was frowned upon. That's average one out of five people these days. So I think that's something where this isn't going away. This isn't just a trend that, oh, it's cool to have a little tiny house in the backyard. That's where it's headed. That's where we're going, especially with the price. You know, I talked with one of our coaching clients who lives in LA, all he does is ADUs. When we're coaching clients who lives in LA, all he does is ADUs. When they've ran out of land out there now, what they're doing is adding on housing inside of what they currently have, and that's kind of its own industry in itself. So, yeah, I think that's kind of the main thing to go with it on. If you are doing this, how do we service those niches and how do you get into servicing those?
Speaker 1:Well, and piggybacking off the niches, what other things I think that are? What's the word ubiquitous? With the multi-generational compound style living situation is like farms. People are growing their own food. People are wanting kind of that reconnection back to nature and that's not just uh, I don't think that's a small thing either. I think a lot of people are doing that. A lot of people are looking for spaces to do that, and so you can add that to your purview or connect with somebody that you guys can work together and build a product that you can sell together.
Speaker 1:You might be two separate entities, two separate companies, but somebody that can. We can build your barn to meeting. We can build your ADU. We can set up your garden. We can set up your garden. We can set up your water retainage. We can set up your. However you want to do it. We can build you a chicken coop. We can build you a goat. Raise gardens, raise gardens. We can put all of this infrastructure in for you the irrigation, the greenhouse. We can set you up 100%, completely, for a sustainable living Like you could market that very easily and get a lot of hits. Only problem is I think it goes back to the barn dominium thing where people think it's going to be so much cheaper to build this barn dough, because it's a barn dough, but the fit and finish they want on the inside is Taj Mahal.
Speaker 2:Yeah, yeah, yeah, I want the the most expensive insulation. If I'm going to be living in a barn, I want these huge windows and doors and the garage doors that slide up, you know, 14 feet and all that. Like well, that's all. That's more expensive than a normal house Like you're, you're.
Speaker 1:I'm saving so much because it's a barn to mint.
Speaker 2:Yeah, so I think if I was getting in let's say you're giving me advice I'm getting into looking into these niches right now. What should I be aware of? What's the unseen stuff that I don't know about right now? What should I be doing today to be moving that direction? 10 to the GPM.
Speaker 1:Oh, that direction. This is embarrassing. Oh, I just took a picture. We'll cut this out all right, please don't um. Uh. All right, what should you get into? Let me start again.
Speaker 2:Yeah, yeah, yeah, yeah, run it back um, fuck shit, did you put it on silent?
Speaker 1:Fuck shit. Straight up Airplane. That's how I'll do it.
Speaker 2:All right, we'll close it out with this. I'm going to cover what? Would you advise? Stuff that people don't think about, things to start doing today, to start moving that up. If you were to give someone advice today, let's go through that. If someone's getting into the niche of I want to be able to build barn, does I want to build 80 use or tiny houses or kind of service that niche and get into that A, how would you suggest getting started with that? And B, what are the? What are the blind issues, the walls I'm going to hit when I'm getting into this that I'm not used to.
Speaker 1:Okay, what I would do is get on the USDA website and figure out where the rural land is, and that's a distinction, that there's like a map and you can see what is rural land and what is not incorporated and it's not always necessarily unincorporated or incorporated. But I would look for rural land that's a hard word. I would look for rural land in unincorporated counties so that you have less permitting issues and more freedom and building, and that's what people are going to be looking for when they're doing multi-generational or barn dominium or they're going to have the land to put goats and stuff on Cause. You also need acreage, because and this is all things that you're going to need to know if you go in that niche what is the acreage needed per hoofed animal? You know you can have a bunch of chickens pretty much most places now, but like goats and sheep and horses, they require certain acreage for the for the animals.
Speaker 1:So finding those areas and marketing specifically in those areas and understanding the requirements in those areas will give you the ability to when somebody is reaching out and they're in those areas. You already have the map of here's what's, here's what's possible and here are the hurdles that we're going to run into. Yeah, I think I think with that, like an hour of research.
Speaker 2:An hour of chat, gpt With that like an hour of research. An hour of chat, gpt, exploring, calling your local permitting office, that's big.
Speaker 1:People don't do that enough. Yeah, call, like call and speak to somebody in those offices and build a relationship with them.
Speaker 2:Yeah, it makes the entire process so much easier. Well, and nobody else knows about what's going on and what you can and can't do. Nobody else knows about what's going on and what you can and can't do. And so if you can become educated even a small amount of education, an hour to two hours of research, calling, talking that in and of itself Then when you're advertising in that niche, you're talking to maybe real estate agents that are servicing that area. That says that you know going into real estate offices, letting them know your services, be the go-to person for them and their clients. Like, hey, we're thinking of doing a Barno, can you kind?
Speaker 1:of give us some insight on it. Yeah, let me tell you what I know about the area Right and the same, the same people that are interested in in building a, a compound type, and compound is is kind of a uh, a negative word to most people. They think of Waco, they think of, like you know a cult.
Speaker 1:They think of cults, but if someone's looking to have multiple families on a property where they're growing their own food and have some type of sustainable, that's a compound and the people that are interested in the compound are also the people that are probably going to be interested in energy conservation and things of that nature.
Speaker 1:So, along with knowing where those lands are and the building parameters that you're going to be subject to in those areas, is understanding what are the ways that we can leverage these energy efficiencies, because not only is that just another way that you can put yourself apart, but there are government subsidies and tax write-offs that are available for you and for the client to build energy efficiencies into your whole process.
Speaker 1:So, just taking those couple things if you want to run hard after building barn dominions in this kind of style, leveraging those types of things will allow you to really not even necessarily expand your uh offerings. Like a, like a wide uh, a ton of different offerings. You're doing some different offerings and you're honing into this one type of client, which it might be. You're not going to get as much work, but the work that you're getting is going to be we're going to build you a barn and a farm and like, get that kind of operating, that's going to take a year minimum, and so if you it's a little bit daunting to think I'm only going to have X amount of clients per year but if you're going to, if you're going to put yourself in a niche like that, it'd be a sweet. That'd be a sweet gig.
Speaker 2:Yeah, yeah, I mean, if I, if I had five clients that each are doing 2 million the projects, that's a $10 million a year with only dealing with five people. Yeah, right, so it's it's finding it and getting deep in it and being known in your area for that, you know. That, I think, is absolutely right Knowing, learning, understanding the, those, the requirements, the. You know the zoning in your area and how many units that you can put on a single property. You know we two, two different jobs in our Lexington location Both of the new builds are compound, right, they are both, which. What I love about it is, if we do well, in the first one we've got four different properties that they also want us to build, and so it's not just one time client, but now we might have five, six, seven years of building on this one property because we're going house to house for the kids and mom and dad and that sort of thing. So it really kind of lends itself towards long-term relationships like that when you're going that route.
Speaker 2:I think one thing that I would mention that you're going to run into going this route is it is often a whole different set of labor and crews to do this stuff. Putting a barn and minium together when they're the kits that you buy and it's a full build. Take some knowledge and experience and so just bring in. Hey, I got my normal house framers, they got to come out. They'll probably be able to figure it out, but you're going to lose money, you're going to do it wrong. It's going to cost a lot.
Speaker 2:So, trying to find the right crews, vetting the right labor, having guys understand exactly what we're doing and what's different, what the different concrete pours in different locations for a barn and medium versus a home stuff like that that you need to be educated on and have the right crews that are also educated, I think are some of the blind traps that are going to catch you in terms of money loss. Yeah, I think it's a trap game. It's a trap game for sure. On top of that, I think, building out some presets in your software, where you've got your different ADUs, you can pre-build that. We can look through it, have different line items, make sure we don't miss certain things in it, and you set it as a preset job template. That way, whenever you want to do one, you can pull it up, bid it out the door in 20 minutes with a new, with a new estimate for a full bar.
Speaker 1:If you know a drafter, you have some money that they don't even need to be an architect that can stamp something. Yeah, Pay five, six hundred bucks and have a mock up. You know two, three floor plans that you like? Yeah, that you can then build estimates for. And when a client is interested in something, here's three options.
Speaker 2:There are 400,000, 600 and $800,000 bar nose. Which one? Which one are you headed towards? It?
Speaker 1:sounds like oh duh, yeah, that's a but like just do that and you'll have. You'll have a leg up on on everybody in that world, cause no, there's not, there's not really anybody that I could point to. That's like yeah, that's this person's doing that. Look at what they're doing. Yeah, so it's kind of you know, blaze your own trail. But that would be a great way to market and give someone an easy access to like oh, here's some options and here's some pricing. That's generally around where it's going to be.
Speaker 2:It's just like a new construction, though the first one's the hardest, because if you haven't done it before, people don't want to choose you right. So show me photos of the last barn that you did. Well it's going to be you.
Speaker 2:You're my guinea pig. So getting that first one out of the way is the hardest, and once you get one it really starts rolling downhill, because then the lender knows you and other people know you've. You've kind of explored, you've learned your lesson on that one and kind of gone to school to understand how it works. So try to find one, try to identify the first one and then advertise to the rest Once we get one under our belt.
Speaker 1:Yeah, and if they're worried about it, you can just say you want to play with fire, you want to get close to the edge. I never done one before.
Speaker 2:Listen, I trust me as little as you trust me you like it.
Speaker 1:You like the way you feel right now Me too. Let's do this All right.
Speaker 2:Thanks so much for joining us this week. We're next week we're sticking with the future of construction, but this week, if you have any questions about this, we've been done them before. We have some experience. If you need any help, you're getting into them. Have any questions? Go to our website, ProStruck360.com. Go to the contact us. I love to talk to you. If you want to get on some software that's going to help you do this, well, ProStruck360.com. And if you need help growing your company, if you want some consulting, some advice, just really anywhere along the way. Our company ProStruck360, is built around the contractor, so we named it 360 because it's everything you need to grow your construction company. But for us, pick and choose, it's a la carte services. If you need some paperwork, if you need some software, if you need some coaching, whatever it is, let us help you get to the next level. So thanks so much for listening and we'll see you next week. Bye.
